To prevent mortgage foreclosures and preserve home values.

SA 1014. Mr. DURBIN (for himself, Mr. Dodd, Mr. Reid, Mr. Schumer,
Mr. Whitehouse, and Mr. Harkin) proposed an amendment to the bill S.
896, to prevent mortgage foreclosures and enhance mortgage credit
availability; as follows:

At the end of the bill, add the following:

TITLE V--PREVENTION OF MORTGAGE FORECLOSURES

Subtitle A--Modification of Residential Mortgages

SEC. 501. DEFINITIONS.

Section 101 of title 11, United States Code, is amended by
inserting after paragraph (43) the following:
``(43A)(A) The term `qualified loan modification offer'
means a loan modification agreement that is consistent with
the terms described in subparagraph (B) and that is offered--
``(i) in accordance with the guidelines of the Homeowner
Affordability and Stability Plan, to a debtor who qualifies
for such plan;
``(ii) in accordance with the qualified loan guidelines
described in subparagraph (C)(i) for loans insured or
guaranteed by the Federal Housing Administration of the
Department of Housing and Urban Development, the Department
of Veterans Affairs, or the Department of Agriculture, to a
debtor for whom a loan is insured or guaranteed under
programs of such Government entities; or
``(iii) in accordance with qualified loan guidelines
described in subparagraph (C)(ii) to a debtor who does not
qualify for the Homeowner Affordability and Stability Plan,
for a loan for which the servicer is not a participant in
such plan, and for whom a loan is not insured or guaranteed
under programs of the Government entities described in
subparagraph (A)(ii).
``(B) For purposes of this paragraph, a `qualified loan
modification offer'--
``(i) requires no fees or charges to be paid by the debtor
in order to obtain such modification;
``(ii) permits the debtor to continue to make payments
under the modification agreement, notwithstanding the filing
of a case under this title, as if such case had not been
filed;
``(iii) is offered in good faith to the debtor in writing,
not later than 45 days after the date on which the debtor
provided to the servicer of such loan, in good faith, all
required information, as defined in subparagraph (G), in
order to be considered for a qualified loan modification
offer or a qualified loan refinancing offer;
``(iv) is presented to the debtor as a firm written offer
in a form that can be accepted by the debtor by signing the
offer and returning it to the servicer of such loan;
``(v) is offered with respect to a loan for which no
foreclosure sale is scheduled, or shall be scheduled, during
the time the request for modification is being considered or
is scheduled during the 30-day period beginning on the
expiration of the time period specified in clause (iii); and
``(vi) is not revoked by the servicer of such loan for
reasons within the control of the debtor before the
confirmation of the plan filed under section 1321 or the
modification of a plan under section 1323 or 1329.
``(C) For purposes of this paragraph, the term `qualified
loan guidelines' describes a loan modification agreement
that--
``(i) in the case of a loan that is insured or guaranteed
by the Federal Housing Administration, the Department of
Veterans Affairs, or the Department of Agriculture and that
is secured by the senior security interest in the principal
residence of the debtor, modifies the debtor's monthly
housing payment for at least a period of 5 years--
``(I) to 31 percent or less of the debtor's monthly gross
income at the time of the modification, without any period of
negative amortization; or
``(II) before expiration of the 90-day period beginning on
the effective date of this paragraph, to the lowest
percentage of the debtor's monthly gross income allowed under
the applicable program guidelines in effect before the
effective date of this paragraph, without any period of
negative amortization, if such lowest percentage is greater
than 31 percent of the debtor's monthly gross income at the
time of the modification, without any period of negative
amortization;
``(ii) in the case of a loan for a debtor who does not
qualify for the Homeowner Affordability and Stability Plan,
or of a loan for which the servicer is not a participant in
such plan and for whom a loan is not insured or guaranteed
under programs of the Government entities described in
subparagraph (A)(ii)--
``(I) modifies the debtor's monthly housing payment for at
least a period of 5 years to 31 percent or less of the
debtor's monthly gross income at the time of the
modification, without any period of negative amortization;
and
``(II) provides that, after the initial period of 5 years,
the interest rate on the modified loan may increase by not
more than 1 percentage point per year until the interest rate
reaches (but does not exceed) the prevailing market interest
rate on the date on which the modification is finalized, as
published by the Federal Home Loan Mortgage Corporation, at
which time such maximum interest rate shall be fixed for the
remaining loan term.
``(D) For purposes of this paragraph--
``(i) the term `debtor's monthly gross income' means the
total income amount before any payroll deductions, and
includes wages and salaries, overtime pay, commissions, fees,
tips, bonuses, housing allowances, other compensation for
personal services, Social Security payments, including Social
Security received by adults on behalf of minors or by minors
intended for their own support, and monthly income from
annuities, insurance policies, retirement funds, pensions,
disability or death benefits, unemployment benefits, rental
income, and other income. For income from the operation of a
business, profession, or farm, monthly gross income shall be
the sum of the debtor's gross receipts exclusive of ordinary
and necessary business expenses; and
``(ii) the term `debtor's monthly housing payment' includes
fixed principal and interest, and payments for real estate
taxes, hazard insurance, mortgage insurance premium,
homeowners' association dues, ground rent, special
assessments, and all other amounts collected by the servicer
as part of that payment.
``(E) The term `Homeowner Affordability and Stability Plan'
means the loan modification plan announced and implemented by
the Secretary of the Treasury on March 4, 2009, and any
successor thereto.
``(F) For purposes of this paragraph, the term `servicer'
means the person responsible for any of master servicing,
servicing, or subservicing of a debt secured by the debtor's
principal residence (including the person who makes or holds
a loan if such person also master services, services, or
subservices the loan).
``(G) For purposes of this paragraph, the term `required
information' means all information required to be provided to
the servicer under the Homeowner Affordability and Stability
Plan, or according to a similar standardized list, as issued
by the Secretary of the Treasury or the Secretary of the
Department of Housing and Urban Development, to allow the
servicer to determine the debtor's eligibility for a
qualified loan modification offer or a qualified loan
refinancing offer made by the holder of the loan. If the
servicer fails to notify the debtor within 30 days of the
date of submission of information by the debtor that the
information is incomplete and specify what further
information must be submitted, it shall be conclusively
presumed that the information submitted by the debtor
satisfies such requirement. For purposes of this
subparagraph, required information provided to the servicer
by the debtor shall be deemed accurate and complete as of the
time it was delivered to the servicer. Material differences
not based on a change in the debtor's circumstances between
the required information provided under the Homeowner
Affordability and Stability Plan or a similar standardized
list, as issued by the Secretary of the Treasury or the
Secretary of the Department of Housing and Urban Development,
and information provided by the debtor in the schedules
required under section 521(a), shall give rise to a
rebuttable presumption that the debtor is not eligible for a
modification under section 1322(b)(11), if such material
differences in the required information render the debtor
ineligible for a qualified loan modification offer or a
qualified loan refinancing offer. The debtor may rebut the
presumption by showing that the debtor offered the required
information in good faith.
``(43B) The term `qualified loan refinancing offer' means a
loan offered in accordance with the HOPE for Homeowners
program, as authorized by section 257 of the National Housing
Act (12 U.S.C. 1715z-23) that--
``(A) refinances a loan secured by the senior security
interest in the principal residence of the debtor, and which
is eligible to be refinanced under the HOPE for Homeowners
program;
``(B) permits the debtor to continue to make payments under
the loan, notwithstanding the filing of a case under this
title, as if such case had not been filed; and
``(C) with respect to which the debtor has received a
written notice that the debtor's application for such loan
was approved by a person or entity authorized by the
Secretary of the Department of Housing and Urban Development
to serve as a mortgagee, and such loan approval was not
revoked by such person or entity before the date of the
confirmation of the plan filed under section 1321 or the
modification of a plan under section 1323 or 1329.''.

