S 1731

S 1731 IS

To require certain mortgagees to make loan modifications, to establish a grant program for State and local government mediation programs, to create databases on foreclosures, and for other purposes.

September 30, 2009

Mr. REED (for himself, Mr. DURBIN, Mr. WHITEHOUSE, and Mr. MERKLEY) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

To require certain mortgagees to make loan modifications, to establish a grant program for State and local government mediation programs, to create databases on foreclosures, 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 ‘Preserving Homes and Communities Act of 2009’.

SEC. 2. LOAN MODIFICATION REQUIREMENTS.

(a) Definitions- In this section--

(1) the term ‘covered mortgagee’ means--

(A) a mortgagee under a federally related mortgage loan; and

(B) the agent of a mortgagee under a federally related mortgage loan;

(2) the term ‘covered mortgagor’ means an individual who is a mortgagor under a federally related mortgage loan--

(A) made by a covered mortgagee;

(B) secured by the principal residence of the mortgagor; and

(C) on which the mortgagor cannot make payments due to financial hardship, as determined by the Secretary;

(3) the term ‘federally related mortgage loan’ has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602);

(4) the term ‘home loan modification protocol’ means a home loan modification protocol that is developed under a home loan modification program put into effect by the Secretary of the Treasury or the Secretary;

(5) the term ‘qualified loan modification’ means a modification to the terms of a mortgage agreement between a covered mortgagee and a covered mortgagor that is made pursuant to a determination by the covered mortgagee using a home loan modification protocol that a modification would produce a greater net present value than foreclosure to--

(A) the covered mortgagee; or

(B) in the aggregate, all persons that hold an interest in the mortgage agreement; and

(6) the term ‘Secretary’ means the Secretary of Housing and Urban Development.

(b) Loan Modification Required-

(1) IN GENERAL- A covered mortgagee may not initiate or continue a foreclosure proceeding against a covered mortgagor that is otherwise authorized under State law unless--

(A) the covered mortgagee has determined whether the covered mortgagor is eligible for a qualified loan modification;

(B) in the case of a covered mortgagor who the covered mortgagee determines is eligible for a qualified loan modification, the covered mortgagee has offered a qualified loan modification to the covered mortgagor; and

(C) in the case of a covered mortgagor who the covered mortgagee determines is not eligible for a qualified loan modification, the covered mortgagee has made available to the covered mortgagor the note, deed of trust, or any other document necessary to establish the right of the mortgagee to foreclose on the mortgage.

(2) NO WAIVER OF RIGHTS- A covered mortgagee may not require a covered mortgagor to waive any right of the covered mortgagor as a condition of making a qualified loan modification.

(3) SALE OF REAL PROPERTY SECURING MORTGAGE-

(A) SALE- A covered mortgagee may not sell the real property securing the mortgage of a covered mortgagor unless the covered mortgagee submits to the appropriate State entity in the State in which the real property is located, a certification that the covered mortgagee has made a determination under paragraph (1)(A).

(B) ACTION BY PURCHASER- A person that purchases from a covered mortgagee the real property securing the mortgage of a covered mortgagor may not recover possession of the real property unless the covered mortgagee submits to the appropriate State entity in the State in which the real property is located, a certification that the covered mortgagee has made a determination under paragraph (1)(A).

(C) CERTIFICATION STANDARDS- The Secretary shall establish minimum standards for the certification required under this paragraph.

(4) DEFENSE TO FORECLOSURE- Failure to comply with this subsection shall be a defense to foreclosure.

(5) RULE OF CONSTRUCTION- Nothing in this subsection may be construed to prevent a covered mortgagee from offering or making a loan modification with a lower payment, lower interest rate, or principal reduction beyond that required by a modification made using a home loan modification protocol with respect to a covered mortgagor.

(c) Fees Prohibited-

(1) LOAN MODIFICATION FEES PROHIBITED- A covered mortgagee may not charge a fee to a covered mortgagor for carrying out the requirements under subsection (b).

(2) FORECLOSURE-RELATED FEES-

(A) IN GENERAL- Except as provided in subparagraph (B), a mortgagee may not charge a foreclosure-related fee to a mortgagor before--

(i) the mortgagee has made a determination under subsection (b)(1); and

(ii) the mortgage has entered the foreclosure process.

(B) DELINQUENCY FEES- A mortgagee may charge a delinquency fee for late payment by the mortgagor.

