To provide for mortgage forbearance during the COVID-19 emergency, and for other purposes.

I 116TH CONGRESS 2D SESSION H. R. 6340 To provide for mortgage forbearance during the COVID–19 emergency, and for other purposes. IN THE HOUSE OF REPRESENTATIVES MARCH 23, 2020 Mr. CLAY introduced the following bill; which was referred to the Committee on Financial Services A BILL To provide for mortgage forbearance during the COVID– 19 emergency, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. MORTGAGE FORBEARANCE. 3 (a) FINDINGS.— 4 (1) FINDINGS.—Congress finds that— 5 (A) the collection of debts involves the use 6 of the mails and wires and other instrumental- 7 ities of interstate commerce; 8 (B) at times of major disaster or emer- 9 gency, the income of consumers is often im- 10 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 2 •HR 6340 IH paired and their necessary daily expenses often 1 increase; 2 (C) temporary forbearance benefits not 3 only consumer and small business debtors, but 4 also other creditors by avoiding downward col- 5 lateral price spirals triggered by an increase in 6 foreclosure activity; 7 (D) without forbearance, many consumers 8 and small businesses are unlikely to be able to 9 pay their obligations according to their original 10 terms and are likely to default on obligations or 11 file for bankruptcy, resulting in reduced recov- 12 eries for creditors, and in the case of bank- 13 ruptcy, no recovery of unaccrued interest; 14 (E) with forbearance, creditors are likely 15 to realize greater long-term value because con- 16 sumers and small businesses will be more likely 17 to be able to repay their obligations after the 18 major disaster or emergency has subsided; 19 (F) the legislative and administrative re- 20 sponse to major disasters and emergencies may 21 consist of multiple components divided among 22 different statutes and programs; and 23 (G) when evaluating whether property has 24 been taken from a person without just com- 25 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 3 •HR 6340 IH pensation, a holistic evaluation of the burdens 1 and benefits of all legislative and administrative 2 responses, including indirect benefits from mac- 3 roeconomic stabilization, is appropriate. 4 (2) FURTHER FINDINGS REGARDING MORTGAGE 5 FORBEARANCE.—Congress further finds that— 6 (A) ensuring that consumers are able to 7 remain in their residences reduces the disrup- 8 tions and economic harm caused by such disas- 9 ters and emergencies by ensuring that con- 10 sumers are able to continue their existing em- 11 ployment, education, childcare, and healthcare 12 arrangements, which are often geographically 13 based; 14 (B) temporary forbearance on residential 15 mortgages is therefore critical to fostering eco- 16 nomic recovery and stability in the wake of 17 major disasters or emergencies; 18 (C) temporary mortgage forbearance dur- 19 ing a declared disaster benefits not only mort- 20 gagors, but also mortgagees because mortga- 21 gors’ ability to pay is likely to be restored after 22 a disaster or emergency subsides, so forbear- 23 ance may increase mortgagors’ total recovery. 24 Without forbearance, mortgagors are likely to 25 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 4 •HR 6340 IH default or file for bankruptcy, resulting in sig- 1 nificant losses for mortgagees; and 2 (D) temporary mortgage forbearance dur- 3 ing a declared disaster also benefits the mortga- 4 gees of other properties because housing prices 5 are geographically and serially correlated so an 6 increase in foreclosures can drive down the 7 value of collateral for all mortgage lenders, fur- 8 ther destabilizing the economy. 9 (3) FURTHER FINDINGS REGARDING MORTGAGE 10 SERVICERS.—Congress further finds that— 11 (A) mortgage servicers are often contrac- 12 tually obligated to advance scheduled mortgage 13 payments to securitization investors, irrespec- 14 tive of whether the servicer collects the payment 15 from the mortgagor; 16 (B) mortgage servicers are often thinly 17 capitalized and with limited capacity for engag- 18 ing in large scale advancing of payments to 19 securitization investors; 20 (C) securitization investors have long been 21 aware of servicers’ thin capitalization; 22 (D) in the wake of the 2008 financial cri- 23 sis, several servicers had difficulty obtaining 24 sufficiently liquidity to make advances; 25 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 5 •HR 6340 IH (E) mortgage servicing is a heavily regu- 1 lated industry; 2 (F) in response to the 2008 financial cri- 3 