SEC. 502. ELIGIBILITY FOR RELIEF.

Section 109 of title 11, United States Code, is amended--
(1) in subsection (e)--
(A) by inserting ``(1)'' after ``(e)''; and
(B) by adding at the end the following:
``(2) For purposes of this subsection, the computation of
debts shall not include the secured or unsecured portions
of--

[[Page S4981]]

``(A) debts secured by the debtor's principal residence, if
the value of such residence as of the date of the order for
relief under chapter 13 is less than the applicable maximum
amount of noncontingent, liquidated, secured debts specified
in this subsection; or
``(B) debts secured or formerly secured by what was the
debtor's principal residence that was sold in foreclosure or
that the debtor surrendered to the creditor, if the value of
such real property as of the date of the order for relief
under chapter 13 was less than the applicable maximum amount
of noncontingent, liquidated, secured debts specified in this
subsection.'';
(2) in subsection (h)(1), by striking ``and (3)'' and
inserting ``, (3), and (5)''; and
(3) in subsection (h), by adding at the end the following:
``(5) With respect to a debtor in a case under chapter 13
who is at least 60 days delinquent with respect to the claim
secured by the debtor's principal residence and submits to
the court a certification that the debtor has received
written notice that the holder of a claim secured by the
debtor's principal residence may commence a foreclosure on
the debtor's principal residence, the requirements of
paragraph (1) shall be considered to be satisfied if the
debtor satisfies such requirements not later than the
expiration of the 45-day period beginning on the date of the
filing of the petition.''.

