[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 3686 Introduced in Senate (IS)]







110th CONGRESS
  2d Session
                                S. 3686

  To establish an Office of Foreclosure Evaluation to coordinate the 
 responsibilities of the Department of the Treasury, the Department of 
Housing and Urban Development, the Federal Housing Administration, the 
     Federal Housing Finance Agency, the Neighborhood Reinvestment 
 Corporation, the Federal Deposit Insurance Corporation, the Board of 
 Governors of the Federal Reserve System, and other Federal Government 
   entities regarding foreclosure prevention, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

           November 17 (legislative day, September 17), 2008

  Mr. Specter introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  To establish an Office of Foreclosure Evaluation to coordinate the 
 responsibilities of the Department of the Treasury, the Department of 
Housing and Urban Development, the Federal Housing Administration, the 
     Federal Housing Finance Agency, the Neighborhood Reinvestment 
 Corporation, the Federal Deposit Insurance Corporation, the Board of 
 Governors of the Federal Reserve System, and other Federal Government 
   entities regarding foreclosure prevention, 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; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Foreclosure 
Diversion and Residential Mortgage Loan Modification Act''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
Sec. 3. Office of Foreclosure Evaluation.
Sec. 4. Working group on foreclosure prevention.
Sec. 5. Authorization of appropriations.
Sec. 6. Definitions.
Sec. 7. Modification of existing programs to prevent foreclosure.
Sec. 8. Sunset.

SEC. 2. FINDINGS.

    Congress finds that--
            (1) for the second quarter of 2008, foreclosure filings 
        nationwide had increased 121 percent over the second quarter of 
        2007, and in the same time period, nearly 250,000 properties 
        were foreclosed;
            (2) in both the prime and subprime markets, seriously 
        delinquent residential mortgage loans have been rising at an 
        alarming rate, increasing 3-fold since early 2006;
            (3) the number of adjustable rate mortgages that are 
        seriously delinquent has more than quadrupled since early 2006, 
        and nationwide, it is estimated that 2,200,000 families with 
        subprime mortgage loans have lost or will lose their homes to 
        foreclosure over the next several years;
            (4) renters suffer as well, as they may be evicted from 
        foreclosed homes with little or no notice, despite being up to 
        date on rent payments;
            (5) neighborhoods are deteriorating as foreclosed homes are 
        left vacant, depressing neighboring property values, and 
        leading to higher crime rates;
            (6) crafting affordable and sustainable loan modifications 
        for distressed homeowners is labor intensive;
            (7) securitization has brought many benefits but also leads 
        to greater complexity in finding solutions;
            (8) under many mortgage pooling and servicing agreements, 
        additional labor costs incurred by servicers who engage in the 
        modification process are not compensated by the loan owner, but 
        servicers are paid a fee to foreclose on a homeowner, and 
        servicers may be permitted to retain ancillary fees, such as 
        late fees and loan collection fees;
            (9) under such a cost and incentive structure, servicers 
        may continue to push homeowners into less labor intensive 
        repayment plans, often with higher monthly payment obligations, 
        or towards foreclosure;
            (10) despite widespread efforts since early 2007 to 
        encourage voluntary residential mortgage loan modifications, 
        the pace of affordable and sustainable modifications has not 
        been sufficient to achieve the scale necessary to contain broad 
        harm to communities and the economy;
            (11) there is a need to focus more Federal resources on 
        foreclosure prevention efforts, including court supervised 
        mediation programs, that have proven to be effective and that 
        are handled on a mortgage-by-mortgage basis; and
            (12) to prevent foreclosures where avoidable, there is a 
        need to ensure that--
                    (A) there are substantive communications between 
                servicers and homeowners, that servicers have authority 
                to answer questions and resolve issues related to loss 
                mitigation activities, and that servicers and loan 
                owners consider or offer reasonable loss mitigation, 
                primarily through reduction in monthly payments by 
                lowering interest rates or extending the payment period 
                prior to foreclosure; and
                    (B) homeowners are responding to servicers' 
                communications, meeting with federally certified 
                housing counselors and trained pro bono attorneys, and 
                availing themselves of State and local housing finance 
                and foreclosure prevention programs.

