Servicer treatment of borrowers

The Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2601 et seq.) is amended by inserting after section 6 the following:

6A.

Servicer treatment of borrowers

(a)

Servicer requirements

(1)

Single electronic record and single point of contact

Each servicer of a federally related mortgage loan, or agents of such servicer, shall, with respect to the borrower, establish a single electronic record for each account, the contents of which shall be accessible throughout the servicer, or agents of such servicer, including to all affordable loan modification staff, all foreclosure staff, and all bankruptcy staff. (2)

Availability of net present value information

Servicers shall maintain a free and publicly accessible website where borrowers may check their estimated net present value. (b)

Protections for homeowners with limited English proficiency

(1)

Free oral interpretation

Servicers shall provide free oral interpretation services for borrowers who request such services and such services may be provided by contracting with housing counseling agencies that are approved by the Department of Housing and Urban Development and that have appropriate language capacity. (2)

Notation in file

Servicers shall— (A)note a request for translation services in the borrower’s file and make such note available to all relevant servicer personnel; and (B)note in the borrower’s file any time the borrower has communicated or sought to communicate with the servicer in a language other than English, and shall include such other language. (3)

Translated documents

(A)

Providing documents

(i)

In general

Servicers shall, if a borrower asks for translated documents, provide key documents to the borrower translated into the language of the borrower, including periodic statements, affordable loan modification applications, denial notices, and loan modification offers, including any trial period plan. (ii)

Exception

Clause (i) shall only require providing documents in— (I)commonly spoken languages in the United States, as determined by the Bureau; (II)with respect to a particular servicer, languages spoken by a significant number of individuals living in any markets in which the servicer does business, as determined by the Bureau. (B)

Accepting documents

Servicers shall only be required to accept documents in languages in which the servicer already provides documents, that are considered to be part of routine business transactions in the market in which the mortgage loan was made, or that are used in documents provided to the public by any department or agency of the Federal Government. (4)

Exception

Subparagraph (A) of paragraph (3) shall not apply to small servicers, as defined under section 1026.41(e)(4)(ii) of title 12, Code of Federal Regulations. (c)

Requirements during affordable loan modification process

(1)

Borrowers facing imminent default

Servicers shall evaluate a borrower facing imminent default (as such term is defined by the Bureau), as well as those in default, for affordable loan modification assistance, as described in this section. (2)

Assistance to borrowers

(A)

Assistance in applying for affordable loan modification

Servicers shall— (i)have available and sufficient staff to answer questions borrowers may have about filling out documents; and (ii)provide borrowers a list of non-profit legal services organizations and housing agencies approved by the Department of Housing and Urban Development, that can assist the borrowers with documents. (B)

Treatment of successors in interest

Servicers shall— (i)provide full information and complete loss mitigation options to successor homeowners protected from an acceleration of a mortgage loan under the Garn-St Germain Depository Institutions Act of 1982, if requested by the successor homeowner; and (ii)review a mortgage loan for loss mitigation, as though the successor homeowner was the borrower, and provide a decision on available loss mitigation prior to an assumption of the mortgage loan, if requested by the succeeding homeowner. (3)

After reviewing application

If a servicer denies an application for an affordable loan modification, the servicer shall notify the borrower of other loss mitigation options that may be available to the borrower and shall consider the borrower for such other loss mitigation options. (4)

Rule of construction

Nothing in this section shall be construed as prohibiting a servicer from considering a borrower for other loss mitigation options, so long as the servicer first offers the borrower an affordable loan modification if the borrower is eligible for such a modification. (5)

Requirements related to transfer of loans

(A)

