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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3451 Introduced in House (IH)]

111th CONGRESS
  1st Session
                                H. R. 3451

 To amend the Real Estate Settlement Procedures Act of 1974 to require 
   mortgagees for mortgages in default to engage in reasonable loss 
             mitigation activities, and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             July 31, 2009

  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, 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 ``Foreclosure Prevention and Sound 
Mortgage Servicing Act of 2009''.

SEC. 2. DUTY TO ENGAGE IN LOSS MITIGATION.

    (a) Duty.--The Real Estate Settlement Procedures Act of 1974 is 
amended by inserting after section 6 (12 U.S.C. 2605) the following new 
section:

``SEC. 6A. DUTY TO ENGAGE IN LOSS MITIGATION.

    ``(a) Duty for Covered Federally Related Mortgage Loans.--Upon 
default of any federally related mortgage loan that is secured by a 
lien on the principal residence of the borrower or mortgagor, the 
mortgagee shall engage in reasonable loss mitigation activities that 
provide for--
            ``(1) the long-term affordability of the loan; and
            ``(2) the maximum retention of home equity.
    ``(b) No Foreclosure Without Loss Mitigation.--No foreclosure of 
any covered federally related mortgage loan shall be initiated if the 
mortgagee or servicer has at any time failed to comply with the 
requirements of this section with respect to such loan.
    ``(c) Loss Mitigation Activities.--
            ``(1) In general.--For purposes of this section, loss 
        mitigation activities shall include--
                    ``(A) priority loss mitigation activities under 
                paragraph (6);
                    ``(B) secondary loss mitigation activities under 
                paragraph (7);
                    ``(C) last-resort loss mitigation activities under 
                paragraph (8); and
                    ``(D) any loss mitigation activities consistent 
                with the Making Home Affordable program of the 
                Secretary of the Treasury, as announced on March 4, 
                2009, including any subsequent updates.
            ``(2) Exceptions for servicers participating in the making 
        home affordable program.--Any mortgagee or servicer that meets 
        its obligation under this Act through subparagraph (D) of 
        paragraph (1) shall not be subject to the requirements of 
        paragraphs (3), (4), (6), and (7).
            ``(3) Order of pursuit.--In complying with subsection (a), 
        the mortgagee or servicer shall pursue loss mitigation 
        activities in the following order: first priority loss 
        mitigation activities, then secondary loss mitigation 
        activities, and then last-resort loss mitigation activities. If 
        any loss mitigation activity is taken, the mortgagee or 
        servicer shall provide written notice of such activity to the 
        borrower or mortgagor by mail not later than 7 business days 
        after such action is taken.
            ``(4) Consideration of circumstances in provision of loss 
        mitigation activities.--In determining the type of loss 
        mitigation activity to provide with respect to a covered 
        federally related mortgage loan, the mortgagee or servicer may 
        consider the financial and personal circumstances of the 
        borrower or mortgagor. The mortgagee or servicer may provide--
                    ``(A) priority loss mitigation activities with 
                respect to borrowers or mortgagors who have experienced 
                a permanent or long-term change in their financial 
                condition that prevents them from making payments due 
                under the loan, including illness, injury, death of a 
                wage earner, interest rate reset, or significant 
                decline in the value of the property that is subject to 
                the lien securing the loan;
                    ``(B) secondary loss mitigation activities with 
                respect to borrowers or mortgagors who have experienced 
                a short-term change in their financial condition having 
                a duration of less than 3 months that prevents them 
                from making payments due under the loan; and
                    ``(C) last resort loss mitigation activities with 
                respect to borrowers or mortgagors who, notwithstanding 
                priority or secondary loss mitigation activities taken 
                with respect to the mortgage, will be unable to make 
                payments due under the loan.
            ``(5) Prohibitions.--A mortgagee or servicer with respect 
        to a covered federally related mortgage loan--
                    ``(A) may not limit the number of loss mitigation 
                activities provided with respect to a borrower or 
                mortgagor;
                    ``(B) shall comply with the requirements of under 
                this section with respect to the loan without regard to 
                whether there has been a previous default under the 
                loan; and
                    ``(C) may not require a minimum loan-to-value ratio 
                for the provision of any loss mitigation activity or 
                use such a ratio to determine the type of loss 
                mitigation activity provided with respect to a borrower 
                or mortgagor.
            ``(6) Priority loss mitigation activities.--For purposes of 
        this section, the term `priority loss mitigation activities' 
        includes, with respect to a covered federally related mortgage 
        loan, activities that preserve the borrower's or mortgagor's 
        ownership interest in the property that is subject to the lien 
        securing the loan by modifying the contractual terms of the 
        loan. Priority loss mitigation activities include modification 
        of the loan terms that provide for the following:
                    ``(A) Alteration of terms.--Reduction of the 
                interest rate of the loan, forgiveness of loan 
                principal or interest, conversion from an adjustable 
                rate mortgage to a fixed rate mortgage, and 
                reamortization of the loan in connection with an 
