69–006 

110TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 110–615 

EMERGENCY MORTGAGE LOAN MODIFICATION ACT OF 

2008 

MAY 1, 2008.—Committed to the Committee of the Whole House on the State of the 

Union and ordered to be printed 

Mr. FRANK of Massachusetts, from the Committee on Financial 

Services, submitted the following 

R E P O R T 

[To accompany H.R. 5579] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 5579) to remove an impediment to troubled debt restructuring on the part of holders of residential mortgage loans, and for 

other purposes, having considered the same, report favorably thereon with an amendment and recommend that the bill as amended 

do pass. 

CONTENTS 

Page 

Amendment .............................................................................................................. 2 

Purpose and Summary ............................................................................................ 3 

Summary of Major Provisions ................................................................................ 3 

Background and Need for Legislation .................................................................... 4 

Hearings ................................................................................................................... 5 

Committee Consideration ........................................................................................ 6 

Committee Votes ...................................................................................................... 6 

Committee Oversight Findings ............................................................................... 6 

Performance Goals and Objectives ......................................................................... 6 

New Budget Authority, Entitlement Authority, and Tax Expenditures ............. 7 

Committee Cost Estimate ....................................................................................... 7 

Congressional Budget Office Estimate ................................................................... 7 

Federal Mandates Statement ................................................................................. 8 

Advisory Committee Statement .............................................................................. 8 

Constitutional Authority Statement ...................................................................... 8 

Applicability to Legislative Branch ........................................................................ 8 

Earmark Identification ............................................................................................ 8 

Section-by-Section Analysis of the Legislation ...................................................... 8 


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AMENDMENT

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Emergency Mortgage Loan Modification Act of 

2008’’. 

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 contractual 

provisions to the contrary—

(1) the duty to maximize, or to not adversely 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; and 

(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 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 to implement a modification or workout plan 

or, if such efforts 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 particular modification or workout plan or 

other mitigation actions will maximize the net present value to be realized on 

the loan, including over that which would be realized through foreclosure. 

(b) SAFE HARBOR.—Absent contractual provisions to the contrary, a servicer of a 

residential mortgage loan that acts in a manner consistent with the duty set forth 

in subsection (a), shall not be liable for entering into a qualified loan modification 

or workout plan, to—

(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; 

(2) any person who is obligated pursuant to a derivatives instrument to make 

payments determined in reference to any loan or any interest referred to in 

paragraph (1); or 

(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. 

(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. 

(d) DEFINITIONS.—For purposes of this section, the following definitions shall 

apply: 

(1) QUALIFIED LOAN MODIFICATION OR WORKOUT PLAN.—The term ‘‘qualified 

loan modification or workout plan’’ means a modification or plan that—

(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; 

(B) does not provide for a repayment schedule that results in negative 

amortization at any time; and 

(C) does not require the borrower to pay additional points and fees. 

(2) NEGATIVE AMORTIZATION.—For purposes of paragraph (1), the term ‘‘negative amortization’’ does not include the capitalization of delinquent interest and 

arrearages. 

(3) RESIDENTIAL MORTGAGE LOAN DEFINED.—The term ‘‘residential mortgage 

loan’’ means a loan that is secured by a lien on an owner-occupied residential 

dwelling. 

(4) SECURITIZATION VEHICLE.—The term ‘‘securitization vehicle’’ means a 

trust, corporation, partnership, limited liability entity, special purpose entity, or 

other structure that—

(A) is the issuer, or is created by the issuer, of mortgage pass-through 

certificates, participation certificates, mortgage-backed securities, or other 


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similar securities backed by a pool of assets that includes residential mortgage loans; and 

(B) holds such loans. 

(e) EFFECTIVE PERIOD.—This section shall apply only with respect to qualified 

loan modification or workout plans initiated prior to January 1, 2011. 

PURPOSE AND SUMMARY

H.R. 5579, the Emergency Mortgage Loan Modification Act of 

2008, was introduced on March 11, 2008, by Mr. Castle and Mr. 