(3) FEES NOT IN CONTRACT- A mortgagee may charge to a mortgagor only such fees as have been specified in advance by the mortgage agreement.

(4) FEES FOR EXPENSES INCURRED- A mortgagee may charge a fee to a mortgagor only for services actually performed by the mortgagee or a third party in relation to the mortgage agreement. For purposes of this paragraph, the term ‘third party’ does not include an affiliate or subsidiary of the mortgagee.

(5) PENALTY- The Secretary shall collect from any mortgagee that charges a fee in violation of this subsection an amount equal to $6,000 for each such fee.

(d) Regulations- Not later than 3 months after the date of enactment of this Act, the Secretary shall issue by notice any requirements to carry out this section. The Secretary shall subsequently issue, after notice and comment, final regulations to carry out this section.

SEC. 3. GRANTS TO STATES TO ASSIST HOMEOWNERS IN DEFAULT.

Section 106 of the Housing and Urban Development Act of 1968 (12 U.S.C. 1701x) is amended by adding at the end the following:

‘(g) Grants to States To Assist Homeowners in Default-

‘(1) DEFINITIONS- In this subsection--

‘(A) the term ‘eligible agency’ means a State housing finance agency or an agency designated by the State as an eligible agency;

‘(B) the term ‘eligible homeowner’ means a mortgagor who--

‘(i) is a permanent resident of the State in which the principal residence of the mortgagor is located;

‘(ii) agrees to seek counseling from a counseling agency approved by the Secretary if the eligible homeowner receives a loan or grant made using funds under this subsection;

‘(iii) is suffering from financial hardship which is unexpected or due to circumstances beyond the control of the mortgagor;

‘(iv) is unable to correct any delinquency on any amounts past due on the home loan of such mortgagor within a reasonable time without financial assistance;

‘(v) has requested a loan modification from the mortgagee;

‘(vi) is unable to make full payment on any home loan payment due for all liens within the 30-day period following the date of the application by the mortgagor for a loan or grant using funds under this subsection;

‘(vii) the eligible agency determines has a reasonable probability of resuming full payments due for all liens on the mortgage of such mortgagor not later than 15 months after the date on which the mortgagor receives a loan or grant using funds under this subsection; and

‘(viii) has not previously received a loan or grant using funds under this subsection; and

‘(C) the term ‘mortgagor’ means a mortgagor under a mortgage--

‘(i) secured by a 1- to 4-family owner-occupied residence (including a 1-family unit in a condominium project and a membership interest and occupancy agreement in a cooperative housing project) that is used as the principal residence of the mortgagor;

‘(ii) with an interest rate that does not exceed the prime rate of interest at the time of loan origination, as such prime rate is determined by not less than 75 percent of the 30 largest depository institutions in the United States; and

‘(iii) for an amount that does not exceed the conforming loan limit for conventional mortgages, as determined under section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)).

‘(2) GRANT PROGRAM ESTABLISHED- The Secretary shall award grants to eligible agencies, to enable eligible agencies to provide--

‘(A) 1-time emergency grants or subsidized loans to eligible homeowners to assist such eligible homeowners in satisfying any amounts past due on their home loans;

‘(B) grants or subsidized loans to eligible homeowners for a specified number of future mortgage payments by the eligible homeowners; and

‘(C) stipends of not more than $1,500 to assist with relocation expenses for homeowners not eligible for the program.

‘(3) ADDITIONAL SERVICES PROVIDED BY ELIGIBLE AGENCY- An eligible agency that receives a grant under this subsection shall provide--

‘(A) a readily accessible source for information on, and referral to, public services available to assist a homeowner who is in default on their home loan;

‘(B) a homeowner with referrals to counseling agencies approved by the Department of Housing and Urban Development that may be able to assist that homeowner, if that homeowner is in default on their home loan;

‘(C) information to homeowners on available community resources relating to homeownership, including--

‘(i) public assistance or benefits programs;

‘(ii) mortgage assistance programs, including programs that help homeowners prepare documents for loan modification applications;

‘(iii) home repair assistance programs;

‘(iv) legal assistance programs;

‘(v) utility assistance programs;

‘(vi) food assistance programs; and

‘(vii) other Federal, State, or local government funded social services; and

‘(D) staff who--

‘(i) are able to conduct a brief assessment of the situation of a homeowner; and

‘(ii) based on such assessment, make appropriate referrals to, and provide application information regarding, programs that can provide assistance to such homeowner.

