II 111th CONGRESS 1st Session S. 1731 IN THE SENATE OF THE UNITED STATES September 30, 2009 Mr. Reed (for himself, Mr. Durbin, Mr. Whitehouse, and Mr. Merkley) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To require certain mortgagees to make loan modifications, to establish a grant program for State and local government mediation programs, to create databases on foreclosures, and for other purposes.

1.

Short title

This Act may be cited as the Preserving Homes and Communities Act of 2009.

2.

Loan modification requirements

(a)

Definitions

In this section— (1)the term covered mortgagee means— (A)a mortgagee under a federally related mortgage loan; and (B)the agent of a mortgagee under a federally related mortgage loan; (2)the term covered mortgagor means an individual who is a mortgagor under a federally related mortgage loan— (A)made by a covered mortgagee; (B)secured by the principal residence of the mortgagor; and (C)on which the mortgagor cannot make payments due to financial hardship, as determined by the Secretary; (3)the term federally related mortgage loan has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602); (4)the term home loan modification protocol means a home loan modification protocol that is developed under a home loan modification program put into effect by the Secretary of the Treasury or the Secretary; (5)the term qualified loan modification means a modification to the terms of a mortgage agreement between a covered mortgagee and a covered mortgagor that is made pursuant to a determination by the covered mortgagee using a home loan modification protocol that a modification would produce a greater net present value than foreclosure to— (A)the covered mortgagee; or (B)in the aggregate, all persons that hold an interest in the mortgage agreement; and (6)the term Secretary means the Secretary of Housing and Urban Development. (b)

Loan modification required

(1)

In general

A covered mortgagee may not initiate or continue a foreclosure proceeding against a covered mortgagor that is otherwise authorized under State law unless— (A)the covered mortgagee has determined whether the covered mortgagor is eligible for a qualified loan modification; (B)in the case of a covered mortgagor who the covered mortgagee determines is eligible for a qualified loan modification, the covered mortgagee has offered a qualified loan modification to the covered mortgagor; and (C)in the case of a covered mortgagor who the covered mortgagee determines is not eligible for a qualified loan modification, the covered mortgagee has made available to the covered mortgagor the note, deed of trust, or any other document necessary to establish the right of the mortgagee to foreclose on the mortgage. (2)

No waiver of rights

A covered mortgagee may not require a covered mortgagor to waive any right of the covered mortgagor as a condition of making a qualified loan modification. (3)

Sale of real property securing mortgage

(A)

Sale

A covered mortgagee may not sell the real property securing the mortgage of a covered mortgagor unless the covered mortgagee submits to the appropriate State entity in the State in which the real property is located, a certification that the covered mortgagee has made a determination under paragraph (1)(A). (B)

Action by purchaser

A person that purchases from a covered mortgagee the real property securing the mortgage of a covered mortgagor may not recover possession of the real property unless the covered mortgagee submits to the appropriate State entity in the State in which the real property is located, a certification that the covered mortgagee has made a determination under paragraph (1)(A). (C)

Certification standards

The Secretary shall establish minimum standards for the certification required under this paragraph. (4)

Defense to foreclosure

Failure to comply with this subsection shall be a defense to foreclosure. (5)

Rule of construction

Nothing in this subsection may be construed to prevent a covered mortgagee from offering or making a loan modification with a lower payment, lower interest rate, or principal reduction beyond that required by a modification made using a home loan modification protocol with respect to a covered mortgagor. (c)

Fees prohibited

(1)

Loan modification fees prohibited

A covered mortgagee may not charge a fee to a covered mortgagor for carrying out the requirements under subsection (b). (2)

Foreclosure-related fees

(A)

In general

Except as provided in subparagraph (B), a mortgagee may not charge a foreclosure-related fee to a mortgagor before— (i)the mortgagee has made a determination under subsection (b)(1); and (ii)the mortgage has entered the foreclosure process. (B)

Delinquency fees

A mortgagee may charge a delinquency fee for late payment by the mortgagor. (3)

Fees not in contract

A mortgagee may charge to a mortgagor only such fees as have been specified in advance by the mortgage agreement. (4)

Fees for expenses incurred

A mortgagee may charge a fee to a mortgagor only for services actually performed by the mortgagee or a third party in relation to the mortgage agreement. For purposes of this paragraph, the term third party does not include an affiliate or subsidiary of the mortgagee. (5)

Penalty

The Secretary shall collect from any mortgagee that charges a fee in violation of this subsection an amount equal to $6,000 for each such fee. (d)

Regulations

Not later than 3 months after the date of enactment of this Act, the Secretary shall issue by notice any requirements to carry out this section. The Secretary shall subsequently issue, after notice and comment, final regulations to carry out this section.

