[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.
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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
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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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