LFN Legislative & Regulatory Update - Federal Mortgage & Foreclosure Policy

1) The Senate Judiciary Committee 3/31/11 approved S. 222, the Sheldon Whitehouse (D-RI) bill that would clarify authority of bankruptcy courts to establish foreclosure mediation programs, approved on a party line vote of 10 Democrats to 8 Republicans. Possible Senate floor action not known at this time;


(2) The full House of Representatives passed H.R. 839, the HAMP Termination Act on March 29. The White House issued a statement stating that the President would veto H.R. 839 if the bill were presented to him; and

(3) Joint Banking Agency Risk Retention Rulemaking issued on 03/31/11 (it would exempt qualified residential mortgages from 5% risk retention pursuant to the Dodd-Frank Act). Comments are due June 10, 2011

Attachments:

- Rejected Grassley Amendment to S. 222 that would have required consent of all parties to participate in the mediation program, defeated by a vote of 10 to 8.
- Tabled (set aside) Coburn Amendment to S. 222 that would have terminated HAMP, defeated by voice vote.
- Rejected Coburn Amendment that would have required debtors to prove to the Bankruptcy Court that they would have been eligible for the HAMP program, defeated by voice vote. Click Here to review.

- Text of Joint Proposed Risk Retention Rulemaking.


Foreclosure Mediation Program Backed by Senate Judiciary

The Senate Judiciary Committee approved, 10-8, a bill (S 222) that would aim to help homeowners by explicitly authorizing bankruptcy courts to establish foreclosure mediation programs to facilitate negotiations with lenders. The following amendments were rejected:

S. 222 as Approved by Senate Judiciary Committee

S 222 IS


112th CONGRESS

1st Session

S. 222

To limit investor and homeowner losses in foreclosures, and for other purposes.



IN THE SENATE OF THE UNITED STATES

January 27, 2011

Mr. WHITEHOUSE introduced the following bill; which was read twice and referred to the Committee on the Judiciary

________________________________________

A BILL



To limit investor and homeowner losses in 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 `Limiting Investor and Homeowner Loss in Foreclosure Act of 2010'.

SEC. 2. LOSS MITIGATION PROGRAMS.

(a) In General- Section 105 of title 11, United States Code, is amended by adding at the end the following:

`(e) Without limiting the court's authority under subsection (d) or under any other statute or rule, the court, by local rule or order, may establish and maintain a loss mitigation program for the consideration and negotiation of consensual alternatives to avoid foreclosure between an individual debtor and the holder of a claim secured by a security interest in real property that is the debtor's principal residence.'.

(b) Conforming Amendment- Section 362(e) of title 11, United States Code, is amended by adding at the end the following:

`(3) If the party in interest requesting relief from the stay under subsection (d) of this section participates in a loss mitigation program maintained pursuant to section 105(e) of this title, the time periods specified in paragraphs (1) and (2) of this subsection shall be tolled during the time period commencing on the date on which such participation began and ending on the date on which notice of such termination is filed and served on the debtor.'.



March 29, 2011

House Completes Four-Bill Agenda Targeting Mortgage Aid Programs

By Charlene Carter, CQ Staff

House Republicans on Tuesday pushed through legislation that would end another mortgage aid program backed by the White House.

The bill (HR 839) would terminate the Home Affordable Modification Program (HAMP), the Obama administration's flagship foreclosure prevention program.

The House passed the measure, 252-170, with 18 Democrats supporting it.

The vote wraps up the House's month long consideration of four GOP measures to end federal mortgage aid programs that Republicans say have failed to produce promised results.

President Obama has threatened to veto the HAMP measure as well as the three similar GOP bills. The Democratic Senate is unlikely to take up any of the measures.

Earlier this month, the House passed bills to end a mortgage aid program for unemployed homeowners facing foreclosure (HR 836), and to end a program established to help homeowners who owe more than their homes are worth refinance their loans (HR 830). The chamber also passed legislation (HR 861) this month to end the Neighborhood Stabilization Program, which provides grants to states and local governments and nonprofit organizations to purchase and redevelop abandoned or foreclosed homes.

