[Congressional Record (Bound Edition), Volume 163 (2017), Part 1]
[Extensions of Remarks]
[Pages 86-89]
[From the U.S. Government Publishing Office, www.gpo.gov]




       INTRODUCTION OF THE HOME FORECLOSURE REDUCTION ACT OF 2017

                                  _____
                                 

                         HON. JOHN CONYERS, JR.

                              of michigan

                    in the house of representatives

                        Tuesday, January 3, 2017

  Mr. CONYERS. Mr. Speaker, the ``Home Foreclosure Reduction Act of 
2017'' 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

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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 2017'' is identical to H.R. 
101 (introduced in the 114th and 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 2017.''
  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 
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 market 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

[[Page 88]]

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. 
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 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.

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  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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