By Eugene T. Lowe
May 5, 2008

The House Financial Services Committee passed two bills, H.R. 5818 and H.R. 5579 on April 23 and 24 and began consideration on another (H.R. 5830) to address the deepening mortgage foreclosure crisis.

H.R. 5818, the Neighborhood Stabilization Act of 2008, introduced by Representative Maxine Waters (CA), Chair of the Financial Services Subcommittee on Housing and Community Opportunity, would provide $15 billion in loans and grants for the purchase and rehabilitation of vacant and foreclosed homes. This will help stabilize communities by reselling the homes for occupancy as soon as possible. H.R. 5579, the Emergency Loan Modification Act of 2008, introduced by Representative Mike Castle (DE) and Capital Markets Subcommittee Chairman Paul Kanjorski (PA), would protect servicers from the threat of lawsuits from investors when the servicers modify troubled mortgages.

Finally, H.R. 5830, the FHA Housing Stabilization and Homeowners Retention Act of 2008, introduced by Financial Services Committee Chairman Barney Frank (MA), would provide $300 billion in new FHA loan guarantees to help troubled borrowers to refinance their mortgages. H.R. 5830 is expected to pass the Committee April 30.

Of the three bills, H.R. 5818 would provide funding for state and local governments. The $15 billion loan and grant program would provide $7.5 billion for loans and $7.5 billion for grants. As for the grants, distribution would be determined by a formula that would take into account the state’s percentage of nationwide foreclosures over the last four calendar quarters, adjusted to account for the state’s relative median income price. States could allocate funds to government entities such as public housing authorities and nonprofits for the purchase, rehabilitation, and resale of homeownership housing and the purchase, rehabilitation and operation of rental housing. States would also have to direct funds to a city within its bounds if that city is one of the 25 most populous in the nation according to a formula based on the city’s share of total state foreclosures and relative home prices.

H.R. 5818 would also require that homes purchased for resale be sold to families having incomes that do not exceed 140 percent of the area median income (AMI). Properties purchased for rental must serve families having incomes at or below AMI. Moreover, at least 50 percent of the grant money must be targeted to house families at or below 50 percent of the AMI, and not less than half of this money must target families at or below 30 percent of AMI.

Sixty-three senators signed a letter to the Chairman and Ranking Member of the Senate Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies, Senator Patty Murray (WA) and Senator Christopher S. Bond (MO), respectively, urging support of $4.1 billion in formula funds for the Community Development Block Grant (CDBG) program in FY2009. Current formula funding (FY08) is $3.593 billion. The Administration recommended that CDBG formula funding be cut to $2.934 billion in FY2009.