[Congressional Record Volume 156, Number 47 (Wednesday, March 24, 2010)]
[Senate]
[Pages S2024-S2026]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. SHAHEEN:
  S. 3161. A bill to establish penalties for servicers that fail to 
timely evaluate the applications of homeowners under home loan 
modification programs; to the Committee on Banking, Housing, and Urban 
Affairs.
  Ms. SHAHEEN. Mr. President, I rise today to introduce the Mortgage 
Modification Reform Act, which is designed to protect homeowners and 
communities from big banks who fail to modify mortgages in a timely 
fashion.
  In the past year I have heard from hundreds of families in New 
Hampshire who have fallen behind on their mortgages. Often, they tell 
me that they can no longer afford their payments because of 
circumstances beyond their control. A family member has been laid off 
or had her hours reduced. Medical bills have started piling up. Higher 
interest payments kicked in at just the wrong time. And since value of 
the average home has declined over 15 percent in New Hampshire, they 
now owe more on their home than it's worth.
  But these families want to make it work, so they reach out to their 
bank or ``mortgage servicer'' to figure out a way to make payments they 
can afford. Often, when a homeowner comes to a servicer, they can work 
together to bring the homeowner's payments down to an affordable level. 
When a servicer modifies a mortgage, everybody wins: the homeowner can 
stay in their home; the servicer avoids the costly foreclosure process; 
and communities are spared from the devastating effects that 
foreclosures have on home values and communities.
  That is why these families in New Hampshire and others across the 
country breathed a sigh of relief when they heard that a new program, 
called the Home Affordable Modification Program, or HAMP, would provide 
powerful incentives to servicers to work with borrowers to keep them in 
their homes.
  We were told that HAMP would help 3-4 million homeowners stay in 
their homes by reducing the amount a family owes each month to 31 
percent of its monthly income. The big, national servicer banks who 
signed up for the program would avoid the foreclosure process and 
receive incentive payments. Most importantly, communities would have 
benefitted by stemming the tide of foreclosures, which have so 
drastically lowered home values and the equity of millions of 
homeowners.
  But a year into the program, it is clear that many of these big banks 
are unwilling or uninterested in helping people in our communities. The 
banks routinely lose documents and ask the borrower to send them in 
again, delaying the process for months at a time. They don't respond to 
calls and voice messages that are only returned weeks or months later--
if they are returned at all. And as homeowners wait for a decision, the 
banks charge them late fees, which puts them even further behind. When 
homeowners finally receive modification offers, they often come at the 
last minute--just days before the borrower's home is set to be 
auctioned.
  As a result of these abuses, instead of helping the millions of 
homeowners that they promised would be able to stay in their homes, 
servicers have offered trial modifications to less than 30 percent of 
eligible homeowners. The banks participating in HAMP have only provided 
permanent relief to only 116,000 homeowners.
  We know that the servicers are capable of success in this program 
because some servicers have been better than others. According to the 
latest Servicer Performance Report from the Treasury, some servicers 
have helped as little as 2 percent of their eligible

[[Page S2025]]

