[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5679 Introduced in House (IH)]







110th CONGRESS
  2d Session
                                H. R. 5679

 To amend the Real Estate Settlement Procedures Act of 1974 to require 
   mortgagees for mortgages in default to engage in reasonable loss 
                         mitigation activities.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 2, 2008

  Ms. Waters introduced the following bill; which was referred to the 
                    Committee on Financial Services

_______________________________________________________________________

                                 A BILL


 
 To amend the Real Estate Settlement Procedures Act of 1974 to require 
   mortgagees for mortgages in default to engage in reasonable loss 
                         mitigation activities.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Foreclosure Prevention and Sound 
Mortgage Servicing Act of 2008''.

SEC. 2. DUTY TO ENGAGE IN LOSS MITIGATION.

    (a) Duty.--The Real Estate Settlement Procedures Act of 1974 is 
amended by inserting after section 6 (12 U.S.C. 2605) the following new 
section:

``SEC. 6A. DUTY TO ENGAGE IN LOSS MITIGATION.

    ``(a) Duty for Covered Federally Related Mortgage Loans.--Upon 
default of any federally related mortgage loan that is secured by a 
lien on the principal residence of the borrower or mortgagor, the 
mortgagee shall engage in reasonable loss mitigation activities that 
provide for--
            ``(1) the long-term affordability of the loan; and
            ``(2) the maximum retention of home equity.
    ``(b) No Foreclosure Without Loss Mitigation.--No foreclosure of 
any covered federally related mortgage loan shall be initiated if the 
mortgagee or servicer has at any time failed to comply with the 
requirements of this section with respect to such loan.
    ``(c) Loss Mitigation Activities.--
            ``(1) In general.--For purposes of this section, loss 
        mitigation activities shall include both priority loss 
        mitigation activities and secondary loss mitigation activities. 
        In complying with subsection (a), the mortgagee or servicer 
        shall pursue priority loss mitigation activities before 
        considering secondary loss mitigation activities. If any loss 
        mitigation activity is taken, including any priority or 
        secondary loss mitigation activities, the mortgagee or servicer 
        shall provide written notice of such activity to the borrower 
        or mortgagor by mail not later than 7 business days after such 
        action is taken.
            ``(2) Priority loss mitigation activities.--For purposes of 
        this section, the term `priority loss mitigation activities' 
        includes, with respect to a covered federally related mortgage 
        loan, activities that preserve the borrower's or mortgagor's 
        ownership interest in the property that is subject to the lien 
        securing the loan. Priority loss mitigation activities include 
        the following activities:
                    ``(A) Waiver of any late payment charge, penalty 
                interest, or any other fees or charges, or any 
                combination thereof.
                    ``(B) Establishment of a repayment plan under which 
                the borrower or mortgagor resumes regularly scheduled 
                payments and pays additional amounts at scheduled 
                intervals to cure the delinquency.
                    ``(C) Forbearance under the loan that provides for 
                a temporary reduction in, or cessation of, monthly 
                payments followed by a reamortization of the amounts 
                due under loan, including arrearage, and a new schedule 
                of repayment amounts.
                    ``(D) Waiver, modification, or variation of any 
                material term of the loan, including short-term, long-
                term, or life-of-loan modifications that change the 
                interest rate, forgive the payment of principal or 
                interest, or extend the final maturity date of the 
                loan.
                    ``(E) Short refinancing of the loan consisting of 
                acceptance of payment from or on behalf of the borrower 
                or mortgagor of an amount less than the amount alleged 
                to be due and owing under the loan, including 
                principal, interest, and fees, in full satisfaction of 
                the obligation under such loan and as part of a 
                refinance transaction in which the property is intended 
                to remain the principal residence of the borrower or 
                mortgagor.
            ``(3) Secondary loss mitigation activities.--For purposes 
        of this section, the term `secondary loss mitigation 
        activities' includes, with respect to a covered federally 
        related mortgage loan, activities that avoid foreclosure but do 
        not preserve the borrower's or mortgagor's ownership interest 
        in the property that is subject to the lien securing the loan. 
        Secondary loss mitigation activities include the following 
        activities:
                    ``(A) Short sale of the principal residence that is 
                subject to the lien securing the loan, consisting of 
                acceptance of payment from or on behalf of the borrower 
                or mortgagor of an amount less than the amount alleged 
                to be due and owing under the loan, including 
                principal, interest, and fees, in full satisfaction of 
                the obligation under such loan and as part of a sale 
                transaction in which the property is not intended to 
                remain the principal residence of the borrower or 
                mortgagor.
                    ``(B) Assumption of the borrower's obligations 
