Can the Homeowner Bill of Rights Reduce Foreclosures?
President Obama has proposed a new “Homeowner Bill of Rights” that will require mortgage servicers be held accountable for rushing into foreclosure without first exploring all other alternatives. But can this Bill of Rights help reduce the number for foreclosures? Maybe. Let’s take a look at the core tenets of this Bill of Rights:
Homeowners will have the right to talk to mortgage servicer personnel who have:
- a complete record of previous communications;
- access to all documentation and payments submitted by the homeowner; and
- access to personnel with decision-making authority on loss mitigation options.
Under the Homeowner Bill of Rights, the mortgage servicer must not pursue foreclosure until they have given the homeowner every opportunity to avoid losing their home. Even if a homeowner fails to send in paperwork, the mortgage servicer cannot file foreclosure until after a reasonable amount of time has passed. The proposed Bill of Rights also aims to protect homeowners from illegal foreclosure by requiring mortgage servicers to provide a written explanation for any foreclosure they plan to pursue. It is possible that this new proposal could reduce certain types of foreclosures. For example, foreclosures which take place before a mortgage modification is approved could be avoided. However, for foreclosures that take place because the homeowner has lost their job and cannot afford their mortgage (even if modified) it isn’t clear that this Bill of Rights will impact those numbers. On the other hand, if this proposal is coupled with programs that help unemployed homeowners avoid foreclosure, then the Bill of Rights might be more effective in preventing employment related foreclosures.
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