SEC. 503. AUTHORITY TO MODIFY CERTAIN MORTGAGES.

Section 1322 of title 11, United States Code, is amended--
(1) in subsection (b)--
(A) by redesignating paragraph (11) as paragraph (12);
(B) in paragraph (10), by striking ``and'' at the end; and
(C) by inserting after paragraph (10) the following:
``(11) notwithstanding paragraph (2), modify the rights of
the holder of a claim for a loan originated before January 1,
2009, with an unpaid principal balance that is not greater
than the maximum loan amount provided for in the guidelines
of the Homeowner Affordability and Stability Plan, that is at
least 60 days delinquent and secured by a security interest
in the debtor's principal residence and, in the case of a
claim secured by the senior security interest in such
residence that is the subject of a written notice that a
foreclosure may be commenced with respect to such loan--
``(A) by providing for payment of the amount of the allowed
secured claim, as determined under section 506(a)(1);
``(B) by modifying the terms and conditions of such loan--
``(i) to extend the repayment period for a period that is
not longer than the longer of 40 years (reduced by the period
for which such loan has been outstanding) or the remaining
term of such loan, beginning on the date of the order for
relief under this chapter; and
``(ii) to provide for the payment of interest accruing
after the date of the order for relief under this chapter at
a fixed annual rate equal to the currently applicable average
prime offer rate, as of the date of the order for relief
under this chapter, corresponding to the repayment term
determined under the preceding paragraph, as published by the
Federal Financial Institutions Examination Council in its
table entitled `Average Prime Offer Rates--Fixed' (or any
successor thereto), rounded to the nearest 0.125 percent,
plus a reasonable premium for risk; and
``(C) by providing for payments of such modified loan
directly to the holder of the claim or, at the discretion of
the court, through the trustee during the term of the plan;
and''; and
(2) by adding at the end the following:
``(g) A claim may be reduced under subsection (b)(11)(A)
only on the condition that if the debtor sells the principal
residence securing such claim during the pendency of the case
under this chapter and receives net proceeds from the sale of
such residence--
``(1) the debtor agrees to pay to such holder 50 percent of
the amount of the difference between the sale price and the
amount of such claim, as originally determined under
subsection (b)(11) (plus costs of sale and improvements), but
not to exceed the unpaid amount of the allowed secured claim
determined as if such claim had not been reduced under such
subsection;
``(2) the debtor notifies the holder of such claim (or
entity collecting payments on behalf of such holder), not
later than 30 days before the closing date of such sale, of
the details of sale, including the buyer's name and address,
the buyer's relationship to the debtor, if any, purchase
price, anticipated sale closing date, name and address of the
closing agent, and any other relevant information; and
``(3) any amount to be received by the holder is listed in
the closing documents.
``(h) With respect to a claim of the kind described in
subsection (b)(11) that is secured by the senior security
interest in the debtor's principal residence, the plan may
not contain a modification under the authority of subsection
(b)(11)--
``(1) in a case commenced under this chapter after the
expiration of the 45-day period beginning on the effective
date of this subsection, unless the debtor certifies that the
debtor sought a qualified loan modification offer or a
qualified loan refinancing offer, as those terms are defined
in paragraphs (43A) and (43B) of section 101, respectively,
and submitted the required information, as that term is
defined in section 101(43A)(G);
``(2) in any other case under this chapter, unless the
debtor certifies that the debtor sought a qualified loan
modification offer or qualified loan refinancing offer, as
those terms are so defined, at least 45 days before--
``(A) the date of confirmation of a plan under section 1321
that contains a modification under the authority of
subsection (b)(11) of this section; or
``(B) the date of modification of a plan under section 1323
or 1329 to contain a modification under the authority of
subsection (b)(11) of this section;
``(3) except as provided in subsection (i)(2), if the
debtor's monthly housing payment prior to loan modification
or refinance is less than 31 percent of the debtor's gross
monthly income (as those terms are defined in section
101(43A)(D)); or
``(4) except as provided in subsection (i)(2), if the
debtor has received a qualified loan modification offer or a
qualified loan refinancing offer, as those terms are so
defined.
``(i)(1) If the debtor's income at the time at which a
petition is filed under this chapter is equal to or greater
than 80 percent of the area median income, as published by
the Department of Housing and Urban Development, with respect
to a claim of the kind described in subsection (b)(11), and
if the debtor has received a qualified loan modification
offer or a qualified loan refinancing offer (as those terms
are defined in paragraphs (43A) and (43B) of section 101,
respectively for purposes of this subsection), such debtor
may not modify the rights of the holder of a claim that is
secured by the senior security interest in the debtor's
principal residence pursuant to subsection (b)(11),
regardless of whether the debtor has accepted the offer.
``(2) If the debtor's income at the time at which a
petition is filed under this chapter is not equal to or
greater than 80 percent of the area median income, as
published by the Department of Housing and Urban Development,
the debtor shall be subject to all requirements applicable to
other debtors under this section with respect to a claim of
the kind described in subsection (b)(11), provided that--
``(A) if the debtor is subject to subsection (h)(3) or
(h)(4), such debtor may still modify the rights of the holder
of a claim secured by the senior security interest in the
debtor's principal residence pursuant to subsection (b)(11),
other than by reduction in the principal balance, if the
payments that would be due under a modification implemented
by a plan under this chapter permitting payments over a term
of 40 years and an interest rate equal to the currently
applicable prime offer rate described in subsection
(b)(11)(B)(ii) would be less than the payments due under the
qualified loan modification offer or a qualified loan
refinancing offer; and
``(B) if the debtor has received an otherwise qualified
loan modification offer or a qualified loan refinancing offer
that reduces the debtor's monthly housing payment to 25
percent or less of the debtor's monthly gross income (as
those terms are defined in section 101(43A)(D)), such debtor
may not modify the rights of the holder of a claim secured by
the senior security interest in the debtor's principal
residence pursuant to subsection (b)(11), regardless of
whether or not the debtor has accepted the offer.
``(j) In determining the holder's allowed secured claim
under section 506(a)(1) for purposes of subsection (b)(11)(A)
of this section, the value of the debtor's principal
residence shall be the fair market value of such residence on
the date of the determination of the value of the allowed
secured claim and, if the issue of value is contested, the
court shall determine such value in accordance with the
appraisal rules used by the Federal Housing Administration.
``(k) If the rights of a holder of a claim of the kind
described in subsection (b)(11) have been modified pursuant
to subsection (b)(11), the court may not approve, and the
debtor may not borrow, any additional funds during the
pendency of the case that are secured by a security interest
in the debtor's principal residence that is junior to the
lien securing such claim.''.