3.

Grants to States to assist homeowners in default

Section 106 of the Housing and Urban Development Act of 1968 (12 U.S.C. 1701x) is amended by adding at the end the following: (g)

Grants to States To assist homeowners in default

(1)

Definitions

In this subsection— (A)the term eligible agency means a State housing finance agency or an agency designated by the State as an eligible agency; (B)the term eligible homeowner means a mortgagor who— (i)is a permanent resident of the State in which the principal residence of the mortgagor is located; (ii)agrees to seek counseling from a counseling agency approved by the Secretary if the eligible homeowner receives a loan or grant made using funds under this subsection; (iii)is suffering from financial hardship which is unexpected or due to circumstances beyond the control of the mortgagor; (iv)is unable to correct any delinquency on any amounts past due on the home loan of such mortgagor within a reasonable time without financial assistance; (v)has requested a loan modification from the mortgagee; (vi)is unable to make full payment on any home loan payment due for all liens within the 30-day period following the date of the application by the mortgagor for a loan or grant using funds under this subsection; (vii)the eligible agency determines has a reasonable probability of resuming full payments due for all liens on the mortgage of such mortgagor not later than 15 months after the date on which the mortgagor receives a loan or grant using funds under this subsection; and (viii)has not previously received a loan or grant using funds under this subsection; and (C)the term mortgagor means a mortgagor under a mortgage— (i)secured by a 1- to 4-family owner-occupied residence (including a 1-family unit in a condominium project and a membership interest and occupancy agreement in a cooperative housing project) that is used as the principal residence of the mortgagor; (ii)with an interest rate that does not exceed the prime rate of interest at the time of loan origination, as such prime rate is determined by not less than 75 percent of the 30 largest depository institutions in the United States; and (iii)for an amount that does not exceed the conforming loan limit for conventional mortgages, as determined under section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)). (2)

Grant program established

The Secretary shall award grants to eligible agencies, to enable eligible agencies to provide— (A)1-time emergency grants or subsidized loans to eligible homeowners to assist such eligible homeowners in satisfying any amounts past due on their home loans; (B)grants or subsidized loans to eligible homeowners for a specified number of future mortgage payments by the eligible homeowners; and (C)stipends of not more than $1,500 to assist with relocation expenses for homeowners not eligible for the program. (3)

Additional services provided by eligible agency

An eligible agency that receives a grant under this subsection shall provide— (A)a readily accessible source for information on, and referral to, public services available to assist a homeowner who is in default on their home loan; (B)a homeowner with referrals to counseling agencies approved by the Department of Housing and Urban Development that may be able to assist that homeowner, if that homeowner is in default on their home loan; (C)information to homeowners on available community resources relating to homeownership, including— (i)public assistance or benefits programs; (ii)mortgage assistance programs, including programs that help homeowners prepare documents for loan modification applications; (iii)home repair assistance programs; (iv)legal assistance programs; (v)utility assistance programs; (vi)food assistance programs; and (vii)other Federal, State, or local government funded social services; and (D)staff who— (i)are able to conduct a brief assessment of the situation of a homeowner; and (ii)based on such assessment, make appropriate referrals to, and provide application information regarding, programs that can provide assistance to such homeowner. (4)

Formula

Not later than 3 months after the date of enactment of the Preserving Homes and Communities Act of 2009, the Secretary shall develop a formula for the award of funds under this subsection that includes the following factors: (A)The population of the State, as determined by the Bureau of the Census in most recent estimate of the resident population of the State. (B)The rate of mortgages in the State that are delinquent more than 90 days. (C)The ratio of foreclosures to owner-occupied households in the State. (D)The change, if any, in the rate of unemployment in the State between 2007 and 2008. (5)

Program requirements

(A)

Selection criteria

(i)

In general

Each eligible entity that receives a grant under this subsection shall develop selection criteria for eligible homeowners seeking a grant or subsidized loan under this subsection. (ii)

