I 

110TH CONGRESS 

2D SESSION H. R. 5679 

To amend the Real Estate Settlement Procedures Act of 1974 to require 

mortgagees for mortgages in default to engage in reasonable loss mitigation activities. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 2, 2008 

Ms. WATERS introduced the following bill; which was referred to the 

Committee on Financial Services 

A BILL 

To amend the Real Estate Settlement Procedures Act of 

1974 to require mortgagees for mortgages in default 

to engage in reasonable loss mitigation activities. 

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 ‘‘Foreclosure Prevention 

5 and Sound Mortgage Servicing Act of 2008’’. 

6 SEC. 2. DUTY TO ENGAGE IN LOSS MITIGATION. 

7 (a) DUTY.—The Real Estate Settlement Procedures 

8 Act of 1974 is amended by inserting after section 6 (12 

9 U.S.C. 2605) the following new section: 


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1 ‘‘SEC. 6A. DUTY TO ENGAGE IN LOSS MITIGATION. 

2 ‘‘(a) DUTY FOR COVERED FEDERALLY RELATED

3 MORTGAGE LOANS.—Upon default of any federally re4 lated mortgage loan that is secured by a lien on the prin5 cipal residence of the borrower or mortgagor, the mort6 gagee shall engage in reasonable loss mitigation activities 

7 that provide for— 

8 ‘‘(1) the long-term affordability of the loan; and 

9 ‘‘(2) the maximum retention of home equity. 

10 ‘‘(b) NO FORECLOSURE WITHOUT LOSS MITIGA11 TION.—No foreclosure of any covered federally related 

12 mortgage loan shall be initiated if the mortgagee or 

13 servicer has at any time failed to comply with the require14 ments of this section with respect to such loan. 

15 ‘‘(c) LOSS MITIGATION ACTIVITIES.— 

16 ‘‘(1) IN GENERAL.—For purposes of this sec17 tion, loss mitigation activities shall include both pri18 ority loss mitigation activities and secondary loss 

19 mitigation activities. In complying with subsection 

20 (a), the mortgagee or servicer shall pursue priority 

21 loss mitigation activities before considering sec22 ondary loss mitigation activities. If any loss mitiga23 tion activity is taken, including any priority or sec24 ondary loss mitigation activities, the mortgagee or 

25 servicer shall provide written notice of such activity 


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1 to the borrower or mortgagor by mail not later than 

2 7 business days after such action is taken. 

3 ‘‘(2) PRIORITY LOSS MITIGATION ACTIVITIES.— 

4 For purposes of this section, the term ‘priority loss 

5 mitigation activities’ includes, with respect to a cov6 ered federally related mortgage loan, activities that 

7 preserve the borrower’s or mortgagor’s ownership in8 terest in the property that is subject to the lien se9 curing the loan. Priority loss mitigation activities in10 clude the following activities: 

11 ‘‘(A) Waiver of any late payment charge, 

12 penalty interest, or any other fees or charges, 

13 or any combination thereof. 

14 ‘‘(B) Establishment of a repayment plan 

15 under which the borrower or mortgagor re16 sumes regularly scheduled payments and pays 

17 additional amounts at scheduled intervals to 

18 cure the delinquency. 

19 ‘‘(C) Forbearance under the loan that pro20 vides for a temporary reduction in, or cessation 

21 of, monthly payments followed by a reamortiza22 tion of the amounts due under loan, including 

23 arrearage, and a new schedule of repayment 

24 amounts. 


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1 ‘‘(D) Waiver, modification, or variation of 

2 any material term of the loan, including short3 term, long-term, or life-of-loan modifications 

4 that change the interest rate, forgive the pay5 ment of principal or interest, or extend the final 

6 maturity date of the loan. 

7 ‘‘(E) Short refinancing of the loan con8 sisting of acceptance of payment from or on be9 half of the borrower or mortgagor of an amount 

10 less than the amount alleged to be due and 

11 owing under the loan, including principal, inter12 est, and fees, in full satisfaction of the obliga13 tion under such loan and as part of a refinance 

14 transaction in which the property is intended to 

15 remain the principal residence of the borrower 

16 or mortgagor. 