SEC. 504. COMBATING EXCESSIVE FEES.

Section 1322(c) of title 11, United States Code, is
amended--
(1) in paragraph (1), by striking ``and'' at the end;
(2) in paragraph (2), by striking the period at the end and
inserting a semicolon; and
(3) by adding at the end the following:
``(3) the debtor, the debtor's property, and property of
the estate are not liable for a fee, cost, or charge that is
incurred while the case under this chapter is pending and
arises from a debt that is secured by the debtor's principal
residence, except to the extent that--
``(A) the holder of the claim for the debt files with the
court and serves on the trustee, the debtor, and the debtor's
attorney (annually or, in order to permit filing consistent
with clause (ii), more frequently, as the court determines
necessary) notice of the fee, cost, or charge before the
earlier of--
``(i) 1 year after the date on which the fee, cost, or
charge is incurred; or
``(ii) 60 days before the closing of the case under this
chapter; and
``(B) the fee, cost, or charge is not unlawful under
applicable nonbankruptcy law, and is reasonable and provided
for in the applicable security agreement;
``(4) the failure of a party to give notice described in
paragraph (3) shall be deemed a waiver of any claim for any
fee, cost, or charge described in paragraph (3) for all
purposes, and any attempt to collect such a fee,

[[Page S4982]]

cost, or charge shall constitute a violation of section
524(a)(2) or, if the violation occurs before the date of
discharge, of section 362(a); and
``(5) a plan may provide for the waiver of any prepayment
penalty on a claim secured by the debtor's principal
residence.''.

SEC. 505. CONFIRMATION OF PLAN.