                extension of the final maturity date of the loan.
                    ``(B) Short refinancing.--Short refinancing of the 
                loan consisting of acceptance of payment from or on 
                behalf of the borrower or mortgagor of an amount that 
                is less than the full amount alleged to be due and 
                owing under the loan, including principal, interest, 
                and fees, in full satisfaction of the obligation under 
                the loan and as part of a refinance transaction under 
                which the property that is subject to the lien securing 
                the loan is intended to remain the principal residence 
                of the borrower or mortgagor.
            ``(7) Secondary loss mitigation activities.--For purposes 
        of this section, the term `secondary loss mitigation 
        activities' includes, with respect to a covered federally 
        related mortgage loan, other activities that avoid foreclosure 
        and preserve the borrower's or mortgagor's ownership interest 
        in the property that is subject to the lien securing the loan, 
        but do not change the contractual terms of the loan. Secondary 
        loss mitigation activities include the following activities:
                    ``(A) Waiver of any late payment charge, penalty 
                interest, or any other fees or charges, including legal 
                fees, or any combination thereof.
                    ``(B) Establishment of a repayment plan under which 
                the borrower or mortgagor resumes regularly scheduled 
                payments and pays additional amounts at scheduled 
                intervals to cure the delinquency.
                    ``(C) Forbearance under the loan that provides for 
                a temporary reduction in, or cessation of, monthly 
                payments followed by a reamortization of the amounts 
                due under the loan, including arrearage, and a new 
                schedule of repayment amounts.
            ``(8) Last-resort loss mitigation activities.--For purposes 
        of this section, the term `last resort loss mitigation 
        activities' includes, with respect to a covered federally 
        related mortgage loan, activities that avoid foreclosure but do 
        not preserve the borrower's or mortgagor's ownership interest 
        in the property that is subject to the lien securing the loan. 
        Last-resort loss mitigation activities include the following 
        activities:
                    ``(A) Short sale of the principal residence that is 
                subject to the lien securing the loan, consisting of 
                acceptance of payment from or on behalf of the borrower 
                or mortgagor of an amount less than the amount alleged 
                to be due and owing under the loan, including 
                principal, interest, and fees, in full satisfaction of 
                the obligation under such loan and as part of a sale 
                transaction in which the property is not intended to 
                remain the principal residence of the borrower or 
                mortgagor.
                    ``(B) Assumption of the borrower's obligations 
                under the loan by a third party.
                    ``(C) Cancellation or postponement of a foreclosure 
                sale to allow the borrower or mortgagor additional time 
                to sell the property.
                    ``(D) Acquisition of the property by the mortgagee 
                or servicer by deed in lieu of foreclosure.
            ``(9) Protection of contract rights.--Notwithstanding 
        subsections (a) and (b), nothing in this section shall require 
        a servicer for a covered federally related mortgage loan to 
        breach a contract with the mortgagee (or its predecessors in 
        interest, successors, or assigns) entered into before the 
        enactment of the Foreclosure Prevention and Sound Mortgage 
        Servicing Act of 2009.
    ``(d) Affordable Payments.--
            ``(1) In general.--The affordability of any scheduled 
        payments due from the borrower or mortgagor pursuant to loss 
        mitigation activities and whether the activities are in the 
        best financial interests of the borrower or mortgagor shall be 
        taken into consideration in determining whether a mortgagee has 
        engaged, for purposes of subsection (a)(1), in reasonable loss 
        mitigation activities that provide for long-term affordability 
        of the loan. Payments under a loan shall be considered to be 
        affordable for a borrower or mortgagor for purposes of this 
        subsection if such payments result in a debt-to-income ratio or 
        residual income of the borrower or mortgagor in an amount less 
        than or equal to 31 percent of the monthly gross income of the 
        borrower or mortgagor or such other lower percentage as a 
        mortgagee or servicer may determine. Payments under a loan 
        shall not be considered to be affordable for a borrower or 
        mortgagor for purposes of this subsection unless such the 
        amount of such payments is 10 percent less than the amount of 
        payments due under the loan before loss mitigation activities 
        with respect to the loan.
            ``(2) Income used in determining affordability.--
                    ``(A) Documentation.--A mortgagee or servicer may 
                request documentation of the income of a borrower or 
                mortgagor before commencing loss mitigation activities.
                    ``(B) Verification.--The mortgagor's or borrower's 
                income shall be verified by--
                            ``(i) requiring the mortgagor or borrower 
                        to provide a signed form for the request for a 
                        transcript of the mortgagor's or borrower's 
                        Federal tax return (Form 4506-T of the Internal 
                        Revenue Service);
                            ``(ii) obtaining the most recent Federal 
                        tax return on file for each borrower who signed 
                        the note for the covered federally related 
                        mortgage loan;
                            ``(iii) by requiring the mortgagor or 
                        borrower to provide the two most recent payroll 