17 ‘‘(3) SECONDARY LOSS MITIGATION ACTIVI18 TIES.—For purposes of this section, the term ‘sec19 ondary loss mitigation activities’ includes, with re20 spect to a covered federally related mortgage loan, 

21 activities that avoid foreclosure but do not preserve 

22 the borrower’s or mortgagor’s ownership interest in 

23 the property that is subject to the lien securing the 

24 loan. Secondary loss mitigation activities include the 

25 following activities: 


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1 ‘‘(A) Short sale of the principal residence 

2 that is subject to the lien securing the loan, 

3 consisting of acceptance of payment from or on 

4 behalf of the borrower or mortgagor of an 

5 amount less than the amount alleged to be due 

6 and owing under the loan, including principal, 

7 interest, and fees, in full satisfaction of the obli8 gation under such loan and as part of a sale 

9 transaction in which the property is not in10 tended to remain the principal residence of the 

11 borrower or mortgagor. 

12 ‘‘(B) Assumption of the borrower’s obliga13 tions under the loan by a third-party. 

14 ‘‘(C) Cancellation or postponement of a 

15 foreclosure sale to allow the borrower or mort16 gagor additional time to sell the property. 

17 ‘‘(D) Acquisition of the property by the 

18 mortgagee or servicer by deed in lieu of fore19 closure. 

20 ‘‘(d) AFFORDABLE PAYMENTS.— 

21 ‘‘(1) IN GENERAL.—The affordability of any 

22 scheduled payments due from the borrower or mort23 gagor pursuant to loss mitigation activities shall be 

24 taken into consideration in determining whether a 

25 mortgagee has engaged, for purposes of subsection 


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1 (a)(1), in reasonable loss mitigation activities that 

2 provide for long-term affordability of the loan. Pay3 ments under a loan shall be considered to be afford4 able for a borrower or mortgagor for purposes of 

5 this subsection if such payments result in a debt-to6 income ratio or residual income of the borrower or 

7 mortgagor in an amount permitted under section 

8 36.4337 of title 38, Code of Federal Regulations. 

9 ‘‘(2) INCOME USED IN DETERMINING AFFORD10 ABILITY.—In making a determination of afford11 ability for purposes of this subsection, a mortgagee 

12 or servicer shall use the income information fur13 nished by the borrower at the time of loan origina14 tion, except that the borrower or mortgagor may 

15 elect to provide the mortgagee or servicer with cur16 rent information and, if so provided, such current 

17 income information shall be used for purposes of de18 termining affordability. The mortgagee or servicer 

19 shall advise the borrower or mortgagor of any right 

20 under this paragraph to provide current income in21 formation. If current income information is used, all 

22 sources of income shall be verified by tax returns, 

23 payroll receipts, bank records, or other third-party 

24 verification; the best and most appropriate docu25 mentation shall be used. 


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1 ‘‘(3) DEBT PAYMENTS USED IN DETERMINING

2 AFFORDABILITY.—In the case of default of any cov3 ered federally related mortgage loan for which the 

4 security property is subject to multiple liens— 

5 ‘‘(A) each mortgagee or servicer with re6 spect to a senior lien shall reasonably take into 

7 account the obligations of the borrower or mort8 gagor under subordinate liens; and 

9 ‘‘(B) the mortgagee or servicer shall take 

10 into account any other secured or unsecured ob11 ligations of the borrower or mortgagor. 

12 ‘‘(4) WRITTEN NOTIFICATION OF AFFORD13 ABILITY CALCULATION.—The mortgagee or servicer 

14 shall notify the borrower or mortgagor in writing of 

15 the results of the determination of affordability 

16 under this subsection and the income on which the 

17 determination was based. Such written notice shall 

18 be provided by mail not later than 7 business days 

19 after such action is taken or as part of the written 

20 notice required under subsection (c)(1), whichever is 

21 earlier. 

22 ‘‘(e) REASONABLE FEE.—A mortgagee engaged in 

23 loss mitigation pursuant to this section may charge a rea24 sonable fee for loss mitigation activities in addition to ac25 tual administrative costs and other expenses. The SecVerDate Aug 31 2005 23:12 Apr 04, 2008 Jkt 069200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H5679.IH H5679

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1 retary may review the fees, administrative costs, and other 

2 expenses passed on to borrowers by any mortgagee en3 gaged in loss mitigation and shall exclude or reduce any 

4 costs or expenses the Secretary considers excessive or ir5 relevant to loss mitigation activities. 

6 ‘‘(f) NOTIFICATION OF INTEREST RATE INCREASE.— 

7 In the case of any covered federally related mortgage loan 

8 that is an adjustable rate mortgage, not less than 60 days 

9 before any increase in the periodic payment due for prin10 cipal or interest or in the interest rate charged under the 

11 loan, but not more than 120 days before such increase, 

12 the mortgagee or servicer shall, in addition to any notices 

13 required by the contract and other law, inform the bor14 rower in writing by mail and by telephone of the date that 

15 such payment or interest rate increase will occur and of 

16 the amount of the projected monthly payment under the 

17 loan after such increase, based on the prevailing interest 

18 rate of the index used for such increase with the 30-day 

19 period ending upon such notice. The written notice shall 

20 provide the information required under this subsection in 

21 a clear and conspicuous format. 

