I 

111TH CONGRESS 

1ST SESSION H. R. 1356 

To reduce foreclosures of residential mortgages. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 5, 2009 

Mr. SESTAK introduced the following bill; which was referred to the 

Committee on Financial Services 

A BILL 

To reduce foreclosures of residential mortgages. 

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 ‘‘Homeownership Vest5 ing Plan Act of 2009’’. 

6 SEC. 2. HOMEOWNERSHIP VESTING PLAN. 

7 Title II of the National Housing Act (12 U.S.C. 1707 

8 et seq.) is amended— 

9 (1) by redesignating section 257, as added by 

10 section 2124(a) of the Housing and Economic Relief 

11 Act of 2008 (12 U.S.C. 1715z–24), as section 258; 

12 and 


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1 (2) by adding after section 258, as so redesig2 nated, the following new section: 

3 ‘‘SEC. 259. HOMEOWNERSHIP VESTING PLAN. 

4 ‘‘(a) AUTHORITY.—The Secretary shall, subject only 

5 to the absence of requests for insurance under this section 

6 and the availability of amounts pursuant to subsection 

7 (i)— 

8 ‘‘(1) make commitments to insure and insure 

9 any mortgage covering a 1- to 4-family residence 

10 that is made for the purpose of paying or prepaying 

11 outstanding obligations under an existing mortgage 

12 or mortgages on the residence if the mortgage being 

13 insured under this section meets the requirements of 

14 this section; and 

15 ‘‘(2) in connection with the insurance of such 

16 mortgages— 

17 ‘‘(A) make payments under subsection (c) 

18 to servicers of eligible mortgages refinanced by 

19 such insured mortgages; 

20 ‘‘(B) make payments under (b)(4) for the 

21 extinguishment of subordinate liens on the 

22 properties subject to eligible mortgages refi23 nance by such insured mortgages; and 

24 ‘‘(C) make loans under subsection (d) to 

25 mortgagors under such insured mortgages. 


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1 ‘‘(b) ELIGIBLE MORTGAGES.—To be eligible for in2 surance under this section, a mortgage shall comply with 

3 all of the following requirements: 

4 ‘‘(1) OWNER-OCCUPIED SOLE RESIDENCE.—The 

5 residence securing the mortgage insured under this 

6 section shall be occupied by the mortgagor as the 

7 principal residence of the mortgagor and the mort8 gagor shall provide a certification to the originator 

9 of the insured mortgage that such residence securing 

10 the mortgage is the only residence in which the 

11 mortgagor has any present ownership interest. 

12 ‘‘(2) PRINCIPAL OBLIGATION AMOUNT.—The 

13 principal obligation amount of the mortgage to be 

14 insured under this section shall be equal to 97.5 per15 cent of the current appraised value of the residence 

16 securing the mortgage. 

17 ‘‘(3) REQUIRED WAIVER OF PREPAYMENT PEN18 ALTIES AND FEES.—All penalties for prepayment or 

19 refinancing of the existing senior mortgage, and all 

20 fees and penalties related to default or delinquency 

21 on the existing senior mortgage, shall be waived or 

22 forgiven. 

23 ‘‘(4) EXTINGUISHMENT OF SUBORDINATE

24 LIENS.— 


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1 ‘‘(A) REQUIRED AGREEMENT.—All holders 

2 of existing mortgages on the property to which 

3 the eligible mortgage relates shall agree to ac4 cept the proceeds of the insured loan, and any 

5 payment pursuant to subparagraph (B), as pay6 ment in full of all indebtedness under the exist7 ing mortgage, and all encumbrances related to 

8 such existing mortgage shall be removed. The 

9 Secretary may take such actions, in accordance 

10 with the standards established pursuant to sub11 paragraph (B), as may be necessary and appro12 priate to facilitate coordination and agreement 

13 between the holders of the existing senior mort14 gage and any existing subordinate mortgages, 

15 taking into consideration the subordinate lien 

16 status of such subordinate mortgages. 

17 ‘‘(B) PAYMENT.—The Secretary shall pro18 vide for the payment to the holder of any exist19 ing subordinate mortgage of an amount equal 

20 to 5 cents for each dollar of the outstanding 

21 principal balance of, and accrued interest on, 

22 the outstanding mortgage. 

