April 19, 2018

Cortez Masto Introduces FHA Foreclosure Prevention Act of 2018

Washington, D.C. – U.S. Senator Catherine Cortez Masto (D-Nev.) introduced the FHA Foreclosure Prevention Act of 2018, legislation that will ensure banks, credit unions and mortgage lenders follow the law before taking a family’s home. When families fall behind on their mortgage payments, lenders who benefit from taxpayer-backed insurance through the Federal Housing Administration’s (FHA) must communicate with the borrower, connect the borrower to homeownership counseling, offer pre-foreclosure sales and meet other loss mitigation requirements. These laws protect borrowers from unnecessary foreclosures and tax payers from costly and unnecessary insurance payouts. 

“As Nevada’s attorney general during the foreclosure crisis, I have seen far too many lives turned upside down due to rampant foreclosures, as well as the devastating effects that come with losing one’s home,” said Cortez Masto. “To this day, borrowers are unnecessarily being put at risk of losing their homes because of servicers’ failures to comply with the FHA’s loss mitigation requirements. This bill will implement common-sense measures to give borrowers a fair chance at avoiding foreclosure.”

U.S. Representative Maxine Waters (D-Calif.), Ranking Member of the House Committee on Financial Services, introduced a companion bill in the House of Representatives. U.S. Senator Elizabeth Warren (D-Mass.) cosponsored the legislation in the Senate.

“A decade after the devastating foreclosure crisis, we continue to see significant problems with the servicing of FHA loans that unnecessarily put homeowners at risk of foreclosure,” said Ranking Member Waters. “This is why my bill, the FHA Foreclosure Prevention Act, would ensure that FHA servicers help families experiencing financial hardship avoid foreclosure so that they can remain in their homes.” 

The FHA is a critical part of our housing market today, and helps promote access to homeownership for underserved communities – including first-time homebuyers and minority borrowers who are not otherwise served by the conventional mortgage market – through the provision of government-backed mortgage insurance. In 2017, the U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General (OIG) issued a report that outlined significant problems with HUD’s oversight of servicers’ compliance with FHA’s loss mitigation requirements. Deficiencies in servicer compliance with the FHA’s loss mitigation requirements unnecessarily puts borrowers at risk of foreclosure. In addition, the OIG found that inadequate compliance posed an increased risk of $120 million to the insurance fund, some of which could have been avoided if servicers had followed the law and worked with borrowers as required. This legislation seeks to implement common-sense reforms to help strengthen compliance with the FHA’s loss mitigation requirements and help ensure that every delinquent FHA borrower get the opportunity to avoid foreclosure.

The FHA Foreclosure Prevention Act of 2018 will:

  • Prohibit the Secretary of HUD from paying FHA insurance benefits to any lender unless it has provided documentation on its compliance with loss mitigation requirements.
  • Require the Secretary of HUD to conduct oversight of servicers, which must include appropriate sampling and review of such compliance and direct information collection from borrowers whose files were sampled.
  • Establish a robust complaint and appeals process for borrowers who believe they have been subject to unfair treatment related to noncompliance with FHA’s servicing requirement, including its loss mitigation requirements. The Secretary of HUD will be required to report annually to Congress regarding the types and volume of complaints received through this process.
  • Require a servicer to provide borrowers with notification of the results of the servicer’s loss mitigation review before initiating foreclosure proceedings. The notice must include several components to help the borrower understand their rights, and their ability to file a complaint.