sis, Congress created a safe harbor for mort- 4 gage servicers that undertook loan modifica- 5 tions; 6 (G) in response to the 2008 financial cri- 7 sis, the Home Affordable Modification Program 8 paid mortgage servicers to undertake loan 9 modifications; 10 (H) as part of the 2012 joint State-Fed- 11 eral National Mortgage Settlement, mortgage 12 servicers committed to undertaking loan modi- 13 fications; and 14 (I) investors in mortgage securitizations 15 are or should be aware of servicers’ thin cap- 16 italization, liquidity constraints, the extent and 17 history of servicing regulation and therefore do 18 not have a reasonable expectation that the 19 terms of servicing contracts will be enforceable 20 at times of national financial crisis. 21 (4) DETERMINATION.—It is the sense of the 22 Congress that, on the basis of the findings described 23 under paragraphs (1), (2), and (3), the Congress de- 24 termines that the provisions of this Act are nec- 25 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 6 •HR 6340 IH essary and proper for the purpose of carrying into 1 execution the powers of the Congress to regulate 2 commerce among the several States and to establish 3 uniform bankruptcy laws. 4 (b) PROHIBITION ON FORECLOSURES AND REPOS- 5 SESSIONS DURING THE COVID–19 EMERGENCY.— 6 (1) PROHIBITION ON FORECLOSURES.—The 7 Real Estate Settlement Procedures Act of 1974 (12 8 U.S.C. 2601 et seq.) is amended— 9 (A) in section 3 (12 U.S.C. 2602)— 10 (i) in paragraph (8), by striking 11 ‘‘and’’ at the end; 12 (ii) in paragraph (9), by striking the 13 period at the end and inserting ‘‘; and’’; 14 and 15 (iii) by adding at the end the fol- 16 lowing: 17 ‘‘(10) the term ‘COVID–19 emergency’ means 18 the period that begins upon the date of the enact- 19 ment of this Act and ends on the date of the termi- 20 nation by the Federal Emergency Management 21 Agency of the emergency declared on March 13, 22 2020, by the President under the Robert T. Stafford 23 Disaster Relief and Emergency Assistance Act (42 24 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 7 •HR 6340 IH U.S.C. 4121 et seq.) relating to the Coronavirus 1 Disease 2019 (COVID–19) pandemic.’’; and 2 (B) in section 6(k)(1) (12 U.S.C. 3 2605(k)(1))— 4 (i) in subparagraph (D), by striking 5 ‘‘or’’ at the end; 6 (ii) by redesignating subparagraph 7 (E) as subparagraph (G); and 8 (iii) by inserting after subparagraph 9 (D) the following: 10 ‘‘(E) commence or continue any judicial 11 foreclosure action or non-judicial foreclosure 12 process or any action to evict a consumer fol- 13 lowing a foreclosure during the COVID–19 14 emergency or the 180-day period following such 15 emergency (except that such prohibition shall 16 not apply to a mortgage secured by a dwelling 17 that the servicer has determined after exer- 18 cising reasonable diligence is vacant or aban- 19 doned); 20 ‘‘(F) fail to toll the time in a foreclosure 21 process on a property during the COVID–19 22 emergency or the 180-day period following such 23 emergency (except that such prohibition shall 24 not apply to a mortgage secured by a dwelling 25 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 8 •HR 6340 IH that the servicer has determined after exer- 1 cising reasonable diligence is vacant or aban- 2 doned); or’’. 3 (2) REPOSSESSION PROHIBITION.—During the 4 COVID–19 emergency and for the 180-day period 5 following such emergency, a servicer of a consumer 6 loan secured by a manufactured home or a motor ve- 7 hicle may not repossess such home or vehicle. 8 (c) FORBEARANCE OF RESIDENTIAL MORTGAGE 9 LOAN PAYMENTS FOR SINGLE FAMILY PROPERTIES (1– 10 4 UNITS).—Section 6 of the Real Estate Settlement Pro- 11 cedures Act of 1974 (12 U.S.C. 2605) is amended by add- 12 ing at the end the following: 13 ‘‘(n) FORBEARANCE DURING THE COVID–19 EMER- 14 GENCY.— 15 ‘‘(1) CONSUMER RIGHT TO REQUEST A FOR- 16 BEARANCE.— 17 ‘‘(A) REQUEST FOR FORBEARANCE.—A 18 borrower experiencing a financial hardship dur- 19 ing the COVID–19 emergency may request for- 20 bearance from any mortgage obligation, regard- 21 less of delinquency status, by submitting a re- 22 quest to the borrower’s servicer, either orally or 23 in writing, affirming that the borrower is expe- 24 riencing hardship during the COVID–19 emer- 25 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 9 •HR 6340 IH gency. A borrower shall not be required to pro- 1 vide any additional documentation to receive 2 such forbearance. 3 ‘‘(B) LENGTH OF FORBEARANCE; EXTEN- 4 SION.