upon reducing the number of foreclosures in the 
United States. 
(2) Homeowners struggling to make payments 
on homes with mortgages that are deeply under-
water are some of the most at risk of foreclosure. 
(3) A properly carried out principal modifica-
tion program will preserve the assets of the Govern-
ment-sponsored mortgage enterprises assets and re-
duce taxpayer losses, consistent with the mission of 
the Federal Housing Finance Agency as the enter-
prises’ conservator, and will help foster a more resil-
ient national housing market. 
SEC. 3. SHARED APPRECIATION MORTGAGE MODIFICATION 
PILOT PROGRAMS. 
(a) DEFINITIONS.—In this section— 
(1) the term ‘‘capital improvement’’ means a 
home improvement described in table 4 of Publica-
tion 530 of the Internal Revenue Service, or any 
successor thereto; 
(2) the term ‘‘covered mortgage’’ means a 
mortgage— 
(A) that is— 
(i) sold to the Federal National Mort-
gage Association, the Government National 
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Mortgage Association, or the Federal 
Home Loan Mortgage Corporation; or 
(ii) insured under title II of the Na-
tional Housing Act (12 U.S.C. 1707 et 
seq.); 
(B) that is secured by real property that is 
the primary residence of a homeowner; 
(C) that has an outstanding principal bal-
ance of an amount that is greater than the ap-
praised value of the real property securing the 
mortgage, on or about the date on which the 
homeowner is approved to participate in the 
pilot program under subsection (b); 
(D) with respect to which the homeowner 
is, both as of the date of the enactment of this 
Act and as of the date of the modification 
under a pilot program under subsection (b)— 
(i) not fewer than 60 days delinquent; 
or 
(ii) at risk of imminent default; and 
(E) of a homeowner who has a documented 
financial hardship that prevents or will prevent 
the homeowner from making mortgage pay-
ments; 
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(3) the term ‘‘Director’’ means the Director of 
the Federal Housing Finance Agency; 
(4) the term ‘‘enterprise’’ has the same mean-
ing as in section 1303 of the Federal Housing En-
terprises Financial Safety and Soundness Act of 
1992 (12 U.S.C. 4502); 
(5) the term ‘‘homeowner’’ means the mort-
gagor under a covered mortgage; 
(6) the term ‘‘investor’’ means— 
(A) the mortgagee under a covered mort-
gage; or 
(B) in the case of a covered mortgage that 
collateralizes an asset-backed security, as de-
fined in section 3(a) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78c(a)), the trustee for 
the asset-backed security; 
(7) the term ‘‘pilot program’’ means a pilot pro-
gram established under subsection (b); and 
(8) the term ‘‘shared appreciation mortgage 
modification’’ means a modification of a covered 
mortgage in accordance with subsection (c). 
(b) PILOT PROGRAMS ESTABLISHED.—The Director 
of the Federal Housing Finance Agency and the Federal 
Housing Commissioner, in consultation with the Secretary 
of the Treasury, shall each establish a pilot program to 
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encourage, through assistance provided under the Home 
Affordable Modification Program under the Making Home 
Affordable initiative of the Secretary of the Treasury, the 
use of shared appreciation mortgage modifications that 
are designed to return greater cash flow to investors than 
other loss-mitigation activities, including foreclosure, and 
result in positive net present value for the investor. 
(c) SHARED APPRECIATION MORTGAGE MODIFICA-
TION.—For purposes of the pilot program, a shared appre-
ciation mortgage modification shall— 
(1) reduce the loan-to-value ratio of a covered 
mortgage— 
(A) to 115 percent immediately upon such 
modification, by immediately reducing the 
amount of principal under the covered mortgage 
accordingly; and 
(B) to 95 percent within 3 years, by reduc-
ing the amount of principal under the covered 
mortgage by 1⁄3 at the end of each year for 3 
years; 
(2) reduce the interest rate for a covered mort-
gage, if a reduction of principal under paragraph (1) 
would not result in a reduced monthly payment that 
is affordable to the homeowner; 
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(3) reduce the amount of any periodic payment 
required to be made by the homeowner, so that the 
amount payable by the homeowner is equal to the 
amount that would be payable by the homeowner if, 
on the date on which the shared appreciation mort-
gage modification takes effect— 
(A) all reductions of the amount of prin-
cipal under paragraph (1) had been made; and 
(B) any reduction in the interest rate 
under paragraph (2) for which the covered 
mortgage is eligible had been made; 
(4) require the homeowner to pay to the inves-
tor after refinancing or selling the real property se-
curing a covered mortgage a percentage of the 
amount of any increase (not to exceed 50 percent of 
such increase) in the value of the real property dur-
ing the period beginning on the date on which the 
homeowner was approved to participate in the pilot 
program and ending on the date of the refinancing 
or sale that is equal to the percentage by which the 
investor reduced the amount of principal under the 
covered mortgage under paragraph (1); and 
(5) result in a positive net present value for the 
investor after taking into account the principal re-
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duction under paragraph (1) and, if necessary, any 
interest rate reduction under paragraph (2). 
