S. 896: Helping Families Save Their Homes Act of 2009

S. 896

Helping Families Save Their Homes Act of 2009

May 19, 2009 (111th Congress, 1st Session)

Staff Contact

Floor Situation

S. 896 with House amendments is expected to be considered on the floor on Tuesday, May 19, 2009, likely under a suspension of the rules, requiring a two-thirds majority for passage.  This legislation was introduced by Sen. Christopher Dodd (D-CT) on April 24, 2009.  The bill was passed in the Senate on May 6, 2009, by a vote of 91-5.


Bill Summary

On March 5, 2009, the House passed its version of the Helping Families Save Their Homes Act (H.R. 1106) by a vote of 234-191.  Though similar, the House and Senate bills vary in a number of ways.  Most notably, the Senate version of the bill does not include a controversial provision known as "cramdown," which was included in the House bill and would have allowed bankruptcy judges to write down the principle of a homeowner's mortgage.  The following is a brief list of major differences between the two bills, and a summary of S. 896.


Cramdown:  S. 896 does not include a House-passed provision that would have allowed judges to lower, or "cramdown," the principle of a homeowner's mortgage.  During House debate, many Members argued that cramdowns encourage debtors to file for bankruptcy rather than modify their mortgage, increase lender's risks, increase mortgage costs, and make it much more expensive and difficult for credit-worthy borrowers and new home buyers to obtain a mortgage and purchase a home.  The Senate defeated an amendment to include the provision by a vote of 45-51.

Homelessness Reform:  S. 896 includes a Senate amendment that makes a number of substantial changes and expansions to federal homelessness programs.  The bill would expand the definition of homelessness to allow more families and individuals to receive federal assistance.  The legislation would also restructure the U.S. Interagency Council on Homelessness to focus more on collaborative State and local homelessness reduction efforts.  In addition, the bill creates a number of new homeless grant programs and housing assistance programs, including new and restructured rural and family housing programs.  The homeless reform provisions in the bill would authorize $2.2 billion for new and expanded homelessness programs in 2010, and "such sums" as necessary for 2011.  Though a CBO score for S. 896 is not available, a similar homelessness program reauthorization bill in the 110th Congress was scored as authorizing $14 billion over the next 5 years, according to the Senate Republican Policy Committee.

FDIC Insurance Increase:  Under the Emergency Economic Stabilization Act, the Federal Deposit Insurance Corporation's (FDIC) deposit insurance coverage limit was increased from $100,000 to $250,000 through 2009.  S. 896 would extend the temporary increase in deposit insurance coverage through December 31, 2013.  The House version of the bill would have permanently increased the coverage limit.


Safe Harbor for Loan Modification:  Provides a legal safe harbor from liability for lenders that enter into loan modifications or workouts with borrowers through the Administration's foreclosure program or the Hope for Homeowners program.  Under current law, lenders that have packaged and sold one or more mortgages to investors as securities may be held liable for losses suffered by the investor as a result of the loan modification.  The bill would deny affected investors that have contracts with lenders from suing for losses that occur because of mortgage modifications if:

  • Default on the mortgage has occurred or is "reasonably foreseeable."
  • The borrower occupies the home.
  • The lender "reasonably and in good faith" believes that more money would be recovered through a loan modification or workout plan than foreclosure.

Extended FDIC Insurance Increases:  Extends the increase of Federal Deposit Insurance Corporation (FDIC) deposit insurance coverage for banks and credit unions (from $100,000 to $250,000) through December 31, 2013.  The Emergency Economic Stabilization Act temporarily increased FDIC coverage to $250,000 in 2008, however, that provision is set to expire on December 31, 2009.

