The Helping Families Save Their Homes Act of 2009, Pub. L. 111-22 (the "HFSHA") is comprised of eight separate Titles. Key HFSHA provisions include the creation of a "safe harbor" against investor liability when servicers undertake loan modifications, a statement of the "sense of Congress" on delaying foreclosure until loan modification procedures are established, relaxation of certain restrictions under the Hope for Homeowners program, new restrictions for FHA Mortgagees and a new notice requirement that is triggered whenever a residential loan is sold or assigned.
The HFSHA was signed into law May 20, 2009, and its provisions, unless indicated otherwise below, are effective immediately.
TITLE I. PREVENTION OF MORTGAGE FORECLOSURE
A. Key Provisions
- Amends the Guaranteed Rural Housing Loan Program ("GRHLP") to encourage mortgagees to take actions to modify guaranteed rural housing loans (Rural Loans") to prevent foreclosures (Section 101). (These are government-guaranteed loans made to low- and moderate-income borrowers, where the property securing the loans is or will be their principal residence and is located in a rural area.) Details of these amendments are set forth below in section B.
- Appropriates additional money to HUD (a) for advertising in 100 metropolitan statistical areas with highest rates of foreclosures, designed to raise awareness of mortgage fraud and to support HUD programs and approved counseling agencies, and (b) to fund HUD-certified housing counseling agencies and to hire personnel at Office of Fair Housing & Equal Opportunity in local branches in 100 metropolitan statistical areas with highest rates of foreclosure (Section 103).
- Requires the OCC and the OTS to jointly report quarterly to Congress on the volume of mortgage modifications reported to them under their mortgage metric programs, and to issue new mortgage modification data collection and reporting requirements to their regulated institutions required to report under those programs (Section 104).
- Allows states with any leftover funds allocated under the Neighborhood Stabilization Program for the purchase and redevelopment of abandoned homes and residential properties to distribute those funds to areas with homeowners at risk of foreclosure or in foreclosure without regard to the percentage of home foreclosures in such areas (Section 105).
B. Rural Loans – Modification Incentives
The HFSHA authorizes mortgagees of Rural Loans, upon a borrower's default or imminent default, to engage in loss mitigation actions as an alternative to foreclosure. It also authorizes HUD to:
- Pay mortgagees that agree to modify Rural Loans in default or that are facing imminent default partial claims not in excess of 30 percent of the unpaid principal balance and approved costs; make partial payments to mortgagees for lost income because of interest rate reductions; reimburse mortgagees in connection with activities they are required to undertake concerning repayment by mortgagors of amounts owed to HUD; and allow loan modifications with terms extended up to 40 years from the date of modification.
- Accept assignments of Rural Loans that are in default or facing imminent default, but which have been modified sufficient to cure any default, and provide for payments that the mortgagor is reasonably able to pay at interest rates that do not exceed current market rates, and for which HUD arranges for servicing in the best interests of the Fund.
- Pay the guaranty on such assigned Rural Loans without reduction for any amounts modified, and to then provide guarantees for the mortgage and subsequently reassign the loan to the mortgagee, act as Ginnie Mae issuer for purposes of securitizing a pool of such loans, or re-sell the loan to another mortgagee.
- Require the existing servicer to continue to service Rural Loans following assignment (even after a re-sale of the loan by HUD to a new purchaser).
- Adopt regulations under this Title without regard to normal notice and comment requirements.
TITLE II. MORTGAGE MODIFICATION, "SAFE HARBOR", A HOPE FOR HOMEOWNERS
A. Key Provisions
- Amends Section 129A of the Truth in Lending Act (15 U.S.C. 1641) ("TILA") to provide a safe harbor for servicers to entering into a "qualified loss mitigation plan" ("QLMP") with respect to residential mortgages (Section 201).
- Makes certain changes to the Hope for Homeowners Program (the "HHP") aimed at increasing participation in that program (Section 202).
- Creates additional requirements for FHA-Approved Mortgagees (Section 203).
- Makes certain changes regarding the FDIC and NCUA insurance funds (Section 204).