SEC. 3. OFFICE OF FORECLOSURE EVALUATION.

    (a) Establishment of Office.--Section 109 of the Emergency Economic 
Stabilization Act of 2008 (division A of Public Law 110-343) is amended 
by adding at the end the following new subsection:
    ``(d) Office of Foreclosure Evaluation.--
            ``(1) Establishment.--There is established, in the Office 
        of Domestic Finance of the Department of the Treasury, the 
        Office of Foreclosure Evaluation (hereafter in this section 
        referred to as the `Office').
            ``(2) Director.--
                    ``(A) In general.--The Office shall be headed by 
                the Director of Foreclosure Evaluation (hereafter in 
                this section referred to as the `Director'), who shall 
                be an Assistant Secretary of the Treasury, appointed by 
                the President, by and with the advice and consent of 
                the Senate, except that an interim Assistant Secretary 
                may be appointed by the Secretary notwithstanding such 
                advice and consent.
                    ``(B) Appointment.--The Director shall be appointed 
                from among individuals who are citizens of the United 
                States, have a demonstrated understanding of financial 
                management or oversight, and have a demonstrated 
                understanding of mortgage securities markets and 
                housing finance.
            ``(3) Functions of the director.--
                    ``(A) In general.--The Director shall have ultimate 
                responsibility within the Department of the Treasury, 
                except for the Secretary, for all activities and 
                matters relating to foreclosure evaluation and 
                prevention, including--
                            ``(i) research, grant administration, 
                        public outreach, and policy development 
                        relating to foreclosure prevention; and
                            ``(ii) establishment, coordination, and 
                        administration of requirements, standards, and 
                        performance measures under programs and laws 
                        administered by the Department of the Treasury 
                        that relate to housing foreclosure prevention.
                    ``(B) Other specific functions.--The Director shall 
                carry out the functions assigned to the Director and 
                the Office under this subsection and any other 
                provisions of law, including--
                            ``(i) serving as the Chairperson of the 
                        Working Group on Foreclosure Prevention 
                        established under subsection (e);
                            ``(ii) coordinating the responsibilities of 
                        the Department of the Treasury, the Department 
                        of Housing and Urban Development, the Federal 
                        Housing Administration, the Federal Housing 
                        Finance Agency, the Neighborhood Reinvestment 
                        Corporation, the Federal Deposit Insurance 
                        Corporation, the Board of Governors of the 
                        Federal Reserve System, and other Federal 
                        Government entities regarding foreclosure 
                        prevention;
                            ``(iii) collaborating in foreclosure 
                        prevention efforts with State and local 
                        government agencies, State and local courts, 
                        community based nonprofit organizations and 
                        counselors with expertise in the field of 
                        housing counseling, and State and local bar 
                        associations;
                            ``(iv) certifying qualified foreclosure 
                        prevention programs, as provided in paragraph 
                        (4);
                            ``(v) responding to inquiries and rendering 
                        opinions as to the reasonableness of the 
                        foreclosure mitigation actions of servicers, as 
                        provided in paragraph (5);
                            ``(vi) conducting the National Public 
                        Service Multimedia Campaign To Promote 
                        Foreclosure Prevention Programs created under 
                        paragraph (6);
                            ``(vii) working with and gathering data 
                        from the mortgage and real estate industries to 
                        ensure that servicers are engaging in 
                        reasonable mitigation and foreclosure 
                        prevention actions;
                            ``(viii) encouraging servicers to use 
                        technology that would standardize the income to 
                        expense and loan resolution process; and
                            ``(ix) considering payment of incentives to 
                        servicers for modifications completed within 
                        certain periods of time.
            ``(4) Certification and promotion of foreclosure prevention 
        programs.--
                    ``(A) Requirement for assistance.--An organization 
                may not receive assistance for foreclosure preventions 
                programs under this subsection, unless the organization 
                has been certified by the Office for such purpose, in 
                accordance with this paragraph.
                    ``(B) Standards and procedures.--The Director 
                shall, by regulation, establish standards and 
                procedures for the certification of foreclosure 
                prevention programs, which shall require that any such 
                program involves, at a minimum--
                            ``(i) efforts to identify, contact, and 
                        provide counseling to homeowners facing 
                        foreclosure or at significant risk of 
                        foreclosure;
                            ``(ii) efforts to facilitate conciliation, 
                        mediation, or negotiation between homeowners 
                        and servicers at minimal or no additional cost 
                        to homeowners; and
                            ``(iii) performance measures to document or 
                        demonstrate the success of the program in 
                        preventing or mitigating foreclosures.
                    ``(C) Promotion of conciliation and mediation.--The 