In order for the FDIC to absorb increased deposit insurance and future bank failures, the bill would also increase the FDIC's authority to borrow from the Department of Treasury from $30 billion to $100 billion.  The bill would also authorize a temporary increase in FDIC borrowing authority to $300 billion until the end of 2010.  Likewise, the National Credit Union Association's (NCUA) borrowing limit would be permanently raised from $100 million to $6 billion, with a temporary raise to $30 billion until the end of 2010.  The FDIC's insurance program is generally self-sustained through fees paid by participating institutions.  However, in the event that a number of insurance pay-outs occur simultaneously, the FDIC is authorized to borrow funds from Treasury.  The funds would eventually be repaid through reworked fees on insured institutions.  While any increased Treasury would be replenished over time, reports indicate that the increase included in S. 896 would result in a violation of PAYGO budget rules over the next five years.

Changes to Hope for Homeowners Program:  Makes a number of changes to the $300 billion HOPE for Homeowners (H4H) modified mortgage insurance program in an attempt to expand participation in the program.  Though initially touted as a program helping up to 400,000 homeowners modify their loans, less than 100 mortgages have actually been processed and modified under the program.  S. 896 attempts to increase participation in the program by transferring significant authority from the HOPE Board to the Secretary of HUD, providing incentive payments to servicers of mortgages that are modified through the program, and reducing certain program entry costs that were initially included to protect taxpayers.

Specifically, the legislation would transfer authority to establish requirements for participation in the program and prescribe regulation of the program from the Board of Directors of the H4H program directly to the Secretary of HUD.  This provision would give the Secretary of HUD unilateral authority to determine how the program is carried out.  Under current law, the Board consists of the Secretary of the Treasury, the Chairperson of the Board of Governors of the Federal Reserve System, and the Chairperson of the Board of Directors of the FDIC.

S. 896 would authorize payments to mortgage loan servicers and underwriters of new FHA loans for modifying and insuring mortgages under the H4H program.  To offset the cost of this provision, the House amendment would reduce funds for the Troubled Asset Relief Program (TARP) by $1.25 billion.   The Senate-passed version of the bill would have reduced TARP funds by $2.3 billion.

The bill also changes the upfront insurance premium that lenders are currently required to pay before refinancing into a FHA-insured H4H mortgage from 3 percent to "up to 3 percent".  Similarly, the bill changes the 1.5 percent annual premium requirement for mortgages refinanced under the H4H program to "up to 1.5 percent."  These changes will make it cheaper for lenders to refinance into FHA-insured H4H mortgage, while increasing the debt liability insured by the federal government.

The legislation would restrict any individual with an annual income of more than $1 million or any individual convicted of one of a number of real estate, mortgage, or businesses related felonies from receiving a H4H insurance benefit.

FHA Insured Loan Payments:  Authorizes the Secretary of the Department of Housing and Urban Development (HUD) to make partial payments on balance owed on Federal Housing Administration (FHA)-insured or Rural Housing Service (RHS)-insured loans that are modified under the legislation.  The bill would also grant the FHA and RHS the authority to carry out a program to encourage loan modifications by making payments on delinquent guaranteed mortgages.

HUD Advertising Funding:  Authorizes an additional $10 million for Fiscal Years 2010 and 2011 to be used by HUD for advertising the threat of mortgage fraud in the top 100 markets with highest rates of foreclosures, $50 million for Fiscal Years 2010 and 2011 for the HUD Housing Counseling Assistance Program in the top 100 markets with the highest rate of foreclosures, and $5 million for Fiscal Years 2010 and 2011 for the Office of Fair and Equal Opportunity within HUD to hire additional staff in the top 100 markets with the highest rate of foreclosures.


A CBO cost estimate was not available at press time, however, the bill authorizes $2.2 billion in Fiscal Year 2010 for homelessness programs, subject to appropriation. The bill also authorizes payments to mortgage lenders that offer refinancing, however, those payments are offset by reducing TARP funds. Finally, the bill expands FDIC and NCUA borrowing limits. Though both insurance programs are funded through user fees, reports have indicated that the FDIC loan limit increase in S. 896 could result in a PAYGO violation over the next five years.