- Requires HUD to limit the maximum principal obligation of a mortgage that may be modified, refinanced, made, guaranteed, insured or otherwise assisted using funds provided under the Troubled Asset Relief Program ("TARP"), to an amount no less than the Freddie Mac conforming loan limit then in effect for the area in which the mortgaged property is located (Section 205).
B. Servicer Safe Harbor from Investor Liability
- Under the prior version of Section 129a, servicers of pooled residential mortgages had a duty to investors and other parties to maximize the net present value of mortgages "[e]xcept as may be established in any investment contract between a servicer of pooled residential mortgages and an investor." This duty could be satisfied by "a modification or workout plan, including any modification or refinancing undertaken pursuant to the HOPE for Homeowners Act of 2008 ['HHA']," which could only be undertaken with a borrower who was in default on his/her mortgage or where default was reasonably foreseeable and the anticipated recovery on which was determined would exceed the recovery through foreclosure.
- The amended version of Section 129a essentially permits servicers of residential loans, whether pooled or not, and "notwithstanding any other provision of law," to fulfill the servicers' duty to "investors and other parties to maximize the net present value of" the mortgages by implementing a QLMP before December 31, 2012 that meets the following criteria:
- the loan is in default or default is "imminent" or "reasonably foreseeable" as defined by the Secretary of the Treasury;
- the secured property is occupied by mortgagor as his/her principal residence;
- the servicer reasonably determines that the QLMP as applied to a mortgage or class of mortgages will likely provide an anticipated recovery that will exceed the anticipated recovery through foreclosures.
- A QLMP is a loan modification, workout or other loss mitigation plan, including, if the Secretary of the Treasury deems appropriate, a loan sale, real property disposition, trial modification, pre-foreclosure sale and deed-in-lieu of foreclosure, that is described or authorized in guidelines issued by the Secretary of the Treasury, or a refinancing of a mortgage under the Hope for Homeowners program. (The guidelines issued by Treasury for the Making Homes Affordable program will likely constitute a QLMP.)
- The amendments place a key limitation on servicer liability: "A servicer that is deemed to be acting in the best interests of all investors or other parties under this section shall not be liable to any party who is owed a duty [to 'investors and other parties to maximize the net present value of' the mortgages] ..., and shall not be subject to any injunction, stay or other equitable relief to such party, based solely upon the implementation by the servicer of a [QLMP]." This limitation on liability extends to claims against all persons, including trustees, issuers and loan originators, based solely on their cooperation with the servicer where that cooperation is necessary for the servicer to implement a QLMP, but does not cover any liability based on actual fraud in origination or servicing of loans or implementation of a QLMP, or for violation of any state or federal law.
- The amendments declare that "[QLMP] guidelines issued by [Treasury]... shall constitute 'standard industry practice' for purposes of all Federal and State laws."
- The amendments require servicers as part of a QLMP to regularly report to Treasury the extent, scope and results of their modification activities.
C. Hope for Homeowner Changes
- Makes HUD the administrator of the HHP in place of the HHP Board of Directors.
- Changes the eligibility requirements for an insured refinance loan under the HHA as follows:
- (a) Under the HHA, the borrower was required to certify that he/she has not (i) intentionally defaulted on the mortgage or any other debt, or (ii) knowingly or willfully furnished material information known to be false. Under the HFSHA, the borrower must certify that he/she has not: (i) intentionally defaulted on the mortgage or other substantial debt within the past five years; (ii) knowingly or willfully furnished material information known to be false; and (iii) been convicted for fraud under state or federal law during the preceding 10-year period.
- (b) Under the HHA, the borrower was required to have a debt-to-income ("DTI") ratio, as of March 1, 2008, greater than 31 percent. The HFSHA requires that this qualifying DTI ratio exist "[a]s of the date of application for a commitment to insure" and allows the borrower to qualify if he/she has the qualifying DTI ratio at that time "or is likely to have [it], due to the terms of the mortgage being reset."
