[Congressional Record Volume 155, Number 22 (Wednesday, February 4, 2009)]
[Senate]
[Pages S1543-S1544]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED (for himself, Mr. Dodd, Mr. Kerry, Mr. Schumer, Ms. 
        Stabenow, and Mr. Kennedy):
  S. 376. A bill to provide rules for the modification or disposition 
of certain assets by real estate mortgage investment conduits pursuant 
to division A of the Emergency Economic Stabilization Act of 2008, and 
for other purposes; to the Committee on Banking, Housing, and Urban 
Affairs.
  Mr. REED. Mr. President, today I introduce, along with Senators Dodd, 
Kerry, Schumer, and Stabenow, the Real Estate Mortgage Investment 
Conduit, REMIC, Improvement Act. This legislation could provide one of 
the keys to solving our national foreclosure crisis by unlocking 
mortgage securitization trusts so that more homeowners can stay in 
their homes.
  In my own state of Rhode Island, 7.30 percent of all outstanding home 
loans are delinquent and 5.33 percent of all home loans are in the 
foreclosure process. This is the 10th highest foreclosure rate in the 
Nation, and the highest in New England. I have heard story after story 
of how difficult it is to get a loan modified or restructured if it is 
part of a mortgage securitization pool. As we have learned, part of the 
reason we are in the worst housing crisis since the Depression is that 
Wall Street firms packaged mortgages into pools and then sold different 
tranches of these pools to investors from all over the world. This 
diverse and convoluted ownership structure has made it difficult to get 
investor approval to modify or restructure them. Unlike in the movie 
``It's a Wonderful Life,'' most families can no longer walk into their 
local bank to talk to George Bailey about modifying or restructuring 
their loan.
  The Emergency Economic Stabilization Act of 2008 required the 
Treasury Department to use its new authorities to incentivize servicers 
toward more loan restructurings. However, it has become clear that 
additional legislation is needed to free servicers of these loan pools 
from conflicting requirements regarding modifications and provide them 
with the ability to sell mortgages to Treasury for foreclosure 
avoidance.
  Many servicers, managing pools of loans for investors, are 
constrained by the trust agreements from modifying loans to a level 
that families can afford to pay or from selling the underlying

[[Page S1544]]

mortgage loans. In other cases, servicers must obtain the approval of a 
significant number of the trust's beneficiaries or third parties in 
order to make changes to how loans within the pool are handled. 
However, the trust agreements also provide that servicers must amend 
the agreements if doing so would be helpful or necessary to stay in 
compliance with tax rules under the REMIC statute; REMIC status frees 
these securitization trusts from taxation at the entity level and 
therefore provides important benefits to its investors.
  Under the REMIC Improvement Act, in order to keep their preferred tax 
status under the REMIC provisions of the Internal Revenue Code, 
servicers would need to modify their trust agreements to remove 
artificial restrictions that keep them from modifying loans that 
provide a greater return to investors as a whole than foreclosing 
would, and keep families in their homes to prevent entirely unnecessary 
foreclosures at the same time. This is a practical way for servicers to 
modify loans without undue fear of legal sanctions. This also would 
allow servicers to sell loans to Treasury for restructuring without 
having to obtain an affirmative response by a significant number of the 
beneficiaries of the trust if it was for the good of the overall trust. 
Participation in any Treasury program would be voluntary, but some of 
the key legal impediments to participation would be removed.
  Additionally, the Treasury Department has not put in place a loan 
modification program, even after Congress gave it the authority to do 
so in the Emergency Economic Stabilization Act. Many experts believe 
such a program would be helpful in helping resolve the current housing 
crisis. The REMIC Improvement Act will ensure that Treasury uses its 
authority to set up a program to achieve broad-scale modifications and, 
where necessary, dispositions of foreclosed property.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 376

       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 ``Real Estate Mortgage 
     Investment Conduit Improvement Act of 2009''.

     SEC. 2. SPECIAL RULES FOR MODIFICATION OR DISPOSITION OF 
                   QUALIFIED MORTGAGES OR FORECLOSURE PROPERTY BY 
                   REAL ESTATE MORTGAGE INVESTMENT CONDUITS.

