[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2801 Introduced in Senate (IS)]







110th CONGRESS
  2d Session
                                S. 2801

     To help families avoid foreclosure and stay in their homes by 
encouraging reasonable and responsible modifications for unworkable and 
    impractical mortgage loans, and to help preserve the rights of 
  investors by reaffirming the basic obligations of their investment 
 agents to achieve the most beneficial outcomes for their clients and 
                          for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 2, 2008

 Mr. Reid (for Mrs. Clinton) introduced the following bill; which was 
read twice and referred to the Committee on Banking, Housing, and Urban 
                                Affairs

_______________________________________________________________________

                                 A BILL


 
     To help families avoid foreclosure and stay in their homes by 
encouraging reasonable and responsible modifications for unworkable and 
    impractical mortgage loans, and to help preserve the rights of 
  investors by reaffirming the basic obligations of their investment 
 agents to achieve the most beneficial outcomes for their clients and 
                          for other purposes.

    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 ``Mortgage Enhancement and 
Modification Act of 2008''.

SEC. 2. SAFE HARBOR FOR QUALIFIED LOAN MODIFICATIONS OR WORKOUT PLANS 
              FOR CERTAIN RESIDENTIAL MORTGAGE LOANS.

    (a) Standard for Loan Modifications or Workout Plans.--Absent 
specific contractual provisions to the contrary--
            (1) the duty to maximize or not negatively affect, the 
        recovery of total proceeds from pooled residential mortgage 
        loans is owed by a servicer of such pooled loans to the 
        securitization vehicle for the benefit of all investors and 
        holders of beneficial interests in the pooled loans, in the 
        aggregate, and not to any individual party or group of parties;
            (2) a servicer of pooled residential mortgage loans shall 
        be deemed to be acting on behalf of the securitization vehicle 
        in the best interest of all investors and holders of beneficial 
        interests in the pooled loans, in the aggregate if--
                    (A) for a loan that is in payment default under the 
                loan agreement or for which payment default is imminent 
                or reasonably foreseeable, the loan servicer makes 
                reasonable and documented efforts, which shall be made 
                available to the investors and holders of beneficial 
                interests in the pooled loans upon request, to 
                implement a modification or workout plan; or
                    (B) the efforts under subparagraph (A) are 
                unsuccessful or such plan would be infeasible, engages 
                in other loss mitigation, including accepting a short 
                payment or partial discharge of principal, or agreeing 
                to a short sale of the property, to the extent that the 
                servicer reasonably believes the modification or 
                workout plan or other mitigation actions will maximize 
                the net present value to be realized on the loans over 
                that which would be realized through foreclosure under 
                the present terms of the contract; and
            (3) a servicer shall be deemed to be acting on behalf of 
        the securitization vehicle in the best interest of all 
        investors and holders of beneficial interests in the pooled 
        loans, in the aggregate, if the servicer makes efforts--
                    (A) to proactively contact borrowers that are 
                reasonably considered to be approaching a calendar date 
                in which a predetermined or contractually established 
                rate of interest on the principal of the loan shall--
                            (i) increase or fluctuate in accordance 
                        with a designated market indicator or 
                        indicators; or
                            (ii) increase or fluctuate within a 
                        predetermined range; and
                    (B) to determine--
                            (i) the ability of the borrower to make 
                        payments following a reset of interest rates 
                        using common and appropriate metric standards 
                        such as debt to income ratios;
                            (ii) whether the borrower is in danger of 
                        default or disclosure; and
                            (iii) whether a loan modification or other 
                        mitigation effort is appropriate.
    (b) Safe Harbor.--Absent specific contractual provisions to the 
contrary, a servicer of a residential mortgage loan that acts in a 
manner consistent with the provisions set forth in subsection (a), 
shall not be liable for entering into a qualified loan modification, or 
other loss mitigation effort described in subsection (a) to--
            (1) any person, based on that person's ownership of a 
        residential mortgage loan or any interest in a pool of 
        residential mortgage loans or in securities that distribute 
        payments out of the principal, interest, and other payments in 
        loans on the pool;
            (2) any person who is obligated to make payments determined 
        in reference to any loan or any interest referred to in 
        paragraph (1);
            (3) any person that insures any loan or any interest 
        referred to in paragraph (1) under any law or regulation of the 
        United States or any law or regulation of any State or 
        political subdivision of any State; or
            (4) any other person or institution that may have a 
        financial or commercial relationship and association with the 
        persons associated in paragraphs (1) through (3).
    (c) Rule of Construction.--No provision of this section shall be 
construed as limiting the ability of a servicer to enter into loan 
modifications or workout plans other than qualified loan modification 
or workout plans.
    (d) Definitions.--As used in this section, the following 
definitions shall apply:
            (1) Qualified loan modification or workout plan.--The term 
        ``qualified loan modification or workout plan'' means a 
        modification or plan that--
                    (A) is scheduled to remain in place until the 
                borrower sells or refinances the property, or for at 
                least 5 years from the date of adoption of the plan, 
                whichever is sooner;
                    (B) does not provide for a repayment schedule that 
                results in negative amortization at any time;
                    (C) does not require the borrower to pay additional 
                points and fees;
                    (D) materially improves the ability of the borrower 
                to--
                            (i) prevent foreclosure; and
                            (ii) resume a reasonable repayment schedule 
                        based on, but not limited to, debt to income 
                        ratio; and
                    (E) would reasonably reduce the likelihood of 
                default of foreclosure during the life of the 
                modification or plan;
                    (F) may waive any prepayment penalties that 
                reasonably inhibited a loan holder from fulfilling his 
                ability to pay down the principal or maintain regular 
                payments as defined by the terms of the loan; and
                    (G) includes full and accurate disclosure to the 
                borrower of the terms of the modification or workout 
                plan, provided that such disclosures are executed in 
                easy to understand terms that demonstrate how the 
                borrower will benefit from the new terms in such 
                modification or workout plan as compared with the terms 
                and conditions of the previous loan of the borrower.
            (2) Residential mortgage loan.--The term ``residential 
        mortgage loan'' means a loan that is secured by a lien on an 
        owner-occupied residential dwelling.
            (3) Securitization vehicle.--The term ``securitization 
        vehicle'' means a trust, corporation, partnership, limited 
        liability entity, special purpose entity, or other structure 
        that--
                    (A) is the issuer, or is created by the issuer, of 
                mortgage pass-through certificates, participation 
                certificates, mortgage-backed securities, or other 
                similar securities backed by a pool of assets that 
                includes residential mortgage loans; and
                    (B) holds such loans.
    (e) Limitations on Safe Harbor.--Except for the provisions of 
section 2 that limit liability for efforts to pursue qualified loan 
modifications or workout plans, the provisions of this section shall 
not be construed to affect or limit any other liability, duty, or other 
fiduciary obligation of the servicer to the investors and holders of 
beneficial interests in the pooled loans to a securitization vehicle, 
as prescribed by any other specific contractual provision agreed upon, 
or any other liability, duty, or other fiduciary obligation set forth 
under any--
            (1) law or regulation of the United States;
            (2) law or regulation of any State or political subdivision 
        of any State; or
            (3) established and approved standards for best practices 
        of any industry or trade group.
    (f) Effective Period.--This section shall apply only with respect 
to qualified loan modification or workout plans initiated prior to 
January 1, 2012.
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