                under the loan by a third-party.
                    ``(C) Cancellation or postponement of a foreclosure 
                sale to allow the borrower or mortgagor additional time 
                to sell the property.
                    ``(D) Acquisition of the property by the mortgagee 
                or servicer by deed in lieu of foreclosure.
    ``(d) Affordable Payments.--
            ``(1) In general.--The affordability of any scheduled 
        payments due from the borrower or mortgagor pursuant to loss 
        mitigation activities shall be taken into consideration in 
        determining whether a mortgagee has engaged, for purposes of 
        subsection (a)(1), in reasonable loss mitigation activities 
        that provide for long-term affordability of the loan. Payments 
        under a loan shall be considered to be affordable for a 
        borrower or mortgagor for purposes of this subsection if such 
        payments result in a debt-to-income ratio or residual income of 
        the borrower or mortgagor in an amount permitted under section 
        36.4337 of title 38, Code of Federal Regulations.
            ``(2) Income used in determining affordability.--In making 
        a determination of affordability for purposes of this 
        subsection, a mortgagee or servicer shall use the income 
        information furnished by the borrower at the time of loan 
        origination, except that the borrower or mortgagor may elect to 
        provide the mortgagee or servicer with current information and, 
        if so provided, such current income information shall be used 
        for purposes of determining affordability. The mortgagee or 
        servicer shall advise the borrower or mortgagor of any right 
        under this paragraph to provide current income information. If 
        current income information is used, all sources of income shall 
        be verified by tax returns, payroll receipts, bank records, or 
        other third-party verification; the best and most appropriate 
        documentation shall be used.
            ``(3) Debt payments used in determining affordability.--In 
        the case of default of any covered federally related mortgage 
        loan for which the security property is subject to multiple 
        liens--
                    ``(A) each mortgagee or servicer with respect to a 
                senior lien shall reasonably take into account the 
                obligations of the borrower or mortgagor under 
                subordinate liens; and
                    ``(B) the mortgagee or servicer shall take into 
                account any other secured or unsecured obligations of 
                the borrower or mortgagor.
            ``(4) Written notification of affordability calculation.--
        The mortgagee or servicer shall notify the borrower or 
        mortgagor in writing of the results of the determination of 
        affordability under this subsection and the income on which the 
        determination was based. Such written notice shall be provided 
        by mail not later than 7 business days after such action is 
        taken or as part of the written notice required under 
        subsection (c)(1), whichever is earlier.
    ``(e) Reasonable Fee.--A mortgagee engaged in loss mitigation 
pursuant to this section may charge a reasonable fee for loss 
mitigation activities in addition to actual administrative costs and 
other expenses. The Secretary may review the fees, administrative 
costs, and other expenses passed on to borrowers by any mortgagee 
engaged in loss mitigation and shall exclude or reduce any costs or 
expenses the Secretary considers excessive or irrelevant to loss 
mitigation activities.
    ``(f) Notification of Interest Rate Increase.--In the case of any 
covered federally related mortgage loan that is an adjustable rate 
mortgage, not less than 60 days before any increase in the periodic 
payment due for principal or interest or in the interest rate charged 
under the loan, but not more than 120 days before such increase, the 
mortgagee or servicer shall, in addition to any notices required by the 
contract and other law, inform the borrower in writing by mail and by 
telephone of the date that such payment or interest rate increase will 
occur and of the amount of the projected monthly payment under the loan 
after such increase, based on the prevailing interest rate of the index 
used for such increase with the 30-day period ending upon such notice. 
The written notice shall provide the information required under this 
subsection in a clear and conspicuous format.
    ``(g) Subordinate Liens.--Each mortgagee with respect to a 
subordinate lien shall provide to mortgagees having senior liens 
information needed by such senior mortgagees to engage in reasonable 
loss mitigation as required by this section. Any modification of the 
loan undertaken as part of loss mitigation activity shall not impair 
the priority status of liens under the modified loan, to the extent 
that there are no additional funds advanced to the borrower in 
connection with such modification.
    ``(h) Direct Access to Authorized Loss Mitigation Personnel.--
            ``(1) Provision of contact information.--The mortgagee or 
        servicer of a covered federally related mortgage loan shall 
        provide, on each regular account statement for the loan, a 
        toll-free or collect-call telephone number that provides the 
        borrower with direct access to a person with the information 
        and authority to answer questions and fully resolve issues 
        related to loss mitigation activities for the loan.
            ``(2) Prohibition on outsourcing.--In carrying out 
        subsection (a) with respect to a covered federally related 
        mortgage loan, any contact by or on behalf of a mortgagee or 
        servicer with the homeowner and any processing of any loss 
        mitigation activities shall be conducted only by agents of the 
