II 

111TH CONGRESS 

2D SESSION S. 3161 

To establish penalties for servicers that fail to timely evaluate the applications 

of homeowners under home loan modification programs. 

IN THE SENATE OF THE UNITED STATES 

MARCH 24, 2010 

Mrs. SHAHEEN introduced the following bill; which was read twice and 

referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To establish penalties for servicers that fail to timely evaluate 

the applications of homeowners under home loan modification programs. 

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 ‘‘Mortgage Modification 

5 Reform Act of 2010’’. 

6 SEC. 2. DEFINITIONS. 

7 In this Act— 

8 (1) the term ‘‘covered trial loan modification’’ 

9 means a trial loan modification— 

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1 (A) offered by a servicer to a homeowner 

2 under a home loan modification program; and 

3 (B) for which the servicer has received 

4 from the homeowner the information required 

5 for a trial loan modification; 

6 (2) the term ‘‘home loan modification program’’ 

7 means a home loan modification program put into 

8 effect by the Secretary under title I of division A of 

9 the Emergency Economic Stabilization Act of 2008 

10 (12 U.S.C. 5211 et seq.), including the Home Af11 fordable Modification Program; 

12 (3) the term ‘‘homeowner’’ means an individual 

13 who applies for a home loan modification under a 

14 home loan modification program; 

15 (4) the term ‘‘permanent loan modification’’ 

16 means any agreement reached between a homeowner 

17 and a servicer on a long-term basis, as determined 

18 by the Secretary, under a home loan modification 

19 program; 

20 (5) the term ‘‘qualified counselor’’ means a 

21 qualified counselor described in section 255(f) of the 

22 National Housing Act (12 U.S.C. 1715z–20(f)); 

23 (6) the term ‘‘Secretary’’ means the Secretary 

24 of the Treasury; 

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1 (7) the term ‘‘servicer’’ has the same meaning 

2 as in section 129 of the Truth in Lending Act (15 

3 U.S.C. 1639a) (relating to the duties of servicers of 

4 residential mortgages), as added by section 201(b) 

5 of the Helping Families Save Their Homes Act of 

6 2009 (Public Law 111–22; 123 Stat. 1638); 

7 (8) the term ‘‘servicer incentive payment’’ 

8 means a payment that is made by the Secretary to 

9 a servicer— 

10 (A) in exchange, or as an incentive, for 

11 making a loan modification under a home loan 

12 modification program; and 

13 (B) at the time the servicer makes an offer 

14 of a trial or permanent modification to a home15 owner; and 

16 (9) the term ‘‘trial loan modification’’ means 

17 any agreement reached between a homeowner and a 

18 servicer on a temporary basis, as determined by the 

19 Secretary, under a home loan modification program. 

20 SEC. 3. FORECLOSURE. 

21 A servicer may not initiate or continue a foreclosure 

22 proceeding with respect to the mortgage of a homeowner 

23 if— 

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1 (1) the homeowner submitted an application for 

2 a loan modification under a home loan modification 

3 program— 

4 (A) before receiving a notice of foreclosure 

5 from the servicer; or 

6 (B) not later than 30 days after the home7 owner received a notice of foreclosure from the 

8 servicer; and 

9 (2) the servicer has not made a determination, 

10 as described in section 5(a) that the homeowner does 

11 not qualify for a loan modification under a home 

12 loan modification program. 

13 SEC. 4. PROCESS FOR REVIEW OF IMPROPER DENIALS. 

14 (a) PROCESS FOR REVIEW.— 

15 (1) IN GENERAL.—The Secretary shall establish 

16 a process by which a homeowner may request the 

17 Secretary to review a denial by a servicer of an ap18 plication by the homeowner for a trial loan modifica19 tion or permanent loan modification. 

20 (2) QUALIFIED COUNSELORS.—The process es21 tablished under paragraph (1) shall include the use 

22 of qualified counselors to report wrongful denials of 

23 trial loan modifications and permanent loan modi24 fications. 

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1 (3) SUPPORTING DOCUMENTATION.—The Sec2 retary shall require a servicer to submit supporting 

3 documentation with respect to any denial by the 

4 servicer of an application by a homeowner for a trial 

5 loan modification or permanent loan modification 

6 that is reviewed by the Secretary under the process 

7 established under paragraph (1). 

8 (b) PENALTIES.—If the Secretary determines after a 

9 review under the process established under subsection (a) 

10 that a servicer has wrongly denied the application of a 

11 homeowner for a trial loan modification or a permanent 

12 loan modification, the Secretary shall impose a penalty on 

13 the servicer. 