                Director shall, in jurisdictions with judicial 
                foreclosure laws--
                            ``(i) promote the adoption of foreclosure 
                        prevention programs that require court 
                        supervised conciliation or mediation 
                        conferences between lenders or servicers or 
                        their legal representatives and homeowners or 
                        borrows or their legal representatives; and
                            ``(ii) promote the use of pro bono legal 
                        counsel to represent homeowners or borrowers in 
                        such conciliation or mediation conferences.
                    ``(D) Consistency with existing programs.--The 
                certification standards and procedures established 
                under this paragraph shall, to the extent practical, be 
                consistent with the certification procedures for 
                housing counselors under section 106(e) of the Housing 
                and Urban Development Act of 1968 (12 U.S.C. 1701x(e)).
                    ``(E) Consultation with working group.--The 
                certification standards and procedures established 
                under this paragraph shall be developed in consultation 
                with the Working Group established under subsection 
                (e).
                    ``(F) Grants.--The Director, in consultation with 
                the Working Group, shall identify and promote Federal 
                grant opportunities for certified foreclosure 
                prevention programs. To the extent necessary to 
                establish or build the capacity of certified 
                foreclosure prevention programs, the Director may award 
                grants directly to such programs.
            ``(5) Administrative prerequisites related to claims based 
        on residential mortgage loan modifications.--
                    ``(A) In general.--
                            ``(i) Limitation.--No civil action or 
                        complaint to recover damages resulting from a 
                        case-by-case residential mortgage loan 
                        modification or loss mitigation action, 
                        including delaying foreclosure, changing the 
                        interest rate on a prospective basis, 
                        capitalizing arrearages, extending the maturity 
                        date, extending the time for payment, accepting 
                        partial payments, or partially discharging 
                        principal, occurring from January 1, 2008 
                        through January 1, 2010, and allegedly in 
                        violation of a pooling and servicing agreement, 
                        or equivalent claims, whether in tort or in 
                        contract, shall be filed unless the attorney or 
                        party filing the action has made a reasonable 
                        inquiry with the Office to determine that there 
                        are grounds for a good faith belief that the 
                        servicer has failed to comply with the duty 
                        described in section 119(b).
                            ``(ii) Procedural requirements.--With 
                        respect to an action or complaint described in 
                        clause (i)--
                                    ``(I) the complaint or initial 
                                pleading shall contain a certification 
                                by the attorney or party filing the 
                                action that an inquiry required by 
                                clause (i) has been made and a signed 
                                opinion from the Office that the 
                                actions of the servicer were 
                                unreasonable and inconsistent with 
                                accepted servicing practices, or not 
                                permitted by the restrictions on real 
                                estate mortgage investment conduits 
                                under sections 860A through 860G of the 
                                Internal Revenue Code of 1986;
                                    ``(II) such opinion shall be 
                                admissible but not conclusive; and
                                    ``(III) the failure to obtain and 
                                file the written opinion from the 
                                Office shall be grounds for the 
                                dismissal of the action.
                    ``(B) Limitation on enforcement of contract 
                terms.--For residential mortgage loan modification 
                occurring between January 1, 2008 and January 1, 2010, 
                limitations in a pooling and servicing agreement as to 
                the total number of loans that may be modified to a 
                specified percentage are unenforceable, to the extent 
                that the actual number of loans modified by the 
                servicer is less than 25 percent of the total.
                    ``(C) Statute of limitations and determination of 
                the date on which a claim accrues.--The date on which 
                the statute of limitations begins to run on any claim 
                described in this paragraph shall be the later of--
                            ``(i) the date of the issuance of the 
                        opinion of the Office, as required under 
                        subparagraph (A); or
                            ``(ii) the date on which the cause of 
                        action accrues.
            ``(6) National public service multimedia campaign to 
        promote foreclosure prevention programs.--
                    ``(A) In general.--The Director shall develop, 
                implement, and conduct a national public service 
                multimedia campaign designed to make homeowners facing 
                default or mortgage foreclosure aware of certified 
                foreclosure prevention programs.
                    ``(B) Contact information.--Each segment of the 
                multimedia campaign under subparagraph (A) shall 
                publicize the toll-free telephone number and website of 
                State or local programs that assist homeowners facing 
                default or foreclosure.
            ``(7) Education programs.--The Director shall provide 
        advice and technical assistance to the States, units of general 
