Washington, D.C. – U.S. Senators Patty Murray (D-WA), Charles E. Schumer (D-NY), Sherrod Brown (D-OH) and Bob Casey (D-PA) today announced that they will offer an amendment to the Foreclosure Prevention Act of 2008 to double the proposed funding for mortgage counselors that assist borrowers at risk of losing their homes to foreclosure.
The Senators’ proposal would increase the counseling funding in the Dodd-Shelby substitute amendment from $100 million to $200 million so that non-profits specializing in foreclosure prevention can reach as many families in need as possible. An estimated two million families are at risk of losing their homes to foreclosure over the next two years as their risky subprime loans reset to higher, unaffordable rates.
Counseling programs have a demonstrated track record in helping homeowners navigate the complicated process of contacting lenders, banks and legal services to modify their mortgage loans and ultimately save their homes from foreclosure. Counseling has proven to be one of the most successful and cost-effective ways of avoiding foreclosure, with a 96% foreclosure avoidance success rate. Foreclosure prevention counseling can cost $1,000 to $1,500 per household assisted, according to counseling groups. Conversely, the Joint Economic Committee of Congress, chaired by Schumer, has estimated that a typical foreclosure can cost up to $227,000.
“The success rates counseling programs have shown at keeping Americans in their homes prove they’re an important part of combating this crisis on the front lines,” said Senator Murray. "It’s essential that we include more support for these free programs that allow homeowners to pick up the phone and start getting the support they need. Homeowners across the country are struggling to stay afloat, and it’s time to get more lifelines in the water.”
"If we are serious about stemming the tide of foreclosures,we should provide adequate funding for what is the number-one tool in fighting foreclosures," said Senator Schumer. "Counseling prevents foreclosure 96 percent of the time, and it doesn’t get much better than that. This is a cost-effective tool that has the biggest bang for the buck in terms of responding to the housing crisis."
"Housing counseling can help thousands of families stuck in bad subprime loans," said Senator Brown. "These are middle class families, and we need to help keep them in their homes. Housing counseling is proven, it works, and we need to fund it."
"The money we secured last year is already being put to good use in Pennsylvania and across the nation," said Senator Casey. "This is the best investment we can make for our families, our economy and for our country."
The senators were able to secure $180 million in foreclosure prevention funding in the Omnibus Appropriations bill earlier this year. Demand for counseling services was so high that NeighborWorks, the group charged with managing the funds, received applications for $340 million in grants to combat the foreclosure crisis in the two weeks applications were available. Of the funds approved by Congress, $130 million was awarded to counseling groups within sixty days of enactment. The remainder of the appropriation is being held by NeighborWorks as an emergency fund for the massive wave of foreclosures expected to hit this summer. If Congress provides additional foreclosure prevention funding, NeighborWorks can award counselors with much needed funding now in order to allow them to increase their staff and their outreach efforts, which will allow them to reach hundreds of thousands of additional homeowners on the verge of foreclosure.
The impending avalanche of mortgage foreclosures across the nation can be directly tied to the exploding popularity of non-traditional mortgage products over the past decade. These costly, exotic mortgage products, which include hybrid adjustable-rate mortgages (ARMs) with intricate interest-rate terms and conditions, have been sold to middle and lower-income families in record numbers. While they offer attractive and easy lending terms, they also include excessively high interest rates that can sharply spike when they “re-adjust,” leaving new homeowners struggling to meet their rising mortgage payments. An estimated two million subprime mortgage borrowers are expected to foreclose over this year and next, unless they are refinanced into more affordable loans.
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