[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 489 Introduced in Senate (IS)]
112th CONGRESS
1st Session
S. 489
To require certain mortgagees to evaluate loans for modifications, to
establish a grant program for State and local government mediation
programs, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
March 3, 2011
Mr. Reed (for himself, Mr. Durbin, Mr. Merkley, Mr. Whitehouse, Mr.
Franken, and Mr. Leahy) 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 evaluate loans for modifications, to
establish a grant program for State and local government mediation
programs, 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 ``Preserving Homes and Communities Act
of 2011''.
SEC. 2. DEFINITION.
In this Act, the term ``Secretary'' means the Secretary of Housing
and Urban Development.
SEC. 3. LOAN MODIFICATION REQUIREMENTS.
(a) Definitions.--In this section--
(1) the term ``covered mortgagee'' means--
(A) an original lender under a federally related
mortgage loan;
(B) any servicer, affiliate, agent, subsidiary,
successor, or assignee of a lender under a federally
related mortgage loan; and
(C) any purchaser, trustee, or transferee of any
mortgage or credit instrument issued by an original
lender under a federally related mortgage loan;
(2) the term ``covered mortgagor''--
(A) means an individual--
(i) who--
(I) is a mortgagor under a
federally related mortgage loan--
(aa) made by a covered
mortgagee; and
(bb) secured by the
principal residence of the
mortgagor; or
(II) is eligible to assume a
federally related mortgage loan
described in clause (I) in a manner
described in paragraph (3), (5), (6),
or (7) of section 341(d) of the Garn-St
Germain Depository Institutions Act of
1982 (12 U.S.C. 1701j-3(d)), if the
principal residence of the individual
is the principal residence securing the
federally related mortgage loan; and
(ii) who cannot make payments on a
federally related mortgage loan due to
financial hardship, as determined by the
Secretary, in consultation with the Secretary
of the Treasury and the Director of the Bureau
of Consumer Financial Protection; and
(B) does not include an individual who the
Secretary, in consultation with the Secretary of the
Treasury and the Director of the Bureau of Consumer
Financial Protection, determines has abandoned the
principal residence securing the federally related
mortgage loan;
(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--
(A) is developed under a home loan modification
program developed or put into effect by the Secretary
of the Treasury, the Secretary, or the Director of the
Bureau of Financial Protection;
(B) includes principal reduction; and
(C) to the extent possible, in the case of real
property on which there is a first lien and a
subordinate lien securing a federally related mortgage
loan, requires that any principal reduction with
respect to the first lien be accompanied by a
proportional principal reduction with respect to the
subordinate lien;
(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--
(A) is made pursuant to a determination by the
covered mortgagee using a home loan modification
protocol that a modification would--
(i) produce a greater net present value
than not modifying the loan to--
(I) the covered mortgagee; or
(II) in the aggregate, all persons
that hold an interest in the mortgage
agreement; and
(ii) produce mortgage payments that, at a
minimum, are reduced to an affordable and
sustainable amount, based on a debt-to-income
ratio that takes into account the total housing
debt and gross household income of the covered
mortgagor;
(B) applies for the remaining term of the original
mortgage agreement, prior to modification or amendment;
and
(C) permits the maximum amount of principal
reduction that produces a greater net present value
than foreclosure to the persons described in
subparagraph (A)(i); and
(6) the term ``State'' means any State of the United
States, the District of Columbia, any territory of the United
States, Puerto Rico, Guam, American Samoa, the Trust Territory
of the Pacific Islands, the Virgin Islands, and the Northern
Mariana Islands.
(b) Loan Modification Procedures.--
(1) Initiation of foreclosure.--A covered mortgagee may not
initiate a nonjudicial foreclosure or a judicial foreclosure
against a covered mortgagor that is otherwise authorized under
State law unless--
(A) the covered mortgagee has used its best efforts
to determine 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
used its best efforts to promptly offer 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 documentation
of--
(i) a loan modification calculation or net
present value calculation, including the
information necessary to verify and evaluate
the calculation, made by the covered mortgagee
in relation to the federally related mortgage
using a home loan modification protocol;
(ii) 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,
including proof of assignment of the mortgage
to the mortgagee and the right of the mortgagee
to enforce the relevant note under the law of
the State in which the real property securing
the mortgage is located;
(iii) any pooling and servicing agreement
that the covered mortgagee believes prohibits a
qualified loan modification;
(iv) the payment history of the covered
mortgagor and a detailed accounting of any
costs or fees associated with the account of
the covered mortgagor; and
(v) the specific alternatives to
foreclosure considered by the covered
mortgagee, including qualified loan
modifications, workout agreements, and short
sales.