        local government, and nonprofit organizations regarding the 
        establishment and operation of foreclosure prevention programs 
        that assist homeowners in obtaining assistance from housing 
        counselors certified by the Department of Housing and Urban 
        Development, community legal services organizations, pro bono 
        attorneys, and State court programs that coordinate 
        conciliation conferences before foreclosures and sheriff sales 
        may proceed.
            ``(8) Study and report by the director on loss mitigation 
        activity.--
                    ``(A) Study required.--The Director shall conduct a 
                study of the barriers to reasonable and timely 
                residential mortgage loan modifications to prevent 
                foreclosure of home loans, as well as the success of 
                programs designed to prevent foreclosures, using as 
                much empirical data as are available. The study shall 
                include, among other relevant data, an assessment of 
                whether the fee structure of typical loan servicing 
                agreements creates a disincentive for servicers to 
                engage in activities to mitigate or prevent 
                foreclosure.
                    ``(B) Submission to congress.--Not later than--
                            ``(i) 6 months after the date of enactment 
                        of this subsection, the Director shall submit 
                        to Congress a preliminary report regarding the 
                        study required by this paragraph; and
                            ``(ii) 12 months after such date of 
                        enactment, the Director shall submit a final 
                        report regarding the results of the study, 
                        including any recommendations for legislation, 
                        for best practices, and for processes to 
                        identify and effectively assist homeowners who 
                        can avoid foreclosure.
            ``(9) Reporting by servicers.--
                    ``(A) In general.--Each servicer that participates 
                in a certified foreclosure prevention program shall 
                report regularly, but not less frequently than monthly, 
                to the Director on the extent and scope of the loss 
                mitigation activities of the mortgage owner.
                    ``(B) Report contents.--The report required by 
                subparagraph (B) shall include--
                            ``(i) the number of residential mortgage 
                        loans receiving loss mitigation that have 
                        become performing loans;
                            ``(ii) the number of residential mortgage 
                        loans receiving loss mitigation that have 
                        proceeded to foreclosure;
                            ``(iii) the total number of foreclosures 
                        initiated during the reporting period;
                            ``(iv) data on loss mitigation activities 
                        disaggregated to reflect whether the loss 
                        mitigation was--
                                    ``(I) waiver of any late payment 
                                charge, penalty interest, or any other 
                                fees or charges, or any combination 
                                thereof;
                                    ``(II) establishment of a repayment 
                                plan under which the homeowner resumes 
                                regularly scheduled payments and pays 
                                additional amounts at scheduled 
                                intervals to cure the delinquency;
                                    ``(III) 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 the loan, including 
                                arrearage, and a new schedule of 
                                repayment amounts;
                                    ``(IV) waiver, modification, or 
                                variation of any material term of the 
                                loan, including short-term, long-term, 
                                or life-of-loan modification that 
                                changes the interest rate, forgives the 
                                payment of principal or interest, or 
                                extends the final maturity date of the 
                                loan;
                                    ``(V) short refinancing of the loan 
                                consisting of acceptance of payment 
                                from or on behalf of the homeowner 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 homeowner;
                                    ``(VI) acquisition of the property 
                                by the owner or servicer by deed in 
                                lieu of foreclosure;
                                    ``(VII) short sale of the principal 
                                residence that is subject to the lien 
                                securing the loan;
                                    ``(VIII) assumption of the 
                                homeowner's obligation under the loan 
                                by a third party;
                                    ``(IX) cancellation or postponement 
                                of a foreclosure sale to allow the 
                                homeowner additional time to sell the 
                                property; or
                                    ``(X) any other loss mitigation 
                                activity not covered; and
                            ``(v) such other information as the 
                        Director determines to be relevant.
            ``(10) Additional reporting requirements.--The Director 
        shall consult with the Secretary of the Treasury and the 
        Secretary of Housing and Urban Development to amend, as 
        necessary, the reporting requirements applicable to federally 
        related mortgage loans to ensure that such reporting 
        requirements capture data necessary for the Director to satisfy 
        the reporting requirements of this subsection.''.
    (b) Clerical Amendments.--
            (1) Title 5.--Section 5315 of title 5, United States Code, 
        is amended in the item relating to Assistant Secretaries of the 
        Treasury, by striking ``(10)'' and inserting ``(11)''.
            (2) Title 31.--Section 301(e) of title 31, United States 
        Code, is amended by striking ``10'' and inserting ``11''.

