II 110th CONGRESS 2d Session S. 2801 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.

1.

Short title

This Act may be cited as the Mortgage Enhancement and Modification Act of 2008.

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.