22 ‘‘(g) SUBORDINATE LIENS.—Each mortgagee with 

23 respect to a subordinate lien shall provide to mortgagees 

24 having senior liens information needed by such senior 

25 mortgagees to engage in reasonable loss mitigation as reVerDate Aug 31 2005 23:12 Apr 04, 2008 Jkt 069200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H5679.IH H5679

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1 quired by this section. Any modification of the loan under2 taken as part of loss mitigation activity shall not impair 

3 the priority status of liens under the modified loan, to the 

4 extent that there are no additional funds advanced to the 

5 borrower in connection with such modification. 

6 ‘‘(h) DIRECT ACCESS TO AUTHORIZED LOSS MITIGA7 TION PERSONNEL.— 

8 ‘‘(1) PROVISION OF CONTACT INFORMATION.— 

9 The mortgagee or servicer of a covered federally re10 lated mortgage loan shall provide, on each regular 

11 account statement for the loan, a toll-free or collect12 call telephone number that provides the borrower 

13 with direct access to a person with the information 

14 and authority to answer questions and fully resolve 

15 issues related to loss mitigation activities for the 

16 loan. 

17 ‘‘(2) PROHIBITION ON OUTSOURCING.—In car18 rying out subsection (a) with respect to a covered 

19 federally related mortgage loan, any contact by or on 

20 behalf of a mortgagee or servicer with the home21 owner and any processing of any loss mitigation ac22 tivities shall be conducted only by agents of the 

23 mortgagee or servicer who are physically located in 

24 the United States. 


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1 ‘‘(i) DUTY TO REFER TO HUD-CERTIFIED HOUSING

2 COUNSELOR.— 

3 ‘‘(1) REFERRAL BY SERVICER OR MORT4 GAGEE.—In the case of any payment due under a 

5 covered federally related mortgage loan that is more 

6 than 60 days late, the servicer or mortgagee shall 

7 forward to a housing counseling agency approved by 

8 the Secretary the contact information of the bor9 rower. 

10 ‘‘(2) EXPRESSION OF BORROWER PREF11 ERENCE.—The borrower may communicate to the 

12 servicer or mortgagee a preference for a particular 

13 housing counseling agency approved by the Sec14 retary— 

15 ‘‘(A) in writing at the time of closing on 

16 the loan; or 

17 ‘‘(B) in writing at any time during the 

18 term of the loan, including by conveyance of 

19 signed authorization form from the approved 

20 housing counseling agency of the borrower’s 

21 choice, which shall be transmitted by such agen22 cy to the mortgagee or servicer. 

23 ‘‘(3) REFERRAL RELATIONSHIP.—A mortgagee 

24 or servicer may establish a referral relationship with 

25 a housing counseling agency approved by the SecVerDate Aug 31 2005 23:12 Apr 04, 2008 Jkt 069200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H5679.IH H5679

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1 retary, but such relationship may not be exclusive 

2 and the mortgagee or servicer may not refuse to re3 spond to qualified written requests and other com4 munications from another housing counseling agency 

5 approved by the Secretary or any other agent that 

6 is authorized by the borrower. 

7 ‘‘(j) PROHIBITION ON WAIVER OF RIGHTS.—A mort8 gagee for a covered federally related mortgage loan may 

9 not— 

10 ‘‘(1) when engaging in loss mitigation activities 

11 pursuant to subsection (a), require a borrower to 

12 limit or waive the rights of such borrower to bring 

13 any claims, defenses, demands, proceedings, actions, 

14 or causes of action against the mortgagee or servicer 

15 as a condition of accepting an offer of any loss miti16 gation activities, including any activities under sub17 section (c); or 

18 ‘‘(2) require the borrower to agree to arbitra19 tion as a condition of receiving loan modification ac20 tivities. 

21 Any waiver or arbitration provision in a written agreement 

22 prohibited under this subsection shall be void and unen23 forceable. 

