S. 824 (112th): Foreclosure Fraud and Homeowner Abuse Prevention Act of 2011

112th Congress, 2011–2013. Text as of Apr 14, 2011 (Introduced).

Status & Summary | PDF | Source: GPO

II

112th CONGRESS

1st Session

S. 824

IN THE SENATE OF THE UNITED STATES

April 14, 2011

introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To provide for enhanced mortgage-backed and asset-backed security investor protections, to prevent foreclosure fraud, and for other purposes.

1.

Short title

This Act may be cited as the Foreclosure Fraud and Homeowner Abuse Prevention Act of 2011.

2.

Definitions

For purposes of this Act, the following definitions shall apply:

(1)

Commission

The term Commission means the Securities and Exchange Commission.

(2)

Mortgage

The term mortgage means a federally related mortgage loan, as defined in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602).

(3)

Mortgage-backed security

The term mortgage-backed security means an asset-backed security, as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)), that is collateralized by—

(A)

a mortgage; or

(B)

a collateralized mortgage obligation of mortgage-backed securities.

(4)

Securitized residential mortgage loan

The term securitized residential mortgage loan means any residential mortgage loan that serves as collateral for a fixed-income or other security that allows the holder of such security to receive payments dependent on the cash flow from such residential mortgage loan.

(5)

Servicer

The term servicer

(A)

means any person responsible for the management or collection of a pool of assets or making allocations or distributions to holders of asset-backed securities; and

(B)

does not include any State or local housing agency.

3.

Trust Indenture Act protections

(a)

Definitions

Section 303 of the Trust Indenture Act of 1939 (15 U.S.C. 77ccc) is amended—

(1)

in paragraph (7), by adding at the end the following: Such term shall include mortgage-backed securities.;

(2)

in paragraph (10), by adding at the end the following: Such term shall include servicers of mortgage-backed securities.; and

(3)

by adding at the end the following:

(19)

The term mortgage-backed security means an asset-backed security, as defined in section 3(a) of the Securities Exchange Act of 1934, that is collateralized by—

(A)

a mortgage; or

(B)

a collateralized mortgage obligation of mortgage-backed securities.

(20)

The term servicer

(A)

means any person responsible for the management or collection of a pool of assets or making allocations or distributions to holders of asset-backed securities; and

(B)

does not include any State or local housing agency.

.

(b)

Clarification of exemptions

Section 304 of the Trust Indenture Act of 1939 (15 U.S.C. 77ddd) is amended—

(1)

in paragraph (2), by inserting other than residential mortgage-back securities after securities;

(2)

in paragraph (4), by inserting other than a residential mortgage-back security after security; and

(3)

in paragraph (7), by inserting other than a registered mortgage-back security after security.

(c)

Fiduciary duty

Section 315 of the Trust Indenture Act of 1939 (15 U.S.C. 77ooo) is amended by adding at the end the following:

(f)

Each servicer of a mortgage-backed security shall have a fiduciary duty to protect the economic interests of the investors as a whole in an asset-backed security, which duty may not be waived by the investor.

.

(d)

Removal of trustee

Section 310 of the Trust Indenture Act of 1939 (15 U.S.C. 77jjj) is amended by adding at the end the following:

(3)

An indenture trustee that is a servicer of mortgage-backed securities may be removed if not fewer than 50 percent of the investors petition a court of competent jurisdiction for the removal of such trustee.

.

(e)

Amendment of pooling and servicing agreement

Section 316 of the Trust Indenture Act of 1939 (15 U.S.C. 77ppp) is amended by adding at the end the following:

(d)

Notwithstanding any other provision of this title, a pooling and servicing agreement with respect to any mortgage-backed security may be amended without the consent of a majority of the holders of such security, if not fewer than 25 percent thereof petition a court of competent jurisdiction for such action. For purposes of this subsection a pooling and servicing agreement is any contract or a substantially similar document establishing the transaction rights and duties of the parties to any mortgage-backed securitization transaction.

.

(f)

Penalty

Section 325 of the Trust Indenture Act of 1939 (15 U.S.C. 77yyy) is amended by striking $10,000 and inserting $40,000.

