On July 30, 2008, President Bush signed H.R. 3221, the Housing and Economic Recovery Act of 2008 (the "Act"), into law1. The Act includes significant provisions aimed at strengthening the regulation of the government-sponsored enterprises (Fannie Mae, Freddie Mac, and the Federal Home Loan Banks) and helping families save their homes from foreclosure by providing for new Federal Housing Administration ("FHA") loans, as well as a number of provisions targeted at housing and credit counseling.
The following summary highlights some of the Act's provisions pertaining to housing counseling agencies and consumer credit counseling agencies.
Pre-Purchase Home Ownership Counseling Demonstration (Section 2128)
The Act requires the Secretary of Housing and Urban Development ("HUD") to "establish and conduct a demonstration program [for three years after the date of enactment] to test the effectiveness of alternative forms of pre-purchase homeownership counseling for [not more than 3,000] eligible homebuyers" in a given year. The Act defines an ''eligible homebuyer'' as a first-time homebuyer who has been approved for a home loan with a loan-to-value ratio between 97 percent and 98.5 percent.
Housing Counseling Resources and Counseling Intermediaries (Sections 2305 & 2401)
To help families avoid foreclosure, the Act provides $180 million for housing counseling resources. Not less than 15 percent of that amount is provided to counseling organizations that target counseling services regarding loss mitigation to minority and low-income homeowners or provide such services in neighborhoods with high concentrations of minority and low-income homeowners.
Further, the Neighborhood Reinvestment Corporation ("NRC") will provide $30 million to counseling intermediaries approved by the HUD or the NRC to hire attorneys to assist homeowners who have legal issues directly related to the homeowner's foreclosure, delinquency or short sale. The Act requires the NRC to give priority consideration to counseling intermediaries and legal organizations that:
(1) provide legal assistance in the 100 metropolitan statistical areas (as defined by the Director of the Office of Management and Budget) with the highest home foreclosure rates, and
(2) have the capacity to begin using the financial assistance within 90 days after receipt of the assistance.
No funds provided under this Act, however, may be used to provide, obtain, or arrange on behalf of a homeowner legal representation involving or for the purposes of civil litigation. In awarding counseling grants, the NRC may consider whether the entity has implemented a written plan for providing in-person counseling and for making contact with defaulted mortgagors, for the purpose of providing counseling or providing information about available counseling.
Credit Counseling (Section 2402)
The Act requires that entities approved by the NRC or the Secretary of HUD and state housing finance entities that receive funds under this title work to identify and coordinate with nonprofit organizations operating national or statewide toll-free foreclosure prevention hotlines, including those that (1) serve as a consumer referral source and data repository for borrowers experiencing some form of delinquency or foreclosure; (2) connect callers with local housing counseling agencies approved by the NRC or the Secretary of HUD to assist with working out a positive resolution to their mortgage delinquency or foreclosure; or (3) facilitate or offer free assistance to help homeowners to understand their options, negotiate solutions, and find the best resolution for their particular circumstances.
Foreclosure Rescue Fraud Provisions
Notably absent from the legislation were provisions that would have regulated non-HUD-approved counseling organizations as foreclosure consultants, required the use of written contracts and, in certain instances, required servicers to provide written notices for homeowners on the dangers of fraudulent activities associated with foreclosure counseling. Nevertheless, a number of states have enacted (and others are considering) prohibitions and requirements on mortgage foreclosure rescuers. In addition, the Federal Trade Commission and the states have announced stepped up enforcement and outreach initiatives in this area.
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For more information, please contact the authors at jstenenbaum@venable.com or jlpompan@venable.com, or at 202-344-4000.
This article is not intended to provide legal advice or opinion and should not be relied on as such. Legal advice can only be provided in response to specific fact situations.
1Pub. L. No. 110-289, 122 Stat. 2654 (2008).