(2) Foreclosure in progress.--If a covered mortgagee
initiated a nonjudicial foreclosure or a judicial foreclosure
proceeding against a covered mortgagor before the date of
enactment of this Act, the covered mortgagee--
(A) shall use its best efforts to take all steps
necessary to--
(i) suspend the foreclosure or foreclosure
proceeding, as permitted under the law of the
State in which the real property securing the
federally related mortgage loan is located,
including the cancellation of any sale date
that has been scheduled with respect to the
real property securing the federally related
mortgage loan; and
(ii) toll any deadlines limiting the rights
of the covered mortgagor, whether imposed by
statute, scheduling order, or otherwise, until
the covered mortgagee has complied with the
requirements under this section; and
(B) may not--
(i) conduct or schedule a sale of the real
property securing the federally related
mortgage loan; or
(ii) cause judgment to be entered against
the covered mortgagor.
(3) Reevaluation of application for qualified loan
modification.--If, after receiving information under paragraph
(1)(C), a covered mortgagor is able to demonstrate that the
covered mortgagor is eligible for a qualified loan
modification, the covered mortgagee shall--
(A) promptly reevaluate the application by the
covered mortgagor for a qualified loan modification;
and
(B) if the covered mortgagor is eligible, offer the
covered mortgagor a qualified loan modification.
(4) Dispute resolution.--Not later than 90 days after the
date of enactment of this Act, the Secretary of the Treasury,
the Secretary, and the Director of the Bureau of Financial
Protection shall ensure that any home loan modification
protocol established by the Secretary of the Treasury, the
Secretary, or the Director of the Bureau of Financial
Protection, respectively, includes a procedure with a neutral
third party to resolve disputes between covered mortgagors and
covered mortgagees regarding applications for qualified loan
modifications.
(5) 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.
(6) Certification required prior to sale of real property
securing mortgage.--
(A) Certification.--A covered mortgagee shall
submit to the appropriate State entity in the State in
which the real property securing a federally related
mortgage loan is located a certification that the
covered mortgagee has complied with all requirements of
this section, before--
(i) the covered mortgagee may sell the real
property; or
(ii) a purchaser at sale may file an action
to recover possession of the real property.
(B) Recordation of deed prohibited without
certification.--The government official responsible for
recording deeds and other transfers of real property in
a jurisdiction may not permit the recordation of a deed
transferring title after a foreclosure relating to a
federally related mortgage loan in the jurisdiction
unless the government official certifies that--
(i) the person conducting the sale has
demonstrated that the requirements of this
subsection have been met with respect to the
federally related mortgage loan; or
(ii) the requirements of this subsection do
not apply to the federally related mortgage
loan.
(C) Voiding of sale.--A sale of property in
violation of this subsection is void.
(D) Regulations.--The Secretary, in consultation
with the Secretary of the Treasury and Director of the
Bureau of Consumer Financial Protection, shall issue
regulations establishing the content of the
certification under this subparagraph.
(7) Bar to foreclosure.--Failure to comply with this
subsection is a bar to foreclosure under the applicable law of
a State.
(8) 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) and (C), a covered mortgagee may not charge a
foreclosure-related fee to a covered mortgagor before--
(i) the covered mortgagee has made a
determination under subsection (b)(1); and
(ii) the mortgage has entered the
foreclosure process.
(B) Delinquency fees.--A covered mortgagee may
charge 1 delinquency fee for each late payment by a
covered mortgagor, if the fee is specified by the
mortgage agreement and permitted by other applicable
Federal and State law. A delinquency fee may be
collected only once on an installment however long it
remains in default.
(C) Other fees.--A covered mortgagee may charge a
covered mortgagor 1 property valuation fee and 1 title
search fee in connection with a foreclosure.
