I 

112TH CONGRESS 

2D SESSION H. R. 3841 

To prevent foreclosure of, and provide for the reduction of principal on, 

mortgages held by Fannie Mae and Freddie Mac. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 31, 2012 

Ms. WATERS (for herself, Mr. GUTIERREZ, Mr. CONYERS, Mr. BERMAN, Mr. 

FILNER, Ms. SCHAKOWSKY, Mr. CLARKE of Michigan, Mr. BLUMENAUER, and Mr. GRIJALVA) introduced the following bill; which was 

referred to the Committee on Financial Services, and in addition to the 

Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions 

as fall within the jurisdiction of the committee concerned 

A BILL 

To prevent foreclosure of, and provide for the reduction 

of principal on, mortgages held by Fannie Mae and 

Freddie Mac. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Principal Reduction 

5 Act of 2012’’. 


smartinez on DSK6TPTVN1PROD with BILLS
2 

•HR 3841 IH

1 SEC. 2. PRINCIPAL REDUCTION OF MORTGAGES OWNED OR 

2 GUARANTEED BY FANNIE MAE AND FREDDIE 

3 MAC. 

4 (a) PROGRAM AUTHORITY.— 

5 (1) IN GENERAL.—The Federal National Mort6 gage Association and the Federal Home Loan Mort7 gage Corporation shall each carry out a program 

8 under this section to provide for the reduction of the 

9 outstanding principal balances on qualified mort10 gages on single-family housing owned or guaranteed 

11 by such enterprise through reduction of such prin12 cipal balances, in accordance with this section and 

13 policies and procedures that the Director of the Fed14 eral Housing Finance Agency shall establish. 

15 (2) REQUIREMENT TO REDUCE PRINCIPAL PUR16 SUANT TO REQUEST.—Each such program shall re17 quire the reduction of principal on a qualified mort18 gage upon the request of the mortgagor made to the 

19 enterprise and a determination by the enterprise 

20 that the mortgage is a qualified mortgage. 

21 (b) QUALIFIED MORTGAGE.—For purposes of this 

22 section, the term ‘‘qualified mortgage’’ means a mortgage, 

23 without regard to whether the mortgagor is current or in 

24 default on payments due under the mortgage, that— 

25 (1) is an existing first mortgage that was made 

26 for purchase of, or refinancing another first mortVerDate Mar 15 2010 03:58 Feb 01, 2012 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H3841.IH H3841

smartinez on DSK6TPTVN1PROD with BILLS
3 

•HR 3841 IH

1 gage on, a one- to four-family dwelling, including a 

2 condominium or a share in a cooperative ownership 

3 housing association, that is occupied by the mort4 gagor as the principal residence of the mortgagor; 

5 (2) is owned or guaranteed by the Federal Na6 tional Mortgage Association or the Federal Home 

7 Loan Mortgage Corporation; 

8 (3) was originated on or before the date of the 

9 enactment of this Act; 

10 (4) has a principal balance that exceeds the 

11 value of the dwelling subject to the mortgage by 

12 more than 20 percent; and 

13 (5) has been determined to be net present value 

14 positive for the enterprise that owns or guarantees 

15 such mortgage, pursuant to the application of the 

16 net present value model identified in subsection 

17 (m)(3) that results in the expected net present value 

18 of reducing principal on the mortgage exceeding the 

19 net present value of foreclosing on such mortgage. 

20 (c) PRINCIPAL REDUCTION ON QUALIFIED MORT21 GAGES.—To reduce principal on a qualified mortgage 

22 under a program of an enterprise under this section, the 

23 enterprise shall— 


smartinez on DSK6TPTVN1PROD with BILLS
4 

•HR 3841 IH

1 (1) reduce the principal for the qualified mort2 gage to an amount that results in a loan-to-value 

3 ratio for the mortgage of not more than 90 percent; 

4 (2) require that if the dwelling subject to the 

5 qualified mortgage that has had its principal re6 duced under the program is sold by any process 

7 other than a foreclosure sale or short sale, to the ex8 tent that such property appreciates in value, the 

9 mortgagor shall provide not less than one-third of 

10 the amount of such appreciation to the enterprise; 

11 and 

12 (3) recover from the mortgagor under the quali13 fied mortgage that has had its principal reduced 

14 under the program, if such mortgage subsequently 

15 enters foreclosure, an amount equal to the difference 

16 between the sales price at foreclosure sale of the 

17 dwelling subject to such mortgage and the amount 

18 of the outstanding principal balance on mortgage 

19 immediately before such principal reduction. 

20 (d) STREAMLINED PROCESS.—To the maximum ex21 tent possible, each enterprise shall— 

22 (1) limit the amount of paperwork required 

23 from a mortgagor to receive a principal reduction 

24 under the program established under this section by 

25 the enterprise; and 


smartinez on DSK6TPTVN1PROD with BILLS
5 

•HR 3841 IH

1 (2) endeavor to complete the principal reduction 

2 for a qualified mortgage pursuant to the mortga3 gor’s request not later than 30 days after receiving 

4 such request from the mortgagor. 