Income reporting

A mortgagor that receives a grant or subsidized loan under this subsection shall be required, in accordance with criteria prescribed by the eligible agency, to report any increase in income. (B)

Loan requirements

(i)

Interest Rate

Any loan made using a grant under this subsection shall carry a simple annual percentage rate of interest which shall not exceed the prime rate of interest, as such prime rate is determined from time to time by not less than 75 percent of the 30 largest depository institutions in the United States. (ii)

Compound interest prohibited

Interest on the outstanding principal balance of any loan under this subsection shall not compound. (iii)

Balance due

(I)

In general

The principal of any loan made under this paragraph, including any interest accrued on such principal, shall not be due and payable unless the real property securing such loan is sold or transferred. (II)

Deposit of balance due

If an event described in subclause (I) occurs, the principal of any loan made under this subsection, including any interest accrued on such principal, shall immediately become due and payable to the eligible agency from which the loan originated. (iv)

Prepayment

Any eligible homeowner who receives a loan using a grant made under this subsection may repay the loan in full, without penalty, by lump sum or by installment payments, at any time prior to the loan becoming due and payable. (v)

Maximum amount

The amount of any loan to any 1 eligible homeowner under this subsection may not exceed 20 percent of the original mortgage amount borrowed by the eligible homeowner. (vi)

Subordination

Any loan made using a grant under this subsection will be subordinated to any refinancing of the first mortgage, any preexisting subordinate financing, any purchase money mortgage, or subordinated for any other reason, as determined by the eligible agency. (6)

Separate account

(A)

Separate account

An eligible agency that receives a grant under this subsection shall establish a separate account in which to hold amounts received under this subsection. (B)

Repayment of loans

Any amounts repaid on a subsidized loan made under this subsection shall be deposited in the account established under subparagraph (A). (C)

Other funding

Amounts donated or otherwise directed to be used for purposes of this subsection may be deposited in the account established under subparagraph (A) to help capitalize such account. (7)

Use of grant funds

(A)

In general

Subject to subparagraph (B), any amounts made available for purposes of this subsection may be used only for the purposes described in paragraph (2). (B)

Exception for administrative costs

An eligible agency may use not more than 5 percent of any funds received under this subsection for administrative costs relating to activities carried out under paragraph (2). (8)

Existing loan funds

Any eligible agency with a previously existing fund established to make loans to assist homeowners in satisfying any amounts past due on their home loan or for future payments may use funds appropriated for purposes of this subsection for that existing loan fund, even if the eligibility, application, program, or use requirements for that loan program differ from the eligibility, application, program, and use requirements of this subsection, unless such use is expressly determined by the Secretary to be inappropriate. (9)

Authorization of Appropriations

There are authorized to be appropriated to carry out this section— (A)$6,375,000,000 for fiscal year 2010; and (B)such sums as may be necessary for each of fiscal years 2011 through 2013. .

4.

Mediation initiatives

(a)

Definitions

In this section— (1)the term mortgagee includes the agent of a mortgagee; and (2)the term Secretary means the Secretary of Housing and Urban Development. (b)

Grant program established

The Secretary shall establish a grant program to make competitive grants to State and local governments to establish mediation programs that assist mortgagors facing foreclosure. (c)

