The mortgage industry must delay or cancel foreclosures until October 1, when the new housing law takes effect. That’s the word from Reps. Barney Frank and Maxine Waters (D-Calif.), the Chairwoman of the Housing and Community Opportunity Subcommittee. The new law allows qualified applicants to refinance into FHA-insured mortgages and avoid foreclosures. Frank and Waters want to make sure the mortgage industry works with borrowers.

Chairman Frank cautioned industry representatives: “I would hope that no one would be foreclosed upon between now and October 1st who would have qualified for this program had the effective date been immediate.”

“That is within your power to do,” he added. “You can show some forbearance. October 1st is coming; begin the planning; begin the talking with people; but I think it would be a shame, an embarrassment to all of us if people were to lose their homes and the neighborhood deterioration were to be advanced and the economy would suffer because . . . we delayed this a couple of months. I earnestly hope that we can have that kind of cooperation.”

Waters added, “As one who has focused on mortgage servicing from the outset of this crisis, I strongly support the Chairman’s call for forbearance until October 1st. It would be shameful for a single homeowner . . . hit hard by the foreclosure crisis to lose their home if they could have been helped by this program but for this deadline.”

In order to qualify for FHA refinancing under the new law, borrowers would have to have more than 31% of their monthly income dedicated toward their mortgage payment as of March 1, 2008, and live in their only home. Borrowers would have to meet the specific qualifications of the program, and would have to agree to share future home appreciation with the government. Lenders would also have to agree to significant reductions in the amount owed to them.

The Congressional Budget Office estimates that at least 400,000 families will be able to avoid foreclosure at — potentially — no cost to the taxpayer, as newly increased refinancing fees will create a reserve to offset defaults.

Frank will hold hearings in September to monitor how the mortgage industry is doing in extending forbearance until the new law kicks in. He warns that, if the industry says it can’t grant forbearance because lenders and servicers are different organizations, then he may have to back legislation to restructure the mortgage servicing industry to negate that problem.