Kanjorski. The purpose of the bill is to clarify certain existing duties and responsibilities of mortgage loan servicers in effecting 

modifications of mortgage loans that are in default or for which default is imminent. The bill also provides a safe harbor from lawsuits by investors for mortgage servicers who engage in specified 

loan modifications and workouts, consistent with those duties. 

SUMMARY OF MAJOR PROVISIONS

Servicer duty of care 

The duties and responsibilities of servicers of securitized mortgage loan pools are established in contracts called servicing agreements or pooling and servicing agreements (Pooling and Servicing 

Agreements). Such agreements generally include a requirement 

that a servicer follow accepted servicing practices and procedures. 

While there is a degree of standardization among Pooling and Servicing Agreements regarding some provisions, other provisions may 

vary substantially. For instance, some agreements will give 

servicers broad authority to engage in loss mitigation on loans that 

are in default or for which default is reasonably foreseeable, so long 

as the servicers’ actions are in the best interests of the security 

holders. Other agreements may spell out the types of permissible 

modifications or limit the number or timing of modifications of 

loans in the pool. 

Inadequate resources to identify, evaluate, conduct outreach for 

and process the volume of loans in or near default have plagued 

servicer efforts to engage in timely and meaningful loan modifications in the face of the current foreclosure crisis. Servicers say they 

are further hindered by uncertainty about what modification actions may be permitted under their agreements, and by the fear of 

litigation by investors. 

The servicer duty provisions are intended to provide a measure 

of clarity and certainty to servicers by codifying concepts that are 

consistent with existing contractual obligations. The legislation 

makes clear that, absent any contractual provisions to the contrary, 

the duty of the servicer to maximize, or not adversely affect, the 

recovery of proceeds from pooled mortgage loans is owed for the 

benefit of investors in the aggregate, and not to any individual investor or group of investors. This articulation of the servicer duty 

is consistent with existing Pooling and Servicing Agreements, and 

with servicer best practices as developed by the American 

Securitization Forum (ASF) and reflected in their ‘‘Statement of 

Principles, Recommendations and Guidelines for the Modification 

of Securitized Subprime Residential Mortgage Loans’’ (June 2007). 

The Committee expects that this clarification will reduce servicer 

concerns about liability to investors in securitization tranches that 

may be disadvantaged by a servicer’s loss mitigation actions. 


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The legislation also clarifies that, absent contrary contractual 

provisions, a servicer is acting in the best interest of all investors 

if it implements a modification or workout plan or engages in other 

loss mitigation efforts, including accepting a short payment or 

short sale, for a loan that is in default or for which default is imminent or reasonably foreseeable, to the extent the servicer reasonably believes the modification will maximize the net present value 

to be realized on the loan, including over that which would be realized through foreclosure. Again, this generally is consistent with 

existing Pooling and Servicing Agreements, as well as with the 

ASF principle that loan modifications are important loss mitigation 

tools and other loss mitigation alternatives, including short sales 

and short payoffs, are useful. The Committee expects that these 

changes will clear the way for servicers to initiate long-term sustainable loan modifications that will be a benefit to all parties. 

Safe harbor 

The legislation provides a safe harbor from lawsuits by investors 

for servicers that meet their prescribed duties, and enter into 

‘‘qualified loan modification or workout plans.’’ ‘‘Qualified loan 

modification or workout plan’’ is defined as a plan that: (1) remains 

in place for at least five years, unless the borrower sells the property or refinances the loan during that time; (2) includes repayment schedules that do not result in negative amortization; and (3) 

does not require the borrower to pay additional points and fees. 

These conditions are intended to result in long-term, sustainable 

and affordable mortgage obligations for homeowners and a continued stream of income for investors. The term ‘‘negative amortization’’ is not intended to include extensions of loan terms to repay 

delinquent interest and arrearages, so long as the structure does 

not at any time result in negative amortization; that is, the 

amounts are not added back into the loan principal and the outstanding balance of the loan does not increase. The Committee 

hopes, however, that servicers will carefully consider forgiveness of 

arrearages in appropriate circumstances. 