                        receipts for each wage earner who signed such 
                        note; and
                            ``(iv) in the case of mortgagors or 
                        borrowers who are self-employed or who have 
                        non-wage income, by obtaining other third-party 
                        documents that provide reasonably reliable 
                        evidence of income.
                    ``(C) Absence of sufficient liquid assets.--Loss 
                mitigation activities with respect to a covered 
                federally related mortgage loan shall not be provided 
                unless the mortgagor or borrower has represented and 
                warranted that the mortgagor or borrower does not have 
                sufficient liquid assets to make the monthly payments 
                due under the loan.
            ``(3) Debt-to-income ratio.--In determining the debt-to-
        income ratio or residual income of a mortgagor or borrower 
        under a covered federally related mortgage loan for purposes of 
        this subsection, the amount of monthly payment under the loan 
        shall include principal, interest, taxes, insurance, flood 
        insurance, any homeowner's association and condominium fees, 
        and any second or subordinate liens.
            ``(4) Monthly income.--In determining monthly income of a 
        mortgagor or borrower for purposes of this subsection, all 
        wages, salary, overtime, fees, commissions, tips, Social 
        Security benefits, pensions, and all other income shall be 
        considered.
            ``(5) Written notification of affordability calculation.--
        The mortgagee or servicer shall notify the borrower or 
        mortgagor in writing of the results of the determination of 
        affordability under this subsection and the income on which the 
        determination was based. Such written notice shall be provided 
        by mail not later than 7 business days after such action is 
        taken or as part of the written notice required under 
        subsection (c)(3), whichever is earlier.
    ``(e) Notification of Interest Rate Increase.--In the case of any 
covered federally related mortgage loan that is an adjustable rate 
mortgage, not less than 60 days before any increase in the periodic 
payment due for principal or interest or in the interest rate charged 
under the loan, but not more than 120 days before such increase, the 
mortgagee or servicer shall, in addition to any notices required by the 
contract and other law, inform the borrower in writing by mail and by 
telephone of the date that such payment or interest rate increase will 
occur and of the amount of the projected monthly payment under the loan 
after such increase, based on the prevailing interest rate of the index 
used for such increase with the 30-day period ending upon such notice. 
The written notice shall provide the information required under this 
subsection in a clear and conspicuous format.
    ``(f) Subordinate Liens.--Each mortgagee with respect to a 
subordinate lien shall provide to mortgagees having senior liens 
information needed by such senior mortgagees to engage in reasonable 
loss mitigation as required by this section. Any modification of the 
loan undertaken as part of loss mitigation activity shall not impair 
the priority status of liens under the modified loan, to the extent 
that there are no additional funds advanced to the borrower in 
connection with such modification.
    ``(g) Direct Access to Authorized Loss Mitigation Personnel.--
            ``(1) Provision of contact information.--The mortgagee or 
        servicer of a covered federally related mortgage loan shall 
        provide, on each regular account statement for the loan, a 
        toll-free or collect-call telephone number that provides the 
        borrower with direct access to a person with the information 
        and authority to answer questions and fully resolve issues 
        related to loss mitigation activities for the loan.
            ``(2) Prohibition on outsourcing.--In carrying out 
        subsection (a) with respect to a covered federally related 
        mortgage loan, any contact by or on behalf of a mortgagee or 
        servicer with the homeowner and any processing of any loss 
        mitigation activities shall be conducted only by agents of the 
        mortgagee or servicer who are physically located in the United 
        States.
    ``(h) Third-Party Loan Modifications.--The servicer or mortgagee of 
a covered federally related mortgage loan shall not accept or provide 
loss mitigation activities with respect to such loan at the request of 
any entity or individual that is not party to the loan unless--
            ``(1) the entity or individual is authorized by the 
        borrower or mortgagee to act on behalf of the borrower or 
        mortgagor; and
            ``(2)(A) is a representative of a housing counseling agency 
        approved by the Secretary of Housing and Urban Development; or
            ``(B) provides documentation to the servicer or mortgagee 
        that the entity or individual--
                    ``(i) has not charged any fee to the borrower or 
                mortgagor for such request; or
                    ``(ii)(I) has charged a nominal fee for such 
                request;
                    ``(II) has entered into a written contract, in 
                plain English or the primary language of the borrower 
                or mortgagor, with the borrower or mortgagor, that 
                includes provisions for cancellation without penalty; 
                and
                    ``(III) will refund any such fees to the borrower 
                or mortgagor in the event the request for loss 
                mitigation is denied.
    ``(i) Duty To Refer to HUD-Certified Housing Counseling Agency.--
            ``(1) Referral by servicer or mortgagee.--In the case of 
        any payment due under a covered federally related mortgage loan 
        that is more than 60 days late, the servicer or mortgagee shall 
        forward to a housing counseling agency approved by the 
        Secretary the contact information of the borrower.
            ``(2) Expression of borrower preference.--The borrower may 
        communicate to the servicer or mortgagee a preference for a 
        particular housing counseling agency approved by the 
