President Obama signed two important Acts into law this last week. The first initiative was the Helping Families Save Their Homes Act, and the Fraud Enforcement and Recovery Act (FERA), on May 20. The Helping Families Save Their Homes Act is aimed at helping homeowners by making mortgages more affordable and preventing "avoidable" foreclosures.
Obama stated this bill "expands the reach of our existing housing plan for homeowners with FHA or USDA rural housing loans, providing them with new opportunities to modify or refinance their mortgages to more affordable levels." Estimates are that as many as 9 million homeowners could benefit from this legislative action. The legislation, however, was ultimately passed without the cram down provision. The critics state the "cram down" provision, would encourage borrowers to shirk their responsibility, and miss payments or default on their loans to benefit from a forcible rate reduction induced by government control or legislation. Removing the cram down provision made the bill more palatable to both the legislators, and investors holding those notes who would be negatively affected the forcible reduction of interest rates. Another concern over the "cram down" provision was that this could be seen as a step to nullify all written contracts as unenforceable. Only time will shed light on the actual results this bill has on homeowners in jeopardy of default, and those who hold the notes.
In an effort to curb fraud in the mortgage lending industry, FERA was passed to provide $331 million to agencies such as the Federal Bureau of Investigations (FBI) and the Securities and Exchange Commission (SEC) to combat fraud. Investigations of mortgage fraud have doubled over the last three years. The law also expands the authority of the Department of Justice "to prosecute fraud that takes place in many of the private institutions not covered under current federal bank fraud criminal statutes," according to President Obama.
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