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[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 489 Introduced in Senate (IS)]

112th CONGRESS
  1st Session
                                 S. 489

 To require certain mortgagees to evaluate loans for modifications, to 
  establish a grant program for State and local government mediation 
                   programs, and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             March 3, 2011

  Mr. Reed (for himself, Mr. Durbin, Mr. Merkley, Mr. Whitehouse, Mr. 
 Franken, and Mr. Leahy) introduced the following bill; which was read 
  twice and referred to the Committee on Banking, Housing, and Urban 
                                Affairs

_______________________________________________________________________

                                 A BILL

 
 To require certain mortgagees to evaluate loans for modifications, to 
  establish a grant program for State and local government mediation 
                   programs, and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Preserving Homes and Communities Act 
of 2011''.

SEC. 2. DEFINITION.

    In this Act, the term ``Secretary'' means the Secretary of Housing 
and Urban Development.

SEC. 3. LOAN MODIFICATION REQUIREMENTS.

    (a) Definitions.--In this section--
            (1) the term ``covered mortgagee'' means--
                    (A) an original lender under a federally related 
                mortgage loan;
                    (B) any servicer, affiliate, agent, subsidiary, 
                successor, or assignee of a lender under a federally 
                related mortgage loan; and
                    (C) any purchaser, trustee, or transferee of any 
                mortgage or credit instrument issued by an original 
                lender under a federally related mortgage loan;
            (2) the term ``covered mortgagor''--
                    (A) means an individual--
                            (i) who--
                                    (I) is a mortgagor under a 
                                federally related mortgage loan--
                                            (aa) made by a covered 
                                        mortgagee; and
                                            (bb) secured by the 
                                        principal residence of the 
                                        mortgagor; or
                                    (II) is eligible to assume a 
                                federally related mortgage loan 
                                described in clause (I) in a manner 
                                described in paragraph (3), (5), (6), 
                                or (7) of section 341(d) of the Garn-St 
                                Germain Depository Institutions Act of 
                                1982 (12 U.S.C. 1701j-3(d)), if the 
                                principal residence of the individual 
                                is the principal residence securing the 
                                federally related mortgage loan; and
                            (ii) who cannot make payments on a 
                        federally related mortgage loan due to 
                        financial hardship, as determined by the 
                        Secretary, in consultation with the Secretary 
                        of the Treasury and the Director of the Bureau 
                        of Consumer Financial Protection; and
                    (B) does not include an individual who the 
                Secretary, in consultation with the Secretary of the 
                Treasury and the Director of the Bureau of Consumer 
                Financial Protection, determines has abandoned the 
                principal residence securing the federally related 
                mortgage loan;
            (3) the term ``federally related mortgage loan'' has the 
        same meaning as in section 3 of the Real Estate Settlement 
        Procedures Act of 1974 (12 U.S.C. 2602);
            (4) the term ``home loan modification protocol'' means a 
        home loan modification protocol that--
                    (A) is developed under a home loan modification 
                program developed or put into effect by the Secretary 
                of the Treasury, the Secretary, or the Director of the 
                Bureau of Financial Protection;
                    (B) includes principal reduction; and
                    (C) to the extent possible, in the case of real 
                property on which there is a first lien and a 
                subordinate lien securing a federally related mortgage 
                loan, requires that any principal reduction with 
                respect to the first lien be accompanied by a 
                proportional principal reduction with respect to the 
                subordinate lien;
            (5) the term ``qualified loan modification'' means a 
        modification to the terms of a mortgage agreement between a 
        covered mortgagee and a covered mortgagor that--
                    (A) is made pursuant to a determination by the 
                covered mortgagee using a home loan modification 
                protocol that a modification would--
                            (i) produce a greater net present value 
                        than not modifying the loan to--
                                    (I) the covered mortgagee; or
                                    (II) in the aggregate, all persons 
                                that hold an interest in the mortgage 
                                agreement; and
                            (ii) produce mortgage payments that, at a 
                        minimum, are reduced to an affordable and 
                        sustainable amount, based on a debt-to-income 
                        ratio that takes into account the total housing 
                        debt and gross household income of the covered 
                        mortgagor;
                    (B) applies for the remaining term of the original 
                mortgage agreement, prior to modification or amendment; 
                and
                    (C) permits the maximum amount of principal 
                reduction that produces a greater net present value 
                than foreclosure to the persons described in 
                subparagraph (A)(i); and
            (6) the term ``State'' means any State of the United 
        States, the District of Columbia, any territory of the United 
        States, Puerto Rico, Guam, American Samoa, the Trust Territory 
        of the Pacific Islands, the Virgin Islands, and the Northern 
