I 

111TH CONGRESS 

1ST SESSION H. R. 37 

To establish a systematic mortgage modification program at the Federal 

Deposit Insurance Corporation, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 6, 2009 

Ms. WATERS (for herself, Ms. VELAZQUEZ, Mr. CAPUANO, Mrs. MALONEY, 

Mr. AL GREEN of Texas, Mr. CLEAVER, Mr. WATT, Mr. BACA, Ms. LEE

of California, Ms. CLARKE, Mr. HINCHEY, and Mr. HODES) introduced 

the following bill; which was referred to the Committee on Financial Services 

A BILL 

To establish a systematic mortgage modification program 

at the Federal Deposit Insurance Corporation, and for 

other purposes. 

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 ‘‘Systematic Foreclosure 

5 Prevention and Mortgage Modification Act’’. 


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1 SEC. 2. SYSTEMATIC FORECLOSURE PREVENTION AND 

2 MORTGAGE MODIFICATION PLAN ESTAB3 LISHED. 

4 (a) IN GENERAL.—The Chairperson of the Federal 

5 Deposit Insurance Corporation shall establish a systematic 

6 foreclosure prevention and mortgage modification program 

7 by— 

8 (1) paying servicers $1,000 to cover expenses 

9 for each loan modified according to the required 

10 standards; and 

11 (2) sharing up to 50 percent of any losses in12 curred if a modified loan should subsequently re-de13 fault. 

14 (b) PROGRAM COMPONENTS.—The program estab15 lished under subsection (a) shall include the following 

16 components: 

17 (1) ELIGIBLE BORROWERS.—The program shall 

18 be limited to loans secured by owner-occupied prop19 erties. 

20 (2) EXCLUSION FOR EARLY PAYMENT DE21 FAULT.—To promote sustainable mortgages, govern22 ment loss sharing shall be available only after the 

23 borrower has made a minimum of 6 payments on the 

24 modified mortgage. 

25 (3) STANDARD NET PRESENT VALUE TEST.—In 

26 order to promote consistency and simplicity in impleVerDate Nov 24 2008 06:25 Jan 08, 2009 Jkt 079200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H37.IH H37

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1 mentation and audit, a standard test comparing the 

2 expected net present value of modifying past due 

3 loans compared to the net present value of fore4 closing on them will be applied. Under this test, 

5 standard assumptions shall be used to ensure that a 

6 consistent standard for affordability is provided 

7 based on a 31 percent borrower mortgage debt-to-in8 come ratio. 

9 (4) SYSTEMATIC LOAN REVIEW BY PARTICI10 PATING SERVICERS.—Participating servicers shall be 

11 required to undertake a systematic review of all of 

12 the loans under their management, to subject each 

13 loan to a standard net present value test to deter14 mine whether it is a suitable candidate for modifica15 tion, and to modify all loans that pass this test. The 

16 penalty for failing to undertake such a systematic 

17 review and to carry out modifications where they are 

18 justified would be disqualification from further par19 ticipation in the program until such a systematic 

20 program was introduced. 

21 (5) MODIFICATIONS.—Modifications may in22 clude any of the following: 

23 (A) Reduction in interest rates and fees. 

24 (B) Forbearance of principal. 

25 (C) Extension of the term to maturity. 


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1 (D) Other similar modifications. 

2 (6) REDUCED LOSS SHARE PERCENTAGE FOR

3 ‘‘UNDERWATER LOANS’’.—For loan-to-value ratios 

4 above 100 percent, the government loss share shall 

5 be progressively reduced from 50 percent to 20 per6 cent as the current loan-to-value ratio rises, except 

7 that loss sharing shall not be available if the loan8 to-value ratio of the first lien exceeds 150 percent. 

9 (7) SIMPLIFIED LOSS SHARE CALCULATION.— 

10 In order to ensure the administrative efficiency of 

11 this program, the calculation of loss share basis 

12 would be as simple as possible. In general terms, the 

13 calculation shall be based on the difference between 

14 the net present value, as defined by the Chairperson 

15 of the Federal Deposit Insurance Corporation, of the 

16 modified loan and the amount of recoveries obtained 

17 in a disposition by refinancing, short sale, or real es18 tate owned sale, net of disposal costs as estimated 

19 according to industry standards. Interim modifica20 tions shall be allowed. 

21 (8) DE MINIMIS TEST.—To lower administra22 tive costs, a de minimis test shall be used to exclude 

23 from loss sharing any modification that does not 

24 lower the monthly payment at least 10 percent. 


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1 (9) 8-YEAR LIMIT ON LOSS SHARING PAY2 MENT.—The loss sharing guarantee shall terminate 

3 at the end of the 8-year period beginning on the 

4 date the modification was consummated. 

5 (c) REGULATIONS.—The Corporation shall prescribe 

6 such regulations as may be necessary to implement this 

7 Act and prevent evasions thereof. 

8 (d) TROUBLED ASSETS.—The costs incurred by the 

9 Federal Government in carrying out the loan modification 

10 program established under this section shall be covered 

11 out of the funds made available to the Secretary of the 

12 Treasury under section 118 of the Emergency Economic 

13 Stabilization Act of 2008. 

14 (e) MODIFICATIONS TO PROGRAM.—The Chairperson 

15 of the Federal Deposit Insurance Corporation may make 

16 any modification to the program established under sub17 section (a) that the Chairperson determines are appro18 priate for the purpose of maximizing the number of fore19 closures prevented. 

20 (f) REPORT.—Before the end of the 6-month period 

21 beginning on the date of the enactment of this Act, the 

22 Chairperson of the Federal Deposit Insurance Corporation 

23 shall submit a progress report to the Congress containing 

24 such findings and such recommendations for legislative or 


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1 administrative action as the Chairperson may determine 

2 to be appropriate. 

Æ 


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