WASHINGTON, DC – In an effort to protect homeowners from foreclosure and keep homes in the hands of families and local civic institutions, U.S. Senators Jack Reed (D-RI), Sherrod Brown (D-OH), Tina Smith (D-MN), Ron Wyden (D-OR), and Jeff Merkley (D-OR) today reintroduced the Preserving Homes and Communities Act (S. 3784). 

This legislation would strengthen the residential mortgage market by reforming Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac note sale programs to better protect homeowners and local communities.  Rather than having nonperforming and reperforming loans sold at a discount to private equity firms and institutional investors, the bill would protect homeowners by requiring FHA, Fannie Mae, and Freddie Mac to give local entities with public missions, including states, municipalities, and nonprofits, the first opportunity to purchase nonperforming and reperforming mortgages, while boosting protections for every homeowner whose mortgage is subject to a note sale.

In the wake of the Great Recession, the Federal Housing Administration and government sponsored enterprises (GSEs) – Fannie Mae and Freddie Mac, which have a public mission that includes supporting and expanding homeownership, began selling nonperforming loans, and in the GSEs’ case, nonperforming and reperforming loans.  These transactions, known as “note sales,” transfer ownership of mortgages predominately to the control of private equity firms and institutional investors, often with catastrophic consequences for borrowers.  While some have said that note sales help FHA and the GSEs reduce their financial risk, most homeowners with nonperforming mortgages included in note sales end up losing their home.

When borrowers with loans insured by FHA or securitized by Fannie Mae or Freddie Mac become delinquent on mortgages, they have certain protections against foreclosure because their servicers must offer specific loss mitigation options before foreclosure proceedings can begin.  These protections help many borrowers catch-up on their payments.  However, these protections are dramatically scaled back when a mortgage is included in a note sale.  In fact, recent data show that the majority of homeowners whose mortgages are the subject of a nonperforming loan sale by the GSEs wind up losing their homes after servicers reach a final resolution.  In the case of FHA note sales of nonperforming loans, a staggering 80 percent of homeowners ultimately lost their homes.  Moreover, according to Government Accountability Office (GAO) findings, nonperforming loans sold by FHA are more likely to face foreclosure than comparable loans that FHA kept on its balance sheet.

“Congress has a duty to help protect opportunities for affordable homeownership so that middle- and working-class families can afford a place to put down roots and help build strong, thriving communities. But the current notes sales system is not working properly.  It puts investors at an advantage over consumers and communities.  If a widow falls behind on her mortgage because her spouse passed away and her mortgage is sold to a third-party, she should still have a chance for an affordable loan modification, not be foreclosed on or evicted because of that note sale, which she may never have even known about,” said Senator Reed. “The Preserving Homes and Communities Act will implement key reforms to strengthen foreclosure protections and better protect homeowners and communities.”

“Housing costs are too high and Ohioans face too many challenges in the housing market. When working families fall behind on their mortgage, we need to create a path for homeowners to get back on track – not sell their loan to a private equity firm or out-of-state investor looking to make a profit at Ohioans’ expense,” said Senator Brown. “Ohio homes should stay in the hands of families and communities – not Wall Street.”

“If you don't have a safe, affordable place to live, nothing else in your life or your community works – not your job, not your education, not your health,” said Senator Smith. “It’s not right that when folks fall on hard times, they can be at risk of losing their homes because a big investor bought their mortgage without their knowledge. Our country is already in the midst of an affordable housing crisis, felt just as acutely by Minnesotans in small towns and rural places as it is in our urban and suburban communities. I’m glad to support this bill that would make keeping people in their homes the priority, not investor profits.”

The Preserving Homes and Communities Act would ensure that borrowers receive at least a 90-day notice before their mortgage is involved in a note sale.

The bill would also ensure that all applicable FHA or GSE-required loss mitigation options have been exhausted before a transaction occurs.  And if a note sale does occur, the purchaser would be required to offer homeowners loss mitigation options on terms that at least match those available to them before the transaction.

At a time when affordable housing stock is in short supply across the nation, the Preserving Homes and Communities Act prioritizes local control of properties.  In order to help keep homes in the hands of people in the community, the bill would require FHA, Fannie Mae, and Freddie Mac to give first crack at note sale purchases to state and local governments as well as local nonprofit organizations.

Additionally, the legislation would require nonperforming loan purchasers to offer at least 75 percent of foreclosed properties to owner-occupants at fair market value, to nonprofits or local governments, or to renters with income at or below 100 percent area median income.

In 2023, the National Consumer Law Center, which has endorsed the Protecting Homes and Communities Act, issued a comprehensive report on How Government-Sponsored Enterprises Note Sales Undermine Home Ownership. 

“The Preserving Homes and Communities Act provides important first steps to ensure homeowners are aware of what is happening with their loans,” said Andrea Bopp Stark, senior attorney at the National Consumer Law Center. “This Act will require home loans to be reviewed for sustainable loss mitigation options to prevent unnecessary foreclosures.”

“NCST and the Homeownership Alliance commend Senators Reed, Brown, Wyden, Smith and Merkley for their efforts toward preserving and increasing homeownership,” said Christopher Tyson, President of NCST (National Community Stabilization Trust). “For over 15 years NCST has worked in the housing aftermarket to ensure that distressed assets are transferred to mission-based organizations who are committed to increasing affordable homeownership. Non-profit housing providers are essential to preserving and sustaining communities across the country. The Preserving Homes and Communities Act would allow more non-profit entities to participate in FHA’s Claims Without Conveyance of Title (CWCOT) program, unlocking new affordable supply for aspiring homeowners and strengthening neighborhoods nationwide.”

SUMMARY: Preserving Homes and Communities Act One-Pager_118th (senate.gov)