        Mariana Islands.
    (b) Loan Modification Procedures.--
            (1) Initiation of foreclosure.--A covered mortgagee may not 
        initiate a nonjudicial foreclosure or a judicial foreclosure 
        against a covered mortgagor that is otherwise authorized under 
        State law unless--
                    (A) the covered mortgagee has used its best efforts 
                to determine whether the covered mortgagor is eligible 
                for a qualified loan modification;
                    (B) in the case of a covered mortgagor who the 
                covered mortgagee determines is eligible for a 
                qualified loan modification, the covered mortgagee has 
                used its best efforts to promptly offer a qualified 
                loan modification to the covered mortgagor; and
                    (C) in the case of a covered mortgagor who the 
                covered mortgagee determines is not eligible for a 
                qualified loan modification, the covered mortgagee has 
                made available to the covered mortgagor documentation 
                of--
                            (i) a loan modification calculation or net 
                        present value calculation, including the 
                        information necessary to verify and evaluate 
                        the calculation, made by the covered mortgagee 
                        in relation to the federally related mortgage 
                        using a home loan modification protocol;
                            (ii) the loan origination, including any 
                        note, deed of trust, or other document 
                        necessary to establish the right of the 
                        mortgagee to foreclose on the mortgage, 
                        including proof of assignment of the mortgage 
                        to the mortgagee and the right of the mortgagee 
                        to enforce the relevant note under the law of 
                        the State in which the real property securing 
                        the mortgage is located;
                            (iii) any pooling and servicing agreement 
                        that the covered mortgagee believes prohibits a 
                        qualified loan modification;
                            (iv) the payment history of the covered 
                        mortgagor and a detailed accounting of any 
                        costs or fees associated with the account of 
                        the covered mortgagor; and
                            (v) the specific alternatives to 
                        foreclosure considered by the covered 
                        mortgagee, including qualified loan 
                        modifications, workout agreements, and short 
                        sales.
            (2) Foreclosure in progress.--If a covered mortgagee 
        initiated a nonjudicial foreclosure or a judicial foreclosure 
        proceeding against a covered mortgagor before the date of 
        enactment of this Act, the covered mortgagee--
                    (A) shall use its best efforts to take all steps 
                necessary to--
                            (i) suspend the foreclosure or foreclosure 
                        proceeding, as permitted under the law of the 
                        State in which the real property securing the 
                        federally related mortgage loan is located, 
                        including the cancellation of any sale date 
                        that has been scheduled with respect to the 
                        real property securing the federally related 
                        mortgage loan; and
                            (ii) toll any deadlines limiting the rights 
                        of the covered mortgagor, whether imposed by 
                        statute, scheduling order, or otherwise, until 
                        the covered mortgagee has complied with the 
                        requirements under this section; and
                    (B) may not--
                            (i) conduct or schedule a sale of the real 
                        property securing the federally related 
                        mortgage loan; or
                            (ii) cause judgment to be entered against 
                        the covered mortgagor.
            (3) Reevaluation of application for qualified loan 
        modification.--If, after receiving information under paragraph 
        (1)(C), a covered mortgagor is able to demonstrate that the 
        covered mortgagor is eligible for a qualified loan 
        modification, the covered mortgagee shall--
                    (A) promptly reevaluate the application by the 
                covered mortgagor for a qualified loan modification; 
                and
                    (B) if the covered mortgagor is eligible, offer the 
                covered mortgagor a qualified loan modification.
            (4) Dispute resolution.--Not later than 90 days after the 
        date of enactment of this Act, the Secretary of the Treasury, 
        the Secretary, and the Director of the Bureau of Financial 
        Protection shall ensure that any home loan modification 
        protocol established by the Secretary of the Treasury, the 
        Secretary, or the Director of the Bureau of Financial 
        Protection, respectively, includes a procedure with a neutral 
        third party to resolve disputes between covered mortgagors and 
        covered mortgagees regarding applications for qualified loan 
        modifications.
            (5) No waiver of rights.--A covered mortgagee may not 
        require a covered mortgagor to waive any right of the covered 
        mortgagor as a condition of making a qualified loan 
        modification.
            (6) Certification required prior to sale of real property 
        securing mortgage.--
                    (A) Certification.--A covered mortgagee shall 
                submit to the appropriate State entity in the State in 
                which the real property securing a federally related 
                mortgage loan is located a certification that the 
                covered mortgagee has complied with all requirements of 
                this section, before--
                            (i) the covered mortgagee may sell the real 
                        property; or
                            (ii) a purchaser at sale may file an action 
                        to recover possession of the real property.
                    (B) Recordation of deed prohibited without 