- (c) With regard to shared appreciation, the HFSHA merely authorizes, whereas the HHA required, HUD to establish standards and policies to allow existing subordinate lien holders to share in any future appreciation of the property.
- (d) The HFSHA authorizes HUD to permit new second liens to be placed on the mortgaged property during the first five years if necessary to ensure the maintenance of property standards even in cases where, unlike under the HHA, the second lien reduces the government's equity in the home or, when combined with the existing mortgage indebtedness, exceeds 95 percent of the home's appraised value.
- (e) When documenting and verifying mortgagor income, mortgagees need no longer procure an income tax return transcript of the mortgagor's income tax return.
- (f) Mortgagees may satisfy the requirement that the mortgagor must not have been convicted for fraud during the preceding 10-year period by making a "good faith effort to determine" that fact.
- (g) If the property is inherited, mortgagees may dispense with the need to document that the property is occupied by the mortgagors as their primary residence, and that it is their only residence in which they have a present ownership interest.
- (h) Mortgagors who have a net worth at time of application for refinance in excess of $1 million are disqualified from participation in the HHP.
- Allows the FHA to impose premium payments on a refinance loan made under the HHP of up to
- 3 percent at the time of origination (to be paid from the proceeds of the loan) and up to 1.5 percent of the remaining insured principal balance as an annual premium. (Under the HHA, the FHA was required to impose premium payments of 3 percent and 1.5 percent, respectively.
- Entitles HUD to receive up to 50 percent (as opposed to the current entitlement of 50 percent) of the future appreciation of the secured property (above the appraised value at time of refinance) and to share this appreciation with the current (first and/or subordinate) lien holders. (Under the HHA, HUD was entitled to 50 percent of the appreciation and had no authority to share it with lienholders.)
- Allows HUD to establish a payment to the servicer of the existing first mortgage or subordinate mortgage for every loan insured under the HHP, and to the originator of each new insured loan.
- Mandates that, if feasible, HUD establish a structure and procedures for an auction to refinance eligible mortgages on a wholesale or bulk basis.
D. Additional Requirements for FHA-Approved Mortgagees
- Prohibits non-FHA approved persons or entities from participating in the origination of an FHA-insured loan, and establishes qualifications for FHA-approval as a mortgagee (similar to requirements contained in the S.A.F.E. Act for mortgage originators).
- Requires FHA-approved mortgagees to use their business name registered with HUD in all advertisements and promotional materials, and to maintain copies of such advertisings and promotional materials for periods specified by the FHA.
- Permits HUD to pay insurance benefits to mortgagees for costs incurred in taking loss mitigation actions as an alternative to foreclosure of a mortgage that is in default or that "faces imminent default, as defined by [HUD]," and expands the list of possible loss mitigation actions to include support for borrower housing counseling, borrower incentives, preforeclosure sale, partial claims under Section 204, and subordinate lien resolutions under Section 230.
- Extends the applicability of Sections 230(b) (Payment of Partial Claim) and 230(c) (Assignment) to cases where the mortgage "faces imminent default, as defined by [HUD]," and changes some of the allowances in those sections.
- Requires approved mortgagees to immediately notify FHA of the occurrence of certain events (debarments, suspension fines, loan origination or revocations, etc.).
- Provides for penalties for violations committed by any of the mortgagee's or lender's "owners, officers, or directors," and creates new violations for which penalties may attach (using official government agency names or acronyms, seals or logos, and "causing or participating in any of the [other] violations set forth [above].").
- Requires FHA to review applicants for approval as FHA mortgagees for the purpose of identifying "high risk" applicants, and, within 12 months, implement procedures to expand the number of loans that are examined by the FHA for compliance, and include a process for random review of FHA loans based on volume of loans originated by mortgagees.
E. FDIC/NCUA Changes
- Extends until Dec. 31, 2013, the current $250,000 limit of FDIC insurance coverage due to expire Dec. 31, 2009.
- Extends the period during which the FDIC must act to restore the FDI Fund from five to eight years.
