[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 73 Introduced in Senate (IS)]







111th CONGRESS
  1st Session
                                 S. 73

To establish a systematic mortgage modification program at the Federal 
         Deposit Insurance Corporation, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 6, 2009

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

_______________________________________________________________________

                                 A BILL


 
To establish a systematic mortgage modification program at the Federal 
         Deposit Insurance Corporation, 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.

    This Act may be cited as the ``Systematic Foreclosure Prevention 
and Mortgage Modification Act''.

SEC. 2. SYSTEMATIC FORECLOSURE PREVENTION AND MORTGAGE MODIFICATION 
              PLAN ESTABLISHED.

    (a) In General.--The Chairperson of the Federal Deposit Insurance 
Corporation shall establish a systematic foreclosure prevention and 
mortgage modification program by--
            (1) paying servicers $1,000 to cover expenses for each loan 
        modified according to the required standards; and
            (2) sharing up to 50 percent of any losses incurred if a 
        modified loan should subsequently re-default.
    (b) Program Components.--The program established under subsection 
(a) shall include the following components:
            (1) Eligible borrowers.--The program shall be limited to 
        loans secured by owner-occupied properties.
            (2) Exclusion for early payment default.--To promote 
        sustainable mortgages, government loss sharing shall be 
        available only after the borrower has made a minimum of 6 
        payments on the modified mortgage.
            (3) Standard net present value test.--In order to promote 
        consistency and simplicity in implementation and audit, a 
        standard test comparing the expected net present value of 
        modifying past due loans compared to the net present value of 
        foreclosing on them will be applied. Under this test, standard 
        assumptions shall be used to ensure that a consistent standard 
        for affordability is provided based on a 31 percent borrower 
        mortgage debt-to-income ratio.
            (4) Systematic loan review by participating servicers.--
        Participating servicers shall be required to undertake a 
        systematic review of all of the loans under their management, 
        to subject each loan to a standard net present value test to 
        determine whether it is a suitable candidate for modification, 
        and to modify all loans that pass this test. The penalty for 
        failing to undertake such a systematic review and to carry out 
        modifications where they are justified would be 
        disqualification from further participation in the program 
        until such a systematic program was introduced.
            (5) Modifications.--Modifications may include any of the 
        following:
                    (A) Reduction in interest rates and fees.
                    (B) Forbearance of principal.
                    (C) Extension of the term to maturity.
                    (D) Other similar modifications.
            (6) Reduced loss share percentage for ``underwater 
        loans''.--For loan-to-value ratios above 100 percent, the 
        government loss share shall be progressively reduced from 50 
        percent to 20 percent as the current loan-to-value ratio rises, 
        except that loss sharing shall not be available if the loan-to-
        value ratio of the first lien exceeds 150 percent.
            (7) Simplified loss share calculation.--In order to ensure 
        the administrative efficiency of this program, the calculation 
        of loss share basis would be as simple as possible. In general 
        terms, the calculation shall be based on the difference between 
        the net present value, as defined by the Chairperson of the 
        Federal Deposit Insurance Corporation, of the modified loan and 
        the amount of recoveries obtained in a disposition by 
        refinancing, short sale, or real estate owned sale, net of 
        disposal costs as estimated according to industry standards. 
        Interim modifications shall be allowed.
            (8) De minimis test.--To lower administrative costs, a de 
        minimis test shall be used to exclude from loss sharing any 
        modification that does not lower the monthly payment at least 
        10 percent.
            (9) 8-year limit on loss sharing payment.--The loss sharing 
        guarantee shall terminate at the end of the 8-year period 
        beginning on the date the modification was consummated.
    (c) Regulations.--The Corporation shall prescribe such regulations 
as may be necessary to implement this Act and prevent evasions thereof.
    (d) Troubled Assets.--The costs incurred by the Federal Government 
in carrying out the loan modification program established under this 
section shall be covered out of the funds made available to the 
Secretary of the Treasury under section 118 of the Emergency Economic 
Stabilization Act of 2008.
    (e) Modifications to Program.--The Chairperson of the Federal 
Deposit Insurance Corporation may make any modification to the program 
established under subsection (a) that the Chairperson determines are 
appropriate for the purpose of maximizing the number of foreclosures 
prevented.
    (f) Report.--Before the end of the 6-month period beginning on the 
date of the enactment of this Act, the Chairperson of the Federal 
Deposit Insurance Corporation shall submit a progress report to the 
Congress containing such findings and such recommendations for 
legislative or administrative action as the Chairperson may determine 
to be appropriate.
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