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:

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.