(3) Fees not in contract.--A covered mortgagee may charge a
fee to a covered mortgagor only if--
(A) the fee was specified by the mortgage agreement
before a modification or amendment; and
(B) the fee is otherwise permitted under this
subsection.
(4) Fees for expenses incurred.--
(A) In general.--A covered mortgagee may charge a
fee to a covered mortgagor only--
(i) for services actually performed by the
covered mortgagee or a third party in relation
to the mortgage agreement, before a
modification or amendment; and
(ii) if the fee is reasonably related to
the actual cost of providing the service.
(B) Home preservation services.--A covered
mortgagee may charge a fee to a covered mortgagor for
home preservation services, only if the covered
mortgagor has not submitted a payment under the
federally related mortgage during the 60-day period
ending on the date the fee is charged.
(5) Forceplaced insurance.--
(A) Fee permitted.--If a home insurance policy on
the real property securing a federally related mortgage
loan lapses due to the failure of a covered mortgagor
to make a payment, a covered mortgagee may charge the
covered mortgagor a fee in an amount equal to the
actual cost of continuing or re-establishing the home
insurance policy on the same terms in effect before the
lapse.
(B) Recovery of fee.--A covered mortgagee may
recover the fee described in subparagraph (A)--
(i) by establishing an escrow account in
accordance with section 10 of the Real Estate
Settlement Procedures Act of 1974 (12 U.S.C.
2609); or
(ii) in equal monthly amounts during one
12-month period.
(6) Penalty.--The Director of the Bureau of Consumer
Financial Protection shall collect from any covered 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, in consultation with the
Secretary of the Treasury and the Director of the Bureau of Consumer
Financial Protection, 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.
(e) Bureau of Consumer Financial Protection Home Loan Modification
Protocol.--Not later than 90 days after the date of enactment of this
Act, the Director of the Bureau of Consumer Financial Protection shall
develop a home loan modification protocol.
(f) Treasury and HUD Home Loan Modification Protocols.--Not later
than 90 days after the date of enactment of this Act, the Secretary of
the Treasury and the Secretary shall make any changes to the home loan
modification protocol of the Secretary of the Treasury and the
Secretary, respectively, that are necessary to carry out this Act.
SEC. 4. MEDIATION INITIATIVES.
(a) Definitions.--In this section--
(1) the term ``mortgagee'' includes the agent of a
mortgagee; and
(2) the term ``mediation'' means a process in which a
neutral third party presides over discussions between
mortgagors and mortgagees to review and discuss available loss
mitigation options in order to avoid foreclosure.
(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 seeks to initiate or has
initiated a judicial or nonjudicial foreclosure; and
(B) any mortgagor who is subject to a judicial or
nonjudicial foreclosure;
(2) require that a representative of the mortgagee who has
authority to decide on loss mitigation options (including loan
modification) participate, in person, in scheduled sessions;
(3) require any mortgagee or mortgagor required to
participate in the program to make a good faith effort to
resolve promptly, through mediation, issues relating to the
default on the mortgage;
(4) 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;
(5) provide that any proceeding to foreclose that is
initiated by the mortgagee shall be stayed until the mediator
has issued a written certification that the mortgagee complied
in good faith with its obligations under the mediation program
established under this section;
(6) 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;
(7) 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, including the information necessary
to verify and evaluate the calculation, made by the
mortgagee in relation to the mortgage using a home loan
modification protocol;
(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,
including proof of assignment of the mortgage to the
mortgagee and the right of the mortgagee to enforce the
relevant note under the law of the State in which the
real property securing the mortgage is located;
(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;
(8) prohibit a mortgagee from shifting the costs of
participation in the mediation program, including the
attorney's fees of the mortgagee, to a mortgagor;
(9) 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;
(10) provide information to mortgagors about housing
counselors approved by the Secretary; and
(11) 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 statewide 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 such sums as may be necessary
for each of fiscal years 2011 through 2014.
SEC. 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 Bureau of Consumer Financial Protection, the
Director of the Office of Financial Research of the Department
of the Treasury, and a representative of State banking
regulators selected by the Secretary;
(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; and
(3) 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 and private 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 heads
of appropriate agencies 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.
SEC. 6. HOUSING TRUST FUND.
From funds received or to be 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.
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