        Secretary--
                    ``(A) in writing at the time of closing on the 
                loan; or
                    ``(B) in writing at any time during the term of the 
                loan, including by conveyance of signed authorization 
                form from the approved housing counseling agency of the 
                borrower's choice, which shall be transmitted by such 
                agency to the mortgagee or servicer.
            ``(3) Referral relationship.--A mortgagee or servicer may 
        establish a referral relationship with a housing counseling 
        agency approved by the Secretary, but such relationship may not 
        be exclusive and the mortgagee or servicer may not refuse to 
        respond to qualified written requests and other communications 
        from another housing counseling agency approved by the 
        Secretary or any other agent that is authorized by the 
        borrower.
    ``(j) Prohibition on Waiver of Rights.--A mortgagee for a covered 
federally related mortgage loan may not--
            ``(1) when engaging in loss mitigation activities pursuant 
        to subsection (a), require a borrower to limit or waive the 
        rights of such borrower to bring any claims, defenses, demands, 
        proceedings, actions, or causes of action against the mortgagee 
        or servicer as a condition of accepting an offer of any loss 
        mitigation activities, including any activities under 
        subsection (c); or
            ``(2) require the borrower to agree to arbitration as a 
        condition of receiving loan modification activities.
Any waiver or arbitration provision in a written agreement prohibited 
under this subsection shall be void and unenforceable.
    ``(k) Reporting on Loss Mitigation Activities.--
            ``(1) In general.--Each mortgagee or servicer of a covered 
        federally related mortgage loan shall report monthly and 
        comprehensively to the Comptroller of the Currency and to the 
        Director of the Office of Thrift Supervision on the extent and 
        scope of the loss mitigation activities of the mortgagee. Each 
        such report shall include data on loss mitigation activities 
        disaggregated according to the categories specified in each of 
        the subparagraphs of paragraphs (6), (7), and (8) of subsection 
        (c), any loss mitigation activities not covered by such 
        categories, the number of loans receiving loss mitigation that 
        have become performing loans, the number of loans receiving 
        loss mitigation that have proceeded to foreclosure, the total 
        number of foreclosures initiated during the reporting period, 
        and such other information as the Comptroller or Director 
        determines to be relevant.
            ``(2) Compilation of aggregate data.--
                    ``(A) Commencement.--Beginning with data for 
                calendar year 2009, the Comptroller of the Currency and 
                the Director of the Office of Thrift Supervision shall, 
                in consultation, with the Chairman of the Federal 
                Reserve compile for each year, for each primary 
                metropolitan statistical area, metropolitan statistical 
                area, and consolidated metropolitan statistical area 
                that is not comprised of designated primary 
                metropolitan statistical areas, aggregate data by 
                census tract for each mortgagee or servicer that is 
                required to disclose data under this subsection.
                    ``(B) Scope.--Each such report shall include loan-
                level disclosures of outstanding loans with information 
                related to--
                            ``(i) the location of the security 
                        property;
                            ``(ii) the loan amount;
                            ``(iii) the value of such security 
                        property;
                            ``(iv) the age of borrower or mortgagee;
                            ``(v) the date on which such loan was 
                        originated;
                            ``(vi) the type of entity owning such loan;
                            ``(vii) the performance status of such 
                        loan;
                            ``(viii) the monetary losses incurred by 
                        the investor in such loan in connection with 
                        the termination of such loan;
                            ``(ix) the loss mitigation activities 
                        provided in reference to such loan according to 
                        the categories specified in each of the 
                        subparagraphs of paragraphs (6), (7), and (8) 
                        of subsection (c);
                            ``(x) the loss mitigation activities 
                        provided in reference to such loan that are not 
                        covered by such categories;
                            ``(xi) the magnitude of such modification 
                        or loss mitigation activities;
                            ``(xii) the dates of consideration, 
                        approval, or rejection of such loss mitigation 
                        activities;
                            ``(xiii) the reasons for such rejection; 
                        and
                            ``(xiv) any other relevant information.
                Such reports shall also include information identical 
                to that required upon loan origination by the Home 
                Mortgage Disclosure Act of 1975.
                    ``(C) Data tables.--The Comptroller and the 
                Director shall also produce tables indicating for each 
                primary metropolitan statistical area, metropolitan 
                statistical area, and consolidated metropolitan 
                statistical area that is not comprised of designated 
                primary metropolitan statistical areas, aggregate loss 
                mitigation patterns for various categories of census 
                tracts grouped according to location, age of housing 
                stock, income level, and racial and ethnic 
                characteristics.
                    ``(D) Availability to public.--The data and tables 