       (a) In General.--If a REMIC (as defined in section 860D(a) 
     of the Internal Revenue Code of 1986) modifies or disposes of 
     a troubled asset under the Troubled Asset Relief Program 
     established by the Secretary of the Treasury under section 
     101(a) of the Emergency Economic Stabilization Act of 2008 or 
     under rules established by the Secretary under section 3 of 
     this Act--
       (1) such modification or disposition shall not be treated 
     as a prohibited transaction under section 860F(a)(2) of such 
     Code, and
       (2) for purposes of part IV of subchapter M of chapter 1 of 
     such Code--
       (A) an interest in the REMIC shall not fail to be treated 
     as a regular interest (as defined in section 860G(a)(1) of 
     such Code) solely because of such modification or 
     disposition, and
       (B) any proceeds resulting from such modification or 
     disposition shall be treated as amounts received under 
     qualified mortgages.
       (b) Termination of REMIC.--For purposes of the Internal 
     Revenue Code of 1986, an entity which is a REMIC (as defined 
     in section 860D(a) of the Internal Revenue Code of 1986) 
     shall cease to be a REMIC if the instruments governing the 
     conduct of servicers or trustees with respect to qualified 
     mortgages (as defined in section 860G(a)(3) of such Code) or 
     foreclosure property (as defined in section 860G(a)(8) of 
     such Code)--
       (1) prohibit or restrict (including restrictions on the 
     type, number, percentage, or frequency of modifications or 
     dispositions) such servicers or trustees from reasonably 
     modifying or disposing of such qualified mortgages or such 
     foreclosure property in order to participate in the Troubled 
     Asset Relief Program established by the Secretary of the 
     Treasury under section 101(a) of the Emergency Economic 
     Stabilization Act of 2008 or under rules established by the 
     Secretary under section 3 of this Act,
       (2) commit to a person other than the servicer or trustee 
     the authority to prevent the reasonable modification or 
     disposition of any such qualified mortgage or foreclosure 
     property,
       (3) require a servicer or trustee to purchase qualified 
     mortgages which are in default or as to which default is 
     reasonably foreseeable for the purposes of reasonably 
     modifying such mortgages or as a consequence of such 
     reasonable modification, or
       (4) fail to provide that any duty a servicer or trustee 
     owes when modifying or disposing of qualified mortgages or 
     foreclosure property shall be to the trust in the aggregate 
     and not to any individual or class of investors.
       (c) Effective Dates.--
       (1) Subsection (a).--Subsection (a) shall apply to 
     modification and dispositions after the date of the enactment 
     of this Act, in taxable years ending on or after such date.
       (2) Subsection (b).--
       (A) In general.--Except as provided in subparagraph (B), 
     subsection (b) shall take effect on the date that is 3 months 
     after the date of the enactment of this Act.
       (B) Exception.--The Secretary of the Treasury may waive the 
     application of subsection (b) in whole or in part for any 
     period of time with respect to any entity if--
       (i) the Secretary determines that such entity is unable to 
     comply with the requirements of such subsection in a timely 
     manner, or
       (ii) the Secretary determines that such waiver would 
     further the purposes of this Act.

     SEC. 3. ESTABLISHMENT OF A HOME MORTGAGE LOAN RELIEF PROGRAM 
                   UNDER THE TROUBLED ASSET RELIEF PROGRAM AND 
                   RELATED AUTHORITIES.

       (a) Establishment.--Not later than 30 days after the date 
     of enactment of this Act, the Secretary of the Treasury shall 
     establish and implement a program under the Troubled Asset 
     Relief Program and related authorities established under 
     section 101(a) of the Emergency Economic Stabilization Act of 
     2008 (12 U.S.C. 5211(a))--
       (1) to achieve appropriate broad-scale modifications or 
     dispositions of troubled home mortgage loans; and
       (2) to achieve appropriate broad-scale dispositions of 
     foreclosure property.
       (b) Rules.--The Secretary of the Treasury shall promulgate 
     rules governing the--
       (1) reasonable modification of any home mortgage loan 
     pursuant to the requirements of this Act; and
       (2) disposition of any such home mortgage loan or 
     foreclosed property pursuant to the requirements of this Act.
       (c) Considerations.--In developing the rules required under 
     subsection (b), the Secretary of the Treasury shall take into 
     consideration--
       (1) the debt-to-income ratio, loan-to-value ratio, or 
     payment history of the mortgagors of such home mortgage 
     loans; and
       (2) any other factors consistent with the intent to 
     streamline modifications of troubled home mortgage loans into 
     sustainable home mortgage loans.
       (d) Use of Broad Authority.--The Secretary of the Treasury 
     shall use all available authorities to implement the home 
     mortgage loan relief program established under this section, 
     including, as appropriate--
       (1) home mortgage loan purchases;
       (2) home mortgage loan guarantees;
       (3) making and funding commitments to purchase home 
     mortgage loans or mortgage-backed securities;
       (4) buying down interest rates and principal on home 
     mortgage loans;
       (5) principal forbearance; and
       (6) developing standard home mortgage loan modification and 
     disposition protocols, which shall include ratifying that 
     servicer action taken in anticipation of any necessary 
     changes to the instruments governing the conduct of servicers 
     or trustees with respect to qualified mortgages or 
     foreclosure property are consistent with the Secretary of the 
     Treasury's standard home mortgage loan modification and 
     disposition protocols.
       (e) Payments Authorized.--The Secretary of the Treasury is 
     authorized to pay servicers for home mortgage loan 
     modifications or other dispositions consistent with any rules 
     established under subsection (b).
       (f) Rule of Construction.--Any standard home mortgage loan 
     modification and disposition protocols developed by the 
     Secretary of the Treasury under this section shall be 
     construed to constitute standard industry practice.
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