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.

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.

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.

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.

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.

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)).

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.

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.