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will be discharged under title 11 of 
the United States Code. The insur-
ance benefits shall be paid in the 
amount specified in subclause (I) of 
this clause, as such amount is reduced 
by the amount of the allowed secured 
claim. Such allowed secured claim 
shall continue to be insured under sec-
tion 203. 
‘‘(III) INTEREST
PAYMENTS.— 
The Secretary may make periodic pay-
ments, or a one-time payment, of in-
surance benefits for interest payments 
that are reduced pursuant to such 
order, as determined by the Secretary, 
but only upon assignment to the Sec-
retary of all rights and interest re-
lated to such payments. 
‘‘(ii) DELIVERY
OF
EVIDENCE
OF 
ENTRY OF ORDER.—Notwithstanding any 
other provision of this paragraph, no insur-
ance benefits may be paid pursuant to this 
subparagraph for a mortgage before deliv-
ery to the Secretary of evidence of the 
entry of the order issued pursuant to title
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11, United States Code, in a form satisfac-
tory to the Secretary.’’; 
(2) in paragraph (5), in the matter preceding 
subparagraph (A), by inserting after ‘‘section 520, 
and’’ the following: ‘‘, except as provided in para-
graph (1)(E),’’; and 
(3) by adding at the end the following new 
paragraph: 
‘‘(10) LOAN MODIFICATION PROGRAM.— 
‘‘(A) AUTHORITY.—The Secretary may 
carry out a program solely to encourage loan 
modifications for eligible delinquent mortgages 
through the payment of insurance benefits and 
assignment of the mortgage to the Secretary 
and the subsequent modification of the terms of 
the mortgage according to a loan modification 
approved by the mortgagee. 
‘‘(B) PAYMENT OF BENEFITS AND ASSIGN-
MENT.—Under the program under this para-
graph, the Secretary may pay insurance bene-
fits for a mortgage, in the amount determined 
in accordance with paragraph (5)(A), without 
reduction for any amounts modified, but only 
upon the assignment, transfer, and delivery to 
the Secretary of all rights, interest, claims, evi-
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dence, and records with respect to the mortgage 
specified in clauses (i) through (iv) of para-
graph (1)(A). 
‘‘(C) DISPOSITION.—After modification of 
a mortgage pursuant to this paragraph, the 
Secretary may provide insurance under this 
title for the mortgage. The Secretary may sub-
sequently— 
‘‘(i) re-assign the mortgage to the 
mortgagee under terms and conditions as 
are agreed to by the mortgagee and the 
Secretary; 
‘‘(ii) act as a Government National 
Mortgage Association issuer, or contract 
with an entity for such purpose, in order 
to pool the mortgage into a Government 
National Mortgage Association security; or 
‘‘(iii) re-sell the mortgage in accord-
ance with any program that has been es-
tablished for purchase by the Federal Gov-
ernment of mortgages insured under this 
title, and the Secretary may coordinate 
standards for interest rate reductions 
available for loan modification with inter-
est rates established for such purchase.
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‘‘(D) LOAN SERVICING.—In carrying out 
the program under this section, the Secretary 
may require the existing servicer of a mortgage 
assigned to the Secretary under the program to 
continue servicing the mortgage as an agent of 
the Secretary during the period that the Sec-
retary acquires and holds the mortgage for the 
purpose of modifying the terms of the mort-
gage. If the mortgage is resold pursuant to sub-
paragraph (C)(iii), the Secretary may provide 
for the existing servicer to continue to service 
the mortgage or may engage another entity to 
service the mortgage.’’. 
(b) AMENDMENT TO PARTIAL CLAIM AUTHORITY.— 
Paragraph (1) of section 230(b) of the National Housing 
Act (12 U.S.C. 1715u(b)(1)) is amended by striking ‘‘12 
of the monthly mortgage payments’’ and inserting ‘‘30 
percent of the unpaid principal balance of the mortgage’’. 
(c) IMPLEMENTATION.—The Secretary of Housing 
and Urban Development may implement the amendments 
made by this section through notice or mortgagee letter.
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SEC. 123. ADJUSTMENTS AS RESULT OF MODIFICATION OF 
RURAL SINGLE FAMILY HOUSING LOANS IN 
BANKRUPTCY. 
(a) GUARANTEED RURAL HOUSING LOANS.—Sub-
section (h) of section 502 of the Housing Act of 1949 (42 
U.S.C. 1472(h)) is amended— 
(1) in paragraph (7)— 
(A) in subparagraph (A), by inserting be-
fore the period at the end the following: ‘‘, un-
less the maturity date of the loan is modified in 
a bankruptcy proceeding or at the discretion of 
the Secretary’’; and 
(B) in subparagraph (B), by inserting be-
fore the semicolon the following: ‘‘, unless such 
rate is modified in a bankruptcy proceeding’’; 
(2) by redesignating paragraphs (13) and (14) 
as paragraphs (14) and (15), respectively; and 
(3) by inserting after paragraph (12) the fol-
lowing new paragraph: 
‘‘(13) PAYMENT OF GUARANTEE.—In addition 
to all other authorities to pay a guarantee claim, the 
Secretary may also pay the guaranteed portion of 
any losses incurred by the holder of a note or the 
servicer resulting from a modification of a note by 
a bankruptcy proceeding.’’.