borrowers, while others have helped over 50 percent. And it's not 
surprising that some of the servicers with the worst numbers are the 
same big banks that were happy to be bailed out by TARP not too long 
ago.
  It is time to tell these big banks that enough's enough. We need 
protections for homeowners, and we need to penalize the servicers who 
have failed to offer the help they promised.
  That is why I am introducing legislation today, the Mortgage 
Modification Reform Act, to stop the big banks from abusing homeowners 
and to start penalizing those who do not live up to their promise to 
provide homeowners with the relief they need.
  The Mortgage Modification Reform Act would charge banks ``late fees'' 
for every month that they fail to evaluate a homeowner for this 
program. After 3 months, if a homeowner has not received an answer on 
whether their mortgage will be modified, the banks' payments will be 
reduced 10 percent for each month that it fails to evaluate the 
homeowner. By reducing payments to the banks over time, the bank will 
be encouraged to evaluate these borrowers earlier and more frequently. 
This also protects the taxpayer by only rewarding those banks that 
respond quickly and punishing those that fail to act. Banks will have 
to perform to get paid, and if they don't, their compensation will stay 
with to the taxpayer.
  This legislation would also require banks to stop the foreclosure 
process until it determines whether a borrower qualifies. This would 
also give much-needed peace of mind to homeowners who aren't sure which 
will come first: the modification they need, or the sale of their home.
  In addition, the legislation would prevent banks from imposing fees 
while they wait for a decision. There is no reason that a bank should 
charge a homeowner for being delinquent while waiting for evaluation in 
the program. There is no reason for a homeowner to pay fees for an 
unnecessary foreclosure process. This legislation would put an end to 
these abusive practices.
  Finally, the Mortgage Modification Reform Act provides a protection 
for borrowers that has been missing from day one of this program: a way 
for homeowners to request a review of the bank's decision. Right now, 
the banks make all the decisions whether a homeowner qualifies for the 
program or not. There is no way for the homeowner to appeal that 
decision. But we know that those decisions aren't always right. Many 
homeowners were originally told that they didn't qualify, but ask their 
Senator or get legal assistance to ask the servicer to take another 
look. Often, they did qualify for the program, but the servicer did not 
evaluate the borrower properly.
  But not every homeowner should have to involve their Senator or a 
lawyer to get their bank to respond. They should be able to make their 
case on their own to an independent arbiter. This legislation requires 
the Treasury Department to create a separate, independent review 
process to allow homeowners who feel they have been wrongly denied the 
chance to stay in their home. In addition, to ensure transparency, this 
legislation would require the servicer to submit documentation to the 
Treasury for each denial that it makes.
  Making this program work isn't just important for these homeowners, 
it's also critical to our economic recovery. With million homeowners 
across the nation behind on their mortgages and at risk of foreclosure, 
we need this program achieve its potential of stopping millions of 
homes from flooding the housing market and further depressing home 
values.
  I urge my colleagues to join me to prevent banks from continuing to 
abuse this program, and to get it on track to provide help to the 
millions of homeowners who need it.
  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. 3161

       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 ``Mortgage Modification Reform 
     Act of 2010''.

     SEC. 2. DEFINITIONS.

       In this Act--
       (1) the term ``covered trial loan modification'' means a 
     trial loan modification--
       (A) offered by a servicer to a homeowner under a home loan 
     modification program; and
       (B) for which the servicer has received from the homeowner 
     the information required for a trial loan modification;
       (2) the term ``home loan modification program'' means a 
     home loan modification program put into effect by the 
     Secretary under title I of division A of the Emergency 
     Economic Stabilization Act of 2008 (12 U.S.C. 5211 et seq.), 
     including the Home Affordable Modification Program;
       (3) the term ``homeowner'' means an individual who applies 
     for a home loan modification under a home loan modification 
     program;
       (4) the term ``permanent loan modification'' means any 
     agreement reached between a homeowner and a servicer on a 
     long-term basis, as determined by the Secretary, under a home 
     loan modification program;
       (5) the term ``qualified counselor'' means a qualified 
     counselor described in section 255(f) of the National Housing 
     Act (12 U.S.C. 1715z-20(f));
       (6) the term ``Secretary'' means the Secretary of the 
     Treasury;
       (7) the term ``servicer'' has the same meaning as in 
     section 129 of the Truth in Lending Act (15 U.S.C. 1639a) 
     (relating to the duties of servicers of residential 
     mortgages), as added by section 201(b) of the Helping 
     Families Save Their Homes Act of 2009 (Public Law 111-22; 123 
     Stat. 1638);
       (8) the term ``servicer incentive payment'' means a payment 
     that is made by the Secretary to a servicer--
       (A) in exchange, or as an incentive, for making a loan 
     modification under a home loan modification program; and
       (B) at the time the servicer makes an offer of a trial or 
     permanent modification to a homeowner; and
       (9) the term ``trial loan modification'' means any 
     agreement reached between a homeowner and a servicer on a 
     temporary basis, as determined by the Secretary, under a home 
     loan modification program.

     SEC. 3. FORECLOSURE.

       A servicer may not initiate or continue a foreclosure 
     proceeding with respect to the mortgage of a homeowner if--
       (1) the homeowner submitted an application for a loan 
     modification under a home loan modification program--
       (A) before receiving a notice of foreclosure from the 
     servicer; or
       (B) not later than 30 days after the homeowner received a 
     notice of foreclosure from the servicer; and
       (2) the servicer has not made a determination, as described 
     in section 5(a) that the homeowner does not qualify for a 
     loan modification under a home loan modification program.

     SEC. 4. PROCESS FOR REVIEW OF IMPROPER DENIALS.