                certification.--The government official responsible for 
                recording deeds and other transfers of real property in 
                a jurisdiction may not permit the recordation of a deed 
                transferring title after a foreclosure relating to a 
                federally related mortgage loan in the jurisdiction 
                unless the government official certifies that--
                            (i) the person conducting the sale has 
                        demonstrated that the requirements of this 
                        subsection have been met with respect to the 
                        federally related mortgage loan; or
                            (ii) the requirements of this subsection do 
                        not apply to the federally related mortgage 
                        loan.
                    (C) Voiding of sale.--A sale of property in 
                violation of this subsection is void.
                    (D) Regulations.--The Secretary, in consultation 
                with the Secretary of the Treasury and Director of the 
                Bureau of Consumer Financial Protection, shall issue 
                regulations establishing the content of the 
                certification under this subparagraph.
            (7) Bar to foreclosure.--Failure to comply with this 
        subsection is a bar to foreclosure under the applicable law of 
        a State.
            (8) Rule of construction.--Nothing in this subsection may 
        be construed to prevent a covered mortgagee from offering or 
        making a loan modification with a lower payment, lower interest 
        rate, or principal reduction beyond that required by a 
        modification made using a home loan modification protocol with 
        respect to a covered mortgagor.
    (c) Fees Prohibited.--
            (1) Loan modification fees prohibited.--A covered mortgagee 
        may not charge a fee to a covered mortgagor for carrying out 
        the requirements under subsection (b).
            (2) Foreclosure-related fees.--
                    (A) In general.--Except as provided in subparagraph 
                (B) and (C), a covered mortgagee may not charge a 
                foreclosure-related fee to a covered mortgagor before--
                            (i) the covered mortgagee has made a 
                        determination under subsection (b)(1); and
                            (ii) the mortgage has entered the 
                        foreclosure process.
                    (B) Delinquency fees.--A covered mortgagee may 
                charge 1 delinquency fee for each late payment by a 
                covered mortgagor, if the fee is specified by the 
                mortgage agreement and permitted by other applicable 
                Federal and State law. A delinquency fee may be 
                collected only once on an installment however long it 
                remains in default.
                    (C) Other fees.--A covered mortgagee may charge a 
                covered mortgagor 1 property valuation fee and 1 title 
                search fee in connection with a foreclosure.
            (3) Fees not in contract.--A covered mortgagee may charge a 
        fee to a covered mortgagor only if--
                    (A) the fee was specified by the mortgage agreement 
                before a modification or amendment; and
                    (B) the fee is otherwise permitted under this 
                subsection.
            (4) Fees for expenses incurred.--
                    (A) In general.--A covered mortgagee may charge a 
                fee to a covered mortgagor only--
                            (i) for services actually performed by the 
                        covered mortgagee or a third party in relation 
                        to the mortgage agreement, before a 
                        modification or amendment; and
                            (ii) if the fee is reasonably related to 
                        the actual cost of providing the service.
                    (B) Home preservation services.--A covered 
                mortgagee may charge a fee to a covered mortgagor for 
                home preservation services, only if the covered 
                mortgagor has not submitted a payment under the 
                federally related mortgage during the 60-day period 
                ending on the date the fee is charged.
            (5) Forceplaced insurance.--
                    (A) Fee permitted.--If a home insurance policy on 
                the real property securing a federally related mortgage 
                loan lapses due to the failure of a covered mortgagor 
                to make a payment, a covered mortgagee may charge the 
                covered mortgagor a fee in an amount equal to the 
                actual cost of continuing or re-establishing the home 
                insurance policy on the same terms in effect before the 
                lapse.
                    (B) Recovery of fee.--A covered mortgagee may 
                recover the fee described in subparagraph (A)--
                            (i) by establishing an escrow account in 
                        accordance with section 10 of the Real Estate 
                        Settlement Procedures Act of 1974 (12 U.S.C. 
                        2609); or
                            (ii) in equal monthly amounts during one 
                        12-month period.
            (6) Penalty.--The Director of the Bureau of Consumer 
        Financial Protection shall collect from any covered mortgagee 
        that charges a fee in violation of this subsection an amount 
        equal to $6,000 for each such fee.
    (d) Regulations.--Not later than 3 months after the date of 
enactment of this Act, the Secretary, in consultation with the 
Secretary of the Treasury and the Director of the Bureau of Consumer 
Financial Protection, shall issue by notice any requirements to carry 
out this section. The Secretary shall subsequently issue, after notice 
and comment, final regulations to carry out this section.
    (e) Bureau of Consumer Financial Protection Home Loan Modification 
Protocol.--Not later than 90 days after the date of enactment of this 
Act, the Director of the Bureau of Consumer Financial Protection shall 
develop a home loan modification protocol.
    (f) Treasury and HUD Home Loan Modification Protocols.--Not later 
than 90 days after the date of enactment of this Act, the Secretary of 
the Treasury and the Secretary shall make any changes to the home loan 
modification protocol of the Secretary of the Treasury and the 
Secretary, respectively, that are necessary to carry out this Act.

