(a) In General- The Chairperson of the Federal Deposit Insurance Corporation shall establish a systematic foreclosure prevention and mortgage modification program by--
(b) Program Components- The program established under subsection (a) shall include the following components:
(1) ELIGIBLE BORROWERS- The program shall be limited to loans secured by owner-occupied properties.
(2) EXCLUSION FOR EARLY PAYMENT DEFAULT- To promote sustainable mortgages, government loss sharing shall be available only after the borrower has made a minimum of 6 payments on the modified mortgage.
(3) STANDARD NET PRESENT VALUE TEST- In order to promote consistency and simplicity in implementation and audit, a standard test comparing the expected net present value of modifying past due loans compared to the net present value of foreclosing on them will be applied. Under this test, standard assumptions shall be used to ensure that a consistent standard for affordability is provided based on a 31 percent borrower mortgage debt-to-income ratio.
(4) SYSTEMATIC LOAN REVIEW BY PARTICIPATING SERVICERS- Participating servicers shall be required to undertake a systematic review of all of the loans under their management, to subject each loan to a standard net present value test to determine whether it is a suitable candidate for modification, and to modify all loans that pass this test. The penalty for failing to undertake such a systematic review and to carry out modifications where they are justified would be disqualification from further participation in the program until such a systematic program was introduced.
(5) MODIFICATIONS- Modifications may include any of the following:
(A) Reduction in interest rates and fees.
(B) Forbearance of principal.
(C) Extension of the term to maturity.
(D) Other similar modifications.
(6) REDUCED LOSS SHARE PERCENTAGE FOR ‘UNDERWATER LOANS’- For loan-to-value ratios above 100 percent, the government loss share shall be progressively reduced from 50 percent to 20 percent as the current loan-to-value ratio rises, except that loss sharing shall not be available if the loan-to-value ratio of the first lien exceeds 150 percent.
(7) SIMPLIFIED LOSS SHARE CALCULATION- In order to ensure the administrative efficiency of this program, the calculation of loss share basis would be as simple as possible. In general terms, the calculation shall be based on the difference between the net present value, as defined by the Chairperson of the Federal Deposit Insurance Corporation, of the modified loan and the amount of recoveries obtained in a disposition by refinancing, short sale, or real estate owned sale, net of disposal costs as estimated according to industry standards. Interim modifications shall be allowed.
(8) DE MINIMIS TEST- To lower administrative costs, a de minimis test shall be used to exclude from loss sharing any modification that does not lower the monthly payment at least 10 percent.
(9) 8-year LIMIT ON LOSS SHARING PAYMENT- The loss sharing guarantee shall terminate at the end of the 8-year period beginning on the date the modification was consummated.
(c) Regulations- The Corporation shall prescribe such regulations as may be necessary to implement this Act and prevent evasions thereof.
(d) Troubled Assets- The costs incurred by the Federal Government in carrying out the loan modification program established under this section shall be covered out of the funds made available to the Secretary of the Treasury under section 118 of the Emergency Economic Stabilization Act of 2008.
(e) Modifications to Program- The Chairperson of the Federal Deposit Insurance Corporation may make any modification to the program established under subsection (a) that the Chairperson determines are appropriate for the purpose of maximizing the number of foreclosures prevented.
(f) Report- Before the end of the 6-month period beginning on the date of the enactment of this Act, the Chairperson of the Federal Deposit Insurance Corporation shall submit a progress report to the Congress containing such findings and such recommendations for legislative or administrative action as the Chairperson may determine to be appropriate.
U.S. Congress - Text of S.73 as Introduced in Senate Systematic Foreclosure Prevention and Mortgage Modification Act
