HUD foreclosure regs may lag lawmaker expectations

WASHINGTON (7/29/08)—The foreclosure prevention program passed this weekend by the Senate and last week by the House could take a year to become operational even though lawmakers expect it to be up and running in October.

On Saturday, the Senate voted soundly in favor of the much-debated housing package designed to support a troubled housing market. It passed 72 to 13 in that chamber, and 272-152 last Wednesday in the House.

President Bush is expected to sign the bill soon.

However, a spokesperson for the Department of Housing and Urban Development (HUD) indicated that there is little chance that implementing regulations for the program that would let the Federal Housing Administration (FHA) insure foundering mortgage loans would be ready by October. (American Banker July 28)

The legislation requires the regulations to be written jointly by HUD, the U.S. Treasury Department, the Federal Reserve Board, and the Federal Deposit Insurance Corp. Those rules would allow HUD's FHA program to insure mortgages that exceed the value of a home after lenders and servicers have written down the principal to 87% of the current market value.

The program is expected to help 400,000 borrowers avoid foreclosure.

However, according to the American Banker article, the scope and structure necessary for implementing regulations are so broad that they will demand significant clearance procedures—which take time.

Lawmakers immediately and vehemently objected to the idea of a delay.

House Financial Services Committee Chairman Barney Frank (D-Mass.) said that the scope of the current social and economic crisis presented by burgeoning mortgage foreclosures makes following the normal bureaucratic procedures an "incompetence."

Also, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) Saturday called on the heads of implementing agencies to explain why the foreclosure mitigation plans might not be operational when the effective date of the law is in October. (American Banker July 28)

At Saturday press conference announcing the Senate's affirmative vote on the legislative package, Dodd said he wanted the regulatory oversight board tasked with hammering out the rules to be in his office Tuesday to talk about getting the bill working.