(g)

Duties and responsibilities of servicers

Section 315(a) of the Trust Indenture Act of 1939 (15 U.S.C. 77ooo(a)) is amended—

(1)

by striking The indenture and inserting (1) The indenture;

(2)

by redesignating existing paragraphs (1) and (2) as subparagraphs (A) and (B), respectively, and moving the margins 2 ems to the right; and

(3)

by adding at the end the following:

(2)

Paragraph (1) shall not apply with respect to an indenture that is a mortgage-backed security. An indenture trustee of such a security shall have a duty to verify the correctness of any such statements.

.

4.

Mortgage related security servicer advances

The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting after section 15G the following new section:

15H.

Mortgage related securities servicer advances

(a)

Commission rulemaking required

Promptly after the date of enactment of this section, the Commission shall, after consultation with the appropriate Federal banking agencies (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)) and the Bureau of Consumer Financial Protection where appropriate, issue regulations—

(1)

to require each servicer of a mortgage related security to notify investors therein of any advances to the securitization vehicle;

(2)

to prohibit the primary servicer of a mortgage related security from advancing delinquent payments of principal and interest by mortgagors for more than 3 payment periods, unless financing or reimbursement facilities to fund or reimburse the primary servicers are available;

(3)

to prohibit the commingling of homeowners' monthly mortgage payments with the assets of the servicer of a mortgage related security, other than as necessary to clear payments received, but not to exceed 2 business days;

(4)

to provide for recoupment, from any current or former senior executive or director of a servicer of a mortgage related security who has been convicted of any violation of the securities laws, any compensation received during the 3-year period preceding the date of the violation that the Commission determines was connected to such violation, including any unjust enrichment related to such violation, except that, in the case of fraud, no time limit shall apply;

(5)

to allow for the controlling holder of a mortgage related security to appoint and remove the servicers of such security, where the servicer has not been in substantial compliance with its duties under applicable law and all relevant agreements, as determined by the Commission;

(6)

to require each pooling and servicing agreement related to a mortgage related security to specify separate and independent servicers for default (in this section referred to as the mandatory special servicer) and transactions processing; and

(7)

to require existing or future loans comprising the mortgage related security be transferred to the mandatory special servicer, if such loans are more than 60 days delinquent or where the holder and servicer find that there is a significant risk of default, based on all the facts and circumstances, in which case, such mandatory special servicer shall be compensated through an untranched, prorated interest in the assets of the mortgage related security, beginning at 1 percent.

For purposes of this subsection a pooling and servicing agreement is any contract establishing the transaction rights and duties of the parties to any mortgage-backed securitization transaction.
(b)

Compensation

The rules of the Commission under this section shall include a definition of the term compensation to mean any financial remuneration, including salary, bonuses, incentives, benefits, severance, deferred compensation, or golden parachute benefits, and any profits realized from the sale of the securities of the company.

.

5.

Limitation on mortgages held by loan servicers

(a)

Limitation

The Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended by inserting before section 130 (15 U.S.C. 1640) the following new section:

129I.

Limitations on mortgages held by loan servicers

(a)

Limitation

Neither the servicer of a securitized residential mortgage loan, nor any affiliate of such servicer, may own, or hold any interest in, any other residential mortgage loan that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on the same dwelling or residential real property that is subject to the mortgage, deed of trust, or other security interest that secures the securitized residential mortgage loan serviced by the servicer.

(b)

Definitions

For purposes of this section, the following definitions shall apply:

(1)

Affiliate

The term affiliate means, with respect to a servicer, any person or entity that controls, is controlled by, or is under common control with such servicer, as the Board shall prescribe by regulation.

(2)

Residential mortgage loan

The term residential mortgage loan means any consumer credit transaction that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on residential real property that includes a dwelling, other than a consumer credit transaction under an open end credit plan or an extension of credit relating to a plan described in section 101(53D) of title 11, United States Code.