Announced in February 2009, HAMP was designed to use money from the Troubled Asset Relief Program (PL 110-343) to give lenders incentives to renegotiate troubled loans with borrowers.

While the bill would restrict the Treasury secretary from facilitating new mortgage modifications, it also would allow those participating in HAMP before the measure's enactment to continue in the program.

More than 600,000 homeowners have worked out permanent mortgage modifications under the program, according to Treasury. Republicans and government oversight agencies have consistently criticized the program for being ineffective.

During HAMP's inception, administration officials estimated it would help up to 3 million to 4 million at-risk homeowners avoid foreclosure by allowing those eligible to modify their mortgages. Under the program, homeowners restructure their loans so that their monthly mortgage payment equals 31 percent of their pre-tax gross income.


HAMP Debate

Bill sponsor Patrick T. McHenry, R-N.C., said homeowners may suddenly face mortgage back-payments, penalties and even late fees that become due on their modified mortgages.

"By keeping this program open . . . it means that you'll have 800,000 Americans that will be left worse off because this program exists," McHenry said. "Worse off, their credit depleted, their home taken, their credit rating destroyed."

Illinois Republican Judy Biggert, chairwoman of the Financial Services Subcommittee on Insurance, Housing and Community Opportunity, said the housing market would be better served if it were free of government intervention and manipulation - leaving the private sector to work out mortgage modifications.

"Of the 4.1 million mortgage modifications that were completed, 3.5 million were done by the private sector with no government program and not a dime from the taxpayers," Biggert said.

Democrats argue that the voluntary nature of the program and the fact that servicers were slow to sign on hindered broad participation.

"The problem is that HAMP is the federal government bringing people into contact with the private sector. It is still openly a private sector decision," said Barney Frank of Massachusetts, the top Democrat on the House Financial Services Committee.

Timothy G. Massad, Treasury's acting assistant secretary for financial stability, acknowledged that a major difficulty in implementation of the program has been poor servicer performance. In remarks delivered Tuesday at Harvard University, Massad announced that beginning in April, Treasury's compliance reports on the program will include a scorecard for each of the largest HAMP servicers. Financial incentives intended to encourage participation will be withheld from those receiving unsatisfactory scores, Massad said.

Terminating the program "would immediately relax the pressure on mortgage companies to offer better assistance to struggling homeowners, creating unnecessary hurdles for those seeking relief," Massad said in prepared remarks.

Amendments

By voice vote, the House adopted an amendment by Loretta Sanchez, D-Calif., to express the sense of Congress that banks be encouraged to work with homeowners to provide loan modifications as well as foreclosure prevention and financial credit counseling.

The House adopted, 247-170, an amendment by Richard Hanna, R-N.Y., to add language to the bill stating that terminating HAMP would save taxpayers $1.4 billion. Hanna said he drafted the language to give the public additional facts on the intended consequences of legislation.

"Too often our constituents receive biased or incomplete information on the issues we're discussing in Congress, thus making it difficult for them to make informed assessments of our work," Hanna said.

The House adopted by voice vote an amendment by Francisco "Quico" Canseco, R-Texas, to require that all unobligated funds saved from ending HAMP not needed to assist existing program participants be used to pay down the federal debt.

Text of H.R. 839, the HAMP Termination Act, as passed by the House on March 29:



HR 839 EH



112th CONGRESS

1st Session

H. R. 839

________________________________________

AN ACT



To amend the Emergency Economic Stabilization Act of 2008 to terminate the authority of the Secretary of the Treasury to provide new assistance under the Home Affordable Modification Program, while preserving assistance to homeowners who were already extended an offer to participate in the Program, either on a trial or permanent basis.

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 `The HAMP Termination Act of 2011'.