- Increases the FDIC's authority to borrow from the Treasury from $30 billion to $100 billion and, if necessary, until Dec. 31, 2010, to $500 billion (subject to a reporting requirement to Congress as to the reasons and needs for the additional money).
- Provides authority to the FDIC to recover losses from special assessments on not only insured depository institutions, but also to depository institution holding companies.
TITLE III. MORTGAGE FRAUD TASK FORCE
- Expresses the "sense of Congress" that the Department of Justice should establish a Nationwide Mortgage Fraud Task Force to address mortgage fraud in the United States and that, if it does, the Attorney General should provide the Task Force with the appropriate staff, administrative support and other resources to carry out its duties (Section 301).
- Lists the functions that Congress believes the Task Force should carry out.
- States Congress' belief that if this is done, the result would be a dramatic increase in convictions for fraud, and the enactment of new federal, state and local legislation aimed at combating mortgage fraud, which could change mortgage lending procedures and increase mortgage lenders' reporting responsibilities.
TITLE IV – FORECLOSURE MORATORIUM PROVISIONS; New TILA Notice
A. Key Provisions
- States the "Sense of Congress on Foreclosures" (Section 401).
- Imposes certain requirements on federal programs to create public-private investment funds ("PPIFs") (Section 402).
- Gives Treasury the discretion, rather than the obligation, to liquidate warrants associated with any TARP assistance provided to a financial institution at the market price upon repayment of such assistance. (Section 403).
- Amends the Truth in Lending Act ("TILA"), effective immediately, to require new owners and assignees of mortgage loans secured by the borrower's principal dwelling to provide the borrower, not later than 30 days after the date of transfer, with a written notice of the sale or transfer of the loan containing specified items of information, and to create a private right of action for violation of this new requirement (Section 404). See details in Section D below.
B. "Sense of Congress" on Foreclosures
- Foreclosure Moratorium. Congress expressed its belief that mortgage holders and servicers should not initiate foreclosure proceedings or foreclosure sales involving first lien mortgage loans secured by the borrower's principal dwelling, until foreclosure mitigation efforts such as the HHP and the Homeowner Affordability and Stability Programs ("HASP") have been implemented and are operational (unless they have entered into a loan modification agreement with a borrower under an FHA program before the HHP or HASP programs take effect).
- Duties of Homeowners. During the period in which a foreclosure proceeding or sale is barred, the homeowner must maintain the property, may not "destroy, damage, or impair such property, allow [it] to deteriorate or commit waste on [it]," and must respond to reasonable inquiries from their creditor or servicer.
C. New Notification of Sale or Transfer of Mortgage Loans under TILA
- The required notice of loan must include:
- (a) The identity, address, telephone number of the new creditor
- (b) The date of transfer
- (c) How to reach an agent or party having authority to act on behalf of the new creditor
- (d) The location of the place where transfer of ownership of the debt is recorded
- (e) Any other relevant information regarding the new creditor
- The required notice of loan transfer appears to be in addition to the Notice of Transfer of Servicing required by the Real Estate Settlement Procedures Act ("RESPA") and Regulation X. The triggering events, the persons obligated to give the notices, the timing requirements, and the contents of the notices are all somewhat different with respect to the two notices. For example, the RESPA notice must be given when there is a change in the identity of the servicer of the loan; be sent by the transferor servicer not less than 15 days before the date of transfer and by the transferee servicer not less than 15 days after the date of transfer, or, if a combined Notice is sent, not less than 15 days before the date of transfer; and be provided using the model form found in Appendix MS-1 to Regulation X, with only minor modifications permitted. The new TILA notice, on the other hand, is triggered by a change in ownership of the loan, must be sent by the new owner or assignee of the loan not later than 30 days after the date of the transfer, and must include items of information that would not be found on the RESPA model form. We are awaiting word from the Federal Reserve Board staff on several interpretations such as the effective dates, penalties, and more.
