S 2801 ISCommentsClose CommentsPermalink

To help families avoid foreclosure and stay in their homes by encouraging reasonable and responsible modifications for unworkable and impractical mortgage loans, and to help preserve the rights of investors by reaffirming the basic obligations of their investment agents to achieve the most beneficial outcomes for their clients and for other purposes.CommentsClose CommentsPermalink

April 2, 2008

Mr. REID (for Mrs. CLINTON) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban AffairsCommentsClose CommentsPermalink

To help families avoid foreclosure and stay in their homes by encouraging reasonable and responsible modifications for unworkable and impractical mortgage loans, and to help preserve the rights of investors by reaffirming the basic obligations of their investment agents to achieve the most beneficial outcomes for their clients and for other purposes.CommentsClose CommentsPermalink

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,CommentsClose CommentsPermalink

SECTION 1. SHORT TITLE.

This Act may be cited as the `Mortgage Enhancement and Modification Act of 2008'.CommentsClose CommentsPermalink

SEC. 2. SAFE HARBOR FOR QUALIFIED LOAN MODIFICATIONS OR WORKOUT PLANS FOR CERTAIN RESIDENTIAL MORTGAGE LOANS.

(a) Standard for Loan Modifications or Workout Plans- Absent specific contractual provisions to the contrary--CommentsClose CommentsPermalink





(1) the duty to maximize or not negatively affect, the recovery of total proceeds from pooled residential mortgage loans is owed by a servicer of such pooled loans to the securitization vehicle for the benefit of all investors and holders of beneficial interests in the pooled loans, in the aggregate, and not to any individual party or group of parties;CommentsClose CommentsPermalink





(2) a servicer of pooled residential mortgage loans shall be deemed to be acting on behalf of the securitization vehicle in the best interest of all investors and holders of beneficial interests in the pooled loans, in the aggregate if--CommentsClose CommentsPermalink





(A) for a loan that is in payment default under the loan agreement or for which payment default is imminent or reasonably foreseeable, the loan servicer makes reasonable and documented efforts, which shall be made available to the investors and holders of beneficial interests in the pooled loans upon request, to implement a modification or workout plan; orCommentsClose CommentsPermalink





(B) the efforts under subparagraph (A) are unsuccessful or such plan would be infeasible, engages in other loss mitigation, including accepting a short payment or partial discharge of principal, or agreeing to a short sale of the property, to the extent that the servicer reasonably believes the modification or workout plan or other mitigation actions will maximize the net present value to be realized on the loans over that which would be realized through foreclosure under the present terms of the contract; andCommentsClose CommentsPermalink





(3) a servicer shall be deemed to be acting on behalf of the securitization vehicle in the best interest of all investors and holders of beneficial interests in the pooled loans, in the aggregate, if the servicer makes efforts--CommentsClose CommentsPermalink





(A) to proactively contact borrowers that are reasonably considered to be approaching a calendar date in which a predetermined or contractually established rate of interest on the principal of the loan shall--CommentsClose CommentsPermalink





(i) increase or fluctuate in accordance with a designated market indicator or indicators; orCommentsClose CommentsPermalink





(ii) increase or fluctuate within a predetermined range; andCommentsClose CommentsPermalink





(B) to determine--CommentsClose CommentsPermalink





(i) the ability of the borrower to make payments following a reset of interest rates using common and appropriate metric standards such as debt to income ratios;CommentsClose CommentsPermalink





(ii) whether the borrower is in danger of default or disclosure; andCommentsClose CommentsPermalink





(iii) whether a loan modification or other mitigation effort is appropriate.CommentsClose CommentsPermalink





(b) Safe Harbor- Absent specific contractual provisions to the contrary, a servicer of a residential mortgage loan that acts in a manner consistent with the provisions set forth in subsection (a), shall not be liable for entering into a qualified loan modification, or other loss mitigation effort described in subsection (a) to--CommentsClose CommentsPermalink