SEC. 4. WORKING GROUP ON FORECLOSURE PREVENTION.

    Section 109 of the Emergency Economic Stabilization Act of 2008 
(division A of Public Law 110-343), as amended by this Act, is amended 
by adding at the end the following new subsection:
    ``(e) Working Group on Foreclosure Prevention.--
            ``(1) Establishment.--There is established a Working Group 
        on Foreclosure Prevention (in this subsection referred to as 
        the `Working Group').
            ``(2) Composition.--The Working Group shall be composed of 
        senior representatives of--
                    ``(A) the Department of the Treasury;
                    ``(B) the Department of Housing and Urban 
                Development;
                    ``(C) the Federal Housing Administration;
                    ``(D) the Federal Housing Finance Agency;
                    ``(E) the Neighborhood Reinvestment Corporation;
                    ``(F) the Federal Deposit Insurance Corporation;
                    ``(G) the Board of Governors of the Federal Reserve 
                System; and
                    ``(H) such other Federal Government entities 
                engaged in foreclosure prevention activities as may be 
                designated by the Chairperson of the Working Group.
            ``(3) Chairperson.--The Director of the Office of 
        Foreclosure Evaluation shall serve as the Chairperson of the 
        Working Group.
            ``(4) Purpose and functions.--The Working Group shall--
                    ``(A) improve coordination of Federal Government 
                efforts to prevent foreclosure and permit homeowners to 
                remain in their homes;
                    ``(B) build the capacity of Federal entities, as 
                well as State and local entities and nonprofit 
                organizations to offer housing counseling and pro bono 
                legal services to homeowners in areas that lack 
                sufficient services;
                    ``(C) share information and best practices 
                concerning foreclosure prevention programs; and
                    ``(D) review and provide input regarding the 
                criteria used by the Chairperson, as the Director of 
                the Office of Foreclosure Evaluation, to certify 
                foreclosure prevention programs.
            ``(5) Administration.--The Director shall provide the 
        Working Group with such administrative and support services as 
        may be necessary for the performance of the functions of the 
        Working Group.
            ``(6) Cooperation of other agencies.--The heads of 
        executive departments, agencies, and independent 
        instrumentalities shall, to the extent permitted by law, 
        provide the Working Group with such information as the Working 
        Group requires to carry out this subsection.
            ``(7) Consultation.--The Working Group shall consult, as 
        appropriate, with representatives of financial institutions, 
        government entities, and nonprofit organizations engaged in 
        foreclosure prevention programs, and representatives of the 
        general public.''.

SEC. 5. AUTHORIZATIONS.

    Section 109 of the Emergency Economic Stabilization Act of 2008 
(division A of Public Law 110-343), as amended by this Act, is amended 
by adding at the end the following new subsection:
    ``(f) Authorization of Appropriations.--The authorization 
limitations established under section 115(a) shall be reduced by the 
amounts necessary to carry out the education and outreach campaigns and 
other activities described in this section.''.

