II 

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. 

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 ‘‘Preserving Homes and 

5 Communities Act of 2011’’. 

6 SEC. 2. DEFINITION. 

7 In this Act, the term ‘‘Secretary’’ means the Sec8 retary of Housing and Urban Development. 


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1 SEC. 3. LOAN MODIFICATION REQUIREMENTS. 

2 (a) DEFINITIONS.—In this section— 

3 (1) the term ‘‘covered mortgagee’’ means— 

4 (A) an original lender under a federally re5 lated mortgage loan; 

6 (B) any servicer, affiliate, agent, sub7 sidiary, successor, or assignee of a lender under 

8 a federally related mortgage loan; and 

9 (C) any purchaser, trustee, or transferee of 

10 any mortgage or credit instrument issued by an 

11 original lender under a federally related mort12 gage loan; 

13 (2) the term ‘‘covered mortgagor’’— 

14 (A) means an individual— 

15 (i) who— 

16 (I) is a mortgagor under a feder17 ally related mortgage loan— 

18 (aa) made by a covered 

19 mortgagee; and 

20 (bb) secured by the principal 

21 residence of the mortgagor; or 

22 (II) is eligible to assume a feder23 ally related mortgage loan described 

24 in clause (I) in a manner described in 

25 paragraph (3), (5), (6), or (7) of sec26 tion 341(d) of the Garn-St Germain 


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1 Depository Institutions Act of 1982 

2 (12 U.S.C. 1701j–3(d)), if the prin3 cipal residence of the individual is the 

4 principal residence securing the feder5 ally related mortgage loan; and 

6 (ii) who cannot make payments on a 

7 federally related mortgage loan due to fi8 nancial hardship, as determined by the 

9 Secretary, in consultation with the Sec10 retary of the Treasury and the Director of 

11 the Bureau of Consumer Financial Protec12 tion; and 

13 (B) does not include an individual who the 

14 Secretary, in consultation with the Secretary of 

15 the Treasury and the Director of the Bureau of 

16 Consumer Financial Protection, determines has 

17 abandoned the principal residence securing the 

18 federally related mortgage loan; 

19 (3) the term ‘‘federally related mortgage loan’’ 

20 has the same meaning as in section 3 of the Real 

21 Estate Settlement Procedures Act of 1974 (12 

22 U.S.C. 2602); 

23 (4) the term ‘‘home loan modification protocol’’ 

24 means a home loan modification protocol that— 


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1 (A) is developed under a home loan modi2 fication program developed or put into effect by 

3 the Secretary of the Treasury, the Secretary, or 

4 the Director of the Bureau of Financial Protec5 tion; 

6 (B) includes principal reduction; and 

7 (C) to the extent possible, in the case of 

8 real property on which there is a first lien and 

9 a subordinate lien securing a federally related 

10 mortgage loan, requires that any principal re11 duction with respect to the first lien be accom12 panied by a proportional principal reduction 

13 with respect to the subordinate lien; 

14 (5) the term ‘‘qualified loan modification’’ 

15 means a modification to the terms of a mortgage 

16 agreement between a covered mortgagee and a cov17 ered mortgagor that— 

18 (A) is made pursuant to a determination 

19 by the covered mortgagee using a home loan 

20 modification protocol that a modification 

21 would— 

22 (i) produce a greater net present value 

23 than not modifying the loan to— 

24 (I) the covered mortgagee; or 


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1 (II) in the aggregate, all persons 

2 that hold an interest in the mortgage 

3 agreement; and 

4 (ii) produce mortgage payments that, 

5 at a minimum, are reduced to an afford6 able and sustainable amount, based on a 

7 debt-to-income ratio that takes into ac8 count the total housing debt and gross 

9 household income of the covered mort10 gagor; 

11 (B) applies for the remaining term of the 

12 original mortgage agreement, prior to modifica13 tion or amendment; and 

14 (C) permits the maximum amount of prin15 cipal reduction that produces a greater net 