Mediation programs

A mediation program established using a grant under this section shall— (1)require participation in the program by— (A)any mortgagee that initiates a foreclosure proceeding; and (B)any mortgagor who is subject to a foreclosure proceeding; (2)require any mortgagee or mortgagor required to participate in the program to make a good faith effort to resolve issues relating to foreclosure proceedings through mediation; (3)if mediation is not made available to the mortgagor before a foreclosure proceeding is initiated, allow the mortgagor to request mediation at any time before a foreclosure sale; (4)provide for— (A)supervision by a State court (or a State court in conjunction with an agency or department of a State or local government) of the mediation program; (B)selection and training of neutral, third-party mediators by a State court (or an agency or department of the State or local government); (C)penalties to be imposed by a State court, or an agency or department of a State or local government, if a mortgagee fails to comply with an order to participate in mediation; and (D)consideration by a State court (or an agency or department of a State or local government) of recommendations by a mediator relating to penalties for failure to fulfill the requirements of the mediation program; (5)require that each mortgagee that participates in the mediation program make available to the mortgagor, before and during participation in the mediation program, documentation of— (A)a loan modification calculation or net present value calculation made by the mortgagee in relation to the mortgage using a home loan modification protocol— (i)developed under a home loan modification program put into effect by the Secretary of the Treasury or the Secretary; or (ii)approved by the Secretary; (B)the loan origination, including any note, deed of trust, or other document necessary to establish the right of the mortgagee to foreclose on the mortgage; (C)any pooling and servicing agreement that the mortgagee believes prohibits a loan modification; (D)the payment history of the mortgagor and a detailed accounting of any costs or fees associated with the account of the mortgagor; and (E)the specific alternatives to foreclosure considered by the mortgagee, including loan modifications, workout agreements, and short sales; (6)prohibit a mortgagee from shifting the costs of participation in the mediation program, including the attorney's fees of the mortgagee, to a mortgagor; (7)provide that— (A)any holder of a junior lien against the property that secures a mortgage that is the subject of a mediation— (i)be notified of the mediation; and (ii)be permitted to participate in the mediation; and (B)any proceeding initiated by a holder of a junior lien against the property that secures a mortgage that is the subject of a mediation be stayed pending the mediation; (8)provide information to mortgagors about housing counselors approved by the Secretary; and (9)be free of charge to the mortgagor and mortgagee. (d)

Recordkeeping

A State or local government that receives a grant under this section shall keep a record of the outcome of each mediation carried out under the mediation program, including the nature of any loan modification made as a result of participation in the mediation program. (e)

Targeting

A State that receives a grant under this section may establish— (1)a State-wide mediation program; or (2)a mediation program in a specific locality that the State determines has a high need for such program due to— (A)the number of foreclosures in the locality; or (B)other characteristics of the locality that contribute to the number of foreclosures in the locality. (f)

Federal share

The Federal share of the cost of a mediation program established using a grant under this section may not exceed 50 percent. (g)

Authorization of appropriations

There are authorized to be appropriated to carry out this section— (1)$80,000,000 for fiscal year 2010; and (2)such sums as may be necessary for each of fiscal years 2011 through 2013.

5.

Oversight of public and private efforts to reduce mortgage defaults and foreclosures

(a)

Definitions

In this section— (1)the term heads of appropriate agencies means the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Director of the Office of Thrift Supervision, and a representative of State banking regulators selected by the Secretary of Housing and Urban Development; (2)the term mortgagee means— (A)an original lender under a mortgage; (B)any servicers, affiliates, agents, subsidiaries, successors, or assignees of an original lender; and (C)any subsequent purchaser, trustee, or transferee of any mortgage or credit instrument issued by an original lender; (3)the term Secretary means the Secretary of Housing and Urban Development; and (4)the term servicer means any person who collects on a home loan, whether such person is the owner, the holder, the assignee, the nominee for the loan, or the beneficiary of a trust, or any person acting on behalf of such person. (b)

Monitoring of home loans

(1)

In general

The Secretary, in consultation with the heads of appropriate agencies, shall develop and implement a plan to monitor— (A)conditions and trends in homeownership and the mortgage industry, in order to predict trends in foreclosures to better understand other critical aspects of the mortgage market; and (B)the effectiveness of public efforts to reduce mortgage defaults and foreclosures. (2)

Report to Congress

Not later than 1 year after the development of the plan under paragraph (1), and each year thereafter, the Secretary shall submit a report to Congress that— (A)summarizes and describes the findings of the monitoring required under paragraph (1); and (B)includes recommendations or proposals for legislative or administrative action necessary— (i)to increase the authority of the Secretary to levy penalties against any mortgagee, or other person or entity, who fails to comply with the requirements described in this section; (ii)to improve coordination between public and private initiatives to reduce the overall rate of mortgage defaults and foreclosures; and (iii)to improve coordination between initiatives undertaken by Federal, State, and local governments. (c)

National database on defaults and foreclosures

(1)

In general

The Secretary, in consultation with the heads of appropriate agencies, shall develop recommendations for a national database on mortgage defaults and foreclosures that— (A)provide information to Federal regulatory agencies on— (i)mortgagees that generate home loans that go into default or foreclosure at a rate significantly higher than the national average for such mortgagees; (ii)the factors associated with such higher rates; and (iii)other factors and indicators that the Secretary determines are critical to monitoring the mortgage markets; and (B)provide information to Federal, State, and local governments on loans, defaults, foreclosure initiations, foreclosure completions, and sheriff sales that— (i)is not otherwise readily available; (ii)would allow for a better understanding of local, regional, and national trends in delinquencies, defaults, and foreclosures; and (iii)helps improve public policies that reduce defaults and foreclosures. (2)

