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Floor Speech

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Mr. REED. Mr. President, today I am reintroducing the Preserving Homes and Communities Act with Senators Smith, Wyden, Merkley, and Schumer. This legislation would reform Federal Housing Administration, FHA, Fannie Mae, and Freddie Mac note sale programs to protect homeowners from foreclosure and keep properties in the hands of families and local civic institutions. I want to thank the National Consumer Law Center, on behalf of its low-income clients, and the National Community Stabilization Trust for their support of this bill.

For over a decade, FHA, Fannie Mae, and Freddie Mac have sold nonperforming and reperforming loans to protect their balance sheets. These transactions, known as note sales, transfer ownership of hundreds or thousands of mortgages to bulk purchasers, which are predominately private equity firms and other institutional investors. While selling nonperforming and reperforming loans may marginally reduce financial risk for FHA, Fannie Mae, and Freddie Mac, these sales harm borrowers and shift home ownership from individuals to large investors.

Loans insured by FHA or securitized by Fannie Mae or Freddie Mac have strong foreclosure protections for borrowers that ensure servicers offer specific loss mitigation options to eligible borrowers before beginning foreclosure proceedings. These protections often help borrowers avoid foreclosure and catch up on their payments, but borrowers lose many of these protections when a mortgage is included in a note sale.

Unfortunately, the lack of robust, required protections after a note sale has very real consequences for homeowners. Over 90 percent of the homeowners who were subject to an FHA reverse mortgage note sale through 2024 ultimately lost their homes. Meanwhile, the U.S. Government Accountability Office reported in 2019 that nonperforming loans sold by FHA are more likely to face foreclosure than comparable loans that FHA keeps on its own balance sheet. Similarly, the majority of homeowners with nonperforming loans sold by Fannie Mae and Freddie Mac have also lost their homes after servicers reached a final resolution.

Making matters worse. note sale purchasers are predominately private equity arms and institutional investors, which often move foreclosed properties out of the owner-occupied market. Approximately 35 percent of properties foreclosed upon or voluntarily turned over to a lender after a Fannie Mae or Freddie Mac nonperforming loan note sale are sold to an investor, held by the purchaser for rental, or sit on a lender's books. In other words, more than one-third of these homes may be taken out of the owner-occupied market, reducing home ownership opportunities for families and shifting property ownership to large corporations that often drive up rents. The data is similar for FHA notes sales. Of the homes in FHA pools that were foreclosed on or went through deed in lieu of foreclosure, 40 percent were ultimately bought by investors.

The Preserving Homes and Communities Act tackles these problems. It would protect homeowners by requiring mortgage servicers to complete Agency-required loss mitigation actions before FHA, Fannie Mae, or Freddie Mac can sell a nonperforming mortgage and by improving loss mitigation protections for these mortgages after they are sold.

It would also protect communities by giving local entities with public missions, including States, municipalities, and nonprofits, the first opportunity to purchase nonperforming and reperforming mortgages--ahead of private equity and institutional investors. Finally, it requires purchasers that foreclose on nonperforming note sale properties to prioritize owner-occupants and low- and moderate- income households when selling or renting these homes.

In sum, our legislation seeks to help homeowners remain in their homes and prevent institutional investors from acquiring homes on the cheap from Americans who are struggling to make ends meet. Even President Trump has acknowledged the negative impact institutional investors are having in the single-family housing market and has called for reforms. So I hope my colleagues on both sides of the aisle will embrace this proposal and work with me to make it law. ______

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