The foreclosure rate in the United States has been rising rapidly since the middle of 2006. Losing
a home to foreclosure can hurt homeowners in many ways; for example, homeowners who have
been through a foreclosure may have difficulty finding a new place to live or obtaining a loan in
the future. Furthermore, concentrated foreclosures can drag down nearby home prices, and large
numbers of abandoned properties can negatively affect communities. Finally, the increase in
foreclosures may destabilize the housing market, which could in turn negatively impact the
economy as a whole.
Because of the many negative consequences associated with rising foreclosure rates, there is a
broad consensus that the government should explore efforts to prevent further increases in
foreclosures and help more families preserve homeownership. Several federal, state, and local
foreclosure prevention initiatives have been launched to date. These programs include the expired
FHASecure program and the Hope for Homeowners program, both of which allowed troubled
borrowers to refinance their loans into new mortgages backed by the Federal Housing
Administration (FHA); a loan modification program set up by Fannie Mae and Freddie Mac for
mortgages held by those institutions; and a program put in place by the Federal Deposit Insurance
Corporation (FDIC) to help troubled borrowers with loans that had been owned by IndyMac Bank
before it was taken over by the FDIC. Several states and localities have initiated their own
foreclosure prevention efforts, as have private companies including Bank of America, JP Morgan
Chase, and Citigroup. A voluntary alliance of mortgage lenders, servicers, investors, and housing
counselors has also formed the HOPE NOW Alliance to reach out to troubled borrowers.
Some observers have questioned how effective the recent government and private foreclosure
prevention programs have been at helping homeowners remain in their homes. Some have called
for the existing programs to be revised or expanded, while others have suggested that additional
foreclosure prevention efforts are needed. Proposals for additional foreclosure prevention efforts
include amending bankruptcy law to allow judges to modify the terms of mortgages on primary
residences; imposing a temporary moratorium on foreclosures; and using funding from the
Troubled Asset Relief Program (TARP) authorized by the Emergency Economic Stabilization Act
of 2008 (P.L. 110-343) to implement a broader foreclosure prevention plan.
While many observers agree that more needs to be done to prevent foreclosures, there are several
challenges associated with foreclosure mitigation plans. These challenges include implementation
issues, such as deciding who has the authority to make mortgage modifications, developing the
capacity to complete widespread modifications, and assessing the possibility that homeowners
with modified loans will nevertheless default again in the future. Other challenges are related to
the perception of fairness, the problem of inadvertently providing incentives for borrowers to
default, and the possibility of setting an unwanted precedent for future mortgage lending.
This report describes the consequences of foreclosure on homeowners, outlines recent foreclosure
prevention plans implemented by the government and private organizations, and discusses the
challenges associated with foreclosure prevention. It will be updated as events warrant.