Considerations

In developing the recommendations under paragraph (1), the Secretary shall take into consideration privacy concerns and legal issues relating to such concerns, including the advisability of establishing rules relating to access to information obtained under subsection (d). (3)

Report to Congress on national database

Not later than 12 months after the date of enactment of this Act, the Secretary shall submit a report to Congress that contains— (A)the recommendations developed under paragraph (1); and (B)an estimate of the cost of maintaining the database described in paragraph (1). (d)

Provision of data

(1)

Data report required

Not later than 18 months after the date of enactment of this Act, the Secretary, in consultation with the heads of appropriate agencies, shall issue final rules that require each mortgagee or servicer that originates or services not fewer than 100 loans in a calendar year (or any other person that the Secretary determines can effectively provide the data described in paragraph (2)) to submit a report to the Secretary not less frequently than once each quarter that contains data the Secretary determines are necessary to carry out this section. (2)

Contents of report

Each report submitted under paragraph (1) shall contain data that— (A)for each loan, use the identification requirements that are established under the Home Mortgage Disclosure Act (12 U.S.C. 2801 et seq.) for data reporting, including— (i)the year of origination; (ii)the agency code of the originator; (iii)the respondent identification number of the originator; and (iv)the identifying number for the loan; (B)describe the characteristics of each home loan originated in the preceding 12 months by the mortgagee or servicer (or, in the case of the first report required to be submitted under this subsection, all active loans originated by the mortgagee or servicer), including— (i)the loan-to-value ratio at the time of origination for each mortgage on the property; (ii)the type of mortgage, such as a fixed-rate or adjustable-rate mortgage; and (iii)any other loan or loan underwriting characteristics determined by the Secretary to be necessary in order to meet the requirements of paragraph (1) and that are not already available to the Secretary through a national mortgage database; (C)include the performance outcome of each home loan originated in the preceding 12 months by the mortgagee or servicer (or, in the case of the first report required to be submitted under this subsection, all active loans originated by the mortgagee or servicer), including— (i)whether such home loan was in delinquency at any point in such 12-month period; and (ii)whether any foreclosure proceeding was initiated on such home loan during such 12-month period; (D)are sufficient to establish for each home loan that at any point during the preceding 12 months had become 60 or more days delinquent with respect to a payment on any amount due under the home loan, or for which a foreclosure proceeding was initiated, the interest rate on such home loan at the time of such delinquency or foreclosure; (E)include information relating to foreclosures, including— (i)the date of all foreclosures initiated by the mortgagee or servicer; and (ii)the combined loan-to-value ratio of all mortgages on a home at the time foreclosure proceedings were initiated; (F)for a home loan that is in foreclosure, include information on all actions, including loan modifications, taken to resolve the problem that led to the initiation of foreclosure proceedings and all actions undertaken prior to initiation of a foreclosure proceeding to resolve a delinquency or default; (G)identify each home loan for which a foreclosure proceeding was completed in the preceding 12 months, including— (i)foreclosure proceedings initiated in such 12-month period; and (ii)the date of the foreclosure completion; and (H)include any other information that the Secretary determines is necessary to carry out this section. (3)

Compliance plan and report

The Secretary, in consultation with the heads of appropriate agencies, shall— (A)develop a plan to monitor the compliance with the requirements established in this subsection by mortgagees and servicers; and (B)submit to Congress a report on such plan. (e)

Consolidated database

The Federal Financial Institutions Examination Council shall create a consolidated database that establishes a connection between the data provided under the Home Mortgage Disclosure Act (12 U.S.C. 2801 et seq.) and the data provided under this subsection. (f)

Authorization of appropriations

There are authorized to be appropriated to carry out this section— (1)$5,000,000 for fiscal year 2010; and (2)such sums as may be necessary for each of fiscal years 2011 through 2013.

6.

Housing Trust Fund

From funds received by the Secretary of the Treasury from the sale of warrants under title I of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5211 et seq.), the Secretary of the Treasury shall transfer and credit $1,000,000,000 to the Housing Trust Fund established under section 1338 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4568) for use in accordance with such section.