23 ‘‘(5) INTEREST RATE AND TERM OF MORT24 GAGE.—The mortgage to be insured under this sec25 tion shall— 


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1 ‘‘(A) bear interest at a single rate that is 

2 fixed for the entire term of the mortgage; and 

3 ‘‘(B) have a maturity of 30 years from the 

4 date of the beginning of amortization of such 

5 mortgage. 

6 ‘‘(6) UNDERWRITING STANDARDS.—The mort7 gage insured under this section shall comply with 

8 the underwriting standards applicable under the 

9 FHA Secure Program (established by mortgagee let10 ter 2007–11, issued September 5, 2007), as such 

11 Program is in effect as of February 1, 2009. 

12 ‘‘(7) PRIORITY OF LIEN FOR NON-VESTED LOAN

13 PRINCIPAL.—The mortgage to be insured under this 

14 section shall provide that the Secretary’s lien pursu15 ant to subsection (d)(4) on the residence that is sub16 ject to the mortgage shall have superior priority to 

17 the lien under the insured mortgage. 

18 ‘‘(8) REQUIREMENTS FOR EXISTING SENIOR

19 MORTGAGE BEING REFINANCED.— 

20 ‘‘(A) ORIGINATION DATE.—The existing 

21 senior mortgage shall have been originated dur22 ing the period beginning on January 1, 2003, 

23 and ending upon December 31, 2007. 

24 ‘‘(B) PRINCIPAL OBLIGATION.—The exist25 ing senior mortgage shall have had an original 


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1 principal obligation in an amount that did not 

2 exceed the maximum dollar amount limitation 

3 in effect on February 1, 2009, under section 

4 203(b)(2) of the National Housing Act (12 

5 U.S.C. 1709(b)(2)) for a residence of the appli6 cable size for the area in which the residence is 

7 located. 

8 ‘‘(C) DEBT-TO-INCOME RATIO UPON ORIGI9 NATION.—As of the time of the origination of 

10 the existing senior mortgage, the mortgagor 

11 shall have had a ratio of mortgage debt to in12 come, taking into consideration all existing 

13 mortgages of that mortgagor at such time, ex14 ceeding 30 percent. 

15 ‘‘(D) LOAN-TO-VALUE RATIO.—The exist16 ing senior mortgage shall, upon origination, 

17 have involved a principal obligation (including 

18 such initial service charges, appraisal, inspec19 tion, and other fees as the Secretary shall ap20 prove) in an amount not exceeding 90 percent 

21 of the appraised value of the property at such 

22 time. 

23 ‘‘(c) PAYMENT TO SERVICER OF EXISTING MORT24 GAGE.—For each mortgage insured under this section, the 

25 Secretary shall make a payment in the amount of $1,000 


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1 to the servicer of the existing senior mortgage refinanced 

2 by such insured mortgage. 

3 ‘‘(d) NONAMORTIZING NO-INTEREST LOAN.— 

4 ‘‘(1) IN GENERAL.—In connection with each 

5 mortgage insured under this section, the Secretary 

6 shall make a loan under this subsection to the mort7 gagor, the proceeds of which shall be paid by the 

8 Secretary directly to the holder of the existing senior 

9 mortgage being refinanced by the mortgage insured 

10 under this section. Such loan shall be in an amount 

11 equal to the difference between— 

12 ‘‘(A) the amount of the outstanding prin13 cipal obligation under the existing senior mort14 gage refinanced by such insured mortgage as of 

15 the time of the origination of such insured 

16 mortgage; and 

17 ‘‘(B) the amount of the original principal 

18 obligation of the insured mortgage. 

19 ‘‘(2) TERMS.—A loan under this section— 

20 ‘‘(A) shall not bear interest; and 

21 ‘‘(B) shall not require the borrower to 

22 make payments of principal, except as provided 

23 in paragraph (3). 

24 ‘‘(3) REPAYMENT.—A loan under this section 

25 shall require repayment of principal only if the borVerDate Nov 24 2008 21:43 Mar 09, 2009 Jkt 079200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H1356.IH H1356

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1 rower defaults with respect to the borrower’s obliga2 tions under the insured mortgage in connection with 

3 which such loan is made during the 5-year period 

4 that begins on the date that such mortgage is in5 sured, as follows: 

6 ‘‘(A) YEAR 1.—If any such default occurs 

7 during the period that begins on the date that 

8 such mortgage is insured and ends 1 year after 

9 such date of insurance, the Secretary shall be 

10 entitled to repayment of 100 percent of the 

11 principal amount of the loan. 

