S 2901 ISCommentsClose CommentsPermalink

To encourage residential mortgage loan modifications and workout plans, and for other purposes.CommentsClose CommentsPermalink

April 23, 2008

Mr. SPECTER introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban AffairsCommentsClose CommentsPermalink

To encourage residential mortgage loan modifications and workout plans, 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 `Encouraging Mortgage Modifications Act of 2008'.CommentsClose CommentsPermalink

SEC. 2. FINDINGS.

Congress finds that--CommentsClose CommentsPermalink





(1) mortgage modifications often afford the best opportunity to avoid foreclosures and provide long term, sustainable solutions for American homeowners;CommentsClose CommentsPermalink





(2) reaching mortgage modification agreements with homeowners has been unacceptably slow and foreclosure rates continue to rise, with the number of homeowners forced into foreclosure double the number who receive modifications or repayment plans;CommentsClose CommentsPermalink





(3) servicers have an obligation to protect the interests of investors when determining whether to offer a modification or repayment plan;CommentsClose CommentsPermalink





(4) the best course of action for the investor pool as a whole may disadvantage the interests of individual classes of investors;CommentsClose CommentsPermalink





(5) servicers have expressed concern that investor classes that are disproportionately disadvantaged by a modification or repayment plan may seek to hold the servicer liable;CommentsClose CommentsPermalink





(6) without liability protection, many servicers will not be willing to take on the risk associated with approving a mortgage modification or repayment plan, and instead, they will eventually pursue foreclosure even though foreclosure costs can equal 50 percent or more of mortgage value; andCommentsClose CommentsPermalink





(7) the net present value of a modified mortgage loan will almost always exceed the amount recouped by allowing the home to go into foreclosure.CommentsClose CommentsPermalink

SEC. 3. LEGAL SAFE HARBOR FOR ENTERING INTO CERTAIN LOAN MODIFICATIONS OR WORKOUT PLANS.

Section 6 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605) is amended--CommentsClose CommentsPermalink





(1) by redesignating subsections (i) and (j) as subsections (j) and (k), respectively; andCommentsClose CommentsPermalink





(2) by inserting after subsection (h) the following:CommentsClose CommentsPermalink





`(i) Duty of Servicers Regarding Certain Loan Modifications or Workout Plans-CommentsClose CommentsPermalink





`(1) IN GENERAL- Notwithstanding any other provision of law, absent specific contractual provisions to the contrary, a servicer of pooled qualified residential mortgages--CommentsClose CommentsPermalink





`(A) owes any duty to determine if the net present value of the payments on the loan, as modified, is likely to be greater than the anticipated net recovery that would result from foreclosure to all investors and parties having a direct or indirect interest in the pooled loans or securitization vehicle, but not to any individual party or group of parties; andCommentsClose CommentsPermalink





`(B) acts in the best interests of all such investors and parties, if the servicer agrees to or implements a qualified loan modification or workout plan for a qualified residential mortgage, or if, and only if, such efforts are unsuccessful or infeasible, takes other reasonable loss mitigation actions, including accepting partial payments or short sale of the property; andCommentsClose CommentsPermalink





`(C) if the servicer acts in a manner consistent with the duty set forth in subparagraphs (A) and (B), shall not be liable under any law or regulation of the United States, any State or any political subdivision of any State, for entering into a qualified loan modification or workout plan in any action filed by or on behalf of any person--CommentsClose CommentsPermalink





`(i) based on the person's ownership of any interest in a residential mortgage, a pool of residential mortgage loans, or a securitization vehicle, that distributes payments out of the principal, interest, or other payment on loans in the pool;CommentsClose CommentsPermalink





`(ii) based on the person's obligation to make payments determined in reference to any loan or interest referred to in clause (i); orCommentsClose CommentsPermalink





`(iii) based on the person's obligation to insure any loan or any interest referred to in clause (i).CommentsClose CommentsPermalink





`(2) DEFINITIONS- As used in this subsection--CommentsClose CommentsPermalink





`(A) the term `qualified loan modification or workout plan' means a contract, modification, or plan relating to a qualified residential mortgage loan consummated on or after January 1, 2004, with respect to which--CommentsClose CommentsPermalink





`(i) payment default on the loan or loans has occurred, is imminent, or is reasonably foreseeable;CommentsClose CommentsPermalink





`(ii) the dwelling securing the loan or loans is the primary residence of the owner;CommentsClose CommentsPermalink





`(iii) the servicer reasonably believes that the anticipated recovery under the loan modification or workout plan will exceed the anticipated recovery through foreclosure, on a net present value basis;CommentsClose CommentsPermalink





`(iv) the effective period runs for at least 5 years from the date of adoption of the plan, or until the borrower sells or refinances the property, if that occurs earlier; andCommentsClose CommentsPermalink





`(v) the borrower is not required to pay additional fees to the servicer;CommentsClose CommentsPermalink





`(B) the term `qualified residential mortgage' means a consumer credit transaction or loan that is secured by the consumer's principal dwelling;CommentsClose CommentsPermalink





`(C) the term `securitization vehicle' means a trust, corporation, partnership, limited liability entity, special purpose entity, or other structure that 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





`(D) the term `servicer'--CommentsClose CommentsPermalink





`(i) means the person responsible for servicing of a loan (including the person who makes or holds a loan, if such person also services the loan); andCommentsClose CommentsPermalink





`(ii) includes the entities listed in subparagraphs (A) and (B) of subsection (j)(2).CommentsClose CommentsPermalink





`(3) EFFECTIVE PERIOD- This subsection shall apply only with respect to qualified loan modification or workout plans initiated during the 6-month period beginning on the date of enactment of this subsection.CommentsClose CommentsPermalink





`(4) RULE OF CONSTRUCTION- Nothing in this subsection may be construed to limit the ability of a servicer to enter into a loan modification or workout plan other than a qualified loan modification or workout plan covered by this subsection.'.CommentsClose CommentsPermalink