16 present value than foreclosure to the persons 

17 described in subparagraph (A)(i); and 

18 (6) the term ‘‘State’’ means any State of the 

19 United States, the District of Columbia, any terri20 tory of the United States, Puerto Rico, Guam, 

21 American Samoa, the Trust Territory of the Pacific 

22 Islands, the Virgin Islands, and the Northern Mar23 iana Islands. 

24 (b) LOAN MODIFICATION PROCEDURES.— 


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1 (1) INITIATION OF FORECLOSURE.—A covered 

2 mortgagee may not initiate a nonjudicial foreclosure 

3 or a judicial foreclosure against a covered mortgagor 

4 that is otherwise authorized under State law un5 less— 

6 (A) the covered mortgagee has used its 

7 best efforts to determine whether the covered 

8 mortgagor is eligible for a qualified loan modi9 fication; 

10 (B) in the case of a covered mortgagor 

11 who the covered mortgagee determines is eligi12 ble for a qualified loan modification, the covered 

13 mortgagee has used its best efforts to promptly 

14 offer a qualified loan modification to the cov15 ered mortgagor; and 

16 (C) in the case of a covered mortgagor who 

17 the covered mortgagee determines is not eligible 

18 for a qualified loan modification, the covered 

19 mortgagee has made available to the covered 

20 mortgagor documentation of— 

21 (i) a loan modification calculation or 

22 net present value calculation, including the 

23 information necessary to verify and evalu24 ate the calculation, made by the covered 

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1 lated mortgage using a home loan modi2 fication protocol; 

3 (ii) the loan origination, including any 

4 note, deed of trust, or other document nec5 essary to establish the right of the mort6 gagee to foreclose on the mortgage, includ7 ing proof of assignment of the mortgage to 

8 the mortgagee and the right of the mort9 gagee to enforce the relevant note under 

10 the law of the State in which the real prop11 erty securing the mortgage is located; 

12 (iii) any pooling and servicing agree13 ment that the covered mortgagee believes 

14 prohibits a qualified loan modification; 

15 (iv) the payment history of the cov16 ered mortgagor and a detailed accounting 

17 of any costs or fees associated with the ac18 count of the covered mortgagor; and 

19 (v) the specific alternatives to fore20 closure considered by the covered mort21 gagee, including qualified loan modifica22 tions, workout agreements, and short sales. 

23 (2) FORECLOSURE IN PROGRESS.—If a covered 

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1 gagor before the date of enactment of this Act, the 

2 covered mortgagee— 

3 (A) shall use its best efforts to take all 

4 steps necessary to— 

5 (i) suspend the foreclosure or fore6 closure proceeding, as permitted under the 

7 law of the State in which the real property 

8 securing the federally related mortgage 

9 loan is located, including the cancellation 

10 of any sale date that has been scheduled 

11 with respect to the real property securing 

12 the federally related mortgage loan; and 

13 (ii) toll any deadlines limiting the 

14 rights of the covered mortgagor, whether 

15 imposed by statute, scheduling order, or 

16 otherwise, until the covered mortgagee has 

17 complied with the requirements under this 

18 section; and 

19 (B) may not— 

20 (i) conduct or schedule a sale of the 

21 real property securing the federally related 

22 mortgage loan; or 

23 (ii) cause judgment to be entered 

24 against the covered mortgagor. 


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1 (3) REEVALUATION OF APPLICATION FOR

2 QUALIFIED LOAN MODIFICATION.—If, after receiving 

3 information under paragraph (1)(C), a covered 

4 mortgagor is able to demonstrate that the covered 

5 mortgagor is eligible for a qualified loan modifica6 tion, the covered mortgagee shall— 

7 (A) promptly reevaluate the application by 

8 the covered mortgagor for a qualified loan 

9 modification; and 

10 (B) if the covered mortgagor is eligible, 

11 offer the covered mortgagor a qualified loan 

12 modification. 

