I 
111TH CONGRESS 
1ST SESSION 
H. R. 37 
To establish a systematic mortgage modification program at the Federal 
Deposit Insurance Corporation, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JANUARY 6, 2009 
Ms. WATERS (for herself, Ms. VELAZQUEZ, Mr. CAPUANO, Mrs. MALONEY, 
Mr. AL GREEN of Texas, Mr. CLEAVER, Mr. WATT, Mr. BACA, Ms. LEE 
of California, Ms. CLARKE, Mr. HINCHEY, and Mr. HODES) introduced 
the following bill; which was referred to the Committee on Financial Serv-
ices 
A BILL 
To establish a systematic mortgage modification program 
at the Federal Deposit Insurance Corporation, 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 ‘‘Systematic Foreclosure 
Prevention and Mortgage Modification Act’’. 
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SEC. 2. SYSTEMATIC FORECLOSURE PREVENTION AND 
MORTGAGE 
MODIFICATION 
PLAN 
ESTAB-
LISHED. 
(a) IN GENERAL.—The Chairperson of the Federal 
Deposit Insurance Corporation shall establish a systematic 
foreclosure prevention and mortgage modification program 
by— 
(1) paying servicers $1,000 to cover expenses 
for each loan modified according to the required 
standards; and 
(2) sharing up to 50 percent of any losses in-
curred if a modified loan should subsequently re-de-
fault. 
(b) PROGRAM COMPONENTS.—The program estab-
lished under subsection (a) shall include the following 
components: 
(1) ELIGIBLE BORROWERS.—The program shall 
be limited to loans secured by owner-occupied prop-
erties. 
(2) EXCLUSION
FOR
EARLY
PAYMENT
DE-
FAULT.—To promote sustainable mortgages, govern-
ment loss sharing shall be available only after the 
borrower has made a minimum of 6 payments on the 
modified mortgage. 
(3) STANDARD NET PRESENT VALUE TEST.—In 
order to promote consistency and simplicity in imple-
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mentation and audit, a standard test comparing the 
expected net present value of modifying past due 
loans compared to the net present value of fore-
closing on them will be applied. Under this test, 
standard assumptions shall be used to ensure that a 
consistent standard for affordability is provided 
based on a 31 percent borrower mortgage debt-to-in-
come ratio. 
(4) SYSTEMATIC
LOAN
REVIEW
BY
PARTICI-
PATING SERVICERS.—Participating servicers shall be 
required to undertake a systematic review of all of 
the loans under their management, to subject each 
loan to a standard net present value test to deter-
mine whether it is a suitable candidate for modifica-
tion, and to modify all loans that pass this test. The 
penalty for failing to undertake such a systematic 
review and to carry out modifications where they are 
justified would be disqualification from further par-
ticipation in the program until such a systematic 
program was introduced. 
(5) MODIFICATIONS.—Modifications may in-
clude any of the following: 
(A) Reduction in interest rates and fees. 
(B) Forbearance of principal. 
(C) Extension of the term to maturity. 
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(D) Other similar modifications. 
(6) REDUCED LOSS SHARE PERCENTAGE FOR 
‘‘UNDERWATER
LOANS’’.—For loan-to-value ratios 
above 100 percent, the government loss share shall 
be progressively reduced from 50 percent to 20 per-
cent as the current loan-to-value ratio rises, except 
that loss sharing shall not be available if the loan- 
to-value ratio of the first lien exceeds 150 percent. 
(7) SIMPLIFIED LOSS SHARE CALCULATION.— 
In order to ensure the administrative efficiency of 
this program, the calculation of loss share basis 
would be as simple as possible. In general terms, the 
calculation shall be based on the difference between 
the net present value, as defined by the Chairperson 
of the Federal Deposit Insurance Corporation, of the 
modified loan and the amount of recoveries obtained 
in a disposition by refinancing, short sale, or real es-
tate owned sale, net of disposal costs as estimated 
according to industry standards. Interim modifica-
tions shall be allowed. 
(8) DE MINIMIS TEST.—To lower administra-
tive costs, a de minimis test shall be used to exclude 
from loss sharing any modification that does not 
lower the monthly payment at least 10 percent. 
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