Rep. Maxine Waters, the chairwoman of the House Financial Services housing subcommittee, introduced a bill Wednesday that would ban foreclosures unless lenders and services made "reasonable" efforts to modify mortgages.
The California Democrat said the legislation is necessary because current industry efforts, including those by the Hope Now alliance, are not moving quickly enough.
"The fundamental problem is that the mortgage servicers have no legal obligation to make a reasonable effort to keep a borrower in delinquency in his or her home, even where that borrower may have been the victim of a predatory, unaffordable loan," Rep. Waters said in a press release. "The time has come to add a stick to the carrots being offered to mortgage servicers to do what it takes to stem this crisis now."
The bill first surfaced two months ago as a draft American Banker published on its Web site. It provides details on what kind of activities constitute appropriate loan modifications. The bill would also mandate that all servicers provide a toll free number to help borrowers and ban servicers engaged in loss mitigation from conditioning a modification on a waiver of legal rights.
Additionally, the bill would give consumers the right to sue if lenders and servicers begin a foreclosure process without attempting loss mitigation. The draft bill originally would have given consumers the right to sue only when lenders showed a pattern or practice of foreclosing without adequate modification efforts.
The final bill also dropped provisions that would ban lenders from using a credit score to disqualify borrowers from loss mitigation offers if borrowers could prove a subprime adjustable-rate mortgage hurt the score. It was not immediately clear if House Financial Services Committee Chairman Barney Frank, D-Mass., supports the bill.
Rep. Waters also introduced a bill Wednesday that would allocate $10 billion of block grants to states and large cities to buy and rehabilitate foreclosed properties.