The safe harbor would apply only to owner-occupied residential 

mortgage loans, and only to qualified modifications or workout 

plans initiated prior to January 1, 2011. 

The legislation does not create statutory preferences for loss mitigation activities, nor is it intended to limit the ability of servicers 

to enter into modifications or workouts other than those referenced 

in the legislation. 

The legislation would provide a safe harbor only from investor 

lawsuits and only for loan modification or workout plans having 

the specified characteristics. It is the Committee’s intent that the 

legislation would not affect the ability of consumers or borrowers 

to pursue claims against lenders or servicers for fraud or for discriminatory or abusive lending practices. 

BACKGROUND AND NEED FOR LEGISLATION

The number of American families facing or at risk of foreclosure 

has grown dramatically during the current upheaval in the mortgage and housing markets. According to the Mortgage Bankers Association (MBA), 5.82 percent of all loans on single-family properties outstanding in the fourth quarter of 2007 were delinquent, 


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the highest total delinquency rate in the MBA survey in over 20 

years. The percentage of loans in the foreclosure process also 

stands at record highs. A complex mix of circumstances has made 

it difficult for borrowers to restructure or refinance their loans, including that many of those loans were securitized into asset-backed 

securities and sold in the secondary market. 

One of the reasons given for the slow pace of loan modifications 

is that some servicers are concerned about legal liability to investors based on those modifications. While servicers have been trying 

to work with borrowers under a variety of programs, many of these 

efforts have been in the form of short-term extensions of the initial, 

starter or ‘‘teaser’’ rates, or temporary repayment plans that do not 

provide the long-term stability needed by borrowers, investors or 

the markets. 

This legislation is designed to facilitate loan modifications and 

workouts by clarifying mortgage loan servicers’ responsibilities in 

effecting modifications of mortgage loans that are in default or for 

which default is imminent, and providing a safe harbor from lawsuits by investors for mortgage servicers who engage in specified 

loan modifications and workouts. 

HEARINGS

The Financial Services Committee held a hearing on December 

6, 2007, titled ‘‘Accelerating Loan Modifications, Improving Foreclosure Prevention and Enhancing Enforcement’’ at which the Committee considered a previous version of the bill, H.R. 4178, introduced by Mr. Castle on November 14, 2007. The following witnesses testified: The Honorable Sheila C. Bair, Chairman, Federal 

Deposit Insurance Corporation; The Honorable Randall S. 

Kroszner, Governor, Board of Governors of the Federal Reserve 

System; The Honorable John C. Dugan, Comptroller, Office of the 

Comptroller of the Currency; The Honorable Gigi Hyland, Board 

Member, National Credit Union Administration; Mr. Scott M. 

Polakoff, Senior Deputy Director and Chief Operating Officer, Office of Thrift Supervision; Mr. Mark E. Pearce, North Carolina 

Deputy Commissioner of Banks, on behalf of the Conference of 

State Bank Supervisors; Mr. Tom Deutsch, Deputy Executive Director, American Securitization Forum; Ms. Faith Schwartz, Executive Director, HOPE NOW Alliance; Mr. Hilary O. Shelton, Director, National Association for the Advancement of Colored People; 

Mr. Damon Silvers, Associate General Counsel, AFL–CIO; Dr. 

Richard Kent Green, Oliver T. Carr, Jr. Chair of Real Estate Finance, The GW School of Business, George Washington University; 

Mr. Laurence E. Platt, Partner, K&L Gates, on behalf of the Securities Industry and Financial Markets Association; Mr. Michael 

Calhoun, President, Center for Responsible Lending; and Mr. John 

Taylor, Vice President for Policy, National Community Reinvestment Coalition. 