(1) any person, based on that person's ownership of a residential mortgage loan or any interest in a pool of residential mortgage loans or in securities that distribute payments out of the principal, interest, and other payments in loans on the pool;CommentsClose CommentsPermalink





(2) any person who is obligated to make payments determined in reference to any loan or any interest referred to in paragraph (1);CommentsClose CommentsPermalink





(3) any person that insures any loan or any interest referred to in paragraph (1) under any law or regulation of the United States or any law or regulation of any State or political subdivision of any State; orCommentsClose CommentsPermalink





(4) any other person or institution that may have a financial or commercial relationship and association with the persons associated in paragraphs (1) through (3).CommentsClose CommentsPermalink





(c) Rule of Construction- No provision of this section shall be construed as limiting the ability of a servicer to enter into loan modifications or workout plans other than qualified loan modification or workout plans.CommentsClose CommentsPermalink





(d) Definitions- As used in this section, the following definitions shall apply:CommentsClose CommentsPermalink





(1) QUALIFIED LOAN MODIFICATION OR WORKOUT PLAN- The term `qualified loan modification or workout plan' means a modification or plan that--CommentsClose CommentsPermalink





(A) is scheduled to remain in place until the borrower sells or refinances the property, or for at least 5 years from the date of adoption of the plan, whichever is sooner;CommentsClose CommentsPermalink





(B) does not provide for a repayment schedule that results in negative amortization at any time;CommentsClose CommentsPermalink





(C) does not require the borrower to pay additional points and fees;CommentsClose CommentsPermalink





(D) materially improves the ability of the borrower to--CommentsClose CommentsPermalink





(i) prevent foreclosure; andCommentsClose CommentsPermalink





(ii) resume a reasonable repayment schedule based on, but not limited to, debt to income ratio; andCommentsClose CommentsPermalink





(E) would reasonably reduce the likelihood of default of foreclosure during the life of the modification or plan;CommentsClose CommentsPermalink





(F) may waive any prepayment penalties that reasonably inhibited a loan holder from fulfilling his ability to pay down the principal or maintain regular payments as defined by the terms of the loan; andCommentsClose CommentsPermalink





(G) includes full and accurate disclosure to the borrower of the terms of the modification or workout plan, provided that such disclosures are executed in easy to understand terms that demonstrate how the borrower will benefit from the new terms in such modification or workout plan as compared with the terms and conditions of the previous loan of the borrower.CommentsClose CommentsPermalink





(2) RESIDENTIAL MORTGAGE LOAN- The term `residential mortgage loan' means a loan that is secured by a lien on an owner-occupied residential dwelling.CommentsClose CommentsPermalink





(3) SECURITIZATION VEHICLE- The term `securitization vehicle' means a trust, corporation, partnership, limited liability entity, special purpose entity, or other structure that--CommentsClose CommentsPermalink





(A) is the issuer, or is created by the issuer, of mortgage pass-through certificates, participation certificates, mortgage-backed securities, or other similar securities backed by a pool of assets that includes residential mortgage loans; andCommentsClose CommentsPermalink





(B) holds such loans.CommentsClose CommentsPermalink





(e) Limitations on Safe Harbor- Except for the provisions of section 2 that limit liability for efforts to pursue qualified loan modifications or workout plans, the provisions of this section shall not be construed to affect or limit any other liability, duty, or other fiduciary obligation of the servicer to the investors and holders of beneficial interests in the pooled loans to a securitization vehicle, as prescribed by any other specific contractual provision agreed upon, or any other liability, duty, or other fiduciary obligation set forth under any--CommentsClose CommentsPermalink





(1) law or regulation of the United States;CommentsClose CommentsPermalink





(2) law or regulation of any State or political subdivision of any State; orCommentsClose CommentsPermalink





(3) established and approved standards for best practices of any industry or trade group.CommentsClose CommentsPermalink





(f) Effective Period- This section shall apply only with respect to qualified loan modification or workout plans initiated prior to January 1, 2012.CommentsClose CommentsPermalink