Section 1325(a) of title 11, United States Code, is
amended--
(1) in paragraph (5)--
(A) by inserting ``except as otherwise provided in section
1322(b)(11),'' after ``(5)''; and
(B) in subparagraph (B)(iii)(I), by inserting ``(including
payments of a claim modified under section 1322(b)(11))''
after ``payments'' the 1st place that term appears;
(2) in paragraph (8), by striking ``and'' at the end;
(3) in paragraph (9), by striking the period at the end and
inserting a semicolon; and
(4) by inserting immediately after paragraph (9) the
following:
``(10) notwithstanding paragraph (5)(B)(i)(I), in a case in
which the plan modifies a claim in accordance with section
1322(b)(11), the holder of a claim whose rights are modified
pursuant to section 1322(b)(11) retains the lien until the
full payment of the allowed secured claim of the holder,
together with postpetition interest, fees, costs, and charges
permitted under section 1322(b)(11) and, if applicable,
1322(c)(3); and
``(11) in a case in which the plan modifies a claim in
accordance with section 1322(b)(11), the court--
``(A) finds that the modification is in good faith, which
the court may not find if the debtor has no need for relief
under section 1322(b)(11) because the debtor can pay all of
the debts of the debtor and any payment increases on such
debts without difficulty for the foreseeable future,
including the positive amortization of mortgage debt; and
``(B) does not find that the debtor has been criminally
convicted of actual fraud in obtaining the extension,
renewal, or refinancing of credit that gives rise to a
modified claim.''.

SEC. 506. DISCHARGE.

Section 1328(a) of title 11, United States Code, is
amended--
(1) in the matter preceding paragraph (1), by inserting
``(other than payments to holders of claims whose rights are
modified under section 1322(b)(11))'' after ``paid''; and
(2) in paragraph (1), by inserting ``or, to the extent of
the unpaid portion of an allowed secured claim, as provided
for under section 1322(b)(11)'' after ``1322(b)(5)''.

SEC. 507. STANDING TRUSTEE FEES.

(a) Amendment to Title 28.--Section 586(e)(1)(B)(i) of
title 28, United States Code, is amended--
(1) by inserting ``(I) except as provided in subclause
(II),'' after ``(i)'';
(2) by striking ``or'' at the end and inserting ``and'';
and
(3) by adding at the end the following:
``(II) 4 percent, with respect to payments received under
section 1322(b)(11) of title 11, by the individual as a
result of the operation of section 1322(b)(11)(C) of title
11, unless the bankruptcy court waives all fees with respect
to such payments, based on a determination that the
individual has income equal to less than 150 percent of the
poverty line (as defined by the Office of Management and
Budget, and revised annually in accordance with section
673(2) of the Community Services Block Grant Act (42 U.S.C.
9902(2))) applicable to a family of the size involved, and
payment of such fees would render the plan of the debtor
infeasible; or''.
(b) Applicability.--The amendments made by this section
shall apply to any trustee to whom the provisions of section
302(d)(3) of the Bankruptcy Judges, United States Trustees,
and Family Farmer Bankruptcy Act of 1986 (28 U.S.C. 581 note)
apply.

SEC. 508. EFFECTIVE DATE; APPLICATION OF AMENDMENTS.

(a) Application of Amendments.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this title shall apply with respect to any
case commenced under title 11 of the United States Code
before, on, or after the date of enactment of this Act with
respect to loans serviced by entities affiliated with
entities for which participation in the Homeowner
Affordability and Stability Plan announced and implemented by
the Secretary of the Treasury on March 4, 2009, (and any
successor thereto) is mandatory.
(2) Exception.--With respect to loans serviced by entities
that are unaffiliated with entities for which participation
in the Homeowner Affordability and Stability Plan is
mandatory, and that have announced and implemented a policy
of ceasing all foreclosure activities for 45 days after the
date of enactment of this Act, the time period in clause
(iii) of section 101(43A)(B) of title 11, United States Code
(as added by this title), shall expire on the later of 90
days after the date of enactment of this Act or the date on
which it would otherwise expire under that clause.
(3) Limitation.--The amendments made by this subtitle shall
not apply with respect to any case closed under title 11 of
the United States Code as of the date of enactment of this
Act that is not pending on appeal in, nor appealable to, any
court of the United States.
(b) Sunset.--The amendments made by sections 501, 503, 505,
506, and 507 shall not apply to any case commenced under
title 11 of the United States Code after the later of
December 31, 2012 or the expiration of any extension of the
Homeowner Affordability and Stability Plan (or any successor
thereto).

SEC. 509. GAO STUDY AND REPORT.