In general

For any transfer of servicing to a successor servicer of a federally related mortgage loan or subservicer, the transferring servicer shall— (i)inform the successor servicer (including a subservicer) whether a loan modification request is pending; (ii)provide the successor servicer with all documentation related to the mortgage loan, including any documentation relating to a loan modification or loss mitigation process; (iii)ensure that the successor servicer has the operational capacity to manage the transferred loan; (iv)ensure that the successor servicer shall accept and continue processing prior loan modification requests, by including such requirement in the agreement made between the servicers when transferring the loan; (v)ensure that successor servicer shall honor trial and permanent loan modification agreements entered into by the transferring servicer by including such requirement in the agreement made between the servicers when transferring the loan; and (vi)notify the borrower of the transferred loan that the new servicer is required to accept and continue processing prior loan modification requests, if any, and is required to honor trial and permanent loan modification agreements entered into by the transferring servicer, if any. (B)

Honoring of existing loan modifications and applications in process

The successor servicer shall agree to honor and accept any existing loan modification and continue any loan modification applications. (C)

Prohibition on foreclosure

During the 60-day period beginning on the effective date of transfer of the servicing of any federally related mortgage loan, the mortgage loan subject to such transfer may not be subject to initiation of a judicial or non-judicial foreclosure or be subject to a foreclosure sale. (d)

Subsequent applications for affordable loan modification

If a borrower has submitted an application or request in the past, the servicer shall allow such borrower to make a subsequent affordable loan modification application if the borrower experiences a material change in circumstances, as defined by the Bureau. (e)

Limitation on foreclosure proceedings

(1)

Stop of sales pending application

If a borrower submits an initial application for affordable loan modification assistance more than 7 business days before a scheduled foreclosure sale, the servicer must stop and cancel the foreclosure sale. (2)

Initiation of foreclosure

A servicer may not initiate or continue a nonjudicial foreclosure or a judicial foreclosure that is otherwise authorized under State law against a mortgagor that has submitted an initial application for an affordable loan modification or other loss mitigation, unless the servicer— (A)has determined whether the mortgagor is eligible for an affordable loan modification; and (B)has made such a modification, if the mortgagor is eligible for a modification. (3)

Foreclosure proceedings permitted

Notwithstanding paragraph (2), a servicer may initiate or continue a judicial or nonjudicial foreclosure under State law against a borrower, if— (A)the servicer— (i)determines that the borrower is not eligible for a modification; (ii)notifies the borrower of the determination under clause (i); and (iii)provides the borrower— (I)a copy of any net present value calculation made by the servicer in relation to an affordable loan modification, including any information providing a basis for such net present value calculation; (II)a copy of any note, deed of trust, or other document necessary to establish the right of the servicer to foreclose on the mortgage, including proof of assignment of the mortgage to the servicer and the right of the servicer to enforce the relevant note under the law of the State in which the real property securing the mortgage is located; (III)a copy of any language in the pooling or servicing agreement with respect to the mortgage that the servicer relies upon in asserting that it is prohibited or limited in providing a modification of the mortgage note; (IV)a copy of all correspondence between the servicer and the borrowers and investors in which the servicer attempts to obtain permission to make a modification; and (V)the alternatives to foreclosure available to the borrower, including deed in lieu of foreclosures and short sales; or (B)a borrower— (i)declines to be considered for a loan modification in writing or declines an affordable modification in writing; or (ii)does not respond to the servicer’s outreach activities (as defined by the Bureau) to obtain underlying information to complete an application or fails to make a trial or permanent loan modification payment.

For purposes of subparagraph (A), a pooling and servicing agreement is any contract establishing the transaction rights and duties of the parties to any mortgage-backed securitization transaction.