SEC. 4. MEDIATION INITIATIVES.

    (a) Definitions.--In this section--
            (1) the term ``mortgagee'' includes the agent of a 
        mortgagee; and
            (2) the term ``mediation'' means a process in which a 
        neutral third party presides over discussions between 
        mortgagors and mortgagees to review and discuss available loss 
        mitigation options in order to avoid foreclosure.
    (b) Grant Program Established.--The Secretary shall establish a 
grant program to make competitive grants to State and local governments 
to establish mediation programs that assist mortgagors facing 
foreclosure.
    (c) Mediation Programs.--A mediation program established using a 
grant under this section shall--
            (1) require participation in the program by--
                    (A) any mortgagee that seeks to initiate or has 
                initiated a judicial or nonjudicial foreclosure; and
                    (B) any mortgagor who is subject to a judicial or 
                nonjudicial foreclosure;
            (2) require that a representative of the mortgagee who has 
        authority to decide on loss mitigation options (including loan 
        modification) participate, in person, in scheduled sessions;
            (3) require any mortgagee or mortgagor required to 
        participate in the program to make a good faith effort to 
        resolve promptly, through mediation, issues relating to the 
        default on the mortgage;
            (4) if mediation is not made available to the mortgagor 
        before a foreclosure proceeding is initiated, allow the 
        mortgagor to request mediation at any time before a foreclosure 
        sale;
            (5) provide that any proceeding to foreclose that is 
        initiated by the mortgagee shall be stayed until the mediator 
        has issued a written certification that the mortgagee complied 
        in good faith with its obligations under the mediation program 
        established under this section;
            (6) provide for--
                    (A) supervision by a State court (or a State court 
                in conjunction with an agency or department of a State 
                or local government) of the mediation program;
                    (B) selection and training of neutral, third-party 
                mediators by a State court (or an agency or department 
                of the State or local government);
                    (C) penalties to be imposed by a State court, or an 
                agency or department of a State or local government, if 
                a mortgagee fails to comply with an order to 
                participate in mediation; and
                    (D) consideration by a State court (or an agency or 
                department of a State or local government) of 
                recommendations by a mediator relating to penalties for 
                failure to fulfill the requirements of the mediation 
                program;
            (7) require that each mortgagee that participates in the 
        mediation program make available to the mortgagor, before and 
        during participation in the mediation program, documentation 
        of--
                    (A) a loan modification calculation or net present 
                value calculation, including the information necessary 
                to verify and evaluate the calculation, made by the 
                mortgagee in relation to the mortgage using a home loan 
                modification protocol;
                    (B) the loan origination, including any note, deed 
                of trust, or other document necessary to establish the 
                right of the mortgagee to foreclose on the mortgage, 
                including proof of assignment of the mortgage to the 
                mortgagee and the right of the mortgagee to enforce the 
                relevant note under the law of the State in which the 
                real property securing the mortgage is located;
                    (C) any pooling and servicing agreement that the 
                mortgagee believes prohibits a loan modification;
                    (D) the payment history of the mortgagor and a 
                detailed accounting of any costs or fees associated 
                with the account of the mortgagor; and
                    (E) the specific alternatives to foreclosure 
                considered by the mortgagee, including loan 
                modifications, workout agreements, and short sales;
            (8) prohibit a mortgagee from shifting the costs of 
        participation in the mediation program, including the 
        attorney's fees of the mortgagee, to a mortgagor;
            (9) provide that--
                    (A) any holder of a junior lien against the 
                property that secures a mortgage that is the subject of 
                a mediation--
                            (i) be notified of the mediation; and
                            (ii) be permitted to participate in the 
                        mediation; and
                    (B) any proceeding initiated by a holder of a 
                junior lien against the property that secures a 
                mortgage that is the subject of a mediation be stayed 
                pending the mediation;
            (10) provide information to mortgagors about housing 
        counselors approved by the Secretary; and
            (11) be free of charge to the mortgagor and mortgagee.
    (d) Recordkeeping.--A State or local government that receives a 
grant under this section shall keep a record of the outcome of each 
mediation carried out under the mediation program, including the nature 
of any loan modification made as a result of participation in the 
mediation program.
    (e) Targeting.--A State that receives a grant under this section 
may establish--
            (1) a statewide mediation program; or
            (2) a mediation program in a specific locality that the 
        State determines has a high need for such program due to--
                    (A) the number of foreclosures in the locality; or
                    (B) other characteristics of the locality that 
                contribute to the number of foreclosures in the 
                locality.
    (f) Federal Share.--The Federal share of the cost of a mediation 
program established using a grant under this section may not exceed 50 
percent.
    (g) Authorization of Appropriations.--There are authorized to be 
appropriated to carry out this section such sums as may be necessary 
for each of fiscal years 2011 through 2014.

