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Floor Speech

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Mr. REED. Madam President, today I am reintroducing the Preserving Homes and Communities Act with Senators Brown, Wyden, Smith, and Merkley. This legislation would reform Federal Housing Administration, FHA, Fannie Mae, and Freddie Mac note sale programs to protect homeowners from foreclosure and keep properties in the hands of families and local civic institutions.

FHA, Fannie Mae, and Freddie Mac began selling nonperforming and reperforming loans after the great recession to strengthen their balance sheets. These transactions, known as note sales, transfer mortgage ownership to bulk purchasers, including private equity firms and institutional investors. The sale of nonperforming and reperforming loans may reduce financial risk for FHA, Fannie Mae, and Freddie Mac and help purchasers turn a profit, but they often directly harm homeowners by taking homes from families and moving properties into the single-family rental market.

Loans insured by FHA or securitized by Fannie Mae or Freddie Mac have strong foreclosure protections for borrowers. Companies that service these mortgages must offer specific loss mitigation options to eligible borrowers before they can begin foreclosure proceedings, which helps many borrowers avoid foreclosure and catch up on their payments. But while these foreclosure protections are effective, they are drastically reduced when a mortgage is included in a note sale.

Unfortunately, the lack of robust, required protections after a note sale has very real consequences for homeowners. Over 80 percent of homeowners whose nonperforming loans were sold by FHA ultimately lost their homes after their new servicers reached a final loan resolution, and the U.S. Government Accountability Office has found that nonperforming loans sold by FHA are more likely to face foreclosure than comparable loans that FHA keeps on its own balance sheet. The majority of homeowners with nonperforming loans sold by Fannie Mae and Freddie Mac have also lost their homes after servicers reached a final resolution. It is abundantly clear that note sales do not help most borrowers remain in their homes.

Making matters worse, note sale purchasers are predominately private equity firms and institutional investors, which often move foreclosed properties out of the owner-occupied market. Indeed, approximately one- third of properties foreclosed upon or voluntarily turned over to a lender after a Fannie Mae or Freddie Mac nonperforming loan note sale are sold to an investor, held by the purchaser for rental, or become real estate owned. In other words, one-third of these homes may be taken out of the owner-occupied market, reducing home ownership opportunities for families and shifting property ownership to large corporations that often drive up rents.

The Preserving Homes and Communities Act tackles these problems. It would protect homeowners by, one, requiring mortgage servicers complete Agency-required loss mitigation actions before FHA, Fannie Mae, or Freddie Mac can sell a nonperforming mortgage, and two, by improving loss mitigation protections for these mortgages after purchasers acquire them. It would similarly protect communities by giving local entities with public missions, including States, municipalities, and nonprofits, the first opportunity to purchase nonperforming and reperforming mortgages--ahead of private equity and institutional investors--while requiring purchasers that foreclose on nonperforming note sale properties to prioritize owner-occupants and low- and moderate-income households when selling or renting these homes. In sum, our legislation seeks to keep homeowners in their homes, support home ownership opportunities, and preserve the supply of available and affordable homes for families.

I thank the National Consumer Law Center, on behalf of its low-income clients, and the National Community Stabilization Trust for their support. I urge my colleagues to cosponsor this legislation and support its passage.

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