On April 2, 2013, Susan Stern, the Deputy Director of Administration at the National Housing Law Project, wrote Jerry Hartman a note sharing an article featured in the Wall Street Journal. The note and article read as follows:
Wanted to share this article with you that was featured in the Wall Street Journal online yesterday, announcing the Rural Housing Services decision to constructively change its collection policies against former homeowners who have been affected by the foreclosure crisis. We are extremely grateful to The Barbara McDowell and Gerald S. Hartman Foundation for helping to make these changes and our advocacy possible.
As we mentioned in our interim report, we still plan to pursue litigation against RHS for those former homeowners who were excluded from the benefits of these policy changes.
Thanks again for your and the Foundation’s support of these efforts,
USDA to Overhaul Mortgage-Collection Efforts
The U.S. Department of Agriculture is pulling back on its efforts to collect money owed by borrowers in foreclosure.
Through its Rural Housing Service, the USDA issues and guarantees mortgages to low- and moderate-income rural Americans.
The agency's collection practices were the subject of a page-one article in The Wall Street Journal in May 2012.
The USDA enjoys many advantages not available to private lenders. It doesn't need permission from a court to start collecting on unpaid debts, and in some cases can seize government benefits and tax refunds from borrowers before their foreclosures are completed.
After foreclosure, the USDA can go after unpaid balances, even in states that limit such actions by private lenders.
Under a new policy, the USDA will stop pursuing borrowers for unpaid loan balances after foreclosure if the borrowers can demonstrate that they are unable to pay the debt. The policy applies to loans issued or guaranteed by the Department after Oct. 22, 2012.
The Treasury Department collected $45 million in delinquent USDA mortgage debt from borrowers in fiscal 2011, up from $23 million in fiscal 2007. At the end of fiscal 2011, $779.2 million in delinquent USDA mortgage debt was awaiting collection, up from $420.7 million in 2007.
"After an extensive review of its debt-collection policies, USDA concluded that it could decrease the administrative burden on Treasury by writing off post-liquidation balances for those who cannot pay them," a USDA spokesman said. The new policy will allow the USDA to more quickly resell foreclosed homes, saving money for taxpayers, he added.
The move will more closely align the USDA's policies with those of other government agencies, such as the Department of Housing and Urban and Development and the Department of Veterans Affairs, which generally don't pursue borrowers for debt left after foreclosure.
Housing groups applauded the agency's move, but said the USDA should have gone further.
"It does not make sense for the federal government to continue to cause a hardship to families who have lost their homes due to circumstances beyond their control," said Gideon Anders, an attorney with the National Housing Law Project, which has sued the USDA on behalf of borrowers seeking loan workouts. "I'm pleased that they have done this, but I am not pleased and am disappointed by the fact that they have not stopped all collections against individuals already in the system."
A USDA spokesman declined to say when the change took effect, what basis the USDA will use to determine whether borrowers are unable to repay their debt or why the change in policy only applies to borrowers who took out loans before the October date.
The USDA started making loans to farmers in 1949, then expanded its program to other rural residents. A 1990 law allows it to guarantee mortgage loans issued by banks. The agency is a small player in the mortgage market, but loan volume has climbed since the mortgage crisis began in 2007.
The agency guaranteed $16.9 billion in loans in fiscal 2011, and issued $1.1 billion in direct loans.