24 ‘‘(k) REPORTING ON LOSS MITIGATION ACTIVI25 TIES.— 


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1 ‘‘(1) IN GENERAL.—Each mortgagee or servicer 

2 of a covered federally related mortgage loan shall re3 port regularly, but not less than monthly, and com4 prehensively to the Secretary of the Treasury on the 

5 extent and scope of the loss mitigation activities of 

6 the mortgagee. Each such report shall include data 

7 on loss mitigation activities disaggregated according 

8 to the categories specified in each of the subpara9 graphs of paragraphs (2) and (3) of subsection (c), 

10 any loss mitigation activities not covered by such 

11 categories, the number of loans receiving loss mitiga12 tion that have become performing loans, the number 

13 of loans receiving loss mitigation that have pro14 ceeded to foreclosure, the total number of fore15 closures initiated during the reporting period, and 

16 such other information as the Secretary determines 

17 to be relevant. 

18 ‘‘(2) COMPILATION OF AGGREGATE DATA.— 

19 ‘‘(A) COMMENCEMENT; SCOPE.—Beginning 

20 with data for calendar year 2009, the Federal 

21 Financial Institutions Examination Council 

22 shall compile for each year, for each primary 

23 metropolitan statistical area, metropolitan sta24 tistical area, and consolidated metropolitan sta25 tistical area that is not comprised of designated 


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1 primary metropolitan statistical areas, aggre2 gate data by census tract for all mortgagees or 

3 servicers that are required to disclose data 

4 under this subsection. The Council shall also 

5 produce tables indicating, for each primary 

6 metropolitan statistical area, metropolitan sta7 tistical area, and consolidated metropolitan sta8 tistical area that is not comprised of designated 

9 primary metropolitan statistical areas, aggre10 gate loss mitigation patterns for various cat11 egories of census tracts grouped according to 

12 location, age of housing stock, income level, and 

13 racial characteristics. 

14 ‘‘(B) STAFF AND DATA PROCESSING RE15 SOURCES.—The Board of Governors of the Fed16 eral Reserve System shall provide staff and 

17 data processing resources to the Council to en18 able it to carry out this paragraph. 

19 ‘‘(C) AVAILABILITY TO PUBLIC.—The data 

20 and tables required pursuant to this paragraph 

21 shall be made available to the public not later 

22 than December 31 of the year following the cal23 endar year on which the data is based. 

24 ‘‘(l) DEFINITIONS.—For purposes of this section, the 

25 following definitions shall apply: 


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1 ‘‘(1) ADJUSTABLE RATE MORTGAGE.—The term 

2 ‘adjustable rate mortgage’ means, with respect to a 

3 federally related mortgage loan, that the loan terms 

4 provide for the rate of interest charged under the 

5 loan to reset or adjust at least once during the term 

6 of the loan. 

7 ‘‘(2) COVERED FEDERALLY RELATED MORT8 GAGE LOAN.—The term ‘covered federally related 

9 mortgage loan’ means a federally related mortgage 

10 loan described in subsection (a). 

11 ‘‘(3) MORTGAGEE.—The term ‘mortgagee’ 

12 means, with respect to a federally related mortgage 

13 loan, the original lender under the loan and any af14 filiates, agents, subsidiaries, successors, or assignees 

15 of such lender, and any subsequent purchaser, trust16 ee, or transferee of the loan or credit instrument 

17 issued by such lender. 

18 ‘‘(4) SERVICER.—The term ‘servicer’ has the 

19 meaning given such term in section 6(i). 

20 ‘‘(m) REPORT TO CONGRESS.—Not later than the ex21 piration of the 12-month period beginning upon the date 

22 of the enactment of the Foreclosure Prevention and Sound 

23 Mortgage Servicing Act of 2008, and of each consecutive 

24 12-month period thereafter, the Secretary of the Treasury 

25 and the Secretary of Housing and Urban Development 


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1 shall provide a report to the Congress on the extent of 

2 compliance by mortgagees and servicers with the require3 ments of this section and paragraphs (4) through (7) of 

4 section 6(e). 

5 ‘‘(n) APPLICABILITY.—Notwithstanding any regula6 tions authorized to carry out under this section, this sec7 tion shall apply with respect to defaults on covered feder8 ally related mortgage loans occurring after the date of the 

9 enactment of the Foreclosure Prevention and Sound Mort10 gage Servicing Act of 2008, without regard to the date 

11 on which the loan was made.’’. 

12 (b) DUTY OF LOAN SERVICER TO RESPOND TO BOR13 ROWER INQUIRIES.—Section 6(e)(1)A) of the Real Estate 

14 Settlement Procedures Act of 1974 (12 U.S.C. 

15 2605(e)(1)(A)) is amended by striking ‘‘borrower)’’ and 

16 inserting ‘‘(borrower, including a housing counseling agen17 cy approved by the Secretary)’’. 