At a hearing of the Financial Services Committee on April 9, 

2008, titled ‘‘Using FHA for Housing Stabilization and Homeownership Retention,’’ provisions of H.R. 5579 were addressed by members and witnesses. Specifically, the Honorable Sheila Bair, Chairman, Federal Deposit Insurance Corporation, and the Honorable 

John C. Dugan, Comptroller, Office of the Comptroller of the Currency, expressed support for the legislation. Other witnesses at the 


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hearing included: The Honorable John M. Reich, Director, Office of 

Thrift Supervision; The Honorable Randall S. Kroszner, Governor, 

Board of Governors of the Federal Reserve System; The Honorable 

Brian Montgomery, Assistant Secretary for Housing-Federal Housing Commissioner, United States Department of Housing and 

Urban Development; Mr. Brian Wesbury, Chief Economist, First 

Trust Advisors L.P.; Dr. Alan S. Blinder, Ph.D., Gordon S. 

Rentschler Memorial Professor of Economics and Public Affairs, 

Princeton University; and Dr. Allen Sinai, Chief Global Economist, 

Strategist and President, Decision Economics, Inc. 

The Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises held a legislative hearing on April 15, 

2008, titled ‘‘H.R. 5579, The Emergency Mortgage Loan Modification Act of 2008.’’ The following witnesses testified: Mr. Ralph 

DaLoisio, Managing Director, Natixis Structured Finance Group, 

on behalf of the American Securitization Forum; Mr. Robert E. 

Story, Jr., President, Seattle Financial Group, and Vice Chairman, 

Mortgage Bankers Association, on behalf of the Mortgage Bankers 

Association; and Mr. Marlo A. Young, Partner, Thacher Proffitt & 

Wood LLP. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

April 23, 2008, and ordered H.R. 5579, the ‘‘Emergency Mortgage 

Loan Modification Act of 2008’’, as amended, favorably reported by 

a voice vote. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. No record votes were 

taken in conjunction with the consideration of this legislation. A 

motion by Mr. Kanjorski to report the bill, as amended, to the 

House with a favorable recommendation was agreed to by a voice 

vote. 

During the consideration of the bill, the following amendment 

was considered: 

An amendment by Mr. Kanjorski, No. 1, a manager’s amendment 

making various technical and substantive changes, was agreed to 

by a voice vote. 

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee has held hearings and made 

findings that are reflected in this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee establishes the following performance related goals and objectives for this legislation: 

To the extent that existing duties and responsibilities of mortgage loan servicers are clarified, and a safe harbor from lawsuits 

by investors for mortgage servicers who engage in specified loan 


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modifications and workouts is created, mortgage servicers will increase efforts to initiate long-term sustainable loan modifications. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

APRIL 28, 2008. 

Hon. BARNEY FRANK, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 5579, the Emergency 

Mortgage Loan Modification Act of 2008. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Susanne S. Mehlman. 

Sincerely, 

PETER R. ORSZAG. 

Enclosure. 

H.R. 5579—Emergency Mortgage Loan Modification Act of 2008 

H.R. 5579 would protect mortgage servicers from legal liability if 

they perform loan modifications according to specific criteria established under the legislation. CBO estimates that enacting this legislation would have no significant impact on the federal budget and 

would not affect direct spending or revenues. 

Residential mortgages are often pooled together and sold to investors as securities. The pools of loans are overseen by mortgage 

servicers, who have a fiduciary responsibility to maximize returns 

to the investors. Many pooling and servicing agreements give 

servicers authority to modify the terms of securitized loans if that 

action is in the interest of maximizing the value of the loan pool, 

but some agreements are more restrictive. Pooling and servicing 

agreements can be amended with the consent of investors. However, not all investors in mortgage-backed securities share losses 

equally, which may limit servicers’ ability to obtain permission to 

modify the terms of loans to ensure maximum value for all invesVerDate Aug 31 2005 07:20 May 02, 2008 Jkt 069006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6602 E:\HR\OC\HR615.XXX HR615

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tors. H.R. 5579 would provide legal protection for servicers of mortgage pools when they modify mortgages. 

