A bill to encourage residential mortgage loan modifications and workout plans, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Encouraging Mortgage Modifications 
Act of 2008''.

SEC. 2. FINDINGS.

    Congress finds that--
            (1) mortgage modifications often afford the best 
        opportunity to avoid foreclosures and provide long term, 
        sustainable solutions for American homeowners;
            (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;
            (3) servicers have an obligation to protect the interests 
        of investors when determining whether to offer a modification 
        or repayment plan;
            (4) the best course of action for the investor pool as a 
        whole may disadvantage the interests of individual classes of 
        investors;
            (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;
            (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; and
            (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.

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--
            (1) by redesignating subsections (i) and (j) as subsections 
        (j) and (k), respectively; and
            (2) by inserting after subsection (h) the following:
    ``(i) Duty of Servicers Regarding Certain Loan Modifications or 
Workout Plans.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, absent specific contractual provisions to the contrary, a 
        servicer of pooled qualified residential mortgages--
                    ``(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; and
                    ``(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; and
                    ``(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--
                            ``(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;
                            ``(ii) based on the person's obligation to 
                        make payments determined in reference to any 
                        loan or interest referred to in clause (i); or
                            ``(iii) based on the person's obligation to 
                        insure any loan or any interest referred to in 
                        clause (i).
            ``(2) Definitions.--As used in this subsection--
                    ``(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--
                            ``(i) payment default on the loan or loans 
                        has occurred, is imminent, or is reasonably 
                        foreseeable;
                            ``(ii) the dwelling securing the loan or 
                        loans is the primary residence of the owner;
                            ``(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;
                            ``(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; and
                            ``(v) the borrower is not required to pay 
                        additional fees to the servicer;
                    ``(B) the term `qualified residential mortgage' 
                means a consumer credit transaction or loan that is 
                secured by the consumer's principal dwelling;
                    ``(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; and
                    ``(D) the term `servicer'--
                            ``(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); and
                            ``(ii) includes the entities listed in 
                        subparagraphs (A) and (B) of subsection (j)(2).
            ``(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.
            ``(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.''.

Summary: Encouraging Mortgage Modifications Act of 2008 - Amends the Real Estate Settlement Procedures Act of 1974 to set forth duties of mortgage servicers regarding certain loan modifications or workout plans that affect pooled qualified residential mortgages. Specifies among such duties the duty to: (1) determine if the net present value of the payments on the modified loan 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. And (2) act 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 takes other reasonable loss mitigation actions, including accepting partial payments or short sale of the property, if such efforts are unsuccessful or infeasible. Shields from liability a servicer who enters into a qualified loan modification or workout plan if the servicer acts in a manner consistent with such duties.