       (a) Process for Review.--
       (1) In general.--The Secretary shall establish a process by 
     which a homeowner may request the Secretary to review a 
     denial by a servicer of an application by the homeowner for a 
     trial loan modification or permanent loan modification.
       (2) Qualified counselors.--The process established under 
     paragraph (1) shall include the use of qualified counselors 
     to report wrongful denials of trial loan modifications and 
     permanent loan modifications.
       (3) Supporting documentation.--The Secretary shall require 
     a servicer to submit supporting documentation with respect to 
     any denial by the servicer of an application by a homeowner 
     for a trial loan modification or permanent loan modification 
     that is reviewed by the Secretary under the process 
     established under paragraph (1).
       (b) Penalties.--If the Secretary determines after a review 
     under the process established under subsection (a) that a 
     servicer has wrongly denied the application of a homeowner 
     for a trial loan modification or a permanent loan 
     modification, the Secretary shall impose a penalty on the 
     servicer.

     SEC. 5. PENALTIES FOR SERVICERS THAT DO NOT TIMELY EVALUATE 
                   HOMEOWNERS.

       (a) Time for Evaluation of Homeowners.--Not later than 3 
     months after the date on which a homeowner submits an 
     application for a loan modification to a servicer that 
     participates in a home loan modification program, the 
     servicer shall--
       (1) evaluate the application of the homeowner; and
       (2) notify the homeowner that--
       (A) the homeowner is qualified for a trial loan 
     modification or a permanent loan modification under the home 
     loan modification program; or
       (B) the servicer has denied the application.
       (b) Priority for Evaluating Amendments.--
       (1) Priority.--A servicer that participates in a home loan 
     modification program shall evaluate the applications of 
     homeowners for loan modifications in the order in which the 
     servicer receives the applications.
       (2) Prohibition.--A servicer that participates in a home 
     loan modification program may not select the order in which 
     the applications of homeowners are evaluated for loan 
     modifications--
       (A) on the basis of--
       (i) the income of the homeowner that made the application; 
     or
       (ii) the value of the loan for which a modification is 
     requested; or

[[Page S2026]]

       (B) for any reason other than the time at which the 
     servicer receives the applications.
       (c) Late Fees for Servicers.--
       (1) Reduced servicer incentive payments for loans 
     individual homeowners.--The Secretary shall reduce the amount 
     of any servicer incentive payment with respect to the loan 
     modification of an individual homeowner by 10 percent for 
     each full month that--
       (A) follows the date that is 3 months after the date on 
     which the homeowner submits an application for a loan 
     modification to the servicer; and
       (B) precedes the date on which the servicer notifies the 
     homeowner under subsection (a)(2).
       (2) Reduced payments for all loans.--If the Secretary 
     determines that, on the date that is 3 months after the date 
     of enactment of this Act, less than 75 percent of all 
     homeowners who applied to a servicer for loan modifications 
     under a home loan modification program have been evaluated 
     within 3 months of the date of the application, the Secretary 
     shall reduce by 25 percent the amount of any servicer 
     incentive payment the servicer would otherwise be eligible to 
     receive under the home loan modification program.
       (d) Delinquency Fees Charged to Homeowners.--No servicer 
     may impose a fee on a homeowner due to delinquency during the 
     period beginning on the date on which the homeowner submits 
     an application to the servicer for a loan modification and 
     ending on the date on which the homeowner receives notice 
     under subsection (a)(2).
       (e) Collection and Report of Data.--
       (1) Collection of data.--Each servicer shall report to the 
     Secretary, at such time and in such manner as the Secretary 
     may determine, data relating to the processing by the 
     servicer of applications for loan modifications.
       (2) Report of data.--The Secretary shall publish a monthly 
     report containing the data collected under paragraph (1).

     SEC. 6. REDUCED PAYMENTS FOR FAILURE TO EVALUATE HOMEOWNERS 
                   FOR PERMANENT MODIFICATIONS.

       If the Secretary determines that, on the date that is 3 
     months after the date of enactment of this Act, less than 70 
     percent of all covered trial loan modifications offered by a 
     servicer have been evaluated for conversion to permanent loan 
     modifications before the date that is 3 months after the date 
     on which the servicer and the homeowner entered into an 
     agreement for a trial loan modification, the Secretary shall 
     reduce by 25 percent the amount of any servicer incentive 
     payment the servicer would otherwise be eligible to receive 
     under the home loan modification program. Such reduction 
     shall be in addition to any other reduction in payment that 
     may have been imposed on the servicer for any other violation 
     of this Act.

     SEC. 7. RULE OF CONSTRUCTION RELATING TO PAYMENTS TO 
                   HOMEOWNERS.

       Nothing in this Act may be construed to require a reduction 
     of a payment by the Secretary made on behalf or for the 
     benefit of a homeowner in connection with a loan 
     modification.
                                 ______