S. 489 | U.S. Senate Bill | Preserving Homes and Communities Act of 2011

S 489

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.

(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.

(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.

(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;

(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.

END