                required pursuant to this paragraph shall be made 
                available to the public not later than 6 months after 
                such data is reported pursuant to subparagraph (A).
    ``(l) Definitions.--For purposes of this section, the following 
definitions shall apply:
            ``(1) Adjustable rate mortgage.--The term `adjustable rate 
        mortgage' means, with respect to a federally related mortgage 
        loan, that the loan terms provide for the rate of interest 
        charged under the loan to reset or adjust at least once during 
        the term of the loan.
            ``(2) Covered federally related mortgage loan.--The term 
        `covered federally related mortgage loan' means a federally 
        related mortgage loan described in subsection (a).
            ``(3) Mortgagee.--The term `mortgagee' means, with respect 
        to a federally related mortgage loan, the original lender under 
        the loan and any affiliates, agents, subsidiaries, successors, 
        or assignees of such lender, and any subsequent purchaser, 
        trustee, or transferee of the loan or credit instrument issued 
        by such lender.
            ``(4) Servicer.--The term `servicer' has the meaning given 
        such term in section 6(i).
    ``(m) Report to Congress.--Not later than the expiration of the 12-
month period beginning upon the date of the enactment of the 
Foreclosure Prevention and Sound Mortgage Servicing Act of 2009, and of 
each consecutive 12-month period thereafter, the Comptroller of the 
Currency and the Director of the Office of Thrift Supervision shall 
provide a report to the Congress on the extent of compliance by 
mortgagees and servicers with the requirements of this section and 
paragraphs (4) through (7) of section 6(e).''.
    (b) Duty of Loan Servicer To Respond to Borrower Inquiries.--
Section 6(e)(1)A) of the Real Estate Settlement Procedures Act of 1974 
(12 U.S.C. 2605(e)(1)(A)) is amended by striking ``borrower)'' and 
inserting ``(borrower, including a housing counseling agency approved 
by the Secretary)''.
    (c) Comprehensive Disclosure and Fair Processing of Qualified 
Written Requests.--Section 6(e) of the Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2605(e)) is amended by adding at the 
end the following new paragraphs:
            ``(4) Provision of information regarding mortgage.--The 
        servicer of a covered federally related mortgage loan (as such 
        term is defined in section 6A(l)) shall have available at all 
        times the following information, which shall be provided to the 
        borrower or borrower's agent in response to a qualified written 
        request by the borrower submitted in accordance with the 
        deadlines set forth in paragraph (1)(A):
                    ``(A) Whether the account relating to such loan is 
                current, or if not, the date the account went into 
                default.
                    ``(B) The current balance due on the loan, 
                including the amount of principal due, an itemization 
                of all fees due, an explanation of the escrow balance, 
                and whether there are any escrow deficiencies or 
                shortages.
                    ``(C) A full payment history that shows, in a clear 
                and easily understandable manner, all of the activity 
                on the loan since the origination of the loan, 
                including the escrow account, and the application of 
                payments made under the loan.
                    ``(D) The initial terms of the loan.
                    ``(E) A copy of the original note and security 
                instrument.
                    ``(F) Identification of the owner of the mortgage 
                note and any investors in the note.
                    ``(G) Any documents that limit, explain, or modify 
                the loss mitigation activities offered by the servicer.
                    ``(H) Any other information requested by the 
                borrower that is reasonably related to loss mitigation 
                activities.
            ``(5) Prohibition of `wrong door' actions for qualified 
        written requests.--All written communications from the 
        mortgagee or servicer of a federally related mortgage loan to 
        the borrower shall include the address for receipt and handling 
        of qualified written requests. Any qualified written request 
        received by the mortgagee or servicer shall be valid 
        notwithstanding receipt at any address other than that 
        designated by the mortgagee or servicer for receipt and 
        handling of such requests.
            ``(6) Prohibition of fee for response to qualified written 
        requests.--A mortgagee or servicer for a federally related 
        mortgage loan may not impose any fee for, or on account of, the 
        preparation and submission by such mortgagee or servicer of any 
        response or statement required by this subsection.
            ``(7) Prohibition of foreclosure pending disclosure.--In 
        the case of a covered federally related mortgage loan (as such 
        term is defined in section 6A(l)), no foreclosure proceeding 
        may be initiated or continued against the borrower or the 
        principal residence of the borrower during any period in which 
        a qualified written request under this subsection is pending 
        and the mortgagee or servicer has not complied with the 
        requirements of this subsection regarding the request.''.
    (d) Damages and Costs.--Section 6(f) of the Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2605(f)) is amended--
            (1) in the matter preceding paragraph (1), by inserting 
        ``or of section 6A'' after ``this section'';
            (2) in paragraphs (1)(B) and (2)(B)--
                    (A) by striking ``a pattern or practice'' each 
                place such term appears; and
                    (B) by striking ``$1,000'' each place such term 
                appears and inserting ``$2,000 for each violation''; 
                and
            (3) in paragraph (2)(B)(i), by striking ``$500,000'' and 
        inserting ``$1,000,000''.
    (e) Conforming Amendment.--Section 17 of the Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2615) is amended by striking 
``Nothing'' and inserting ``Except as provided in sections 6(e)(7) and 
6A, nothing''.