        mortgagee or servicer who are physically located in the United 
        States.
    ``(i) Duty To Refer to HUD-Certified Housing Counselor.--
            ``(1) Referral by servicer or mortgagee.--In the case of 
        any payment due under a covered federally related mortgage loan 
        that is more than 60 days late, the servicer or mortgagee shall 
        forward to a housing counseling agency approved by the 
        Secretary the contact information of the borrower.
            ``(2) Expression of borrower preference.--The borrower may 
        communicate to the servicer or mortgagee a preference for a 
        particular housing counseling agency approved by the 
        Secretary--
                    ``(A) in writing at the time of closing on the 
                loan; or
                    ``(B) in writing at any time during the term of the 
                loan, including by conveyance of signed authorization 
                form from the approved housing counseling agency of the 
                borrower's choice, which shall be transmitted by such 
                agency to the mortgagee or servicer.
            ``(3) Referral relationship.--A mortgagee or servicer may 
        establish a referral relationship with a housing counseling 
        agency approved by the Secretary, but such relationship may not 
        be exclusive and the mortgagee or servicer may not refuse to 
        respond to qualified written requests and other communications 
        from another housing counseling agency approved by the 
        Secretary or any other agent that is authorized by the 
        borrower.
    ``(j) Prohibition on Waiver of Rights.--A mortgagee for a covered 
federally related mortgage loan may not--
            ``(1) when engaging in loss mitigation activities pursuant 
        to subsection (a), require a borrower to limit or waive the 
        rights of such borrower to bring any claims, defenses, demands, 
        proceedings, actions, or causes of action against the mortgagee 
        or servicer as a condition of accepting an offer of any loss 
        mitigation activities, including any activities under 
        subsection (c); or
            ``(2) require the borrower to agree to arbitration as a 
        condition of receiving loan modification activities.
Any waiver or arbitration provision in a written agreement prohibited 
under this subsection shall be void and unenforceable.
    ``(k) Reporting on Loss Mitigation Activities.--
            ``(1) In general.--Each mortgagee or servicer of a covered 
        federally related mortgage loan shall report regularly, but not 
        less than monthly, and comprehensively to the Secretary of the 
        Treasury on the extent and scope of the loss mitigation 
        activities of the mortgagee. Each such report shall include 
        data on loss mitigation activities disaggregated according to 
        the categories specified in each of the subparagraphs of 
        paragraphs (2) and (3) of subsection (c), any loss mitigation 
        activities not covered by such categories, the number of loans 
        receiving loss mitigation that have become performing loans, 
        the number of loans receiving loss mitigation that have 
        proceeded to foreclosure, the total number of foreclosures 
        initiated during the reporting period, and such other 
        information as the Secretary determines to be relevant.
            ``(2) Compilation of aggregate data.--
                    ``(A) Commencement; scope.--Beginning with data for 
                calendar year 2009, the Federal Financial Institutions 
                Examination Council shall compile for each year, for 
                each primary metropolitan statistical area, 
                metropolitan statistical area, and consolidated 
                metropolitan statistical area that is not comprised of 
                designated primary metropolitan statistical areas, 
                aggregate data by census tract for all mortgagees or 
                servicers that are required to disclose data under this 
                subsection. The Council shall also produce tables 
                indicating, for each primary metropolitan statistical 
                area, metropolitan statistical area, and consolidated 
                metropolitan statistical area that is not comprised of 
                designated primary metropolitan statistical areas, 
                aggregate loss mitigation patterns for various 
                categories of census tracts grouped according to 
                location, age of housing stock, income level, and 
                racial characteristics.
                    ``(B) Staff and data processing resources.--The 
                Board of Governors of the Federal Reserve System shall 
                provide staff and data processing resources to the 
                Council to enable it to carry out this paragraph.
                    ``(C) Availability to public.--The data and tables 
                required pursuant to this paragraph shall be made 
                available to the public not later than December 31 of 
                the year following the calendar year on which the data 
                is based.
    ``(l) Definitions.--For purposes of this section, the following 
definitions shall apply:
            ``(1) Adjustable rate mortgage.--The term `adjustable rate 
        mortgage' means, with respect to a federally related mortgage 
        loan, that the loan terms provide for the rate of interest 
        charged under the loan to reset or adjust at least once during 
        the term of the loan.
            ``(2) Covered federally related mortgage loan.--The term 
        `covered federally related mortgage loan' means a federally 
        related mortgage loan described in subsection (a).
            ``(3) Mortgagee.--The term `mortgagee' means, with respect 
        to a federally related mortgage loan, the original lender under 
