S. 2854 — Introduced in Senate

II 113th CONGRESS 2d Session S. 2854 IN THE SENATE OF THE UNITED STATES September 18, 2014Mr. Menendez (for himself, Ms. Warren, Mr. Reed, and Mr. Blumenthal) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To establish pilot programs to encourage the use of shared equity mortgage modifications, and for other purposes. 1. Short title This Act may be cited as the Preserving American Homeownership Act of 2014. 2. Findings Congress finds the following: (1) High national, regional, or local foreclosure rates destabilize the economy, housing market, and neighborhoods of the United States. (2) Shared equity mortgage modifications can provide alternatives to foreclosures that benefit both underwater homeowners and mortgage investors. 3. Shared equity mortgage modification pilot programs (a) Definitions In this section— (1) the term covered mortgage means a mortgage— (A) that is— (i) purchased by, guaranteed by, or otherwise sold to the Federal National Mortgage Association, the Government National Mortgage Association, or the Federal Home Loan Mortgage Corporation; or (ii) insured under title II of the National Housing Act (12 U.S.C. 1707 et seq.); (B) that is secured by real property that is the primary or secondary residence of a homeowner; (C) that is in an amount that is greater than the appraised 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— (i) is not fewer than 60 days delinquent; or (ii) is at risk of imminent default; (E) of a homeowner who has a documented financial hardship that prevents or will prevent the homeowner from making mortgage payments; and (F) that may, at the discretion of the Director of the Federal Housing Finance Agency with respect to mortgage-backed securities or participation certificates issued by an enterprise or of the Secretary of Housing and Urban Development with respect to mortgage-backed securities issued by the Government National Mortgage Association, respectively, be made part of any security instrument that may combine or separate the mortgage note and equity position in the real property securing the mortgage; (2) the term equity value of the real property means with respect to a covered mortgage, the difference between the value of the real property securing the covered mortgage upon the time of sale (or refinance) and the initial principal obligation amount owed on the covered mortgage, less any transaction costs associated with the sale or refinancing, provided that if the equity value is negative at time of sale (or refinance), no payment is due the investor; (3) the term enterprise has the same meaning as in section 1303 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4502); (4) the term homeowner means the mortgagor under a covered mortgage; (5) the term investor means— (A) the mortgagee under a covered mortgage; or (B) in the case of a covered mortgage that collateralizes an asset-backed security, as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)), the trustee for the asset-backed security; (6) the term pilot program means a pilot program established under subsection (b); and (7) the term shared equity 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 shall each establish a pilot program to encourage the use of shared equity mortgage modifications that are designed to return greater net present value to investors than other loss-mitigation activities, including foreclosure. (c) Shared equity mortgage modification For purposes of the pilot program, a shared equity mortgage modification shall— (1) reduce the loan-to-value ratio of a covered mortgage to 100 percent or less within 3 years, by reducing the difference between the initial original principal obligation amount owed on the covered mortgage and the reduced principal obligation amount determined by the targeted loan-to-value ratio set forth in this paragraph by 1/3 at the end of each year for 3 years; (2) reduce the interest rate for a covered mortgage, if a reduction of principal under paragraph (1) would not result in a reduced monthly payment that is affordable to the homeowner; (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 equity mortgage modification takes effect— (A) all reductions of the amount of principal 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 investor upon refinancing or selling the real property securing a covered mortgage, a percentage (not to exceed 50 percent) of the equity value of such real property, provided that— (A) the dollar amount due to the investor upon such sale or refinance shall not exceed an amount that is equal to twice the largest dollar amount of the principal reduction that the homeowner achieved as a result of the principal reduction under paragraph (1); (B) the cap established under subparagraph (A) shall on February 1 of the year following the year of enactment of this Act, and each February 1 thereafter, be adjusted for inflation, by multiplying the prior year’s cap amount by the ratio of the annual average of the Consumer Price Index for All Urban Consumers (CPI–U), or a BLS-designated successor to CPI–U, for the prior calendar year to its annual average for the calendar year two years prior; and (C) the investor is permitted to structure the equity-sharing interest that the investor is entitled to receive under this paragraph to be transferrable, including by structuring such interest for future sale to other investors; (5) be designed to deliver maximal net present value to the investor, taking into account— (A) the principal reduction under paragraph (1); (B) any interest rate reductions under paragraph (2); (C) expected reductions in foreclosure and in any other costs that might reduce net present value; and (D) the value of the equity sharing interest determined under paragraph (4); and (6) be based on factors including the percentage value of any principal reduction under paragraph (1), the amount of any such principal reduction, and any other factors as determined appropriate by the Director of the Federal Housing Finance Agency or the Federal Housing Commissioner, respectively. (d) Determination of value of home (1) In general For purposes of this section, the value of real property securing a covered mortgage shall be determined by a licensed appraiser who is independent of and does not otherwise do business with the homeowner, servicer, investor, or an affiliate of the homeowner, servicer, or investor. (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 participate in a pilot program. (3) Cost (A) Responsibility for cost (i) Initial cost The investor shall pay the cost of an appraisal under paragraph (1). (ii) Deduction from homeowner share At the option of the investor, up to one-half of the cost of an appraisal under paragraph (1) may be added to the amount paid by the homeowner to the investor under subsection (c)(4). (B) Reasonableness of cost The cost of an appraisal under paragraph (1) shall be reasonable, as determined by the Director of the Federal Housing Finance Agency or the Federal Housing Commissioner, respectively. (4) Second appraisal At the time of refinancing or sale of real property securing a covered mortgage, the investor may request a second appraisal of the value of the real property, at the expense of the investor, by a licensed appraiser selected by the Director of the Federal Housing Finance Agency or the Federal Housing Commissioner, respectively, who is independent of and does not otherwise do business with the homeowner, servicer, investor, or an affiliate 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 reflection 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 equity mortgage modification if, after the homeowner begins participating in the pilot program, the homeowner— (1) is delinquent on more than 3 payments under the shared equity mortgage modification during any of the 3 successive 1-year periods beginning on the date on which the shared equity mortgage modification is made; and (2) fails to be current with all payments described in paragraph (1) before the end of each 1-year period described in paragraph (1). (f) Participation by servicers The Director of the Federal Housing Finance Agency shall require each enterprise to require that any servicer of a covered mortgage in which the enterprise is an investor participate in the pilot program of the Federal Housing Finance Agency by offering shared equity mortgage modifications to a random and statistically significant sampling of homeowners with covered mortgages. (g) Studies and reports The Director of the Federal Housing Finance Agency and the Federal Housing Commissioner shall— (1) conduct annual studies of the pilot program of the Federal Housing Finance Agency and the Federal Housing Administration, respectively; (2) submit a report to 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; and (3) make publicly available to the maximum extent possible, consistent with the protection of any personal information, and in a timely manner any data generated by the pilot program.