13 (4) DISPUTE RESOLUTION.—Not later than 90 

14 days after the date of enactment of this Act, the 

15 Secretary of the Treasury, the Secretary, and the 

16 Director of the Bureau of Financial Protection shall 

17 ensure that any home loan modification protocol es18 tablished by the Secretary of the Treasury, the Sec19 retary, or the Director of the Bureau of Financial 

20 Protection, respectively, includes a procedure with a 

21 neutral third party to resolve disputes between cov22 ered mortgagors and covered mortgagees regarding 

23 applications for qualified loan modifications. 

24 (5) NO WAIVER OF RIGHTS.—A covered mort25 gagee may not require a covered mortgagor to waive 


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1 any right of the covered mortgagor as a condition of 

2 making a qualified loan modification. 

3 (6) CERTIFICATION REQUIRED PRIOR TO SALE

4 OF REAL PROPERTY SECURING MORTGAGE.— 

5 (A) CERTIFICATION.—A covered mort6 gagee shall submit to the appropriate State en7 tity in the State in which the real property se8 curing a federally related mortgage loan is lo9 cated a certification that the covered mortgagee 

10 has complied with all requirements of this sec11 tion, before— 

12 (i) the covered mortgagee may sell the 

13 real property; or 

14 (ii) a purchaser at sale may file an ac15 tion to recover possession of the real prop16 erty. 

17 (B) RECORDATION OF DEED PROHIBITED

18 WITHOUT CERTIFICATION.—The government of19 ficial responsible for recording deeds and other 

20 transfers of real property in a jurisdiction may 

21 not permit the recordation of a deed transfer22 ring title after a foreclosure relating to a feder23 ally related mortgage loan in the jurisdiction 

24 unless the government official certifies that— 


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1 (i) the person conducting the sale has 

2 demonstrated that the requirements of this 

3 subsection have been met with respect to 

4 the federally related mortgage loan; or 

5 (ii) the requirements of this sub6 section do not apply to the federally re7 lated mortgage loan. 

8 (C) VOIDING OF SALE.—A sale of property 

9 in violation of this subsection is void. 

10 (D) REGULATIONS.—The Secretary, in 

11 consultation with the Secretary of the Treasury 

12 and Director of the Bureau of Consumer Fi13 nancial Protection, shall issue regulations estab14 lishing the content of the certification under 

15 this subparagraph. 

16 (7) BAR TO FORECLOSURE.—Failure to comply 

17 with this subsection is a bar to foreclosure under the 

18 applicable law of a State. 

19 (8) RULE OF CONSTRUCTION.—Nothing in this 

20 subsection may be construed to prevent a covered 

21 mortgagee from offering or making a loan modifica22 tion with a lower payment, lower interest rate, or 

23 principal reduction beyond that required by a modi24 fication made using a home loan modification pro25 tocol with respect to a covered mortgagor. 


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1 (c) FEES PROHIBITED.— 

2 (1) LOAN MODIFICATION FEES PROHIBITED.— 

3 A covered mortgagee may not charge a fee to a cov4 ered mortgagor for carrying out the requirements 

5 under subsection (b). 

6 (2) FORECLOSURE-RELATED FEES.— 

7 (A) IN GENERAL.—Except as provided in 

8 subparagraph (B) and (C), a covered mortgagee 

9 may not charge a foreclosure-related fee to a 

10 covered mortgagor before— 

11 (i) the covered mortgagee has made a 

12 determination under subsection (b)(1); and 

13 (ii) the mortgage has entered the fore14 closure process. 

15 (B) DELINQUENCY FEES.—A covered 

16 mortgagee may charge 1 delinquency fee for 

17 each late payment by a covered mortgagor, if 

18 the fee is specified by the mortgage agreement 

19 and permitted by other applicable Federal and 

20 State law. A delinquency fee may be collected 

21 only once on an installment however long it re22 mains in default. 

23 (C) OTHER FEES.—A covered mortgagee 

24 may charge a covered mortgagor 1 property 


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1 valuation fee and 1 title search fee in connec2 tion with a foreclosure. 