        the loan and any affiliates, agents, subsidiaries, successors, 
        or assignees of such lender, and any subsequent purchaser, 
        trustee, or transferee of the loan or credit instrument issued 
        by such lender.
            ``(4) Servicer.--The term `servicer' has the meaning given 
        such term in section 6(i).
    ``(m) Report to Congress.--Not later than the expiration of the 12-
month period beginning upon the date of the enactment of the 
Foreclosure Prevention and Sound Mortgage Servicing Act of 2008, and of 
each consecutive 12-month period thereafter, the Secretary of the 
Treasury and the Secretary of Housing and Urban Development shall 
provide a report to the Congress on the extent of compliance by 
mortgagees and servicers with the requirements of this section and 
paragraphs (4) through (7) of section 6(e).
    ``(n) Applicability.--Notwithstanding any regulations authorized to 
carry out under this section, this section shall apply with respect to 
defaults on covered federally related mortgage loans occurring after 
the date of the enactment of the Foreclosure Prevention and Sound 
Mortgage Servicing Act of 2008, without regard to the date on which the 
loan was made.''.
    (b) Duty of Loan Servicer To Respond to Borrower Inquiries.--
Section 6(e)(1)A) of the Real Estate Settlement Procedures Act of 1974 
(12 U.S.C. 2605(e)(1)(A)) is amended by striking ``borrower)'' and 
inserting ``(borrower, including a housing counseling agency approved 
by the Secretary)''.
    (c) Comprehensive Disclosure and Fair Processing of Qualified 
Written Requests.--Section 6(e) of the Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2605(e)) is amended by adding at the 
end the following new paragraphs:
            ``(4) Provision of information regarding mortgage.--The 
        servicer of a covered federally related mortgage loan (as such 
        term is defined in section 6A(l)) shall have available at all 
        times the following information, which shall be provided to the 
        borrower or borrower's agent in response to a qualified written 
        request by the borrower submitted in accordance with the 
        deadlines set forth in paragraph (1)(A):
                    ``(A) Whether the account relating to such loan is 
                current, or if not, the date the account went into 
                default.
                    ``(B) The current balance due on the loan, 
                including the amount of principal due, an itemization 
                of all fees due, an explanation of the escrow balance, 
                and whether there are any escrow deficiencies or 
                shortages.
                    ``(C) A full payment history that shows, in a clear 
                and easily understandable manner, all of the activity 
                on the loan since the origination of the loan, 
                including the escrow account, and the application of 
                payments made under the loan.
                    ``(D) The initial terms of the loan.
                    ``(E) A copy of the original note and security 
                instrument.
                    ``(F) Identification of the owner of the mortgage 
                note and any investors in the note.
                    ``(G) Any documents that limit, explain, or modify 
                the loss mitigation activities offered by the servicer.
                    ``(H) Any other information requested by the 
                borrower that is reasonably related to loss mitigation 
                activities.
            ``(5) Prohibition of `wrong door' actions for qualified 
        written requests.--All written communications from the 
        mortgagee or servicer of a federally related mortgage loan to 
        the borrower shall include the address for receipt and handling 
        of qualified written requests. Any qualified written request 
        received by the mortgagee or servicer shall be valid 
        notwithstanding receipt at any address other than that 
        designated by the mortgagee or servicer for receipt and 
        handling of such requests.
            ``(6) Prohibition of fee for response to qualified written 
        requests.--A mortgagee or servicer for a federally related 
        mortgage loan may not impose any fee for, or on account of, the 
        preparation and submission by such mortgagee or servicer of any 
        response or statement required by this subsection.
            ``(7) Prohibition of foreclosure pending disclosure.--In 
        the case of a covered federally related mortgage loan (as such 
        term is defined in section 6A(l)), no foreclosure proceeding 
        may be initiated or continued against the borrower or the 
        principal residence of the borrower during any period in which 
        a qualified written request under this subsection is pending 
        and the mortgagee or servicer has not complied with the 
        requirements of this subsection regarding the request.''.
    (d) Damages and Costs.--Section 6(f) of the Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2605(f)) is amended--
            (1) in the matter preceding paragraph (1), by inserting 
        ``or of section 6A'' after ``this section'';
            (2) in paragraphs (1)(B) and (2)(B)--
                    (A) by striking ``a pattern or practice'' each 
                place such term appears; and
                    (B) by striking ``$1,000'' each place such term 
                appears and inserting ``$2,000 for each violation'';
            (3) in paragraph (2)(B)(i), by striking ``$500,000'' and 
        inserting ``$1,000,000''.

SEC. 3. CONFORMING AMENDMENT.

    Section 17 of the Real Estate Settlement Procedures Act of 1974 (12 
U.S.C. 2615) is amended by striking ``Nothing'' and inserting ``Except 
as provided in sections 6(e)(7) and 6A, nothing''.
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