SEC. 6. DEFINITIONS.

    Section 109 of the Emergency Economic Stabilization Act of 2008 
(division A of Public Law 110-343), as amended by this Act, is amended 
by adding at the end the following new subsection:
    ``(g) Definitions.--As used in this section--
            ``(1) the term `Federally related mortgage loan' has the 
        same meaning as in section 3 of the Real Estate Settlement 
        Procedure Act of 1974 (12 U.S.C. 2602).
            ``(2) the term `homeowner' means a person who--
                    ``(A) has resided at the property secured by a 
                mortgage since the mortgage transaction was entered 
                into;
                    ``(B) intends to reside at such property during the 
                period of the loan; and
                    ``(C) treats the property as his or her primary 
                residence;
            ``(3) the term `residential mortgage loan' means any 
        extension of credit primarily for personal, family, or 
        household use that is secured by a mortgage, deed of trust, or 
        other equivalent consensual security interest on a dwelling (as 
        defined in section 103(v) of the Truth in Lending Act) or 
        residential real estate on which is constructed or intended to 
        be constructed a dwelling (as so defined); and
            ``(4) the term `servicer' has the same meaning as in 
        section 6(i)(2) of the Real Estate Settlement Procedures Act of 
        1974 (12 U.S.C. 2605(i)(2)).''.

SEC. 7. MODIFICATION OF EXISTING PROGRAMS TO PREVENT FORECLOSURE.

    The Housing and Economic Recovery Act or 2008 (Public Law 110-289) 
is amended--
            (1) in section 2301(c)(3) (42 U.S.C. 5301 note)--
                    (A) in subparagraph (D), by striking ``and'' at the 
                end;
                    (B) in subparagraph (E), by striking the period at 
                the end and inserting ``; and''; and
                    (C) by adding at the end the following:
                    ``(F) fund State and local mortgage foreclosure 
                prevention programs that support or require counseling, 
                conciliation, and mediation prior to sheriff sale or 
                foreclosure.'';
            (2) in section 1132(c)(1) (12 U.S.C. 1701x note)--
                    (A) in subparagraph (A)--
                            (i) by striking ``or'' at the end; and
                            (ii) by inserting ``(1)'' after ``(e)'' the 
                        second place it appears;
                    (B) in subparagraph (B), by striking the period at 
                the end and inserting ``; or''; and
                    (C) by adding at the end the following:
                    ``(C) certified by the Office of Foreclosure 
                Evaluation of the Department of the Treasury, in 
                accordance with section 109(d)(4) of the Emergency 
                Economic Stabilization Act of 2008 (Public Law 110-
                343).''; and
            (3) in the fourth undesignated proviso of section 2305 (42 
        U.S.C. 5301 note), by inserting after ``civil litigation'' the 
        following: ``, except with respect to the representation of a 
        homeowner in foreclosure litigation''.

SEC. 8. SUNSET.

    (a) In General.--Except as provided in subsections (b) and (c), 
this Act and the amendments made by this Act shall cease to have effect 
on December 31, 2012, and the Office of Foreclosure Evaluation and the 
Working Group on Foreclosure Prevention shall terminate on that date.
    (b) Exception.--Notwithstanding subsection (a), the provisions of 
section 109(d)(5) of the Emergency Economic Stabilization Act of 2008 
(Public Law 110-343), regarding administrative prerequisites related to 
claims based on loan modifications, as added by this Act, shall remain 
in effect after December 31, 2012.
    (c) Discharge of Duties.--After December 31, 2012, the duties and 
responsibilities assigned to the Director of the Office of Foreclosure 
Evaluation by section 109(d)(5) of the Emergency Economic Stabilization 
Act of 2008 (Public Law 110-343), as added by this Act, shall be 
discharged by the Under Secretary for Domestic Finance or an Assistant 
Secretary of the Treasury designated for such purpose by the Under 
Secretary.
                                 <all>