[Congressional Record Volume 161, Number 1 (Tuesday, January 6, 2015)]
[Extensions of Remarks]
[Pages E6-E8]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               THE HOME FORECLOSURE REDUCTION ACT OF 2015

                                  _____
                                 

                         HON. JOHN CONYERS, JR.

                              of michigan

                    in the house of representatives

                        Tuesday, January 6, 2015

  Mr. CONYERS. Mr. Speaker, I submit the following:


                                Summary

       The ``Home Foreclosure Reduction Act of 2015'' would permit 
     a bankruptcy judge, with respect to certain home mortgages, 
     to reduce the principal amount of such mortgages to the fair 
     market value of the homes securing such indebtedness. My 
     legislation will encourage homeowners to make their mortgage 
     payments and help stem the endless cycle of foreclosures that 
     further depresses home values. It also would authorize the 
     mortgage's repayment period to be extended so that monthly 
     mortgage payments are more affordable. In addition, the bill 
     would allow exorbitant mortgage interest rates to be reduced 
     to a level that will keep the mortgage affordable over the 
     long-term. And, it would authorize the waiver of prepayment 
     penalties and excessive fees. Further, the bill would 
     eliminate hidden fees and unauthorized costs.
       This bill addresses a fundamental problem: homeowners in 
     financial distress simply lack the leverage to make mortgage 
     lenders and servicers engage in meaningful settlement 
     negotiations, even when in the interest of all parties. My 
     legislation would empower a homeowner, under certain 
     circumstances, to force his or her lender to modify the terms 
     of the mortgage by allowing the principal amount of the 
     mortgage to be reduced to the home's fair market value. And, 
     the implementation of this measure will not cost taxpayers a 
     single penny.
       The ``Home Foreclosure Reduction Act of 2015'' is identical 
     to H.R. 101 (introduced in the 113th Congress) and H.R. 1587 
     (introduced in the 112th Congress). It contains similar 
     provisions included in H.R. 1106, which the House passed 
     nearly six years ago. Unfortunately, those provisions were 
     removed in the Senate and not included in the final version 
     of the bill that was subsequently enacted into law.