SEC. 5. OVERSIGHT OF PUBLIC AND PRIVATE EFFORTS TO REDUCE MORTGAGE 
              DEFAULTS AND FORECLOSURES.

    (a) Definitions.--In this section--
            (1) the term ``heads of appropriate agencies'' means the 
        Comptroller of the Currency, the Board of Governors of the 
        Federal Reserve System, the Federal Deposit Insurance 
        Corporation, the National Credit Union Administration, the 
        Director of the Bureau of Consumer Financial Protection, the 
        Director of the Office of Financial Research of the Department 
        of the Treasury, and a representative of State banking 
        regulators selected by the Secretary;
            (2) the term ``mortgagee'' means--
                    (A) an original lender under a mortgage;
                    (B) any servicers, affiliates, agents, 
                subsidiaries, successors, or assignees of an original 
                lender; and
                    (C) any subsequent purchaser, trustee, or 
                transferee of any mortgage or credit instrument issued 
                by an original lender; and
            (3) the term ``servicer'' means any person who collects on 
        a home loan, whether such person is the owner, the holder, the 
        assignee, the nominee for the loan, or the beneficiary of a 
        trust, or any person acting on behalf of such person.
    (b) Monitoring of Home Loans.--
            (1) In general.--The Secretary, in consultation with the 
        heads of appropriate agencies, shall develop and implement a 
        plan to monitor--
                    (A) conditions and trends in homeownership and the 
                mortgage industry, in order to predict trends in 
                foreclosures to better understand other critical 
                aspects of the mortgage market; and
                    (B) the effectiveness of public and private efforts 
                to reduce mortgage defaults and foreclosures.
            (2) Report to congress.--Not later than 1 year after the 
        development of the plan under paragraph (1), and each year 
        thereafter, the Secretary shall submit a report to Congress 
        that--
                    (A) summarizes and describes the findings of the 
                monitoring required under paragraph (1); and
                    (B) includes recommendations or proposals for 
                legislative or administrative action necessary--
                            (i) to increase the authority of the heads 
                        of appropriate agencies to levy penalties 
                        against any mortgagee, or other person or 
                        entity, who fails to comply with the 
                        requirements described in this section;
                            (ii) to improve coordination between public 
                        and private initiatives to reduce the overall 
                        rate of mortgage defaults and foreclosures; and
                            (iii) to improve coordination between 
                        initiatives undertaken by Federal, State, and 
                        local governments.

SEC. 6. HOUSING TRUST FUND.

    From funds received or to be received by the Secretary of the 
Treasury from the sale of warrants under title I of the Emergency 
Economic Stabilization Act of 2008 (12 U.S.C. 5211 et seq.), the 
Secretary of the Treasury shall transfer and credit $1,000,000,000 to 
the Housing Trust Fund established under section 1338 of the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992 (12 
U.S.C. 4568) for use in accordance with such section.
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