SEC. 3. DUTIES OF LENDERS AND LOAN SERVICERS.

    The Truth in Lending Act is amended by inserting after section 129A 
(15 U.S.C. 1639a) the following new section:

``SEC. 129B. DUTIES OF LENDERS AND LOAN SERVICERS.

    ``(a) Standard of Care.--
            ``(1) Agency relationship.--In the case of any home loan 
        serviced by a loan servicer on behalf of a lender, the loan 
        servicer shall be deemed an agent of that lender, and shall be 
        subject to all requirements of agents otherwise applicable 
        under Federal or State law.
            ``(2) Fair dealing.--Each lender and loan servicer shall, 
        in addition to the duties imposed by otherwise applicable 
        provisions of Federal or State law, with respect to each home 
        mortgage loan, including any home mortgage loan in default or 
        in which the homeowner has filed for bankruptcy--
                    ``(A) act with reasonable skill, care, diligence, 
                and in accordance with the highest standards; and
                    ``(B) act in good faith and with fair dealing in 
                any transaction, practice, or course of business 
                associated with the home mortgage loan.
            ``(3) Training and competency.--Each lender and loan 
        servicer shall institute training, procedures, and standards to 
        ensure that borrowers are treated fairly and competently.
    ``(b) Rules for Assessment of Fee.--
            ``(1) In general.--No home mortgage loan contract may 
        require, nor may any lender or loan servicer assess or receive, 
        any fees or charges other than interest, late fees as 
        specifically authorized in this section, or fees assessed for 
        nonsufficient funds, and charges allowed pursuant to subsection 
        (h)(1)(B), until the home mortgage loan is the subject of a 
        foreclosure proceeding and the debt on such loan has been 
        accelerated.
            ``(2) Fee limitations.--Any permissible fee or charge 
        described under paragraph (1) shall be--
                    ``(A) reasonable;
                    ``(B) for services actually rendered; and
                    ``(C) specifically authorized by the terms of the 
                home mortgage loan contract and State law.
            ``(3) Assessment and disclosure.--
                    ``(A) In general.--Any permissible fee or charge 
                described under paragraph (1) shall be--
                            ``(i) assessed not later than 30 days after 
                        the date on which the fee was accrued; and
                            ``(ii) explained clearly and conspicuously 
                        in the next monthly accounting statement 
                        provided to the borrower designated in the home 
                        mortgage loan contract.
                    ``(B) Failure to comply.--Failure by a lender or 
                loan servicer to comply with the requirements set forth 
                under subparagraph (A) shall result in the waiver of 
                the fee.
            ``(4) Required statements.--Each month a lender or loan 
        servicer shall provide to each borrower designated in a home 
        mortgage loan contract entered into by such lender or loan 
        servicer a periodic statement that clearly and in plain English 
        explains--
                    ``(A) the application of the prior month's payment 
                by the borrower, including the allocation of the 
                payment to interest, principal, escrow, and fees;
                    ``(B) the status of the escrow account held on 
                behalf of the borrower, including the payments into and 
                from the escrow account; and
                    ``(C) the assessment of fees accruing in the 
                previous month, including the reason that such fee 
                accrued and the date such fee accrued.
    ``(c) Maximum Allowable Late Fees Charged After Loan Closing.--
            ``(1) In general.--No lender or loan servicer may impose a 
        charge or fee for late payment of any amount due on a home 
        mortgage loan--
                    ``(A) unless the home mortgage loan contract 
                specifically authorizes the charge or fee;
                    ``(B) in an amount in excess of 5 percent of the 
                amount of the payment past due;
                    ``(C) before the end of the 15-day period after the 
                date the payment is due, or in the case of a home 
                mortgage loan on which interest on each installment is 
                paid in advance, before the end of the 30-day period 
                after the date the payment is due; or