(a) Study.--The Comptroller General of the United States
shall carry out a study of--
(1) the number of debtors who filed, during the 1-year
period beginning on the date of enactment of this Act, cases
under chapter 13 of title 11, United States Code, for the
purpose of restructuring a mortgage loan secured by the
principal residence of the debtor;
(2) the number of such mortgages restructured under the
amendments made by this subtitle that subsequently resulted
in default and foreclosure; and
(3) a comparison between the effectiveness of mortgages
restructured under programs outside of bankruptcy law, such
as Hope Now, the Homeowner Affordability and Stability Plan
(as implemented by the Secretary of the Treasury on March 4,
2009), and the HOPE for Homeowners program, and mortgages
restructured under the amendments made by this subtitle.
(b) Report.--Not later than 2 years after the date of
enactment of this Act, the Comptroller General shall submit a
report on the results of the study required by subsection (a)
to the Committee on the Judiciary of the Senate and the
Committee on the Judiciary of the House of Representatives.

SEC. 510. UNENFORCEABILITY OF CERTAIN PROVISION AS BEING
CONTRARY TO PUBLIC POLICY.

(a) Congressional Findings.--Congress finds that--
(1) in conjunction with the amendments made by this
subtitle, the enforcement of provisions of certain investment
contracts in effect on the date of enactment of this Act,
which require excess bankruptcy losses that exceed a certain
dollar amount on residential mortgages to be borne by classes
of certificates on a pro rata basis, would affect the parties
to those contracts in ways that could not have occurred under
the law in effect at the time at which such contracts were
entered into, would interfere with the achievement of the
purposes of this subtitle, and would have adverse effects on
the national economy, potentially including adverse effects
on the security of depositors of banking institutions and
policyholders of insurance companies operating in interstate
commerce; and
(2) to achieve the purposes of this subtitle to avoid
preventable foreclosures, avoid unintended and adverse
systemic effects on the national economy, and preserve the
existing economic expectations of the parties to investment
contracts to the extent reasonably possible, it is necessary
that such provisions be unenforceable to the extent that such
provisions refer to types of bankruptcy losses that could not
have been incurred under the law in effect at the time at
which such contracts were entered into.
(b) Unenforceability of Provisions.--
(1) In general.--Any bankruptcy loss allocation provision
in any mortgage-backed securities contract in effect on the
date of enactment of this Act shall be unenforceable as
contrary to public policy, to the extent that such bankruptcy
loss allocation provision allocates to senior classes of
mortgage-backed securities of the issuer bankruptcy losses
that could not have been incurred under the law in effect on
the date on which such mortgage-backed securities contract
was entered into, without the consent of the holder of the
related residential mortgage or mortgages.
(2) Effect of unenforceability.--Any bankruptcy losses that
would have been allocated under a bankruptcy loss allocation
provision that is unenforceable under paragraph (1) shall be
allocated as if the bankruptcy losses constituted losses
(other than bankruptcy losses) under the applicable mortgage-
backed securities contract.
(c) Covered Bankruptcy Losses.--For purposes of subsection
(b), the term ``bankruptcy losses that could not have been
incurred under the law in effect on the date on which such
mortgage-backed securities contract was entered into, without
the consent of the holder of the related residential mortgage
or mortgages'' includes all bankruptcy losses incurred as a
result of the application of section 1322(b)(11) of title 11,
United States Code, as amended by this title.
(d) Definitions.--For purposes of this section, the
following definitions shall apply:
(1) Bankruptcy loss allocation provision.--The term
``bankruptcy loss allocation provision'' means any provision
in a mortgage-backed securities contract that allocates any
portion of bankruptcy losses to senior classes of mortgage-
backed securities of the issuer before the outstanding
principal amount of subordinated classes of the mortgage-
backed securities of the issuer has been reduced to zero as a
result of the allocation of losses or otherwise.
(2) Bankruptcy losses.--The term ``bankruptcy losses''
means any losses relating to residential mortgages held by a
securitization vehicle that arise in a proceeding under title
11 of the United States Code.
(3) Mortgage-backed securities.--The term ``mortgage-backed
securities'' means mortgage pass-through certificates,
participation certificates, mortgage-backed securities, or
other similar securities backed by a pool of assets that
includes residential mortgage loans.

[[Page S4983]]

(4) Mortgage-backed securities contract.--The term
``mortgage-backed securities contract'' means a contract or
other instrument that governs the terms of mortgage-backed
securities.
(5) Securitization vehicle.--The term ``securitization
vehicle'' means a trust, corporation, partnership, limited
liability entity, special purpose entity, or other structure
that--
(A) is the issuer, or is created by the issuer, of mortgage
pass-through certificates, participation certificates,
mortgage-backed securities, or other similar securities
backed by a pool of assets that includes residential mortgage
loans; and
(B) holds such mortgages.

Subtitle B--Related Mortgage Modification Provisions

SEC. 511. ADJUSTMENTS AS A RESULT OF MODIFICATION IN
BANKRUPTCY OF HOUSING LOANS GUARANTEED BY THE
DEPARTMENT OF VETERANS AFFAIRS.