12 ‘‘(B) YEAR 2.—If any such default occurs 

13 during the period that begins 1 year after such 

14 date of insurance and ends 2 years after such 

15 date of insurance, the Secretary shall be enti16 tled to 80 percent of such principal amount. 

17 ‘‘(C) YEAR 3.—If any such default occurs 

18 during the period that begins 2 years after such 

19 date of insurance and ends 3 years after such 

20 date of insurance, the Secretary shall be enti21 tled to 60 percent of such principal amount. 

22 ‘‘(D) YEAR 4.—If any such default occurs 

23 during the period that begins 3 years after such 

24 date of insurance and ends 4 years after such 


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1 date of insurance, the Secretary shall be enti2 tled to 40 percent of such principal amount. 

3 ‘‘(E) YEAR 5.—If any such default occurs 

4 during the period that begins 4 years after such 

5 date of insurance and ends 5 years after such 

6 date of insurance, the Secretary shall be enti7 tled to 20 percent of such principal amount. 

8 ‘‘(F) AFTER YEAR 5.—If any such default 

9 occurs after the expiration of the 5-year period 

10 that begins on such date of insurance, the Sec11 retary shall not be entitled to repayment of any 

12 portion of such principal amount. 

13 ‘‘(4) LIEN.—Repayment of the portion of the 

14 principal amount of a loan made under this sub15 section that is required under paragraph (3) shall be 

16 secured by a lien on the residence that is subject to 

17 the mortgage insured under this section in connec18 tion with which such loan was made, that is held by 

19 the Secretary, and which shall have priority over all 

20 other liens on such residence. 

21 ‘‘(e) PREMIUMS.—Notwithstanding any other provi22 sion of this Act: 

23 ‘‘(1) IN GENERAL.—For each eligible mortgage 

24 insured under this section, the Secretary shall estab25 lish and collect an annual premium in an amount 


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1 equal to not less than 0.55 percent of the amount 

2 of the remaining insured principal balance of the 

3 mortgage and not more than 0.75 percent of such 

4 remaining insured principal balance, as determined 

5 according to a schedule established by the Secretary 

6 that assigns such annual premiums based upon the 

7 credit risk of the mortgage. 

8 ‘‘(2) REDUCTION OR TERMINATION DURING

9 MORTGAGE TERM.—Notwithstanding paragraph (1), 

10 the Secretary may provide that the annual premiums 

11 charged for eligible mortgages insured under this 

12 section are reduced over the term of the mortgage 

13 or that the collection of such premiums is discon14 tinued at some time during the term of the mort15 gage, in a manner that is consistent with policies for 

16 such reduction or discontinuation of annual pre17 miums charged for mortgages in accordance with 

18 section 203(c). 

19 ‘‘(f) SUNSET.—The Secretary may not enter into any 

20 new commitment to insure any refinanced eligible mort21 gage, or newly insure any refinanced eligible mortgage, 

22 pursuant to this section after the expiration of the 3-year 

23 period beginning upon the date of the enactment of this 

24 Act. 


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1 ‘‘(g) DEFINITIONS.—For purposes of this section, the 

2 following definitions shall apply: 

3 ‘‘(1) ELIGIBLE MORTGAGE.—The term ‘eligible 

4 mortgage’ means a mortgage that meets the require5 ment under subsection (b) for insurance under this 

6 section. 

7 ‘‘(2) EXISTING MORTGAGE.—The term ‘existing 

8 mortgage’ means, with respect to a mortgage in9 sured or to be insured under this section, a mort10 gage on the same residence that is to be subject to 

11 such mortgage insured under this section that is to 

12 be extinguished pursuant to such insured mortgage. 

13 ‘‘(3) EXISTING SENIOR MORTGAGE.—The term 

14 ‘existing senior mortgage’ means, with respect to a 

15 mortgage insured or to be insured under this sec16 tion, the existing mortgage that has superior pri17 ority. 

18 ‘‘(4) EXISTING SUBORDINATE MORTGAGE.—The 

19 term ‘existing subordinate mortgage’ means, with re20 spect to a mortgage insured or to be insured under 

21 this section, an existing mortgage that has subordi22 nate priority to the existing senior mortgage. 

