I 
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 mitiga-
tion 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 Representa-
tives 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’’. 
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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 re-
lated mortgage loan that is secured by a lien on the prin-
cipal residence of the borrower or mortgagor, the mort-
gagee 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 MITIGA-
TION.—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 require-
ments of this section with respect to such loan. 
‘‘(c) LOSS MITIGATION ACTIVITIES.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, loss mitigation activities shall include— 
‘‘(A) priority loss mitigation activities 
under paragraph (6); 
‘‘(B) secondary loss mitigation activities 
under paragraph (7); 
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‘‘(C) last-resort loss mitigation activities 
under paragraph (8); and 
‘‘(D) any loss mitigation activities con-
sistent with the Making Home Affordable pro-
gram of the Secretary of the Treasury, as an-
nounced on March 4, 2009, including any sub-
sequent updates. 
‘‘(2) EXCEPTIONS
FOR
SERVICERS
PARTICI-
PATING IN THE MAKING HOME AFFORDABLE PRO-
GRAM.—Any mortgagee or servicer that meets its 
obligation under this Act through subparagraph (D) 
of paragraph (1) shall not be subject to the require-
ments of paragraphs (3), (4), (6), and (7). 
‘‘(3) ORDER OF PURSUIT.—In complying with 
subsection (a), the mortgagee or servicer shall pur-
sue loss mitigation activities in the following order: 
first priority loss mitigation activities, then sec-
ondary loss mitigation activities, and then last-resort 
loss mitigation activities. If any loss mitigation activ-
ity 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 de-
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termining the type of loss mitigation activity to pro-
vide with respect to a covered federally related mort-
gage loan, the mortgagee or servicer may consider 
the financial and personal circumstances of the bor-
rower 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, in-
cluding 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 miti-
gation activities taken with respect to the mort-
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gage, 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 with-
out 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 mitiga-
tion 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 cov-
ered federally related mortgage loan, activities that 
preserve the borrower’s or mortgagor’s ownership in-
terest in the property that is subject to the lien se-
curing the loan by modifying the contractual terms 
of the loan. Priority loss mitigation activities include 
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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 mort-
gage, and reamortization of the loan in connec-
tion with an extension of the final maturity 
date of the loan. 
‘‘(B) SHORT
REFINANCING.—Short refi-
nancing 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 mort-
gagor. 
‘‘(7) SECONDARY
LOSS
MITIGATION
ACTIVI-
TIES.—For purposes of this section, the term ‘sec-
ondary loss mitigation activities’ includes, with re-
spect to a covered federally related mortgage loan, 
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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 re-
sumes regularly scheduled payments and pays 
additional amounts at scheduled intervals to 
cure the delinquency. 
‘‘(C) Forbearance under the loan that pro-
vides for a temporary reduction in, or cessation 
of, monthly payments followed by a reamortiza-
tion of the amounts due under the loan, includ-
ing arrearage, and a new schedule of repayment 
amounts. 
‘‘(8) LAST-RESORT
LOSS
MITIGATION
ACTIVI-
TIES.—For purposes of this section, the term ‘last 
resort loss mitigation activities’ includes, with re-
spect to a covered federally related mortgage loan, 
activities that avoid foreclosure but do not preserve 
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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 obli-
gation under such loan and as part of a sale 
transaction in which the property is not in-
tended to remain the principal residence of the 
borrower or mortgagor. 
‘‘(B) Assumption of the borrower’s obliga-
tions under the loan by a third party. 
‘‘(C) Cancellation or postponement of a 
foreclosure sale to allow the borrower or mort-
gagor additional time to sell the property. 
‘‘(D) Acquisition of the property by the 
mortgagee or servicer by deed in lieu of fore-
closure. 
‘‘(9) PROTECTION OF CONTRACT RIGHTS.—Not-
withstanding subsections (a) and (b), nothing in this 
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section shall require a servicer for a covered feder-
ally related mortgage loan to breach a contract with 
the mortgagee (or its predecessors in interest, suc-
cessors, or assigns) entered into before the enact-
ment 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 mort-
gagor pursuant to loss mitigation activities and 
whether the activities are in the best financial inter-
ests of the borrower or mortgagor shall be taken 
into consideration in determining whether a mort-
gagee has engaged, for purposes of subsection 
(a)(1), in reasonable loss mitigation activities that 
provide for long-term affordability of the loan. Pay-
ments under a loan shall be considered to be afford-
able 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 
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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 AFFORD-
ABILITY.— 
‘‘(A) DOCUMENTATION.—A mortgagee or 
servicer may request documentation of the in-
come of a borrower or mortgagor before com-
mencing loss mitigation activities. 
‘‘(B) VERIFICATION.—The mortgagor’s or 
borrower’s income shall be verified by— 
‘‘(i) requiring the mortgagor or bor-
rower to provide a signed form for the re-
quest 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 Fed-
eral tax return on file for each borrower 
who signed the note for the covered feder-
ally related mortgage loan; 
‘‘(iii) by requiring the mortgagor or 
borrower to provide the two most recent 
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payroll receipts for each wage earner who 
signed such note; and 
‘‘(iv) in the case of mortgagors or bor-
rowers 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 AS-
SETS.—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 suffi-
cient liquid assets to make the monthly pay-
ments 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 re-
lated mortgage loan for purposes of this subsection, 
the amount of monthly payment under the loan shall 
include principal, interest, taxes, insurance, flood in-
surance, any homeowner’s association and condo-
minium fees, and any second or subordinate liens. 
‘‘(4) 
MONTHLY
INCOME.—In 
determining 
monthly income of a mortgagor or borrower for pur-
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poses of this subsection, all wages, salary, overtime, 
fees, commissions, tips, Social Security benefits, pen-
sions, and all other income shall be considered. 
‘‘(5) WRITTEN
NOTIFICATION
OF
AFFORD-
ABILITY 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
IN-
CREASE.—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 pay-
ment due for principal or interest or in the interest rate 
charged under the loan, but not more than 120 days be-
fore such increase, the mortgagee or servicer shall, in addi-
tion 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 pay-
ment under the loan after such increase, based on the pre-
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vailing interest rate of the index used for such increase 
with the 30-day period ending upon such notice. The writ-
ten notice shall provide the information required under 
this subsection in a clear and conspicuous format. 
‘‘(f) SUBORDINATE LIENS.—Each mortgagee with re-
spect to a subordinate lien shall provide to mortgagees 
having senior liens information needed by such senior 
mortgagees to engage in reasonable loss mitigation as re-
quired by this section. Any modification of the loan under-
taken 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 MITIGA-
TION PERSONNEL.— 
‘‘(1) PROVISION OF CONTACT INFORMATION.— 
The mortgagee or servicer of a covered federally re-
lated 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. 
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‘‘(2) PROHIBITION ON OUTSOURCING.—In car-
rying 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 home-
owner and any processing of any loss mitigation ac-
tivities 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 mort-
gage loan shall not accept or provide loss mitigation activi-
ties 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 coun-
seling 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 bor-
rower or mortgagor for such request; or 
‘‘(ii)(I) has charged a nominal fee for such 
request; 
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‘‘(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 cancella-
tion without penalty; and 
‘‘(III) will refund any such fees to the bor-
rower 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
MORT-
GAGEE.—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 bor-
rower. 
‘‘(2) 
EXPRESSION
OF
BORROWER
PREF-
ERENCE.—The borrower may communicate to the 
servicer or mortgagee a preference for a particular 
housing counseling agency approved by the Sec-
retary— 
‘‘(A) in writing at the time of closing on 
the loan; or 
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