H.R. 5579 contains both intergovernmental and private-sector 

mandates as defined in the Unfunded Mandates Reform Act 

(UMRA), but CBO estimates that the costs of those mandates 

would not exceed the annual thresholds for intergovernmental or 

private-sector mandates established in UMRA ($68 million and 

$136 million, respectively, in 2008, adjusted annually for inflation). 

By preventing investors, both public and private, from seeking 

damages on grounds that the servicing agreement had been violated, the legislation would impose a mandate on governmental and 

private-sector entities that invest in pooled residential mortgages. 

CBO concludes, however, that servicers would be unlikely to alter 

mortgages in ways that would be significant enough to cause investors to seek damages because they would still be required to ensure 

the greatest return to investors under their fiduciary obligations. 

The CBO staff contact for this estimate is Susanne S. Mehlman. 

This estimate was approved by Theresa Gullo, Deputy Assistant 

Director for Budget Analysis. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee finds that the Constitutional 

Authority of Congress to enact this legislation is provided by Article 1, section 8, clause 1 (relating to the general welfare of the 

United States) and clause 3 (relating to the power to regulate interstate commerce). 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 5579 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section establishes the short title of the bill, the ‘‘Emergency 

Mortgage Loan Modification Act of 2008.’’


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Section 2. Safe harbor for qualified loan modification or workout 

plans for certain residential mortgage loans 

Subsection (a)—Standard for loan modifications or workout 

plans 

This subsection sets forth the duty of loan servicers to maximize 

or not adversely affect recovery of proceeds from pooled residential 

mortgage loans on behalf of the securitization vehicle and in the 

best interest of the investors in the aggregate, without regard to 

the interests of individual investors or tranches. The duty applies 

only in the absence of contrary contractual provisions. 

This subsection further provides that a servicer acts in the best 

interest of all investors if, for loans in default or for which default 

is imminent or reasonably foreseeable, it makes reasonable efforts 

to implement a loan modification or workout plan, or engages in 

other loss mitigation efforts, including acceptance of short payments, agreeing to short sales, or accepting partial discharges of 

principal. The servicer must reasonably believe that its loss mitigation actions will maximize the net present value of the loan, including over the value that would be realized through foreclosure. 

Subsection (b)—Safe harbor 

This subsection provides that a servicer that acts in a manner 

consistent with the duty in the legislation will not be liable to investors or insurers for entering into qualified loan modification or 

workout plans. The safe harbor would apply only in the absence of 

contrary contractual provisions. Investors subject to the provision 

are those who own residential mortgage loans, hold any interest in 

a pool of residential mortgage loans or in pass-through securities, 

or through derivatives instruments the payments of which are determined in reference to residential mortgage loans, pools or other 

securities. 

Subsection (c)—Rule of construction 

This subsection specifies that nothing in the legislation limits the 

ability of loan servicers to enter into other types of modifications 

or workouts. 

Subsection (d)—Definitions 

This subsection defines terms used in the legislation, including 

‘‘securitization vehicle,’’ ‘‘residential mortgage loan,’’ and ‘‘qualified 

loan modification or workout plan.’’ ‘‘Residential mortgage loan’’ is 

defined as a loan secured by an owner-occupied residential dwelling. This subsection also defines ‘‘qualified loan modification or 

workout plan’’ as a plan that (1) is scheduled to remain in place 

for at least five years, unless the borrower sells the property or refinances the loan; (2) does not include repayment schedules that result in negative amortization; and (3) does not require the borrower 

to pay additional points and fees. For purposes of this subsection, 

negative amortization does not include capitalization of delinquent 

interest or arrearages. 


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Subsection (e)—Effective date 

Applies only to qualified loan modification or workout plans initiated prior to January 1, 2011. 

Æ 


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