              Section-by-Section Explanation of Provisions

       Section 1. Short Title. Section 1 sets forth the short 
     title of this Act as the ``Home Foreclosure Reduction Act of 
     2015.''
       Section 2. Definition. Bankruptcy Code section 101 defines 
     various terms. Section 2 amends this provision to add a 
     definition of ``qualified loan modification,'' which is 
     defined as a loan modification agreement made in accordance 
     with the guidelines of the Obama Administration's Homeowner 
     Affordability and Stability Plan, as implemented on March 4, 
     2009 with respect to a loan secured by a senior security 
     interest in the debtor's principal residence. To qualify as 
     such, the agreement must reduce the debtor's mortgage payment 
     (including principal and interest) and payments for various 
     other specified expenses (i.e., real estate taxes, hazard 
     insurance, mortgage insurance premium, homeowners' 
     association dues, ground rent, and special assessments) to a 
     percentage of the debtor's income in accordance with such 
     guidelines. The payment may not include any period of 
     negative amortization and it must fully amortize the 
     outstanding mortgage principal. In addition, the agreement 
     must not require the debtor to pay any fees or charges to 
     obtain the modification. Further, the agreement must permit 
     the debtor to continue to make these payments as if he or she 
     had not filed for bankruptcy relief.
       Section 3. Eligibility for Relief. Section 3 amends 
     Bankruptcy Code section 109, which specifies the eligibility 
     criteria for filing for bankruptcy relief, in two respects. 
     First, it amends Bankruptcy Code section 109(e), which sets 
     forth secured and unsecured debt limits to establish a 
     debtor's eligibility for relief under chapter 13. Section 3 
     amends this provision to provide that the computation of 
     debts does not include the secured or unsecured portions of 
     debts secured by the debtor's principal residence, under 
     certain circumstances. The exception applies if the value of 
     the debtor's principal residence as of the date of the order 
     for relief under chapter 13 is less than the applicable 
     maximum amount of the secured debt limit specified in section 
     109(e). Alternatively, the exception applies if the debtor's 
     principal residence was sold in foreclosure or the debtor 
     surrendered such residence to the creditor and the value of 
     such residence as of the date of the order for relief under 
     chapter 13 is less than the secured debt limit specified in 
     section 109(e). This amendment is not intended to create 
     personal liability on a debt if there would not otherwise be 
     personal liability on such debt.
       Second, section 3 amends Bankruptcy Code section 109(h), 
     which requires a debtor to receive credit counseling within 
     the 180-day period prior to filing for bankruptcy relief, 
     with limited exception. Section 3 amends this provision to 
     allow a chapter 13 debtor to satisfy this requirement within 
     30 days after filing for bankruptcy relief if he or she 
     submits to the court a certification that the debtor has 
     received notice that the holder of a claim secured by the 
     debtor's principal residence may commence a foreclosure 
     proceeding.
       Section 4. Prohibiting Claims Arising from Violations of 
     the Truth in Lending Act. Under the Truth in Lending Act, a 
     mortgagor has a right of rescission with respect to a 
     mortgage secured by his or her residence, under certain 
     circumstances. Bankruptcy Code section 502(b) enumerates 
     various claims of creditors that are not entitled to payment 
     in a bankruptcy case, subject to certain exceptions. Section 
     4 amends Bankruptcy Code section 502(b) to provide that a 
     claim for a loan secured by a security interest in the 
     debtor's principal residence is not entitled to payment in a 
     bankruptcy case to the extent that such claim is subject to a 
     remedy for rescission under the Truth in Lending Act, 
     notwithstanding the prior entry of a foreclosure judgment. In 
     addition, section 4 specifies that nothing in this provision 
     may be construed to modify, impair, or supersede any other 
     right of the debtor.
       Section 5. Authority to Modify Certain Mortgages. Under 
     Bankruptcy Code section 1322(b)(2), a chapter 13 plan may not 
     modify the terms of a mortgage secured solely by real 
     property that is the debtor's principal residence. Section 5 
     amends Bankruptcy Code section 1322(b) to create a limited 
     exception to this prohibition. As amended, the exception only 
     applies to a mortgage that: (1) originated before the 
     effective date of this amendment; and (2) is the subject of a 
     notice that a foreclosure may be (or has been) commenced with 
     respect to such mortgage.
       In addition, the debtor must certify pursuant to new 
     section 1322(h) that he or she contacted--not less than 30 
     days before filing for bankruptcy relief--the mortgagee (or 
     the entity collecting payments on behalf of such mortgagee) 
     regarding modification of the mortgage. The debtor must also 
     certify that he or she provided the mortgagee (or the entity 
     collecting payments on behalf of such mortgagee) a written 
     statement of the debtor's current income, expenses, and debt 
     in a format that substantially conforms with the schedules 
     required under Bankruptcy Code section 521 or with such other 
     form as promulgated by the Judicial Conference of the United 
     States. Further, the certification must include a statement 
     that the debtor considered any qualified loan modification 
     offered to the debtor by the mortgagee (or the entity 
     collecting payments on behalf of such holder). This 
     requirement does not apply if the foreclosure sale is 
     scheduled to

[[Page E7]]

