Frank: Freeze Foreclosures Until Housing Bill Takes Effect
(Updated with full MBA comment) As the Senate appears set to consider a key vote this Saturday on The Housing and Economic Recovery Act of 2008, a sweeping housing and mortgage aid package that more than a few have taken to calling "the most important legislation in a generation" -- witness Kieran Quinn, chairman of the Mortgage Bankers Association, for example -- House Financial Services Committee Chairman Barney Frank (D-MA) earlier this week urged servicers to freeze foreclosures ahead of the bill's October 1 adoption date. "I am urging the mortgage servicers to hold off on foreclosures in applicable cases so borrowers can take advantage of the program," Frank said in a press statement released Thursday. The MBA's Erick Gustafson countered that sentiment by suggesting that servicers will "examine all the options available before proceeding with a foreclosure sale." "If a servicer sees a borrower who would likely qualify for this new program, I certainly expect they will work with that borrower and the mortgage investor to try and keep the borrower in their home," he said in a statement. More than a few of HW's sources that actually work in default management, however, scoffed at Frank's suggestion. The reason, we were told, is because freezing foreclosures through October would likely put some servicers in the position of running out of cash. "I'm not surprised to see Frank make the request," said one servicing manager that spoke with HW on condition of anonymity. "If we hold off for two months, that's two months of advances -- where, exactly, is that money supposed to come from? "I think more than a few of our legislators ... don't quite appreciate how stretched our resources really are, or they simply don't care." The source suggested that his organization has been looking to identify existing troubled loans that may qualify under the terms set forth in the housing bill, and working with investors to determine how to best proceed. "I think servicers will look to hold off where it makes sense," he said, "but it's a one-loan-at-a-time sort of process." It wasn't clear how many loans might be part of a decision to hold off until October, HW was told. Bill expected to pass Saturday Separately, the Senate is largely expected to pass the hulking housing bill on Saturday, which would authorize the FHA to endorse up to $300 billion in new 30-year fixed rate mortgages for troubled subprime borrowers; lenders and investors must, however, first write-down principal loan balances to 90 percent of current appraisal value. The bill will also provide new authority for the U.S. Treasury to backstop the continuing operations of both housing GSEs Fannie Mae (FNM) and Freddie Mac (FRE). The Bush administration had originally balked at a $4 billion allocation to Community Block Grant Development funds, also included in the renegotiated bill, which Democrats and local housing agencies say is needed to help local authorities purchase vacant, abandoned, and foreclosed properties to help prevent neighborhood destabilization. Administration officials had argued that the provision amounted to a bailout for lenders, but dropped the veto threat earlier this week in the face of what is now seen as urgent legislation around the GSEs. Disclosure: The author was long FRE when this story was published; other indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.