SEC. 2. CONGRESSIONAL FINDINGS.

The Congress finds the following:

(1) According to the Department of the Treasury--

(A) the Home Affordable Modification Program (HAMP) is designed to `help as many as 3 to 4 million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term'; and

(B) as of February 2011, only 607,600 active permanent mortgage modifications were made under HAMP.

(2) Many homeowners whose HAMP modifications were canceled suffered because they made futile payments and some of those homeowners were even forced into foreclosure.

(3) The Special Inspector General for TARP reported that HAMP `benefits only a small portion of distressed homeowners, offers others little more than false hope, and in certain cases causes more harm than good'.

(4) Approximately $30 billion was obligated by the Department of the Treasury to HAMP, however, approximately only $840 million has been disbursed.

(5) Terminating HAMP would save American taxpayers approximately $1.4 billion, according to the Congressional Budget Office.

SEC. 3. TERMINATION OF AUTHORITY.

Section 120 of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5230) is amended by adding at the end the following new subsection:

`(c) Termination of Authority To Provide New Assistance Under the Home Affordable Modification Program-

`(1) IN GENERAL- Except as provided under paragraph (2), after the date of the enactment of this subsection the Secretary may not provide any assistance under the Home Affordable Modification Program under the Making Home Affordable initiative of the Secretary, authorized under this Act, on behalf of any homeowner.

`(2) PROTECTION OF EXISTING OBLIGATIONS ON BEHALF OF HOMEOWNERS ALREADY EXTENDED AN OFFER TO PARTICIPATE IN THE PROGRAM- Paragraph (1) shall not apply with respect to assistance provided on behalf of a homeowner who, before the date of the enactment of this subsection, was extended an offer to participate in the Home Affordable Modification Program on a trial or permanent basis.

`(3) DEFICIT REDUCTION-

`(A) USE OF UNOBLIGATED FUNDS- Notwithstanding any other provision of this title, the amounts described in subparagraph (B) shall not be available after the date of the enactment of this subsection for obligation or expenditure under the Home Affordable Modification Program of the Secretary, but should be covered into the General Fund of the Treasury and should be used only for reducing the budget deficit of the Federal Government.

`(B) IDENTIFICATION OF UNOBLIGATED FUNDS- The amounts described in this subparagraph are any amounts made available under title I of the Emergency Economic Stabilization Act of 2008 that--

`(i) have been allocated for use, but not yet obligated as of the date of the enactment of this subsection, under the Home Affordable Modification Program of the Secretary; and

`(ii) are not necessary for providing assistance under such Program on behalf of homeowners who, pursuant to paragraph (2), may be provided assistance after the date of the enactment of this subsection.

`(4) STUDY OF USE OF PROGRAM BY MEMBERS OF THE ARMED FORCES, VETERANS, AND GOLD STAR RECIPIENTS-

`(A) STUDY- The Secretary shall conduct a study to determine the extent of usage of the Home Affordable Modification Program by, and the impact of such Program on, covered homeowners.

`(B) REPORT- Not later than the expiration of the 90-day period beginning on the date of the enactment of this subsection, the Secretary shall submit to the Congress a report setting forth the results of the study under subparagraph (A) and identifying best practices, derived from studying the Home Affordable Modification Program, that could be applied to existing mortgage assistance programs available to covered homeowners.

`(C) COVERED HOMEOWNER- For purposes of this subsection, the term `covered homeowner' means a homeowner who is--

`(i) a member of the Armed Forces of the United States on active duty or the spouse or parent of such a member;

`(ii) a veteran, as such term is defined in section 101 of title 38, United States Code; or

`(iii) eligible to receive a Gold Star lapel pin under section 1126 of title 10, United States Code, as a widow, parent, or next of kin of a member of the Armed Forces person who died in a manner described in subsection (a) of such section.