     occur within 30 days of the date on which the debtor files 
     for bankruptcy relief. If the chapter 13 case is pending at 
     the time new section 1322(h) becomes effective, then the 
     debtor must certify that he or she attempted to contact the 
     mortgagee (or the entity collecting payments on behalf of 
     such mortgagee) regarding modification of the mortgage before 
     either: (1) filing a plan under Bankruptcy Code section 1321 
     that contains a modification pursuant to new section 
     1322(b)(11); or (2) modifying a plan under Bankruptcy Code 
     section 1323 or section 1329 to contain a modification 
     pursuant to new section 1322(b)(11).
       Under new section 1322(b)(11), the debtor may propose a 
     plan modifying the rights of the mortgagee (and the rights of 
     the holder of any claim secured by a subordinate security 
     interest in such residence) in several respects. It is 
     important to note that the intent of new section 1322(b)(11) 
     is permissive. Accordingly, a chapter 13 may propose a plan 
     that proposes any or all types of modification authorized 
     under section 1322(b)(11).
       First, the plan may provide for payment of the amount of 
     the allowed secured claim as determined under section 
     506(a)(1). In making such determination, the court, pursuant 
     to new section 1322(i), must use the fair arket value of the 
     property at the date that such value is determined. If the 
     issue of value is contested, the court must determine such 
     value in accordance with the appraisal rules used by the 
     Federal Housing Administration.
       Second, the plan may prohibit, reduce, or delay any 
     adjustable interest rate applicable on, and after, the date 
     of the filing of the plan.
       Third, it may extend the repayment period of the mortgage 
     for a period that is not longer than the longer of 40 years 
     (reduced by the period for which the mortgage has been 
     outstanding) or the remaining term of the mortgage beginning 
     on the date of the order for relief under chapter 13.
       Fourth, the plan may provide for the payment of interest at 
     a fixed annual rate equal to the applicable average prime 
     offer rate as of the date of the order for relief under 
     chapter 13, as determined pursuant to certain specified 
     criteria. The rate must correspond to the repayment term 
     determined under new section 1322(b)(11)(C)(i) as published 
     by the Federal Financial Institutions Examination Council in 
     its table entitled, ``Average Prime Offer Rates--Fixed.'' 
     In addition, the rate must include a reasonable premium 
     for risk.
       Fifth, the plan, pursuant to new section 1322(b)(11)(D), 
     may provide for payments of such modified mortgage directly 
     to the holder of the claim or, at the discretion of the 
     court, through the chapter 13 trustee during the term of the 
     plan. The reference in new section 1322(b)(11)(D) to ``holder 
     of the claim'' is intended to include a servicer of such 
     mortgage for such holder. It is anticipated that the court, 
     in exercising its discretion with respect to allowing the 
     debtor to make payments directly to the mortgagee or by 
     requiring payments to be made through the chapter 13 trustee, 
     will take into consideration the debtor's ability to pay the 
     trustee's fees on payments disbursed through the trustee.
       New section 1322(g) provides that a claim may be reduced 
     under new section 1322(b)(11)(A) only on the condition that 
     the debtor agrees to pay the mortgagee a stated portion of 
     the net proceeds of sale should the home be sold before the 
     completion of all payments under the chapter 13 plan or 
     before the debtor receives a discharge under section 1328(b). 
     The debtor must pay these proceeds to the mortgagee within 15 
     days of when the debtor receives the net sales proceeds.
       If the residence is sold in the first year following the 
     effective date of the chapter 13 plan, the mortgagee is to 
     receive 90 percent of the difference between the sales price 
     and the amount of the claim as originally determined under 
     section 1322(b)(11) (plus costs of sale and improvements), 
     but not to exceed the unpaid amount of the allowed secured 
     claim determined as if such claim had not been reduced under 
     new section 1322(b)(11)(A). If the residence is sold in the 
     second year following the effective date of the chapter 13 
     plan, then the applicable percentage is 70 percent. If the 
     residence is sold in the third year following the effective 
     date of the chapter 13 plan, then the applicable percentage 
     is 50 percent. If the residence is sold in the fourth year 
     following the effective date of the chapter 13 plan, then the 
     applicable percentage is 30 percent. If the residence is sold 
     in the fifth year following the effective date of the chapter 
     13 plan, then the applicable percentage is ten percent. It is 
     the intent of this provision that if the unsecured portion of 
     the mortgagee's claim is partially paid under this provision 
     it should be reconsidered under 502(j) and reduced 
     accordingly.
       Section 6. Combating Excessive Fees. Section 6 amends 
     Bankruptcy Code section 1322(c) to provide that the debtor, 
     the debtor's property, and property of the bankruptcy estate 
     are not liable for a fee, cost, or charge that is incurred 
     while the chapter 13 case is pending and that arises from a 
     claim for debt secured by the debtor's principal residence, 
     unless the holder of the claim complies with certain 
     requirements. It is the intent of this provision that its 
     reference to a fee, cost, or charge includes an increase in 
     any applicable rate of interest for such claim. It also 
     applies to a change in escrow account payments.
       To ensure such fee, cost, or charge is allowed, the 
     claimant must comply with certain requirements. First, the 
