January 28, 2008
Washington, D.C. – Nevada Senator Harry Reid sent a letter to the Nevada Legislative Commission’s Subcommittee to Study Mortgage Lending and Housing Issues today to provide an update on Congress’ efforts to respond to the nation’s foreclosure crisis.
In the letter, Reid highlights the steps that Congress has taken in recent months to provide assistance on this front, and talks about the need for short, medium, and long term solutions to help curb the crippling effect of foreclosures in Nevada and across the country.
The text of Reid’s letter is included below.
January 28, 2008
Assemblyman Marcus L. Conklin
Chairman, Legislative Commission’s Subcommittee to Study
Mortgage Lending and Housing Issues
Nevada State Legislature
Grant Sawyer State Office Building
555 East Washington Avenue
Las Vegas, Nevada 89101
Dear Assemblyman Conklin:
I write to provide the Legislative Commission’s Subcommittee to Study Mortgage Lending and Housing Issues an update on efforts in the U.S. Congress to respond to our nation’s foreclosure crisis.
The deterioration of the subprime mortgage market has resulted in a correction in the U.S. housing market on a scale that, according to many experts, has not been seen since the Great Depression. Home prices are dropping dramatically in most housing markets around the country. Likewise, a foreclosure crisis is sweeping many parts of the country, including Nevada, where the rate of foreclosure is highest. As Senate Majority Leader, I am committed to continued work on solutions to the foreclosure crisis and remain determined to bring additional relief to Nevada families affected by it.
At the outset, I would like to provide a brief account of our efforts and successes to date. Once mortgage defaults and foreclosures began increasing precipitously, the first order of business was and remains trying to keep responsible families in their homes and buffet the tide of foreclosures. To accomplish this, mortgage borrowers need to be in communication with their lender or loan servicer if they are struggling to make their monthly payment, but oftentimes are not for a variety of reasons. Housing counseling agencies have served as a trustworthy intermediary for borrowers in these circumstances; with trained staff, these agencies can provide useful advice to borrowers or work on their behalf with loan servicers to make adjustments to mortgages or payment plans.
I worked with the Senate appropriations committee to ensure there was funding for housing counseling agencies to continue serving their important role as intermediaries in this crisis. Last year Congress appropriated $180 million for that purpose. I also included language in the funding legislation that directed the initial release of these monies to states such as Nevada that have the highest foreclosure rates. It was important that this money be delivered first to communities with the most need, and the administering agency – NeighborWorks – is in the process of selecting the housing counselors that will receive it by the end of February (with the second phase of funding disbursements to come later).
Additionally, the House companion to legislation I cosponsored – the Mortgage Cancellation Relief Act – passed the Congress just before the end of 2007. This measure would exclude from federal income tax the “income” accruing to a homeowner when a lender forgives a portion of his or her mortgage debt. The legislation also extends the deduction for payments of mortgage insurance. The bill will allow homeowners to avoid the added burden of a higher tax bill when they refinance or modify their mortgage and the principal amount is reduced by the lender or servicer.
There is more for Congress to do in confronting the foreclosure crisis in the short and medium terms. First, even with the $180 million appropriated, housing counseling agencies remain short on resources and I will work to provide them more. Second, those who face a mortgage-interest-rate reset they cannot afford and have demonstrated they can continue owning a home, but only with a new mortgage, need a good, safe mortgage product as an option. Under my leadership the Senate passed the Federal Housing Administration Modernization Act of 2007, which will make FHA-insured mortgages more accessible to those borrowers by lowering down-payment requirements and raising the loan limit. Congress needs to complete action on this legislation and soon will reconcile the Senate and House versions of this bill.
Third, raising the conforming loan limits for Fannie Mae and Freddie Mac – the government-sponsored housing enterprises that Congress created to bring liquidity to mortgage markets – will help facilitate additional refinancings out of exotic loans that are facing default, particularly in higher costs areas like Nevada’s major urban centers. It should also bring calm and confidence to the secondary mortgage market, which remains tumultuous and is impacting broader credit markets. I intend to push for this increase as soon as possible.
I anticipate that some of the committees in both the Senate and House will look into other ways to address the foreclosure crisis. For instance, the chairman of the Senate banking committee has announced his intent to look into the idea of creating a Homeownership Preservation Corporation that would buy re-setting mortgages and replace them with long-term loans whose payments homeowners can afford. Others have suggested that Congress consider temporarily increasing the current cap on states’ ability to issue tax-exempt bonds to refinance subprime mortgages, which under current law is not permitted. Still others in Congress have proposed amending federal bankruptcy law to permit chapter 13 debtors to modify a mortgage on a primary residence. I plan to give these and other approaches a thorough review if and when they reach the Senate floor.
Looking beyond the more immediate foreclosure crisis, Congress needs to review whether additional regulations should be put in place to prevent a similar crisis from recurring in the future. Putting unwitting borrowers into a loan they will not be able to afford, and saddling them with fees and penalties when they try and get out of it, is irresponsible, predatory and a root cause of the crisis we are in. This practice should be stopped. The House already has moved legislation with that aim and the Senate will begin considering similar legislation soon. The role of credit rating agencies that signed off on the creditworthiness of shaky investment instruments related to subprime mortgages also should be examined.
In the meantime, continued outreach to Nevada homeowners who are facing default on their mortgages is critical. With the help of many Nevada housing counseling agencies and some of the largest mortgage lenders and servicers in the state, I coordinated five Mobile Resource Centers to help with foreclosure mitigation late last year. I plan to host another of these in Las Vegas next month.
The U.S. Congress and the Nevada state legislature have difficult policy issues to address in order to keep families in homes and steer our nation’s and Nevada’s economies clear of a prolonged recession. On behalf of all Nevadans, I am committed to confronting these problems in Washington and look forward to continued collaboration with you and other local, elected officials to stop the wave of foreclosures disrupting our state.
My best wishes to you.
United States Senator
RenoBruce R. Thompson
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400 S. Virginia St, Suite 902
Reno, NV 89501
Washington DC522 Hart Senate Office Bldg
Washington, DC 20510
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