(3)

Securitized residential mortgage loan

The term securitized residential mortgage loan means any residential mortgage loan that serves as collateral for a fixed-income or other security that allows the holder of such security to receive payments dependent on the cash flow from such residential mortgage loan.

(4)

Servicer

The term servicer

(A)

has the meaning provided in section 129A, except that such term includes a person who receives any payments from a mortgagor, including any amounts for escrow accounts, and makes payments to the owner of the loan or other third parties, including payments made after default, pursuant to the terms of the relevant contracts; and

(B)

excludes State and local housing agencies.

(c)

Interests

For purposes of subsection (a), ownership of, or holding an interest in a securitized residential mortgage loan includes ownership of, or holding an interest in—

(1)

a pool of securitized residential mortgage loans that contains such securitized residential mortgage loan; or

(2)

any security based on or backed by a pool of securitized residential mortgage loans that contains such securitized residential mortgage loan.

.

(b)

Clerical amendment

The table of sections for chapter 2 of the Truth in Lending Act is amended by inserting before the item relating to section 130 the following new item:

Sec. 129I. Limitations on mortgages held by loan servicers.

.

(c)

Applicability

The amendment made by subsection (a) shall apply—

(1)

with respect to the servicer (or affiliate of the servicer) of a residential mortgage loan that is originated after the date of enactment of this Act, on such date of enactment; and

(2)

with respect to the servicer (or affiliate of the servicer) of a residential mortgage loan that is originated on or before the date of enactment of this Act, upon the expiration of the 12-month period beginning on such date of enactment.

(d)

Enforcement provisions

Section 130 of the Truth in Lending Act (15 U.S.C. 1640) is amended by adding at the end the following:

(m)

Servicers

This section shall apply to servicers (as that term is defined in section 129I) in the same manner, and to the same extent as it applies to creditors.

.

6.

Real Estate Settlement Procedures Act of 1974 improvements

(a)

RESPA fees and restrictions

Section 8 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2607) is amended by adding at the end the following new subsections

(e)

Fees To be reasonably related to costs

All fees charged for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan or incurred in connection with servicing such loan shall be reasonably related to the cost of providing the service.

(f)

Restriction on use of subsidiaries and insourcing

(1)

In general

No servicer of a residential mortgage loan shall render a real estate settlement service in connection with a transaction involving a federally related mortgage loan through a subsidiary of such person or through insourcing.

(2)

Insourcing defined

For purposes of this subsection, the term insourcing means providing for services to be conducted by the servicer’s affiliated entities.

.

(b)

Force-Placed insurance

Section 6 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605) is amended—

(1)

in subsection (l), by adding at the end the following new paragraph:

(5)

Requirement to continue insurance

If a borrower’s insurance policy has not been paid, the servicer shall make payments on the current policy or seek reinstatement of such policy where necessary and then make such payments, unless the policy has been terminated for reasons other than nonpayment. Where escrow funds are not available, the servicer shall advance such funds. If the current policy cannot be continued and force-placed insurance is provided, the costs and the coverage should be substantially equivalent to that provided in a standard homeowner's insurance policy.

;

(2)

by adding at the end the following new subsection:

(n)

Disclosures related to insurance coverage information

(1)

Notice

Each servicer of a federally related mortgage loan shall notify the borrower of such loan that the borrower is required to disclose to the servicer the borrower’s property insurance coverage information.

(2)

Disclosure

Each borrower who receives a notice described under paragraph (1) shall disclose such information to the servicer.

.

(c)

Loss mitigation

Section 6 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605), as amended by subsection (b), is further amended by adding at the end the following new subsection:

(o)

Loss mitigation

(1)

Single electronic record and single point of contact

Each servicer of a federally related mortgage loan, or agents of such servicer, shall, with respect to the borrower, establish—

(A)

a single electronic record for each account, the contents of which shall be accessible throughout the servicer, or agents of such servicer, including to all loss mitigation staff, all foreclosure staff, and all bankruptcy staff; and

(B)

a single point of contact for the borrower for all loss mitigation activities.

