Section 918 of the Housing and Community Development Act of 1992 requires the U.S. Department of Housing and Urban Development (HUD) to conduct a study of mortgage foreclosure alternatives. This report fulfills that legislative mandate. Congress specifically requested a review of the foreclosure avoidance procedures used by institutions handling federally related mortgages, with special emphasis on how HUD is using its current statutory authority to provide relief from foreclosure to borrowers whose loans are insured by the Federal Housing Administration (FHA). This report documents the great strides that have been made in the mortgage industry to understand how large-scale foreclosure avoidance efforts are beneficial to borrowers and lenders alike. It also documents areas in which improvements are still necessary. For the mortgage industry as a whole, the primary improvements sought for here are increasing the number of borrowers offered loan workout options and creating more uniform foreclosure laws. The need for these is highlighted throughout the report. The Department’s main recommendations include options for obtaining greater uniformity among State foreclosure laws, a call for agencies to provide better incentives for loan servicers to initiate loan modifications and forbearances, and a new statutory basis for HUD borrower relief efforts.

The percentage of U.S. homeowners with serious delinquency problems has been at chronic levels since 1983. Not since the Great Depression has homeownership been so tenuous, with homeownership rates actually declining for most of the 1980s. Correspondingly, single-family home foreclosure rates have been on the rise. HUD estimates that total foreclosures rose from less than 100,000 in 1981 to a peak of more than 300,000 in both 1991 and 1992. On the dark side, the statistics of the past 15 years represent 3 million American families who not only faced the financial and emotional specter of being forced from their homes, but who also suffered loss of access to credit. Additionally, they may have also experienced tax liabilities or court orders to repay lender losses on disposition of their homes. On the bright side, the severity of the foreclosure problem in the 1980s caused mortgage market organizations to look more deeply into ways in which foreclosure can be avoided. The innovations that have taken root in the mortgage industry since 1986 are bearing fruit.