3 (3) FEES NOT IN CONTRACT.—A covered mort4 gagee may charge a fee to a covered mortgagor only 

5 if— 

6 (A) the fee was specified by the mortgage 

7 agreement before a modification or amendment; 

8 and 

9 (B) the fee is otherwise permitted under 

10 this subsection. 

11 (4) FEES FOR EXPENSES INCURRED.— 

12 (A) IN GENERAL.—A covered mortgagee 

13 may charge a fee to a covered mortgagor only— 

14 (i) for services actually performed by 

15 the covered mortgagee or a third party in 

16 relation to the mortgage agreement, before 

17 a modification or amendment; and 

18 (ii) if the fee is reasonably related to 

19 the actual cost of providing the service. 

20 (B) HOME PRESERVATION SERVICES.—A 

21 covered mortgagee may charge a fee to a cov22 ered mortgagor for home preservation services, 

23 only if the covered mortgagor has not submitted 

24 a payment under the federally related mortgage 


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1 during the 60-day period ending on the date the 

2 fee is charged. 

3 (5) FORCEPLACED INSURANCE.— 

4 (A) FEE PERMITTED.—If a home insur5 ance policy on the real property securing a fed6 erally related mortgage loan lapses due to the 

7 failure of a covered mortgagor to make a pay8 ment, a covered mortgagee may charge the cov9 ered mortgagor a fee in an amount equal to the 

10 actual cost of continuing or re-establishing the 

11 home insurance policy on the same terms in ef12 fect before the lapse. 

13 (B) RECOVERY OF FEE.—A covered mort14 gagee may recover the fee described in subpara15 graph (A)— 

16 (i) by establishing an escrow account 

17 in accordance with section 10 of the Real 

18 Estate Settlement Procedures Act of 1974 

19 (12 U.S.C. 2609); or 

20 (ii) in equal monthly amounts during 

21 one 12-month period. 

22 (6) PENALTY.—The Director of the Bureau of 

23 Consumer Financial Protection shall collect from 

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1 tion of this subsection an amount equal to $6,000 

2 for each such fee. 

3 (d) REGULATIONS.—Not later than 3 months after 

4 the date of enactment of this Act, the Secretary, in con5 sultation with the Secretary of the Treasury and the Di6 rector of the Bureau of Consumer Financial Protection, 

7 shall issue by notice any requirements to carry out this 

8 section. The Secretary shall subsequently issue, after no9 tice and comment, final regulations to carry out this sec10 tion. 

11 (e) BUREAU OF CONSUMER FINANCIAL PROTECTION

12 HOME LOAN MODIFICATION PROTOCOL.—Not later than 

13 90 days after the date of enactment of this Act, the Direc14 tor of the Bureau of Consumer Financial Protection shall 

15 develop a home loan modification protocol. 

16 (f) TREASURY AND HUD HOME LOAN MODIFICA17 TION PROTOCOLS.—Not later than 90 days after the date 

18 of enactment of this Act, the Secretary of the Treasury 

19 and the Secretary shall make any changes to the home 

20 loan modification protocol of the Secretary of the Treasury 

21 and the Secretary, respectively, that are necessary to carry 

22 out this Act. 

23 SEC. 4. MEDIATION INITIATIVES. 

24 (a) DEFINITIONS.—In this section— 


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1 (1) the term ‘‘mortgagee’’ includes the agent of 

2 a mortgagee; and 

3 (2) the term ‘‘mediation’’ means a process in 

4 which a neutral third party presides over discussions 

5 between mortgagors and mortgagees to review and 

6 discuss available loss mitigation options in order to 

7 avoid foreclosure. 

8 (b) GRANT PROGRAM ESTABLISHED.—The Secretary 

9 shall establish a grant program to make competitive 

10 grants to State and local governments to establish medi11 ation programs that assist mortgagors facing foreclosure. 