(2)

General loss mitigation requirements

Each servicer of a federally related mortgage loan, or agents of such servicer, shall—

(A)

maintain adequate staffing and systems for tracking borrower documents and information that are relevant to foreclosure, loss mitigation, bankruptcy, and other servicing operations;

(B)

maintain adequate staffing and caseload limits for employees responsible for handling foreclosure, loss mitigation, bankruptcy, and related communication with borrowers and housing counselors;

(C)

set reasonable minimum experience, education, and training requirements for loan modification staff; and

(D)

document electronically each action on a foreclosure, loan modification, bankruptcy, or other servicing file, including all communication with the borrower and other parties.

(3)

Team leaders

Each servicer of a federally related mortgage loan shall establish a single individual to coordinate the servicer’s departments handling the activities described under subparagraphs (A), (B), and (C) under paragraph (2).

(4)

Limit on employee activities

With respect to employees of a servicer of a federally related mortgage loan who handle delinquent loans or mandatory special servicers, the Bureau shall issue regulations setting a reasonable limit on the number of cases that may be handled by each such employee.

(5)

Mandatory special servicer defined

For purposes of this subsection, the term mandatory special servicer has the meaning given such term in section 15H(a)(6) of the Securities Exchange Act of 1934.

(6)

Additional requirements related to transfer of loans

(A)

To successor servicers

For any ordinary transfer of servicing to a successor servicer of a federally related mortgage loan or subservicer, the transferring servicer shall—

(i)

inform the successor servicer (including a subservicer) whether a loan modification is pending;

(ii)

ensure that the successor servicer shall accept and continue processing prior loan modification requests; and

(iii)

ensure that successor servicer shall honor trial and permanent loan modification agreements entered into by the transferring servicer.

(B)

To mandatory special servicers

A servicer of a federally related mortgage loan shall refer any loan that is 60 or more days delinquent to an independent mandatory special servicer or subservicer who shall agree to the loss mitigation requirements of this subsection.

.

(d)

Application of payments

Section 6(k)(1) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605(k)) is amended—

(1)

in subparagraph (D), by striking or at the end;

(2)

in subparagraph (E), by striking the period and inserting ; or; and

(3)

by adding at the end the following new subparagraph:

(F)

apply payments, including partial payments, made by a borrower to any fees before first applying such payments to any outstanding scheduled principal or interest payments.

.

(e)

Monthly servicing statements

Section 6 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605), as amended by subsection (c), is further amended by adding at the end the following new subsection:

(p)

Monthly servicing statements

The Bureau shall issue regulations requiring each servicer of a federally related mortgage loan to provide borrowers with a monthly servicing statement that clearly describes—

(1)

the payment amounts due under the loan agreement;

(2)

the date and time when such payments must be received;

(3)

the location where such payments must be received; and

(4)

a list of each payment received by the servicer, along with how such payment was allocated to the amounts owed by the borrower.

.

(f)

Unfair and deceptive acts or practices violations

Section 19 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2617) is amended by adding at the end the following new subsection:

(e)

Authority of the Bureau with respect to UDAP violations

The Bureau’s authority with respect to unfair and deceptive acts or practices by servicers of federally related mortgage loans shall be the same as its authority with respect to unfair and deceptive acts or practices under the Consumer Financial Protection Act of 2010. Notwithstanding such authority, the following shall apply:

(1)

Service

The Bureau shall provide the servicer in violation with notification of such violation via personal service and such notification shall include a notice of the servicer’s rights and any bond requirements the servicer may be subject to by reason of such violation.

(2)

Damages

Notwithstanding amounts specified under the Federal Trade Commission Act, a servicer convicted of unfair and deceptive acts or practices with respect to a federally related mortgage loan shall be—

(A)

fined, regardless of whether there was a pattern or practice of such violations, statutory damages of not more than $10,000 for each such violation (such amount to be adjusted annually beginning 1 year after the date of enactment of the Foreclosure Fraud and Homeowner Abuse Prevention Act of 2011 by the percentage corresponding to the annual percentage increase in the Consumer Price Index for all urban consumers);

(B)

required to pay all actual damages, including emotional distress, regardless of whether there was detrimental reliance on the part of the borrower; and

(C)

liable for attorneys fees.

