This Issue Brief first reviews several noteworthy legislative and legal approaches aimed at redressing illegal or unfair lender/servicing procedures related to homeowners (and their tenants) in end-stage default or going through foreclosure. It also discusses how regulatory oversight by the Federal Reserve Board and by various governmental bodies, which resulted in the National Mortgage Settlement, both provided financial compensation for abusive mortgage-lending and servicer practices pertaining to foreclosure. Important, too, is a key court case that argues this simple point: the mortgagee must be the owner of record before it can foreclose.

The Brief then presents a short summary of innovative local efforts that provide additional protections to homeowners and tenants in end-stage default and foreclosure. Two nonprofit organizations that have purchased nonperforming loans from HUD have been more successful modifying these loans, than the record for the loans in the overall portfolio, most of which were purchased by for-profit firms. Following this, the Brief summarizes the current health of the FHA’s Mutual Mortgage Insurance Fund (MMIF), the fund that compensates lenders for the balance due on foreclosed mortgages. In view of the resources in the MMIF, this summary provides further evidence that HUD/FHA has some leeway that should allow them to more aggressively assist homeowners in default.