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Thursday, January 26, 2012

Preserving Homeownership: Foreclosure Prevention Initiatives

Katie Jones
Analyst in Housing Policy

The foreclosure rate in the United States began to rise rapidly beginning around the middle of 2006. Losing a home to foreclosure can hurt homeowners in many ways; for example, homeowners who have been through a foreclosure may have difficulty finding a new place to live or obtaining a loan in the future. Furthermore, concentrated foreclosures can drag down nearby home prices, and large numbers of abandoned properties can negatively affect communities. Finally, the increase in foreclosures may destabilize the housing market, which could in turn negatively impact the economy as a whole.

There is a broad consensus that there are many negative consequences associated with rising foreclosure rates. Both Congress and the Bush and Obama Administrations have initiated efforts aimed at preventing further increases in foreclosures and helping more families preserve homeownership. These efforts currently include the Making Home Affordable program, which includes both the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP); the Hardest Hit Fund; the Federal Housing Administration (FHA) Short Refinance Program; and the National Foreclosure Mitigation Counseling Program (NFMCP), which provides funding for foreclosure mitigation counseling and is administered by NeighborWorks America. Two other initiatives, Hope for Homeowners and the Emergency Homeowners Loan Program (EHLP), expired at the end of FY2011. Several states and localities have also initiated their own foreclosure prevention efforts, as have private companies. A voluntary alliance of mortgage lenders, servicers, investors, and housing counselors has also formed the HOPE NOW Alliance to reach out to troubled borrowers.

In March 2011, the House of Representatives passed a series of bills that, if enacted, would terminate the Home Affordable Modification Program (H.R. 839), the FHA Short Refinance Program (H.R. 830), and the Emergency Homeowners Loan Program (H.R. 836), as well as the Neighborhood Stabilization Program (H.R. 861), which is not a foreclosure prevention program but is intended to address the effects of foreclosures on communities.

While many observers agree that slowing the pace of foreclosures is an important policy goal, there are several challenges associated with foreclosure prevention plans. These challenges include implementation issues, such as deciding who has the authority to make mortgage modifications, developing the capacity to complete widespread modifications, and assessing the possibility that homeowners with modified loans will default again in the future. Other challenges are related to the perception of unfairness, the problem of inadvertently providing incentives for borrowers to default, and the possibility of setting an unwanted precedent for future mortgage lending.

This report describes the consequences of foreclosure on homeowners; outlines recent foreclosure prevention initiatives, largely focusing on initiatives implemented by the federal government; and discusses the challenges associated with foreclosure prevention.

Date of Report: January 1
2, 2012
Number of Pages:
Order Number: R4
Price: $29.95

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