(3)

Bar to foreclosure

In any judicial or non-judicial foreclosure proceeding, it shall be a bar to foreclosure that the servicer of the federally related mortgage loan on the property to be foreclosed violated any provision of this section.

(4)

Statute of limitations

The statute of limitations for a servicer’s violation of unfair and deceptive acts or practices laws with respect to a federally related mortgage loan shall be 3 years from the date on which violation occurs.

.

7.

Transfer notification under TILA

(a)

In general

Section 131(g) of the Truth in Lending Act (15 U.S.C. 1641(g)) is amended—

(1)

in paragraph (1), by inserting , including any servicer with respect to a securitized residential mortgage loan, before shall notify; and

(2)

by striking paragraph (2) and inserting the following:

(2)

Definitions

For purposes of this subsection—

(A)

the term mortgage loan means any consumer credit transaction that is secured by the principal dwelling of a consumer; and

(B)

the terms servicer and securitized residential mortgage loan have the same meanings as in section 129I(b).

.

(b)

Safe harbor for mistaken payments; fees

Section 131 of the Truth in Lending Act (15 U.S.C. 1641) is amended—

(1)

by redesignating subsection (g) as subsection (i); and

(2)

by inserting after subsection (f) the following:

(g)

Treatment of mistaken loan payments after transfer

During the 60-day period beginning on the effective date of transfer of the servicing of any securitized residential mortgage loan, a late fee may not be imposed on the consumer with respect to any payment on such loan, and no such payment may be treated as late for any other purpose, if the payment is received by the transferor servicer (rather than the transferee servicer who should properly receive payment) before the due date applicable to such payment.

(h)

Fee waivers upon transfer

(1)

In general

A creditor, including a servicer, may not impose or collect—

(A)

any fee that is not listed as having been incurred in—

(i)

the notice to the consumer of the transfer of a securitized residential mortgage loan from the previous creditor or servicer; or

(ii)

the notice to the consumer from the new creditor or servicer; or

(B)

any fee that is not specified on the monthly statement to the consumer as having been incurred.

(2)

Definitions

For purposes of this subsection, the terms servicer and securitized residential mortgage loan have the same meanings as in section 129I(b).

.

8.

Loan modifications; dual track proceedings prohibited

(a)

In general

Section 129A of the Truth in Lending Act (as such section is redesignated by section 1402(a)(1) of the Dodd-Frank Wall Street Reform and Consumer Protection Act) is amended—

(1)

by redesignating subsections (f) and (g) as subsections (h) and (i), respectively;

(2)

in subsection (i), as so redesignated—

(A)

by redesignating paragraphs (1) through (3) as paragraphs (2) through (4), respectively; and

(B)

by inserting before paragraph (2), as so redesignated, the following:

(1)

the term affordable loan modification means an agreement to reduce the amount of scheduled regular payments under a mortgage note, including any reduction of the principal amount of the mortgage note, that is reflected in a permanent change to the terms of the mortgage note under such terms as the Bureau of Consumer Financial Protection shall define.

; and

(3)

by inserting after subsection (e) the following:

(f)

Limitation on foreclosure proceedings

(1)

Initiation of foreclosure

A servicer may not initiate or continue a nonjudicial foreclosure or a judicial foreclosure against a mortgagor that is otherwise authorized under State law, unless the servicer—

(A)

has determined whether the mortgagor is eligible for an affordable loan modification; and

(B)

has made such a modification, if the mortgagor is eligible for a modification.