(d) DETERMINATION OF VALUE OF HOME.— 
(1) IN GENERAL.—For purposes of this section, 
the value of real property securing a covered mort-
gage shall be determined by a licensed appraiser who 
is independent of and does not otherwise do business 
with the homeowner, servicer, investor, or an affil-
iate of the homeowner, servicer, or investor, except 
that, where available, such value may be determined 
using a reliable estimate of value provided by an 
automated valuation model of an enterprise. 
(2) TIME FOR DETERMINATION.—The value of 
real property securing a covered mortgage shall be 
determined on a date that is as close as practicable 
to the date on which a homeowner begins to partici-
pate in a pilot program. 
(3) COST.— 
(A) RESPONSIBILITY FOR COST.— 
(i) INITIAL COST.—The investor shall 
pay the cost of an appraisal or other deter-
mination of value under paragraph (1). 
(ii) DEDUCTION
FROM
HOMEOWNER 
SHARE.—At the option of the investor, the 
cost of an appraisal or other determination 
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of value under paragraph (1) may be 
added to the amount paid by the home-
owner to the investor under subsection 
(c)(4). 
(B) REASONABLENESS
OF
COST.—The 
cost of an appraisal or other determination of 
value under paragraph (1) shall be reasonable, 
as determined by the Director and the Federal 
Housing Commissioner. 
(4) SECOND APPRAISAL.—At the time of refi-
nancing or sale of real property securing a covered 
mortgage, the investor may request a second ap-
praisal of the value of the real property, at the ex-
pense of the investor, by a licensed appraiser who is 
independent of and does not otherwise do business 
with the homeowner, servicer, investor, or an affil-
iate of the homeowner, servicer, or investor, if the 
investor believes that the sale price or claimed value 
at the time of the refinancing is not an accurate re-
flection of the fair market value of the real property. 
(e) ELIGIBILITY FOR REDUCTION OF PRINCIPAL.— 
Each pilot program shall provide that a homeowner is not 
eligible for a reduction in the amount of principal under 
a covered mortgage under a shared appreciation mortgage 
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modification if, after the homeowner begins participating 
in the pilot program, the homeowner— 
(1)(A) is delinquent on more than 3 payments 
under the shared appreciation mortgage modification 
during any of the 3 successive 1-year periods begin-
ning on the date on which the shared appreciation 
mortgage modification is made; and 
(B) fails to be current with all payments de-
scribed in paragraph (1) before the end of each 1- 
year period described in paragraph (1); or 
(2) obtains a mortgage, loan, or credit, or in-
curs any other debt, that creates any additional lien 
on the residence that is subject to the covered mort-
gage for which the shared appreciation mortgage 
modification or for which such residence is used as 
collateral. 
The Director shall require, as a condition for participation 
in a pilot program by a homeowner, that the homeowner 
enter into such agreements as the Director considers nec-
essary to ensure compliance with this subsection. 
(f) NOTIFICATION.— 
(1) IN GENERAL.—Each pilot program shall re-
quire that the servicer of a covered mortgage trans-
mit to each homeowner participating in the pilot 
program written notice, in clear and simple lan-
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guage, of how to maintain and submit any docu-
mentation of capital improvements that is necessary 
to ensure that the shares of any increase in the 
value of the real property securing the covered mort-
gage to which the investor and the homeowner are 
entitled are determined accurately. 
(2) TIMING.—The pilot program shall require 
that a servicer provide the notice described in para-
graph (1)— 
(A) before the homeowner accepts a shared 
appreciation mortgage modification; and 
(B) before the homeowner sells or refi-
nances the real property securing the covered 
mortgage. 
(g) PARTICIPATION BY SERVICERS.—The Director 
shall require each enterprise to require that any servicer 
of a covered mortgage in which the enterprise is an inves-
tor participate in the pilot program of the Federal Hous-
ing Finance Agency by offering shared appreciation mort-
gage modifications to a random and statistically signifi-
cant sampling of homeowners with covered mortgages. 
(h) MORTGAGE INSURANCE.—The Director shall— 
(1) provide that an enterprise may negotiate re-
garding a shared appreciation mortgage modification 
of a covered mortgage with any provider of mortgage 
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insurance for a mortgage on the property subject to 
the covered mortgage; and 
(2) allow advance claim agreements with re-
spect to such mortgage insurance policies. 
(i) MAINTENANCE OF LIEN STATUS.—A shared ap-
preciation mortgage modification of a covered mortgage 
under a pilot program under this section shall not impair 
the priority status of liens on the residence that is subject 
to the mortgage. 
(j) STUDIES AND REPORTS.—The Director and the 
Federal Housing Commissioner shall— 
(1) conduct annual studies of the pilot pro-
grams of the Federal Housing Finance Agency and 
the Federal Housing Administration, respectively; 
and 
(2) submit a report to the Congress containing 
the results of each study at the end of each of the 
3 successive 1-year periods beginning on the date on 
which the pilot program is established. 
(k) TERMINATION.—On and after the date that is 2 
years after the date of enactment of this Act, the Director 
and the Federal Housing Commissioner may not enter 
into any agreement under the pilot program with respect 
to a shared appreciation mortgage modification. 
Æ 
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