23 ‘‘(h) AUTHORIZATION OF APPROPRIATIONS.—There 

24 is authorized to be appropriated for fiscal years 2009 

25 through 2012— 


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1 ‘‘(1) $2,000,000,000 for payments under sub2 section (c) to servicers of eligible mortgages refi3 nanced by such insured mortgages; 

4 ‘‘(2) $1,500,000,000 for payments under (b)(4) 

5 for the extinguishment of subordinate liens on the 

6 properties subject to eligible mortgages refinanced 

7 by such insured mortgages; and 

8 ‘‘(3) $90,000,000,000 for the costs (as such 

9 term is defined in section 502 of the Federal Credit 

10 Reform Act of 1974 (2 U.S.C. 661a)) of loans under 

11 subsection (d) to mortgagors under such insured 

12 mortgages.’’. 

13 SEC. 3. SERVICER SAFE HARBOR. 

14 (a) SAFE HARBOR.— 

15 (1) LOAN MODIFICATIONS AND WORKOUT

16 PLANS.—Notwithstanding any other provision of 

17 law, and notwithstanding any investment contract 

18 between a servicer and a securitization vehicle or in19 vestor, a servicer that acts consistent with the duty 

20 set forth in section 129A(a) of Truth in Lending Act 

21 (15 U.S.C. 1639a) shall not be liable for entering 

22 into a loan modification or workout plan with re23 spect to any such mortgage that meets all of the cri24 teria set forth in paragraph (2)(B) to— 


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1 (A) any person, based on that person’s 

2 ownership of a residential mortgage loan or any 

3 interest in a pool of residential mortgage loans 

4 or in securities that distribute payments out of 

5 the principal, interest and other payments in 

6 loans on the pool; 

7 (B) any person who is obligated pursuant 

8 to a derivatives instrument to make payments 

9 determined in reference to any loan or any in10 terest referred to in subparagraph (A); or 

11 (C) any person that insures any loan or 

12 any interest referred to in subparagraph (A) 

13 under any law or regulation of the United 

14 States or any law or regulation of any State or 

15 political subdivision of any State. 

16 (2) ABILITY TO MODIFY MORTGAGES.— 

17 (A) ABILITY.—Notwithstanding any other 

18 provision of law, and notwithstanding any in19 vestment contract between a servicer and a 

20 securitization vehicle or investor, a servicer— 

21 (i) shall not be limited in the ability 

22 to modify mortgages, the number of mort23 gages that can be modified, the frequency 

24 of loan modifications, or the range of per25 missible modifications; and 


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1 (ii) shall not be obligated to repur2 chase loans from or otherwise make pay3 ments to the securitization vehicle on ac4 count of a modification, workout, or other 

5 loss mitigation plan for a residential mort6 gage or a class of residential mortgages 

7 that constitute a part or all of the mort8 gages in the securitization vehicle, 

9 if any mortgage so modified meets all of the cri10 teria set forth in subparagraph (B). 

11 (B) CRITERIA.—The criteria under this 

12 subparagraph with respect to a mortgage are as 

13 follows: 

14 (i) Default on the payment of such 

15 mortgage has occurred or is reasonably 

16 foreseeable. 

17 (ii) The property securing such mort18 gage is occupied by the mortgagor of such 

19 mortgage. 

20 (iii) The servicer reasonably and in 

21 good faith believes that the anticipated re22 covery on the principal outstanding obliga23 tion of the mortgage under the particular 

24 modification or workout plan or other loss 

25 mitigation action will exceed, on a net 


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1 present value basis, the anticipated recov2 ery on the principal outstanding obligation 

3 of the mortgage to be realized through 

4 foreclosure. 

5 (3) APPLICABILITY.—This subsection shall 

6 apply only with respect to modifications, workouts, 

7 and other loss mitigation plans initiated before Jan8 uary 1, 2012. 

9 (b) REPORTING.—Each servicer that engages in loan 

10 modifications or workout plans subject to the safe harbor 

11 in subsection (a) shall report to the Secretary on a regular 

12 basis regarding the extent, scope and results of the 

13 servicer’s modification activities. The Secretary shall pre14 scribe regulations specifying the form, content, and timing 

15 of such reports. 

16 (c) DEFINITION OF SECURITIZATION VEHICLES.— 

17 For purposes of this section, the term ‘‘securitization vehi18 cle’’ means a trust, corporation, partnership, limited liabil19 ity entity, special purpose entity, or other structure that— 

20 (1) is the issuer, or is created by the issuer, of 

21 mortgage pass-through certificates, participation cer22 tificates, mortgage-backed securities, or other similar 

23 securities backed by a pool of assets that includes 

24 residential mortgage loans; and 


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1 (2) holds such mortgages. 

Æ 


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