(a) In General.--Section 3732(a)(2) of title 38, United
States Code, is amended--
(1) by inserting ``(A)'' after ``(2)''; and
(2) by adding at the end the following new subparagraph:
``(B) In the event that a housing loan guaranteed under
this chapter is modified under the authority provided under
section 1322(b)(11) of title 11, United States Code, the
Secretary shall pay the holder of the obligation the unpaid
balance of the obligation due as of the date of the filing of
the petition under title 11, United States Code, plus accrued
interest, but only upon the assignment, transfer, and
delivery to the Secretary (in a form and manner satisfactory
to the Secretary) of all rights, interest, claims, evidence,
and records with respect to the housing loan.''.
(b) Maturity of Housing Loans.--Section 3703(d)(1) of title
38, United States Code, is amended by inserting ``at the time
of origination'' after ``loan''.
(c) Implementation.--The Secretary of Veterans Affairs may
implement the amendments made by this section through notice,
procedure notice, or administrative notice.

SEC. 512. PAYMENT OF FHA MORTGAGE INSURANCE BENEFITS.

(a) In General.--Section 204(a) of the National Housing Act
(12 U.S.C. 1710(a)) is amended--
(1) in paragraph (1), by adding at the end the following
new subparagraph:
``(E) Modification of mortgage in bankruptcy.--
``(i) Authority.--If an order is entered under the
authority provided under section 1322(b)(11) of title 11,
United States Code, that (a) determines the amount of an
allowed secured claim under a mortgage in accordance with
section 506(a)(1) of title 11, United States Code, and the
amount of such allowed secured claim is less than the amount
due under the mortgage as of the date of the filing of the
petition under title 11, United States Code, or (b) reduces
the interest to be paid under a mortgage in accordance with
section 1325 of such title, the Secretary shall pay insurance
benefits for the mortgage in 1 of the following manners:

``(I) Full payment and assignment.--The Secretary may pay
the insurance benefits for the mortgage, but only upon the
assignment, transfer, and delivery to the Secretary of all
rights, interest, claims, evidence, and records with respect
to the mortgage specified in clauses (i) through (iv) of
paragraph (1)(A). The insurance benefits shall be paid in the
amount equal to the original principal obligation of the
mortgage (with such additions and deductions as the Secretary
determines are appropriate) which was unpaid upon the date of
the filing by the mortgagor of the petition under title 11 of
the United States Code. Nothing in this clause may be
construed to prevent the Secretary from providing insurance
under this title for a mortgage that has previously been
assigned to the Secretary under this subclause.
``(II) Assignment of unsecured claim.--The Secretary may
make a partial payment of the insurance benefits for any
unsecured claim under the mortgage, but only upon the
assignment to the Secretary of any unsecured claim of the
mortgagee against the mortgagor or others arising out of such
order. Such assignment shall be deemed valid irrespective of
whether such claim has been or will be discharged under title
11 of the United States Code. The insurance benefits shall be
paid in the amount specified in subclause (I) of this clause,
as such amount is reduced by the amount of the allowed
secured claim. Such allowed secured claim shall continue to
be insured under section 203.
``(III) Interest payments.--The Secretary may make periodic
payments, or a one-time payment, of insurance benefits for
interest payments that are reduced pursuant to such order, as
determined by the Secretary, but only upon assignment to the
Secretary of all rights and interest related to such
payments.

``(ii) Delivery of evidence of entry of order.--
Notwithstanding any other provision of this paragraph, no
insurance benefits may be paid pursuant to this subparagraph
for a mortgage before delivery to the Secretary of evidence
of the entry of the order issued pursuant to title 11, United
States Code, in a form satisfactory to the Secretary.''; and
(2) in paragraph (5), in the matter preceding subparagraph
(A), by inserting after ``section 520, and'' the following:
``, except as provided in paragraph (1)(E),''.
(b) Implementation.--The Secretary of Housing and Urban
Development may implement the amendments made by this section
through notice or mortgagee letter.

SEC. 513. ADJUSTMENTS AS RESULT OF MODIFICATION OF RURAL
SINGLE FAMILY HOUSING LOANS IN BANKRUPTCY.