(4)

Bar to foreclosure

Failure to comply with the requirements of this subsection shall be a bar to the foreclosure of a mortgage, deed of trust, or substantially similar instrument. (5)

Fees

(A)

Waiver of late fees

If a borrower’s application for affordable loan modification assistance is accepted, the servicer shall waive any foreclosure fees and any late fees related to the delinquency in payment. (B)

No fee accrual while application is pending

A borrower shall not accrue additional late or foreclosure fees during the period beginning on the date that the borrower submits an affordable loan modification application and the date on which the servicer makes a determination on such application. (6)

Notification

With respect to a foreclosure sale that is postponed by reason of this subsection, the servicer shall notify the borrower in writing of such postponement and, if a date for such foreclosure sale is rescheduled, shall notify the borrower in writing of the new foreclosure sale date. (7)

Certification of determination of eligibility required for sale

(A)

Sale of property prohibited

If the servicer of a mortgage does not file a certification with the appropriate land records office in the jurisdiction where the property securing the mortgage is located, stating that the servicer has determined the eligibility of the mortgagor for an affordable loan modification in compliance with this section— (i)the mortgagee may not sell the property securing the mortgage; and (ii)no person that purchases the property securing the mortgage may initiate an action to recover possession of the property. (B)

Violations

A sale of property in violation of this paragraph shall be void. (8)

Initial application defined

For purposes of this subsection, the term initial application means a completed Uniform Borrower Assistance Form 710 of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, a Request for Modification and Affidavit of the Making Home Affordable Program, or other equivalent form that sets forth the borrower’s financial, income, and hardship information and Form 4506–T of the Internal Revenue Service. (f)

Affordable loan modifications

(1)

Affordable loan modification defined

For purposes of this section, the term affordable loan modification means an agreement to reduce the amount of scheduled regular payments, determined by the borrower’s debt-to-income ratio or residual income, and subject to such terms and conditions as may be set by the Bureau, including any reduction of the principal amount of the mortgage note as described in paragraph (4), that is reflected in a permanent change to the terms of the mortgage note under such terms as the Bureau shall define. (2)

Calculation of target affordable regular mortgage payment

For purposes of this subsection, the target affordable regular mortgage payment shall be an amount determined by the borrower’s debt-to-income ratio or residual income, and subject to such terms and conditions as may be set by the Bureau, subject to such terms and conditions as may be set by the Bureau. Such terms shall be based on a fully amortizing principal and interest payment over the remainder of the term of the mortgage, as modified by any reduction in principal. (3)

Eligibility

A mortgagor shall be eligible to participate in an affordable loan modification if— (A)such person is a borrower under a federally related loan secured by the principal residence of the borrower or a person eligible to assume such a loan as a successor homeowner protected from an acceleration of a mortgage loan under the Garn-St Germain Depository Institutions Act of 1982, who is unable to make payments on a federally related mortgage loan under such criteria as the Director of the Bureau shall define, in consultation with the Secretary of Housing and Urban Development and the Secretary of the Treasury; (B)such residence is occupied by the mortgagor; and (C)the loan modification has a positive net present value (as defined under paragraph (4)(B)(iv)(II)). (4)

Earned principal forgiveness

(A)

In general

If, after reducing mortgage note principal under earned principal forgiveness provided in subparagraph (B), a target affordable regular mortgage payment has not been achieved, the servicer of the mortgage shall comply with the affordable loan modification plan waterfall steps as set out by the Bureau of interest rate reduction, term extension, and principal forbearance, as necessary to achieve a target affordable regular mortgage payment. (B)

Earned principal forgiveness

(i)

Principal reduction

The Bureau shall determine standards by which a mortgagor who has received an affordable loan modification shall remain in good standing in order to participate in a reduction in mortgage note principal under this subsection. (ii)

Principal reduction required

Except as provided under clause (iii), a servicer shall offer a borrower an affordable loan modification having the maximum amount of principal reduction that results in a positive net present value calculation. For purposes of calculating net present value, a servicer may use their own formula, if it has been approved by the Bureau, or may use a default formula determined by the Bureau. (iii)

Exceptions

(I)

Greater principal reduction

A servicer may offer a greater principal reduction, if such a reduction is consistent with the terms of any contract with respect to the mortgage. (II)

Loan-to-value ratio

A servicer is not required to offer a principal reduction that would result in a loan-to-value ratio of less than 100 percent. (iv)