`(5) PUBLICATION OF MEMBER AVAILABILITY FOR ASSISTANCE- Not later than 5 days after the date of the enactment of this subsection, the Secretary of the Treasury shall publish to its Website on the World Wide Web in a prominent location, large point font, and boldface type the following statement: `The Home Affordable Modification Program (HAMP) has been terminated. If you are having trouble paying your mortgage and need help contacting your lender or servicer for purposes of negotiating or acquiring a loan modification, please contact your Member of Congress to assist you in contacting your lender or servicer for the purpose of negotiating or acquiring a loan modification.'.

`(6) NOTIFICATION TO HAMP APPLICANTS REQUIRED-

`(A) IN GENERAL- Not later than 30 days after the date of the enactment of this subsection, the Secretary of the Treasury shall inform each individual who applied for the Home Affordable Modification Program and will not be considered for a modification under such Program due to termination of such Program under this subsection--

`(i) that such Program has been terminated;

`(ii) that loan modifications under such Program are no longer available;

`(iii) of the name and contact information of such individual's Member of Congress; and

`(iv) that the individual should contact his or her Member of Congress to assist the individual in contacting the individual's lender or servicer for the purpose of negotiating or acquiring a loan modification.'.

SEC. 4. SENSE OF CONGRESS.

The Congress encourages banks to work with homeowners to provide loan modifications to those that are eligible. The Congress also encourages banks to work and assist homeowners and prospective homeowners with foreclosure prevention programs and information on loan modifications.

Passed the House of Representatives March 29, 2011.

Attest:

Clerk.



Banking Agencies Seek Comment on Risk Retention Proposal

Six federal agencies are seeking comment on a proposed rule that would require sponsors of asset-backed securities (ABS) to retain at least 5 percent of the credit risk of the assets underlying the securities and would not permit sponsors to transfer or hedge that credit risk. In crafting the proposed rule, the agencies sought to ensure that the amount of credit risk retained is meaningful, while reducing the potential for the rule to negatively affect the availability and cost of credit to consumers and businesses.



The rule is proposed by the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the U.S. Securities and Exchange Commission, the Federal Housing Finance Agency, and the Department of Housing and Urban Development. It would provide sponsors with various options for meeting the risk-retention requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, the options include:

• retention of risk by holding at least 5 percent of each class of ABS issued in a securitization transaction (also known as vertical retention);

• retention of a first-loss residual interest in an amount equal to at least 5 percent of the par value of all ABS interests issued in a securitization transaction (horizontal retention);

• an equally-divided combination of vertical and horizontal retention;

• retention of a representative sample of the assets designated for securitization in an amount equal to at least 5 percent of the unpaid principal balance of all the designated assets; and

• for commercial mortgage-backed securities, retention of at least a 5 percent first-loss residual interest by a third party that specifically negotiates for the interest, if certain requirements are met.

As required by the act, the proposal includes descriptions of loans that would not be subject to these requirements, including asset-backed securities that are collateralized exclusively by residential mortgages that qualify as "qualified residential mortgages" (QRMs). The proposal would establish a definition for QRMs--incorporating such criteria as borrower credit history, payment terms, and loan-to-value ratio--designed to ensure they are of very high credit quality. The proposed rule also includes investor disclosure requirements regarding material information concerning the sponsor's retained interests in a securitization transaction. The disclosures would provide investors and the agencies with an efficient mechanism to monitor compliance with the risk-retention requirements of the proposed rules.



The proposed rule also has a zero percent risk-retention requirement for ABS collateralized exclusively by commercial loans, commercial mortgages, or automobile loans that meet certain underwriting standards. As with QRMs, these underwriting standards are designed to be robust and to ensure that the loans backing the ABS are of very low credit risk.



The proposed rule would also recognize that the 100 percent guarantee of principal and interest provided by Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Mortgage Loan Corporation) meets their risk-retention requirements as sponsors of mortgage-backed securities for as long as they are in conservatorship or receivership with capital support from the U.S. government.



The agencies request comments on the proposed rule by June 10, 2011.