(a) Guaranteed Rural Housing Loans.--Section 502(h) of the
Housing Act of 1949 (42 U.S.C. 1472(h)) is amended--
(1) in paragraph (7)--
(A) in subparagraph (A), by inserting before the semicolon
at the end the following: ``, unless the maturity date of the
loan is modified in a bankruptcy proceeding or authorized at
the discretion of the Secretary in accordance with paragraph
(15)(A)''; and
(B) in subparagraph (B), by inserting before the semicolon
the following: ``, unless such rate is modified in a
bankruptcy proceeding or as provided in paragraph (14) or
(15)'';
(2) by redesignating paragraphs (13) and (14) as paragraphs
(14) and (15), respectively; and
(3) by inserting after paragraph (12) the following new
paragraphs:
``(13) Payment of losses.--To pay for losses incurred by
holders or servicers in the event of a modification pursuant
to the authority provided under section 1322(b)(11) of title
11, United States Code, that either (1) determines the amount
of an allowed secured claim under a mortgage in accordance
with section 506(a)(1) of title 11, United States Code, and
the amount of such allowed secured claim is less than the
amount due under the mortgage as of the date of the filing of
the petition under title 11, United States Code, or (2)
reduces the interest to be paid under a mortgage in
accordance with section 1325 of such title, as follows:
``(A) Full payment and assignment.--The Secretary may pay
the guarantee for the mortgage, but only upon the assignment,
transfer, and delivery to the Secretary of all rights,
interest, claims, evidence, and records with respect to the
mortgage. The guarantee shall be paid in the amount equal to
the original principal obligation of the mortgage (with such
additions and deductions as the Secretary determines are
appropriate) which was unpaid upon the date of the filing by
the mortgagor of the petition under title 11 of the United
States Code. Nothing in this subparagraph may be construed to
prevent the Secretary from providing a guarantee under this
subsection for a mortgage that has previously been assigned
to the Secretary under this subparagraph.
``(B) Assignment of unsecured claim.--The Secretary may
make a partial payment of the guarantee for any unsecured
claim under the mortgage, but only upon the assignment to the
Secretary of any unsecured claim of the mortgagee against the
mortgagor or others arising out of such order. Such
assignment shall be deemed valid irrespective of whether such
claim has been or will be discharged under title 11 of the
United States Code. The guarantee shall be paid in the amount
specified subparagraph (A), as such amount is reduced by the
amount of the allowed secured claim. Such allowed secured
claim shall continue to be insured under section 1472 and
1487, without reduction for any amounts modified.
``(C) Interest payments.--The Secretary may make periodic
payments, or a one-time payment, of guarantees for interest
payments that are reduced pursuant to such order, as
determined by the Secretary, but only upon assignment to the
Secretary of all rights and interest related to such
payments.
``(D) Delivery of evidence of entry of order.--
Notwithstanding any other provision of this section, no
guarantees may be paid pursuant to this paragraph for a
mortgage before delivery to the Secretary of evidence of the
entry of the order issued pursuant to title 11, United States
Code, in a form satisfactory to the Secretary.''.
(b) Insured Rural Housing Loans.--Section 517(j) of the
Housing Act of 1949 (42 U.S.C. 1487(j)) is amended--
(1) by redesignating paragraphs (2) through (7) as
paragraphs (3) through (8), respectively; and
(2) by inserting after paragraph (1) the following new
paragraph:
``(2) to pay for losses incurred by holders or servicers in
the event of a modification pursuant to a bankruptcy
proceeding;''.
(c) Technical Amendments.--Subsection (h) of section 502 of
the Housing Act of 1949 (42 U.S.C. 1472(h)) is amended--
(1) in paragraph (5)(A), by striking ``(as defined in
paragraph (13)'' and inserting ``(as defined in paragraph
(14)''; and
(2) in paragraph (18)(E) (as so redesignated by subsection
(a)(2)), by--
(A) striking ``paragraphs (3), (6), (7)(A), (8), and (10)''
and inserting ``paragraphs (3), (6), (7)(A), (8), (10), and
(13)''; and
(B) striking ``paragraphs (2) through (13)'' and inserting
``paragraphs (2) through (15)''.
(d) Procedure.--
(1) In general.--The promulgation of regulations
necessitated and the administration actions required by the
amendments made by this section shall be made without regard
to--
(A) the notice and comment provisions of section 553 of
title 5, United States Code;
(B) the Statement of Policy of the Secretary of Agriculture
effective July 24, 1971 (36 Fed. Reg. 13804), relating to
notices of proposed rulemaking and public participation in
rulemaking; and
(C) chapter 35 of title 44, United States Code (commonly
known as the ``Paperwork Reduction Act'').

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(2) Congressional review of agency rulemaking.--In carrying
out this section, and the amendments made by this section,
the Secretary shall use the authority provided under section
808 of title 5, United States Code.
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