18 (c) COMPREHENSIVE DISCLOSURE AND FAIR PROC19 ESSING OF QUALIFIED WRITTEN REQUESTS.—Section 

20 6(e) of the Real Estate Settlement Procedures Act of 1974 

21 (12 U.S.C. 2605(e)) is amended by adding at the end the 

22 following new paragraphs: 

23 ‘‘(4) PROVISION OF INFORMATION REGARDING

24 MORTGAGE.—The servicer of a covered federally re25 lated mortgage loan (as such term is defined in secVerDate Aug 31 2005 23:12 Apr 04, 2008 Jkt 069200 PO 00000 Frm 00015 Fmt 6652 Sfmt 6201 E:\BILLS\H5679.IH H5679

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1 tion 6A(l)) shall have available at all times the fol2 lowing information, which shall be provided to the 

3 borrower or borrower’s agent in response to a quali4 fied written request by the borrower submitted in ac5 cordance with the deadlines set forth in paragraph 

6 (1)(A): 

7 ‘‘(A) Whether the account relating to such 

8 loan is current, or if not, the date the account 

9 went into default. 

10 ‘‘(B) The current balance due on the loan, 

11 including the amount of principal due, an 

12 itemization of all fees due, an explanation of the 

13 escrow balance, and whether there are any es14 crow deficiencies or shortages. 

15 ‘‘(C) A full payment history that shows, in 

16 a clear and easily understandable manner, all of 

17 the activity on the loan since the origination of 

18 the loan, including the escrow account, and the 

19 application of payments made under the loan. 

20 ‘‘(D) The initial terms of the loan. 

21 ‘‘(E) A copy of the original note and secu22 rity instrument. 

23 ‘‘(F) Identification of the owner of the 

24 mortgage note and any investors in the note. 


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1 ‘‘(G) Any documents that limit, explain, or 

2 modify the loss mitigation activities offered by 

3 the servicer. 

4 ‘‘(H) Any other information requested by 

5 the borrower that is reasonably related to loss 

6 mitigation activities. 

7 ‘‘(5) PROHIBITION OF ‘WRONG DOOR’ ACTIONS

8 FOR QUALIFIED WRITTEN REQUESTS.—All written 

9 communications from the mortgagee or servicer of a 

10 federally related mortgage loan to the borrower shall 

11 include the address for receipt and handling of 

12 qualified written requests. Any qualified written re13 quest received by the mortgagee or servicer shall be 

14 valid notwithstanding receipt at any address other 

15 than that designated by the mortgagee or servicer 

16 for receipt and handling of such requests. 

17 ‘‘(6) PROHIBITION OF FEE FOR RESPONSE TO

18 QUALIFIED WRITTEN REQUESTS.—A mortgagee or 

19 servicer for a federally related mortgage loan may 

20 not impose any fee for, or on account of, the prepa21 ration and submission by such mortgagee or servicer 

22 of any response or statement required by this sub23 section. 

24 ‘‘(7) PROHIBITION OF FORECLOSURE PENDING

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1 lated mortgage loan (as such term is defined in sec2 tion 6A(l)), no foreclosure proceeding may be initi3 ated or continued against the borrower or the prin4 cipal residence of the borrower during any period in 

5 which a qualified written request under this sub6 section is pending and the mortgagee or servicer has 

7 not complied with the requirements of this sub8 section regarding the request.’’. 

9 (d) DAMAGES AND COSTS.—Section 6(f) of the Real 

10 Estate Settlement Procedures Act of 1974 (12 U.S.C. 

11 2605(f)) is amended— 

12 (1) in the matter preceding paragraph (1), by 

13 inserting ‘‘or of section 6A’’ after ‘‘this section’’; 

14 (2) in paragraphs (1)(B) and (2)(B)— 

15 (A) by striking ‘‘a pattern or practice’’ 

16 each place such term appears; and 

17 (B) by striking ‘‘$1,000’’ each place such 

18 term appears and inserting ‘‘$2,000 for each 

19 violation’’; 

20 (3) in paragraph (2)(B)(i), by striking 

21 ‘‘$500,000’’ and inserting ‘‘$1,000,000’’. 

22 SEC. 3. CONFORMING AMENDMENT. 

23 Section 17 of the Real Estate Settlement Procedures 

24 Act of 1974 (12 U.S.C. 2615) is amended by striking 


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1 ‘‘Nothing’’ and inserting ‘‘Except as provided in sections 

2 6(e)(7) and 6A, nothing’’. 

Æ 


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