—A forbearance requested pursuant to 5 subparagraph (A) shall be provided for a period 6 of 180 days, and may be extended upon request 7 of the borrower for an additional 180 days. 8 ‘‘(C) TREATMENT OF TENANTS.—A bor- 9 rower receiving a forbearance under this sub- 10 section with respect to a mortgage secured by 11 a dwelling that has tenants, whether or not the 12 borrower also lives in the dwelling, shall provide 13 the tenants with rent relief for a period not less 14 than the period covered by the forbearance. 15 ‘‘(2) AUTOMATIC FORBEARANCE FOR DELIN- 16 QUENT BORROWERS.— 17 ‘‘(A) IN GENERAL.—Notwithstanding any 18 other law governing forbearance relief, during 19 the COVID–19 emergency, any borrower who is 20 or becomes 60 days or more delinquent on a 21 mortgage obligation shall automatically be 22 granted a 180-day forbearance, which may be 23 extended upon request of the borrower for an 24 additional 180 days. Such a borrower may elect 25 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 10 •HR 6340 IH to continue making regular payments by noti- 1 fying the servicer of the mortgage obligation of 2 such election. 3 ‘‘(B) NOTICE TO BORROWER.—The 4 servicer of a mortgage obligation placed in for- 5 bearance pursuant to subparagraph (A) shall 6 provide the borrower written notification of the 7 forbearance and its duration as well as informa- 8 tion about available loss mitigation options and 9 the right to end the forbearance and resume 10 making regular payments. 11 ‘‘(C) TREATMENT OF PAYMENTS DURING 12 FORBEARANCE.—Any payments made by the 13 borrower during the forbearance period shall be 14 credited to the borrower’s account in accord- 15 ance with section 129F of the Truth in Lending 16 Act (15 U.S.C. 1639f) or as the borrower may 17 otherwise instruct that is consistent with the 18 terms of the mortgage loan contract. 19 ‘‘(3) REQUIREMENTS FOR SERVICERS.— 20 ‘‘(A) NOTIFICATION.— 21 ‘‘(i) IN GENERAL.—Each servicer of a 22 federally related mortgage loan shall notify 23 the borrower of their right to request for- 24 bearance under paragraph (1)— 25 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 11 •HR 6340 IH ‘‘(I) not later than 14 days after 1 the date of enactment of this sub- 2 section; and 3 ‘‘(II) until the end of COVID–19 4 emergency— 5 ‘‘(aa) on each periodic state- 6 ment provided to the borrower; 7 and 8 ‘‘(bb) in any oral or written 9 communication by the servicer 10 with or to the borrower. 11 ‘‘(ii) MANNER OF NOTIFICATION.— 12 ‘‘(I) WRITTEN NOTIFICATION.— 13 Any written notification required 14 under this section— 15 ‘‘(aa) shall be provided— 16 ‘‘(AA) in English and 17 Spanish and in any addi- 18 tional languages in which 19 the servicer communicates, 20 including the language in 21 which the loan was nego- 22 tiated, to the extent known 23 by the servicer; and 24 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 12 •HR 6340 IH ‘‘(BB) at least as clear- 1 ly and conspicuously as the 2 most clear and conspicuous 3 disclosure on the document; 4 ‘‘(bb) shall include the noti- 5 fication of the availability of lan- 6 guage assistance and housing 7 counseling produced by the Fed- 8 eral Housing Finance Agency 9 under subsection (o); and 10 ‘‘(cc) may be provided by 11 first-class mail or electronically, 12 if the borrower has otherwise 13 consented to electronic commu- 14 nication with the servicer and has 15 not revoked such consent. 16 ‘‘(II) ORAL NOTIFICATION.—Any 17 oral notification required under clause 18 (i) shall be provided in the language 19 the servicer otherwise uses to commu- 20 nicate with the borrower. 21 ‘‘(III) WRITTEN TRANS- 22 LATIONS.—In providing written notifi- 23 cations in languages other than 24 English under subclause (I), a 25 VerDate Sep 11 2014 22:46 Apr 13, 2020 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H6340.IH H6340 jbell on DSKJLSW7X2PROD with BILLS 13 •HR 6340 IH servicer may rely on written trans- 1 lations developed by the Federal 2 Housing Finance Agency or the Bu- 3 reau. 4 ‘‘(B) OTHER REQUIREMENTS.— 5 ‘‘(i) FORBEARANCE REQUIRED.— 6 Upon receiving a request for forbearance 7 from a consumer under paragraph (1) or 8 placing a borrower in automatic forbear- 9 ance under paragraph (2), a servicer shall 10 provide the forbearance for not less than 11 180 days, and an additional 180 days at 12 the request of the borrower, provided that 13 the borrower will have the option to dis- 14 continue the forbearance at any time. 15 ‘‘(ii) PROHIBITION ON FEES, PEN- 16 ALTIES, AND INTEREST.—During the pe- 17 riod of a forbearance under [Text truncated for display. 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