Rules of construction

(I)

Maximum amount of principal reduction

A principal reduction amount may be considered the maximum amount if it is within $1,000 of the actual maximum amount. (II)

Positive net present value calculation

A net present value calculation shall be deemed to be positive for the mortgage investors if the net present value result for an affordable loan modification scenario is greater than the net present value result if no affordable loan modification is made. Net present value shall be calculated as the benefit of all investors in a securitization rather than the benefit of any particular class of investors. (v)

Principal forgiveness

(I)

Treatment of principal reduction amount

Any amount of principal reduction under clause (ii) shall be treated as non-interest-bearing principal forbearance until the dates described under subclause (II). The principal reduction described in this clause shall be deemed to be separate from and exclusive of any other forbearance that may be offered in conjunction with a modification under an affordable loan modification program. (II)

Reduction of principal

The servicer of a mortgage modified under an affordable loan modification plan shall reduce the unpaid balance of the principal of the mortgage by an amount equal to 1⁄3 of the total amount of the principal reduction under clause (ii) on each of the following dates: (aa)The date that is 1 year after the date on which the affordable loan modification begins. (bb)The date that is 2 years after the date on which the affordable loan medication begins. (cc)The date that is 3 years after the date on which the affordable loan modification begins. (vi)

Certain modifications

With respect to a borrower that is not underwater and does not qualify for principle reduction, the servicer shall offer such borrower an affordable loan modification to reach the target affordable regular mortgage payment amount, if the borrower qualifies. (5)

Treatment of junior liens

With respect to a borrower, if a primary mortgage loan is modified pursuant to this subsection, the servicer of any junior mortgage loan shall make a modification available to the borrower on the same terms as the modification of the primary mortgage loan, unless prohibited by contract. (6)

Rule of construction

Nothing in this section shall be construed as prohibiting a servicer from providing a loan modification that does not produce a positive net present value (as defined under paragraph (4)(B)(iv)(II)). (g)

Bar to foreclosure

In any judicial or non-judicial foreclosure proceeding, it shall be a bar to foreclosure that the servicer of the federally related mortgage loan on the property to be foreclosed violated any provision of this section. (h)

Civil Penalty

(1)

In general

Any servicer who violates a provision of this section shall be subject to a fine in an amount, as determined by the Bureau, not to exceed $5,000 for each violation except that the maximum penalty for all violations by any particular servicer during any 1-year period shall not exceed $1,000,000. (2)

Liability to borrower

Any servicer that violates a provision of this section with respect to a loan shall be liable to the borrower of such loan in the amount of $10,000 per violation. (3)

Continuing violations

In the case of a continuing violation, as determined by the Bureau, each day shall constitute a separate violation for purposes of this subsection. (4)

Adjustment of amounts

After the end of the 1-year period beginning on the date of the enactment of this subsection, the Bureau shall annually adjust amounts specified under this subsection to reflect inflation.

6B.

Mortgage Servicer Ombudsman

(a)

In general

The Director of the Bureau shall appoint a Mortgage Servicer Ombudsman (the Ombudsman) within the Bureau. (b)

Duties

The Ombudsman shall provide assistance to servicers and borrowers in complying with Federal law with respect to the servicing of mortgage loans and offer resolution to borrowers who are facing noncompliance. (c)

Focus on low-Income borrowers

In carrying out this section, the Ombudsman shall focus on providing assistance to low-income borrowers. (d)

Consultation

The Ombudsman shall consult with— (1)attorneys general of States in carrying out this section; and (2)other offices of the Bureau that engage in dispute resolution. (e)

Non-Duplication

The Ombudsman may not carry out any activities that would be duplicative with activities of other Bureau offices.

6C.

Penalties for robo-signing

Any servicer who records or files with a land records office or a court more than one document with material deficiencies with respect to a mortgage loan shall be subject to a fine of not more than $7,500 for each such loan.