12 (c) MEDIATION PROGRAMS.—A mediation program 

13 established using a grant under this section shall— 

14 (1) require participation in the program by— 

15 (A) any mortgagee that seeks to initiate or 

16 has initiated a judicial or nonjudicial fore17 closure; and 

18 (B) any mortgagor who is subject to a ju19 dicial or nonjudicial foreclosure; 

20 (2) require that a representative of the mort21 gagee who has authority to decide on loss mitigation 

22 options (including loan modification) participate, in 

23 person, in scheduled sessions; 

24 (3) require any mortgagee or mortgagor re25 quired to participate in the program to make a good 


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1 faith effort to resolve promptly, through mediation, 

2 issues relating to the default on the mortgage; 

3 (4) if mediation is not made available to the 

4 mortgagor before a foreclosure proceeding is initi5 ated, allow the mortgagor to request mediation at 

6 any time before a foreclosure sale; 

7 (5) provide that any proceeding to foreclose 

8 that is initiated by the mortgagee shall be stayed 

9 until the mediator has issued a written certification 

10 that the mortgagee complied in good faith with its 

11 obligations under the mediation program established 

12 under this section; 

13 (6) provide for— 

14 (A) supervision by a State court (or a 

15 State court in conjunction with an agency or 

16 department of a State or local government) of 

17 the mediation program; 

18 (B) selection and training of neutral, third19 party mediators by a State court (or an agency 

20 or department of the State or local govern21 ment); 

22 (C) penalties to be imposed by a State 

23 court, or an agency or department of a State or 

24 local government, if a mortgagee fails to comply 

25 with an order to participate in mediation; and 


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1 (D) consideration by a State court (or an 

2 agency or department of a State or local gov3 ernment) of recommendations by a mediator re4 lating to penalties for failure to fulfill the re5 quirements of the mediation program; 

6 (7) require that each mortgagee that partici7 pates in the mediation program make available to 

8 the mortgagor, before and during participation in 

9 the mediation program, documentation of— 

10 (A) a loan modification calculation or net 

11 present value calculation, including the informa12 tion necessary to verify and evaluate the cal13 culation, made by the mortgagee in relation to 

14 the mortgage using a home loan modification 

15 protocol; 

16 (B) the loan origination, including any 

17 note, deed of trust, or other document nec18 essary to establish the right of the mortgagee to 

19 foreclose on the mortgage, including proof of 

20 assignment of the mortgage to the mortgagee 

21 and the right of the mortgagee to enforce the 

22 relevant note under the law of the State in 

23 which the real property securing the mortgage 

24 is located; 


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1 (C) any pooling and servicing agreement 

2 that the mortgagee believes prohibits a loan 

3 modification; 

4 (D) the payment history of the mortgagor 

5 and a detailed accounting of any costs or fees 

6 associated with the account of the mortgagor; 

7 and 

8 (E) the specific alternatives to foreclosure 

9 considered by the mortgagee, including loan 

10 modifications, workout agreements, and short 

11 sales; 

12 (8) prohibit a mortgagee from shifting the costs 

13 of participation in the mediation program, including 

14 the attorney’s fees of the mortgagee, to a mortgagor; 

15 (9) provide that— 

16 (A) any holder of a junior lien against the 

17 property that secures a mortgage that is the 

18 subject of a mediation— 

19 (i) be notified of the mediation; and 

20 (ii) be permitted to participate in the 

21 mediation; and 

22 (B) any proceeding initiated by a holder of 

23 a junior lien against the property that secures 

24 a mortgage that is the subject of a mediation 

25 be stayed pending the mediation; 


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1 (10) provide information to mortgagors about 

2 housing counselors approved by the Secretary; and 

3 (11) be free of charge to the mortgagor and 

4 mortgagee. 

5 (d) RECORDKEEPING.—A State or local government 

6 that receives a grant under this section shall keep a record 

7 of the outcome of each mediation carried out under the 

8 mediation program, including the nature of any loan modi9 fication made as a result of participation in the mediation 

10 program. 