                    ``(D) more than once with respect to a single late 
                payment.
            ``(2) Rule of construction.--For purposes of this 
        subsection, payments on any amount due on a home mortgage loan 
        shall be applied first to current installments, then to 
        delinquent payments, and then to delinquency charges.
            ``(3) Coordination with subsequent late fees.--If a home 
        loan mortgage payment is otherwise a full payment for the 
        applicable period and is paid on its due date or within an 
        applicable grace period, and the only delinquency or 
        insufficiency of payment is attributable to a late fee or 
        delinquency charge assessed on an earlier payment, no late fee 
        or delinquency charge may be imposed on such payment.
    ``(d) Payoff Statements.--
            ``(1) Prohibition on fees.--
                    ``(A) In general.--No lender or loan servicer (or 
                any third party acting on behalf of such lender or loan 
                servicer) may charge a fee for transmitting to any 
                borrower the amount due to pay off the outstanding 
                balance on the home mortgage loan of such borrower.
                    ``(B) Exception.--After a lender or loan servicer 
                (or any third party acting on behalf of such lender or 
                loan servicer) has provided the information described 
                in subparagraph (A) without charge on 4 occasions 
                during a calendar year, the lender or loan servicer (or 
                any third party acting on behalf of such lender or loan 
                servicer) may thereafter charge a reasonable fee for 
                providing such information during the remainder of the 
                calendar year.
            ``(2) Timing.--The information described in subparagraph 
        (A) shall be provided to the borrower within a reasonable 
        period of time but in any event not more than 5 business days 
        after the receipt of the request by the lender or loan 
        servicer.
    ``(e) Civil Liability.--
            ``(1) In general.--Any lender or loan servicer who fails to 
        comply with any requirement of this section with respect to a 
        borrower designated in a home mortgage loan contract, is liable 
        to such borrower in an amount equal to the sum of--
                    ``(A) any actual damages sustained by such borrower 
                as a result of the failure;
                    ``(B) an amount not less than $5,000; or
                    ``(C) in the case of any successful action to 
                enforce the foregoing liability the costs of the 
                action, together with a reasonable attorney's fee as 
                determined by the court.
            ``(2) Jurisdiction.--Any action by a borrower for a failure 
        to comply with the requirements of this section may be brought 
        in any United States district court, or in any other court of 
        competent jurisdiction, not later than 3 years from the date of 
        the occurrence of such violation. This subsection does not bar 
        a person from asserting a violation of this section in an 
        action by a lender or loan servicer to collect the debt owed on 
        a home mortgage loan, or foreclose upon the home securing a 
        home mortgage loan, or to stop a foreclosure upon that home, 
        which was brought more than 3 years after the date of the 
        occurrence of the violation as a matter of defense by 
        recoupment or set-off in such action. An action under this 
        section does not create an independent basis for removal of an 
        action to a United States district court.
            ``(3) State attorney general enforcement.--An action to 
        enforce a violation of this section may also be brought by the 
        appropriate State attorney general in any appropriate United 
        States district court, or any other court of competent 
        jurisdiction, not later than 3 years after the date on which 
        the violation occurs. An action under this section does not 
        create an independent basis for removal of an action to a 
        United States district court.
    ``(f) Definitions.--In this section, the following definitions 
shall apply:
            ``(1) Lender.--The term `lender' has the same meaning as in 
        section 3500.2 of title 24, Code of Federal Regulations, as in 
        effect on the date of enactment of this section.
            ``(2) Loan servicer.--The term `loan servicer' has the same 
        meaning as the term `servicer' in section 6(i)(2) of the Real 
        Estate Settlement Procedures Act of 1974 (12 U.S.C. 
        2605(i)(2)).''.