     claimant must file with the court and serve on the chapter 13 
     trustee, the debtor, and the debtor's attorney an annual 
     notice of such fee, cost, or charge (or on a more frequent 
     basis as the court determines) before the earlier of either: 
     one year of when such fee, cost, or charge was incurred, or 
     60 days before the case is closed. Second, the fee, cost, or 
     charge must be lawful under applicable nonbankruptcy law, 
     reasonable, and provided for in the applicable security 
     agreement. Third, the value of the debtor's principal 
     residence must be greater than the amount of such claim, 
     including such fee, cost or charge.
       If the holder fails to give the required notice, such 
     failure is deemed to be a waiver of any claim for such fees, 
     costs, or charges for all purposes. Any attempt to collect 
     such fees, costs, or charges constitutes a violation of the 
     Bankruptcy Code's discharge injunction under section 
     524(a)(2) or the automatic stay under section 362(a), 
     whichever is applicable.
       Section 6 further provides that a chapter 13 plan may waive 
     any prepayment penalty on a claim secured by the debtor's 
     principal residence.
       Section 7. Confirmation of Plan. Bankruptcy Code section 
     1325 sets forth the criteria for confirmation of a chapter 13 
     plan. Section 7 amends section 1325(a)(5) (which specifies 
     the mandatory treatment that an allowed secured claim 
     provided for under the plan must receive) to provide an 
     exception for a claim modified under new section 1322(b)(11). 
     The amendment also clarifies that payments under a plan that 
     includes a modification of a claim under new section 
     1322(b)(11) must be in equal monthly amounts pursuant to 
     section 1325(a)(5)(B)(iii)(I).
       In addition, section 7 specifies certain protections for a 
     creditor whose rights are modified under new section 
     1322(b)(11). As a condition of confirmation, new section 
     1325(a)(10) requires a plan to provide that the creditor must 
     retain its lien until the later of when: (1) the holder's 
     allowed secured claim (as modified) is paid; (2) the debtor 
     completes all payments under the chapter 13 plan; or (3) if 
     applicable, the debtor receives a discharge under section 
     1328(b).
       Section 7 also provides standards for confirming a chapter 
     13 plan that modifies a claim pursuant to new section 
     1322(b)(11). First, the debtor cannot have been convicted of 
     obtaining by actual fraud the extension, renewal, or 
     refinancing of credit that gives rise to such modified claim. 
     Second, the modification must be in good faith. Lack of good 
     faith exists if the debtor has no need for relief under this 
     provision because the debtor can pay all of his or her debts 
     and any future payment increases on such debts without 
     difficulty for the foreseeable future, including the positive 
     amortization of mortgage debt. In determining whether a 
     modification under section 1322(b)(11) that reduces the 
     principal amount of the loan is made in good faith, the court 
     must consider whether the holder of the claim (or the entity 
     collecting payments on behalf of such holder) has offered the 
     debtor a qualified loan modification that would enable the 
     debtor to pay such debts and such loan without reducing the 
     principal amount of the mortgage.
       Section 7 further amends section 1325 to add a new 
     provision. New section 1325(d) authorizes the court, on 
     request of the debtor or the mortgage holder, to confirm a 
     plan proposing to reduce the interest rate lower than that 
     specified in new section 1322(b)(11)(C)(ii), provided:
       (1) the modification does not reduce the mortgage 
     principal; (2) the total mortgage payment is reduced through 
     interest rate reduction to the percentage of the debtor's 
     income that is the standard for a modification in accordance 
     with the Obama Administration's Homeowner Affordability and 
     Stability Plan, as implemented on March 4, 2009; (3) the 
     court determines that the debtor can afford such modification 
     in light of the debtor's financial situation, after allowance 
     of expense amounts that would be permitted for a debtor 
     subject to section 1325(b)(3), regardless of whether the 
     debtor is otherwise subject to such paragraph, and taking 
     into account additional debts and fees that are to be paid in 
     chapter 13 and thereafter; and (4) the debtor is able to 
     prevent foreclosure and pay a fully amortizing 30-year loan 
     at such reduced interest rate without such reduction in 
     principal. If the mortgage holder accepts a debtor's proposed 
     modification under this provision, the plan's treatment is 
     deemed to satisfy the requirements of section 1325(a)(5)(A) 
     and the proposal should not be rejected by the court.
       Section 8. Discharge. Bankruptcy Code section 1328 sets 
     forth the requirements by which a chapter 13 debtor may 
     obtain a discharge and the scope of such discharge. Section 8 
     amends section 1328(a) to clarify that the unpaid portion of 
     an allowed secured claim modified under new section 
     1322(b)(11) is not discharged. This provision is not intended 
     to create a claim for a deficiency where such a claim would 
     not otherwise exist.
       Section 9. Standing Trustee Fees. Section 9(a) amends 28 
     U.S.C. Sec.  586(e)(1)(B)(i) to provide that a chapter 13 
     trustee may receive a commission set by the Attorney General 
     of no more than four percent on payments made under a chapter 
     13 plan and disbursed by the chapter 13 trustee to a creditor 
     whose claim was modified under Bankruptcy Code section 
     1322(b)(11), unless the bankruptcy court waives such fees 
     based on a determination that the debtor has income less than 
     150 percent of the official poverty line applicable to the 
     size of the debtor's family and payment