11 (e) TARGETING.—A State that receives a grant under 

12 this section may establish— 

13 (1) a statewide mediation program; or 

14 (2) a mediation program in a specific locality 

15 that the State determines has a high need for such 

16 program due to— 

17 (A) the number of foreclosures in the local18 ity; or 

19 (B) other characteristics of the locality 

20 that contribute to the number of foreclosures in 

21 the locality. 

22 (f) FEDERAL SHARE.—The Federal share of the cost 

23 of a mediation program established using a grant under 

24 this section may not exceed 50 percent. 


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1 (g) AUTHORIZATION OF APPROPRIATIONS.—There 

2 are authorized to be appropriated to carry out this section 

3 such sums as may be necessary for each of fiscal years 

4 2011 through 2014. 

5 SEC. 5. OVERSIGHT OF PUBLIC AND PRIVATE EFFORTS TO 

6 REDUCE MORTGAGE DEFAULTS AND FORE7 CLOSURES. 

8 (a) DEFINITIONS.—In this section— 

9 (1) the term ‘‘heads of appropriate agencies’’ 

10 means the Comptroller of the Currency, the Board 

11 of Governors of the Federal Reserve System, the 

12 Federal Deposit Insurance Corporation, the National 

13 Credit Union Administration, the Director of the 

14 Bureau of Consumer Financial Protection, the Di15 rector of the Office of Financial Research of the De16 partment of the Treasury, and a representative of 

17 State banking regulators selected by the Secretary; 

18 (2) the term ‘‘mortgagee’’ means— 

19 (A) an original lender under a mortgage; 

20 (B) any servicers, affiliates, agents, sub21 sidiaries, successors, or assignees of an original 

22 lender; and 

23 (C) any subsequent purchaser, trustee, or 

24 transferee of any mortgage or credit instrument 

25 issued by an original lender; and 


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1 (3) the term ‘‘servicer’’ means any person who 

2 collects on a home loan, whether such person is the 

3 owner, the holder, the assignee, the nominee for the 

4 loan, or the beneficiary of a trust, or any person act5 ing on behalf of such person. 

6 (b) MONITORING OF HOME LOANS.— 

7 (1) IN GENERAL.—The Secretary, in consulta8 tion with the heads of appropriate agencies, shall de9 velop and implement a plan to monitor— 

10 (A) conditions and trends in homeowner11 ship and the mortgage industry, in order to pre12 dict trends in foreclosures to better understand 

13 other critical aspects of the mortgage market; 

14 and 

15 (B) the effectiveness of public and private 

16 efforts to reduce mortgage defaults and fore17 closures. 

18 (2) REPORT TO CONGRESS.—Not later than 1 

19 year after the development of the plan under para20 graph (1), and each year thereafter, the Secretary 

21 shall submit a report to Congress that— 

22 (A) summarizes and describes the findings 

23 of the monitoring required under paragraph 

24 (1); and 


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1 (B) includes recommendations or proposals 

2 for legislative or administrative action nec3 essary— 

4 (i) to increase the authority of the 

5 heads of appropriate agencies to levy pen6 alties against any mortgagee, or other per7 son or entity, who fails to comply with the 

8 requirements described in this section; 

9 (ii) to improve coordination between 

10 public and private initiatives to reduce the 

11 overall rate of mortgage defaults and fore12 closures; and 

13 (iii) to improve coordination between 

14 initiatives undertaken by Federal, State, 

15 and local governments. 

16 SEC. 6. HOUSING TRUST FUND. 

17 From funds received or to be received by the Sec18 retary of the Treasury from the sale of warrants under 

19 title I of the Emergency Economic Stabilization Act of 

20 2008 (12 U.S.C. 5211 et seq.), the Secretary of the Treas21 ury shall transfer and credit $1,000,000,000 to the Hous22 ing Trust Fund established under section 1338 of the 

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1 ness Act of 1992 (12 U.S.C. 4568) for use in accordance 

2 with such section. 

Æ 


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