TITLE V. FARM LOAN RESTRUCTURING
The HFSHA requires the Congressional TARP Oversight Panel to submit a special report on farm loan restructuring by no later than July 19, 2009. The report must analyze the state of commercial farm credit markets and the use of loan restructuring as an alternative to foreclosure by recipients of financial assistance under TARP. The report must also include an examination and recommendation concerning the different methods of farm loan restructuring that could be used as part of a foreclosure mitigation program for farm loans made by recipients of financial assistance under TARP, including any programs for direct loan restructuring or modification carried out by the Farm Service Agency of the Department of Agriculture, the farm credit system, and the Making Home Affordable Program of the Department of the Treasury.
TITLE VI. ENHANCED TARP OVERSIGHT BY THE COMPTROLLER GENERAL
A. Key Provisions (Section 601)
- Expands the U.S. Comptroller General's oversight authority under the TARP to include "public accountability for the exercise of authority under [the TARP], including with respect to actions taken by those entities participating in [the TARP]."
- Expands and clarifies the Comptroller General's authority to access and retain records belonging to or in use by the TARP; any entity established by Treasury under the TARP; any entity established by a federal reserve bank and receiving funding from the TARP; any entity participating in the TARP (other than a governmental unit); and any officers, directors, employees or agents of such entities.
- Requires that any contract, term sheet or agreement between Treasury and an entity (other than a governmental unit) participating in the TARP include provisions allowing the Comptroller General to have access to such information and records, and states that any mortgage lender or bank planning to participate in any TARP program should expect to see, and be required to accept, such terms granting the Comptroller General such broad access.
TITLE VII. PROTECTING TENANTS AT FORECLOSURE ACT
A. Key Provisions
- Prohibits a purchaser of a residential property in a foreclosure sale from evicting a bona fide tenant of the property without first giving the tenant at least 90 days' prior notice of a requirement to vacate the property and, in the case of a tenant who occupies the property pursuant to a "bona fide lease" executed before the foreclosure sale, prohibits such purchaser from evicting the tenant before the end of the lease term unless the purchaser will occupy the unit as a primary residence (Section 702).
- Defines a "bona fide lease" for purposes of the above prohibition as a lease or tenancy (a) in which the mortgagor or a child, spouse, or parent of the mortgagor is not the tenant, (b) which was the result of an arm's-length transaction, and (b) which requires the payment of rent that is not substantially less than fair market rent for the property, or is reduced or subsidized as a result of a federal, state, or local subsidy.
- Prohibits a purchaser of a residential property in a foreclosure sale from evicting a Section 8 housing tenant before the end of his/her lease term unless the purchaser will occupy the unit as a primary residence and has provided the requisite 90-day prior notice to the tenant, and provides that the fact that the tenant vacated the property prior to the foreclosure sale will not constitute other good cause that would allow the owner to terminate the tenancy. Also subjects such a purchaser to the lease between the prior owner and the tenant, and to the housing assistance payments contract between the prior owner and the public housing agency (Section 703).
- States that nothing in this Title affects the requirements of any state or local law that provides longer time periods or other additional protections for tenants.
- Provides that the above requirements will terminate Dec. 31, 2012.
TITLE VIII. COMPTROLLER GENERAL ADDITIONAL AUDIT AUTHORITIES
A. Key Provisions (Section 801)
- Authorizes the Comptroller General to audit actions taken by the Federal Reserve Board ("Board") to discount notes, drafts, and bills of exchange for any individual, partnership or corporation (which the Board is authorized to do if the notes, drafts, and bills of exchange are adequately secured, and if there is evidence that the individual, partnership or corporation is unable to secure adequate credit accommodations from other banking institutions), and prohibits disclosure of information (except to a Congressional committee or subcommittee) obtained in any such audit.
- Authorizes the Comptroller General, in carrying out its responsibility to audit the federal banking agencies, to have access to the officers, employees, contractors, and other agents and representatives of such agencies and any entities established by such agencies, at reasonable times.
- Expands the Comptroller General's right of access to certain information, documentation or property belonging to or in use by any entity established by or receiving assistance from any action taken by the Board described under paragraph 1 above, or any its officers, directors, employees, independent public accountants, financial advisors or other representatives, to the extent that the access and requests relate to that assistance.