(2)

Foreclosure proceedings permitted

Notwithstanding paragraph (1), a servicer may initiate or continue a judicial or nonjudicial foreclosure under State law against a mortgagor, if—

(A)

the servicer—

(i)

determines that the mortgagor is not eligible for a modification;

(ii)

notifies the mortgagor of the determination under clause (i); and

(iii)

provides the mortgagor—

(I)

a copy of any net present value calculation made by the servicer in relation to an affordable loan modification, including any information providing a basis for such net present value calculation;

(II)

a copy of any note, deed of trust, or other document necessary to establish the right of the mortgagee to foreclose on the mortgage, including proof of assignment of the mortgage to the mortgagee and the right of the mortgagee to enforce the relevant note under the law of the State in which the real property securing the mortgage is located;

(III)

a copy of any language in the pooling or servicing agreement with respect to the mortgage that the servicer believes prevents a modification of the mortgage note;

(IV)

a copy of all correspondence between the servicer and the mortgagees and investors in which the servicer attempts to obtain permission to make a modification;

(V)

a complete and unaltered copy of the pooling or servicing agreement in electronic format; and

(VI)

the alternatives to foreclosure available to the mortgagor, including deed in lieu of foreclosures and short sales; or

(B)

a mortgagor—

(i)

declines an affordable modification in writing; or

(ii)

does not respond to the servicer’s outreach activities (as defined by the Secretary of Housing and Urban Development) to obtain underlying information to complete an application or obtain consent to an affordable modification.

For purposes of subparagraph (A), a pooling and servicing agreement is any contract establishing the transaction rights and duties of the parties to any mortgage-backed securitization transaction.
(3)

Bar to foreclosure

Failure to comply with the requirements of this subsection shall be a bar to the foreclosure of a mortgage, deed of trust, or substantially similar instrument.

(4)

Eligibility

A mortgagor shall be eligible to participate in an affordable loan modification program if—

(A)

such person is a mortgagor under a federally related loan secured by the principal residence of the mortgagor, or is eligible to assume such a federally related mortgage loan, who is unable to make payments on a federally related mortgage loan under such criteria as the Director of the Bureau of Consumer Financial Protection shall define, in consultation with the Secretary of Housing and Urban Development and the Secretary of the Treasury; and

(B)

they are not an individual who has abandoned the principal residence securing the federally related mortgage loan.

(5)

Certification of determination of eligibility required for sale

(A)

Sale of property prohibited

If the servicer of a mortgage does not file a certification with the appropriate land records office in the jurisdiction where the property securing the mortgage is located, stating that the servicer has determined the eligibility of the mortgagor for an affordable loan modification—

(i)

the mortgagee may not sell the property securing the mortgage; and

(ii)

no person that purchases the property securing the mortgage may initiate an action to recover possession of the property.

(B)

Violations

A sale of property in violation of this paragraph shall be void.

(C)

Contents

The Director of the Bureau of Consumer Financial Protection shall, by rule, determine the contents of the certification required under this subsection.

(g)

Earned principal forgiveness

(1)

In general

If, after reducing mortgage note principal under earned principal forgiveness provided in paragraph (2), a target affordable regular mortgage payment has not been achieved, the servicer of the mortgage shall comply with the affordable loan modification plan modification waterfall steps of interest rate reduction, term extension, and principal forbearance, as necessary to achieve a target affordable regular mortgage payment.

(2)

Earned principal forgiveness

(A)

Principal reduction

The Bureau shall determine standards by which a mortgagor who has received an affordable loan modification shall remain in good standing in order to participate in a reduction in mortgage note principal under this subsection.

(B)

Principal reduction required

Except as provided under subparagraph (C), a servicer shall offer a mortgager an affordable loan modification having the maximum amount of principal reduction that results in a positive net present value calculation.

(C)

Exceptions

(i)

Greater principal reduction

A servicer may offer a greater principal reduction, if such a reduction is consistent with the terms of any contract with respect to the mortgage.

(ii)

Loan-to-value ratio

A servicer is not required to offer an affordable loan modification having a principal reduction that would result in a loan-to-value ratio of less than 100 percent.

(D)

Rules of construction

(i)

Maximum amount of principal reduction

A principal reduction amount may be considered the maximum amount if it is within $1,000 of the actual maximum amount.

(ii)

Positive net present value calculation

A net present value calculation shall be deemed to be positive if the net present value result for an affordable loan modification scenario is greater than the net present value result if no affordable loan modification is made. Net present value shall be calculated as the benefit of all investors in a securitization rather than the benefit of any particular class of investors.

