Findings

Congress finds that— (1)mortgage modifications often afford the best opportunity to avoid foreclosures and provide long term, sustainable solutions for American homeowners; (2)reaching mortgage modification agreements with homeowners has been unacceptably slow and foreclosure rates continue to rise, with the number of homeowners forced into foreclosure double the number who receive modifications or repayment plans; (3)servicers have an obligation to protect the interests of investors when determining whether to offer a modification or repayment plan; (4)the best course of action for the investor pool as a whole may disadvantage the interests of individual classes of investors; (5)servicers have expressed concern that investor classes that are disproportionately disadvantaged by a modification or repayment plan may seek to hold the servicer liable; (6)without liability protection, many servicers will not be willing to take on the risk associated with approving a mortgage modification or repayment plan, and instead, they will eventually pursue foreclosure even though foreclosure costs can equal 50 percent or more of mortgage value; and (7)the net present value of a modified mortgage loan will almost always exceed the amount recouped by allowing the home to go into foreclosure.

Legal safe harbor for entering into certain loan modifications or workout plans

Section 6 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605) is amended— (1)by redesignating subsections (i) and (j) as subsections (j) and (k), respectively; and (2)by inserting after subsection (h) the following:

(i)

Duty of servicers regarding certain loan modifications or workout plans

(1)

In general

Notwithstanding any other provision of law, absent specific contractual provisions to the contrary, a servicer of pooled qualified residential mortgages— (A)owes any duty to determine if the net present value of the payments on the loan, as modified, is likely to be greater than the anticipated net recovery that would result from foreclosure to all investors and parties having a direct or indirect interest in the pooled loans or securitization vehicle, but not to any individual party or group of parties; and (B)acts in the best interests of all such investors and parties, if the servicer agrees to or implements a qualified loan modification or workout plan for a qualified residential mortgage, or if, and only if, such efforts are unsuccessful or infeasible, takes other reasonable loss mitigation actions, including accepting partial payments or short sale of the property; and (C)if the servicer acts in a manner consistent with the duty set forth in subparagraphs (A) and (B), shall not be liable under any law or regulation of the United States, any State or any political subdivision of any State, for entering into a qualified loan modification or workout plan in any action filed by or on behalf of any person— (i)based on the person’s ownership of any interest in a residential mortgage, a pool of residential mortgage loans, or a securitization vehicle, that distributes payments out of the principal, interest, or other payment on loans in the pool; (ii)based on the person’s obligation to make payments determined in reference to any loan or interest referred to in clause (i); or (iii)based on the person’s obligation to insure any loan or any interest referred to in clause (i). (2)

Definitions

As used in this subsection— (A)the term qualified loan modification or workout plan means a contract, modification, or plan relating to a qualified residential mortgage loan consummated on or after January 1, 2004, with respect to which— (i)payment default on the loan or loans has occurred, is imminent, or is reasonably foreseeable; (ii)the dwelling securing the loan or loans is the primary residence of the owner; (iii)the servicer reasonably believes that the anticipated recovery under the loan modification or workout plan will exceed the anticipated recovery through foreclosure, on a net present value basis; (iv)the effective period runs for at least 5 years from the date of adoption of the plan, or until the borrower sells or refinances the property, if that occurs earlier; and (v)the borrower is not required to pay additional fees to the servicer; (B)the term qualified residential mortgage means a consumer credit transaction or loan that is secured by the consumer’s principal dwelling; (C)the term securitization vehicle means a trust, corporation, partnership, limited liability entity, special purpose entity, or other structure that 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 (D)the term servicer— (i)means the person responsible for servicing of a loan (including the person who makes or holds a loan, if such person also services the loan); and (ii)includes the entities listed in subparagraphs (A) and (B) of subsection (j)(2). (3)

Effective period

This subsection shall apply only with respect to qualified loan modification or workout plans initiated during the 6-month period beginning on the date of enactment of this subsection. (4)

Rule of construction

Nothing in this subsection may be construed to limit the ability of a servicer to enter into a loan modification or workout plan other than a qualified loan modification or workout plan covered by this subsection.