[[Page E8]]

     of such fees would render the debtor's plan infeasible.
       With respect to districts not under the United States 
     trustee system, section 9(b) makes a conforming revision to 
     section 302(d)(3) of the Bankruptcy Judges, United States 
     Trustees, and Family Farmer Bankruptcy Act of 1986.
       Section 10. Effective Date; Application of Amendments. 
     Section 10(a) provides that this measure and the amendments 
     made by it, except as provided in subsection (b), take effect 
     on the Act's date of enactment.
       Section 10(b)(1) provides, except as provided in paragraph 
     (2), that the amendments made by this measure apply to cases 
     commenced under title 11 of the United States Code before, 
     on, or after the Act's date of enactment. Section 10(b)(2) 
     specifies that paragraph (1) does not apply with respect to 
     cases that are closed under the Bankruptcy Code as of the 
     date of the enactment of this Act.
       Section 11. GAO Study. Section 11 requires the Government 
     Accountability Office to complete a study and to submit a 
     report to the House and Senate Judiciary Committees within 
     two years from the enactment of this Act. The report must 
     contain the results of the study of: (1) the number of 
     debtors who filed cases under chapter 13, during the one-year 
     period beginning on the date of the enactment of this Act for 
     the purpose of restructuring their principal residence 
     mortgages; (2) the number of mortgages restructured under 
     this Act that subsequently resulted in default and 
     foreclosure; (3) a comparison between the effectiveness of 
     mortgages restructured under programs outside of bankruptcy, 
     such as Hope Now and Hope for Homeowners, and mortgages 
     restructured under this Act; (4) the number of appeals in 
     cases where mortgages were restructured under this Act; (5) 
     the number of such appeals where the bankruptcy court's 
     decision was overturned; and (6) the number of bankruptcy 
     judges disciplined as a result of actions taken to 
     restructure mortgages under this Act. In addition, the report 
     must include a recommendation as to whether such amendments 
     should be amended to include a sunset clause.
       Section 12. Report to Congress. Not later than 18 months 
     after the date of enactment of this Act, the Government 
     Accountability Office, in consultation with the Federal 
     Housing Administration, must submit to Congress a report 
     containing: (1) a comprehensive review of the effects of the 
     Act's amendments on bankruptcy courts; (2) a survey of 
     whether the types of homeowners eligible for the program 
     should be limited; and (3) a recommendation on whether such 
     amendments should remain in effect.

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