II 

113TH CONGRESS 

2D SESSION S. 2854 

To establish pilot programs to encourage the use of shared equity mortgage 

modifications, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 18, 2014 

Mr. MENENDEZ (for himself, Ms. WARREN, Mr. REED, and Mr. 

BLUMENTHAL) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To establish pilot programs to encourage the use of shared 

equity mortgage modifications, 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 American 

5 Homeownership Act of 2014’’. 

6 SEC. 2. FINDINGS. 

7 Congress finds the following: 

8 (1) High national, regional, or local foreclosure 

9 rates destabilize the economy, housing market, and 

10 neighborhoods of the United States. 


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1 (2) Shared equity mortgage modifications can 

2 provide alternatives to foreclosures that benefit both 

3 underwater homeowners and mortgage investors. 

4 SEC. 3. SHARED EQUITY MORTGAGE MODIFICATION PILOT 

5 PROGRAMS. 

6 (a) DEFINITIONS.—In this section— 

7 (1) the term ‘‘covered mortgage’’ means a 

8 mortgage— 

9 (A) that is— 

10 (i) purchased by, guaranteed by, or 

11 otherwise sold to the Federal National 

12 Mortgage Association, the Government Na13 tional Mortgage Association, or the Fed14 eral Home Loan Mortgage Corporation; or 

15 (ii) insured under title II of the Na16 tional Housing Act (12 U.S.C. 1707 et 

17 seq.); 

18 (B) that is secured by real property that is 

19 the primary or secondary residence of a home20 owner; 

21 (C) that is in an amount that is greater 

22 than the appraised value of the real property 

23 securing the mortgage on or about the date on 

24 which the homeowner is approved to participate 

25 in the pilot program under subsection (b); 


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1 (D) with respect to which the home2 owner— 

3 (i) is not fewer than 60 days delin4 quent; or 

5 (ii) is at risk of imminent default; 

6 (E) of a homeowner who has a documented 

7 financial hardship that prevents or will prevent 

8 the homeowner from making mortgage pay9 ments; and 

10 (F) that may, at the discretion of the Di11 rector of the Federal Housing Finance Agency 

12 with respect to mortgage-backed securities or 

13 participation certificates issued by an enterprise 

14 or of the Secretary of Housing and Urban De15 velopment with respect to mortgage-backed se16 curities issued by the Government National 

17 Mortgage Association, respectively, be made 

18 part of any security instrument that may com19 bine or separate the mortgage note and equity 

20 position in the real property securing the mort21 gage; 

22 (2) the term ‘‘equity value of the real property’’ 

23 means with respect to a covered mortgage, the dif24 ference between the value of the real property secur25 ing the covered mortgage upon the time of sale (or 


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1 refinance) and the initial principal obligation amount 

2 owed on the covered mortgage, less any transaction 

3 costs associated with the sale or refinancing, pro4 vided that if the equity value is negative at time of 

5 sale (or refinance), no payment is due the investor; 

6 (3) the term ‘‘enterprise’’ has the same mean7 ing as in section 1303 of the Federal Housing En8 terprises Financial Safety and Soundness Act of 

9 1992 (12 U.S.C. 4502); 

10 (4) the term ‘‘homeowner’’ means the mort11 gagor under a covered mortgage; 

12 (5) the term ‘‘investor’’ means— 

13 (A) the mortgagee under a covered mort14 gage; or 

15 (B) in the case of a covered mortgage that 

16 collateralizes an asset-backed security, as de17 fined in section 3(a) of the Securities Exchange 

18 Act of 1934 (15 U.S.C. 78c(a)), the trustee for 

19 the asset-backed security; 

20 (6) the term ‘‘pilot program’’ means a pilot pro21 gram established under subsection (b); and 

22 (7) the term ‘‘shared equity mortgage modifica23 tion’’ means a modification of a covered mortgage in 

24 accordance with subsection (c). 


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1 (b) PILOT PROGRAMS ESTABLISHED.—The Director 

2 of the Federal Housing Finance Agency and the Federal 

3 Housing Commissioner shall each establish a pilot pro4 gram to encourage the use of shared equity mortgage 

5 modifications that are designed to return greater net 

6 present value to investors than other loss-mitigation activi7 ties, including foreclosure. 

8 (c) SHARED EQUITY MORTGAGE MODIFICATION.— 

9 For purposes of the pilot program, a shared equity mort10 gage modification shall— 

11 (1) reduce the loan-to-value ratio of a covered 

12 mortgage to 100 percent or less within 3 years, by 

13 reducing the difference between the initial original 

14 principal obligation amount owed on the covered 

15 mortgage and the reduced principal obligation 

16 amount determined by the targeted loan-to-value 

ratio set forth in this paragraph by 1 17 ⁄3 at the end 

18 of each year for 3 years; 

19 (2) reduce the interest rate for a covered mort20 gage, if a reduction of principal under paragraph (1) 

21 would not result in a reduced monthly payment that 

22 is affordable to the homeowner; 

23 (3) reduce the amount of any periodic payment 

24 required to be made by the homeowner, so that the 

25 amount payable by the homeowner is equal to the 


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1 amount that would be payable by the homeowner if, 

2 on the date on which the shared equity mortgage 

3 modification takes effect— 

4 (A) all reductions of the amount of prin5 cipal under paragraph (1) had been made; and 

6 (B) any reduction in the interest rate 

7 under paragraph (2) for which the covered 

8 mortgage is eligible had been made; 

9 (4) require the homeowner to pay to the inves10 tor upon refinancing or selling the real property se11 curing a covered mortgage, a percentage (not to ex12 ceed 50 percent) of the equity value of such real 