‘(4) FORMULA- Not later than 3 months after the date of enactment of the Preserving Homes and Communities Act of 2009, the Secretary shall develop a formula for the award of funds under this subsection that includes the following factors:

‘(A) The population of the State, as determined by the Bureau of the Census in most recent estimate of the resident population of the State.

‘(B) The rate of mortgages in the State that are delinquent more than 90 days.

‘(C) The ratio of foreclosures to owner-occupied households in the State.

‘(D) The change, if any, in the rate of unemployment in the State between 2007 and 2008.

‘(5) PROGRAM REQUIREMENTS-

‘(A) SELECTION CRITERIA-

‘(i) IN GENERAL- Each eligible entity that receives a grant under this subsection shall develop selection criteria for eligible homeowners seeking a grant or subsidized loan under this subsection.

‘(ii) INCOME REPORTING- A mortgagor that receives a grant or subsidized loan under this subsection shall be required, in accordance with criteria prescribed by the eligible agency, to report any increase in income.

‘(B) LOAN REQUIREMENTS-

‘(i) INTEREST RATE- Any loan made using a grant under this subsection shall carry a simple annual percentage rate of interest which shall not exceed the prime rate of interest, as such prime rate is determined from time to time by not less than 75 percent of the 30 largest depository institutions in the United States.

‘(ii) COMPOUND INTEREST PROHIBITED- Interest on the outstanding principal balance of any loan under this subsection shall not compound.

‘(iii) BALANCE DUE-

‘(I) IN GENERAL- The principal of any loan made under this paragraph, including any interest accrued on such principal, shall not be due and payable unless the real property securing such loan is sold or transferred.

‘(II) DEPOSIT OF BALANCE DUE- If an event described in subclause (I) occurs, the principal of any loan made under this subsection, including any interest accrued on such principal, shall immediately become due and payable to the eligible agency from which the loan originated.

‘(iv) PREPAYMENT- Any eligible homeowner who receives a loan using a grant made under this subsection may repay the loan in full, without penalty, by lump sum or by installment payments, at any time prior to the loan becoming due and payable.

‘(v) MAXIMUM AMOUNT- The amount of any loan to any 1 eligible homeowner under this subsection may not exceed 20 percent of the original mortgage amount borrowed by the eligible homeowner.

‘(vi) SUBORDINATION- Any loan made using a grant under this subsection will be subordinated to any refinancing of the first mortgage, any preexisting subordinate financing, any purchase money mortgage, or subordinated for any other reason, as determined by the eligible agency.

‘(6) SEPARATE ACCOUNT-

‘(A) SEPARATE ACCOUNT- An eligible agency that receives a grant under this subsection shall establish a separate account in which to hold amounts received under this subsection.

‘(B) REPAYMENT OF LOANS- Any amounts repaid on a subsidized loan made under this subsection shall be deposited in the account established under subparagraph (A).

‘(C) OTHER FUNDING- Amounts donated or otherwise directed to be used for purposes of this subsection may be deposited in the account established under subparagraph (A) to help capitalize such account.

‘(7) USE OF GRANT FUNDS-

‘(A) IN GENERAL- Subject to subparagraph (B), any amounts made available for purposes of this subsection may be used only for the purposes described in paragraph (2).

‘(B) EXCEPTION FOR ADMINISTRATIVE COSTS- An eligible agency may use not more than 5 percent of any funds received under this subsection for administrative costs relating to activities carried out under paragraph (2).

‘(8) EXISTING LOAN FUNDS- Any eligible agency with a previously existing fund established to make loans to assist homeowners in satisfying any amounts past due on their home loan or for future payments may use funds appropriated for purposes of this subsection for that existing loan fund, even if the eligibility, application, program, or use requirements for that loan program differ from the eligibility, application, program, and use requirements of this subsection, unless such use is expressly determined by the Secretary to be inappropriate.

‘(9) AUTHORIZATION OF APPROPRIATIONS- There are authorized to be appropriated to carry out this section--

‘(A) $6,375,000,000 for fiscal year 2010; and

‘(B) such sums as may be necessary for each of fiscal years 2011 through 2013.’.

SEC. 4. MEDIATION INITIATIVES.