5 (e) PROHIBITION ON BORROWER FEES.—Neither the 

6 servicer conducting the principal reduction on behalf of 

7 the enterprise nor the enterprise may charge the mort8 gagor any fee, including any fee for any appraisal notwith9 standing that such appraisal is required to determine the 

10 value of the dwelling subject to the qualified mortgage, 

11 for the reduction of principal of the qualified mortgage 

12 under the program under this section of the enterprise. 

13 All fees and penalties related to any default or delinquency 

14 on such qualified mortgage shall be waived or forgiven. 

15 (f) FEE TO SERVICER.—For each qualified mortgage 

16 of an enterprise for which the servicer of the qualified 

17 mortgage provides a principal reduction pursuant to the 

18 program under this section of the enterprise, the enter19 prise shall pay to the servicer a fee not exceeding $1,000. 

20 (g) TAX TREATMENT.—The reduction of principal 

21 taken on a qualified mortgage under a program under this 

22 section shall not result in any tax liability for the mort23 gagor under such mortgage. 

24 (h) MAINTENANCE OF LIEN STATUS.—Any reduction 

25 of principal taken with respect to a first mortgage under 


smartinez on DSK6TPTVN1PROD with BILLS
6 

•HR 3841 IH

1 a program under this section shall not impair the priority 

2 status of liens on the dwelling subject to the mortgage, 

3 to the extent that there are no additional funds advanced 

4 to the mortgagor in connection with such principal reduc5 tion. 

6 (i) MAINTENANCE OF LOAN STATUS.—Any reduction 

7 of principal taken with respect to a qualified mortgage 

8 under a program under this section shall not result in the 

9 treatment of the modified loan as a new loan. 

10 (j) SECOND LIENS.—The Director shall encourage 

11 the modification of second liens on dwellings that are sub12 ject to mortgages for which principal reductions are taken 

13 under the programs under this section by implementing 

14 remedial actions on servicers that service mortgages 

15 owned or guaranteed by the enterprises and own second 

16 liens that are not modified following a request by the Di17 rector upon a reduction of principal of the mortgage 

18 owned by the enterprise. Upon termination of any serv19 icing contracts with such servicers, the Director shall take 

20 remedial actions with respect to such servicers, which may 

21 include— 

22 (1) cancelling servicing rights of mortgages 

23 owned by the enterprises; 

24 (2) reducing compensation to any such servicer; 

25 or 


smartinez on DSK6TPTVN1PROD with BILLS
7 

•HR 3841 IH

1 (3) taking such other actions, consistent with 

2 applicable law, as the Director determines is appro3 priate. 

4 (k) RESTRICTIONS ON COMPENSATION.—The Direc5 tor may not approve bonus compensation that exceeds the 

6 base compensation for any executive or senior executive 

7 of an enterprise, unless the aggregate number of qualified 

8 mortgages for which principal reductions have been taken 

9 pursuant to the program under this section of such enter10 prise exceeds 1,000,000. 

11 (l) RULE OF CONSTRUCTION.—Any reduction of 

12 principal of a qualified mortgage of an enterprise under 

13 a program under this section shall be considered con14 sistent with the mission of any conservator of the enter15 prises as such mission is described in section 

16 1367(b)(2)(D) of the Federal Housing Enterprises Finan17 cial Safety and Soundness Act of 1992 (12 U.S.C. 

18 4617(b)(2)(D)). 

19 (m) DEFINITIONS.—For purposes of this section, the 

20 following definitions shall apply: 

21 (1) DIRECTOR.—The term ‘‘Director’’ means 

22 the Director of the Federal Housing Finance Agen23 cy. 


smartinez on DSK6TPTVN1PROD with BILLS
8 

•HR 3841 IH

1 (2) ENTERPRISE.—The term ‘‘enterprise’’ 

2 means the Federal National Mortgage Association 

3 and the Federal Home Loan Mortgage Corporation. 

4 (3) NET PRESENT VALUE.—The term ‘‘net 

5 present value’’ means the net present value as deter6 mined under the model specified in Supplemental 

7 Directive 09–01 for the Home Affordable Modifica8 tion Program of the Department of the Treasury 

9 and any updates thereto. 

10 (n) REGULATIONS.—The Director shall issue any 

11 regulations or guidance necessary to carry out the pro12 grams required under this section not later than the expi13 ration of the 6-month period that begins on the date of 

14 the enactment of this Act. 

15 (o) TERMINATION.—The requirement under sub16 section (a)(2) for an enterprise to forgive principal on a 

17 qualified mortgage shall not apply with respect to any re18 quest for principal reduction made after the expiration of 

19 the 12-month period that begins on the earlier of— 

20 (1) the date that any regulations or guidance 

21 issued pursuant to subsection (n) take effect; or 

22 (2) the expiration of the 6-month period identi23 fied in subsection (n). 

Æ 


smartinez on DSK6TPTVN1PROD with BILLS