13 property, provided that— 

14 (A) the dollar amount due to the investor 

15 upon such sale or refinance shall not exceed an 

16 amount that is equal to twice the largest dollar 

17 amount of the principal reduction that the 

18 homeowner achieved as a result of the principal 

19 reduction under paragraph (1); 

20 (B) the cap established under subpara21 graph (A) shall on February 1 of the year fol22 lowing the year of enactment of this Act, and 

23 each February 1 thereafter, be adjusted for in24 flation, by multiplying the prior year’s cap 

25 amount by the ratio of the annual average of 


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1 the Consumer Price Index for All Urban Con2 sumers (CPI–U), or a BLS-designated suc3 cessor to CPI–U, for the prior calendar year to 

4 its annual average for the calendar year two 

5 years prior; and 

6 (C) the investor is permitted to structure 

7 the equity-sharing interest that the investor is 

8 entitled to receive under this paragraph to be 

9 transferrable, including by structuring such in10 terest for future sale to other investors; 

11 (5) be designed to deliver maximal net present 

12 value to the investor, taking into account— 

13 (A) the principal reduction under para14 graph (1); 

15 (B) any interest rate reductions under 

16 paragraph (2); 

17 (C) expected reductions in foreclosure and 

18 in any other costs that might reduce net 

19 present value; and 

20 (D) the value of the equity sharing interest 

21 determined under paragraph (4); and 

22 (6) be based on factors including the percentage 

23 value of any principal reduction under paragraph 

24 (1), the amount of any such principal reduction, and 

25 any other factors as determined appropriate by the 


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1 Director of the Federal Housing Finance Agency or 

2 the Federal Housing Commissioner, respectively. 

3 (d) DETERMINATION OF VALUE OF HOME.— 

4 (1) IN GENERAL.—For purposes of this section, 

5 the value of real property securing a covered mort6 gage shall be determined by a licensed appraiser who 

7 is independent of and does not otherwise do business 

8 with the homeowner, servicer, investor, or an affil9 iate of the homeowner, servicer, or investor. 

10 (2) TIME FOR DETERMINATION.—The value of 

11 real property securing a covered mortgage shall be 

12 determined on a date that is as close as practicable 

13 to the date on which a homeowner begins to partici14 pate in a pilot program. 

15 (3) COST.— 

16 (A) RESPONSIBILITY FOR COST.— 

17 (i) INITIAL COST.—The investor shall 

18 pay the cost of an appraisal under para19 graph (1). 

20 (ii) DEDUCTION FROM HOMEOWNER

21 SHARE.—At the option of the investor, up 

22 to one-half of the cost of an appraisal 

23 under paragraph (1) may be added to the 

24 amount paid by the homeowner to the in25 vestor under subsection (c)(4). 


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1 (B) REASONABLENESS OF COST.—The 

2 cost of an appraisal under paragraph (1) shall 

3 be reasonable, as determined by the Director of 

4 the Federal Housing Finance Agency or the 

5 Federal Housing Commissioner, respectively. 

6 (4) SECOND APPRAISAL.—At the time of refi7 nancing or sale of real property securing a covered 

8 mortgage, the investor may request a second ap9 praisal of the value of the real property, at the ex10 pense of the investor, by a licensed appraiser se11 lected by the Director of the Federal Housing Fi12 nance Agency or the Federal Housing Commis13 sioner, respectively, who is independent of and does 

14 not otherwise do business with the homeowner, 

15 servicer, investor, or an affiliate of the homeowner, 

16 servicer, or investor, if the investor believes that the 

17 sale price or claimed value at the time of the refi18 nancing is not an accurate reflection of the fair mar19 ket value of the real property. 

20 (e) ELIGIBILITY FOR REDUCTION OF PRINCIPAL.— 

21 Each pilot program shall provide that a homeowner is not 

22 eligible for a reduction in the amount of principal under 

23 a covered mortgage under a shared equity mortgage modi24 fication if, after the homeowner begins participating in the 

25 pilot program, the homeowner— 


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1 (1) is delinquent on more than 3 payments 

2 under the shared equity mortgage modification dur3 ing any of the 3 successive 1-year periods beginning 

4 on the date on which the shared equity mortgage 

5 modification is made; and 

6 (2) fails to be current with all payments de7 scribed in paragraph (1) before the end of each 1- 

8 year period described in paragraph (1). 

9 (f) PARTICIPATION BY SERVICERS.—The Director of 

10 the Federal Housing Finance Agency shall require each 

11 enterprise to require that any servicer of a covered mort12 gage in which the enterprise is an investor participate in 

13 the pilot program of the Federal Housing Finance Agency 

14 by offering shared equity mortgage modifications to a ran15 dom and statistically significant sampling of homeowners 

16 with covered mortgages. 

17 (g) STUDIES AND REPORTS.—The Director of the 

18 Federal Housing Finance Agency and the Federal Hous19 ing Commissioner shall— 

20 (1) conduct annual studies of the pilot program 

21 of the Federal Housing Finance Agency and the 

22 Federal Housing Administration, respectively; 

23 (2) submit a report to Congress containing the 

24 results of each study at the end of each of the 3 sucVerDate Sep 11 2014 04:03 Sep 30, 2014 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S2854.IS S2854

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1 cessive 1-year periods beginning on the date on 

2 which the pilot program is established; and 

3 (3) make publicly available to the maximum ex4 tent possible, consistent with the protection of any 

5 personal information, and in a timely manner any 

6 data generated by the pilot program. 

Æ 


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