14 SEC. 5. PENALTIES FOR SERVICERS THAT DO NOT TIMELY 

15 EVALUATE HOMEOWNERS. 

16 (a) TIME FOR EVALUATION OF HOMEOWNERS.—Not 

17 later than 3 months after the date on which a homeowner 

18 submits an application for a loan modification to a servicer 

19 that participates in a home loan modification program, the 

20 servicer shall— 

21 (1) evaluate the application of the homeowner; 

22 and 

23 (2) notify the homeowner that— 

24 (A) the homeowner is qualified for a trial 

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1 tion under the home loan modification program; 

2 or 

3 (B) the servicer has denied the application. 

4 (b) PRIORITY FOR EVALUATING AMENDMENTS.— 

5 (1) PRIORITY.—A servicer that participates in a 

6 home loan modification program shall evaluate the 

7 applications of homeowners for loan modifications in 

8 the order in which the servicer receives the applica9 tions. 

10 (2) PROHIBITION.—A servicer that participates 

11 in a home loan modification program may not select 

12 the order in which the applications of homeowners 

13 are evaluated for loan modifications— 

14 (A) on the basis of— 

15 (i) the income of the homeowner that 

16 made the application; or 

17 (ii) the value of the loan for which a 

18 modification is requested; or 

19 (B) for any reason other than the time at 

20 which the servicer receives the applications. 

21 (c) LATE FEES FOR SERVICERS.— 

22 (1) REDUCED SERVICER INCENTIVE PAYMENTS

23 FOR LOANS INDIVIDUAL HOMEOWNERS.—The Sec24 retary shall reduce the amount of any servicer incen25 tive payment with respect to the loan modification of 

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1 an individual homeowner by 10 percent for each full 

2 month that— 

3 (A) follows the date that is 3 months after 

4 the date on which the homeowner submits an 

5 application for a loan modification to the 

6 servicer; and 

7 (B) precedes the date on which the servicer 

8 notifies the homeowner under subsection (a)(2). 

9 (2) REDUCED PAYMENTS FOR ALL LOANS.—If 

10 the Secretary determines that, on the date that is 3 

11 months after the date of enactment of this Act, less 

12 than 75 percent of all homeowners who applied to a 

13 servicer for loan modifications under a home loan 

14 modification program have been evaluated within 3 

15 months of the date of the application, the Secretary 

16 shall reduce by 25 percent the amount of any 

17 servicer incentive payment the servicer would other18 wise be eligible to receive under the home loan modi19 fication program. 

20 (d) DELINQUENCY FEES CHARGED TO HOME21 OWNERS.—No servicer may impose a fee on a homeowner 

22 due to delinquency during the period beginning on the 

23 date on which the homeowner submits an application to 

24 the servicer for a loan modification and ending on the date 

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1 on which the homeowner receives notice under subsection 

2 (a)(2). 

3 (e) COLLECTION AND REPORT OF DATA.— 

4 (1) COLLECTION OF DATA.—Each servicer shall 

5 report to the Secretary, at such time and in such 

6 manner as the Secretary may determine, data relat7 ing to the processing by the servicer of applications 

8 for loan modifications. 

9 (2) REPORT OF DATA.—The Secretary shall 

10 publish a monthly report containing the data col11 lected under paragraph (1). 

12 SEC. 6. REDUCED PAYMENTS FOR FAILURE TO EVALUATE 

13 HOMEOWNERS FOR PERMANENT MODIFICA14 TIONS. 

15 If the Secretary determines that, on the date that is 

16 3 months after the date of enactment of this Act, less than 

17 70 percent of all covered trial loan modifications offered 

18 by a servicer have been evaluated for conversion to perma19 nent loan modifications before the date that is 3 months 

20 after the date on which the servicer and the homeowner 

21 entered into an agreement for a trial loan modification, 

22 the Secretary shall reduce by 25 percent the amount of 

23 any servicer incentive payment the servicer would other24 wise be eligible to receive under the home loan modifica25 tion program. Such reduction shall be in addition to any 

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1 other reduction in payment that may have been imposed 

2 on the servicer for any other violation of this Act. 

3 SEC. 7. RULE OF CONSTRUCTION RELATING TO PAYMENTS 

4 TO HOMEOWNERS. 

5 Nothing in this Act may be construed to require a 

6 reduction of a payment by the Secretary made on behalf 

7 or for the benefit of a homeowner in connection with a 

8 loan modification. 

Æ 

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