(E)

Principal forgiveness

(i)

Treatment of principal reduction amount

Any amount of principal reduction under subparagraph (B) shall be treated as non-interest-bearing principal forbearance until the dates described under clause (ii). The principal reduction described in this subparagraph shall be deemed to be separate from and exclusive of any other forbearance that may be offered in conjunction with a modification under an affordable loan modification program.

(ii)

Reduction of principal

The servicer of a mortgage modified under an affordable loan modification plan shall reduce the unpaid balance of the principal of the mortgage by an amount equal to 1⁄3 of the total amount of the principal reduction under subparagraph (B) on each of the following dates:

(I)

The date that is 1 year after the date on which the affordable loan modification begins.

(II)

The date that is 2 years after the date on which the affordable loan medication begins.

(III)

The date that is 3 years after the date on which the affordable loan modification begins.

(iii)

Limitation

The Bureau may not require a servicer to reduce mortgage note principal to an amount that is less than the market value of the property securing the mortgage at the time of the reduction in principal.

(3)

Calculation of target affordable regular mortgage payment

For purposes of this subsection, the target affordable regular mortgage payment shall be calculated under such terms as the Bureau shall define. Such terms shall—

(A)

be based on a fully amortizing principal and interest payment over the remainder of the term of the mortgage, as modified by a reduction in principal; and

(B)

use the mortgage note interest rate in effect at the time of a reduction in principal.

(4)

Treatment of subordinate liens

The Bureau shall prescribe rules establishing procedures governing the treatment of any whole loan owned by the creditor (or any of its affiliates) and secured by a subordinate lien on a property owned by a mortgagor participating in an affordable loan modification program.

.

9.

Fair Debt Collection Practices Act amendments

(a)

Applicability to servicers

Section 803 of the Fair Debt Collection Practices Act (15 U.S.C. 1692a) is amended—

(1)

in paragraph (6), by inserting before The term does not the following: The term includes any servicer of a securitized residential mortgage loan who uses any instrumentality of interstate commerce or the mails in the collection of any debts in relation to any such securitized residential mortgage loan.; and

(2)

by adding at the end the following:

(9)

Securitized residential mortgage loan

The term securitized residential mortgage loan means any residential mortgage loan that serves as collateral for a fixed-income or other security that allows the holder of such security to receive payments dependent on the cash flow from such residential mortgage loan.

(10)

Servicer

The term servicer

(A)

means any person responsible for the management or collection of a pool of securitized residential mortgage loans or making allocations or distributions to holders of asset-backed securities; and

(B)

does not include any State or local housing agency.

.

(b)

Civil liability

Section 813 of the Fair Debt Collection Practices Act (15 U.S.C. 1692k) is amended by adding at the end the following:

(f)

Any debt collector that violates any provision of this title with respect to a debt secured by the residence of the consumer shall be liable to such consumer in the amount of $10,000 per violation.

(g)

After the end of the 1-year period beginning on the date of the enactment of this subsection, amounts of penalties specified under this section shall be annually adjusted to reflect inflation.

.

(c)

Rulemaking

The Bureau of Consumer Financial Protection shall, not later than 270 days after the date of enactment of this Act, issue rules to carry out the amendments made by this section.

10.

Regulation of servicer affiliates by banking agencies

(a)

Capital reserve standards

Each of the appropriate Federal banking agencies (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)) shall promulgate regulations to establish independent capital reserve standards for any servicer of a federally related mortgage that is affiliated with a financial institution that is subject to regulation by that agency.

(b)

Treatment of delinquent loans

(1)

In general

The Securities and Exchange Commission shall issue regulations to provide that, for purposes of generally accepted accounting principles, any federally related mortgage loan that is 120 days or more delinquent and that has not been the subject of a modification or a debt restructuring, as provided in section 129A of the Truth in Lending Act shall be marked to market.

(2)

Insured depository institution treatment

An appropriate Federal banking agency (as defined under section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)) may not find the regulations issues pursuant to paragraph (1) to be inconsistent with the objectives described under section 37(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1831n(a)(1)).