SEC. 4. NOTICE OF TRANSFER OF LOAN SERVICING.

    Paragraph (3) of section 6(b) of the Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2605(b)(3)) is amended by adding at 
the end the following new subparagraph:
                    ``(H) A statement explaining--
                            ``(i) whether the account of the borrower 
                        is current, or if the account is not current, 
                        an explanation of the reason and date the 
                        account went into default;
                            ``(ii) the current balance due on the loan, 
                        including the principal due, an explanation of 
                        the escrow balance, and whether there are any 
                        escrow deficiencies or shortages; and
                            ``(iii) a full payment history of the 
                        borrower which shows in a clear and easily 
                        understandable manner, all of the activity on 
                        the home mortgage loan since the origination of 
                        the loan or the prior transfer of servicing, 
                        including the escrow account, and the 
                        application of payments.''.

SEC. 5. SERVICER COMPENSATION.

    Not later than the expiration of the 6-month period beginning on 
the date of the enactment of this Act, the Secretary of Housing and 
Urban Development and the Federal banking regulatory agencies shall, by 
regulation, establish and implement procedures and standards designed 
to ensure that the means and manner of compensation of servicers of 
federally related mortgage loans is consistent with the purposes of 
this Act and the amendments made by this Act, and to the extent 
possible, does not provide incentives for foreclosure of such mortgages 
or disincentives to engaging in reasonable loss mitigation activities 
for such mortgages.

SEC. 6. UNENFORCEABILITY OF POOLING AND SERVICING AGREEMENTS 
              PROHIBITING MODIFICATION.

    Any provision of any investment contract entered into after the 
date of the enactment of this Act between a servicer of pooled 
residential mortgages and an investor that is inconsistent with this 
Act or the amendments made by this Act shall be considered to be 
contrary to public policy and void and enforceable.

SEC. 7. PILOT PROGRAM FOR COMMUNITY BANKS.

    The Secretary of the Treasury and the Secretary of Housing and 
Urban Development shall jointly carry out a pilot program to encourage 
the Federal National Mortgage Association, the Federal Home Loan 
Mortgage Corporation, and the Federal Home Loan Banks to enter into 
contracts for insured community development financial institutions (as 
such term is defined in section 103 of the Community Development 
Banking and Financial Institutions Act of 1994 (12 U.S.C. 4702)), 
including minority-owned such institutions, to provide mortgage 
servicing with respect to mortgages owned or securitized by such 
Government-sponsored enterprises.
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