[Pages S3306-S3309]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

By Mr. SPECTER:
S. 2901. A bill to encourage residential mortgage loan modifications
and workout plans, and for other purposes; to the Committee on Banking,
Housing, and Urban Affairs.
Mr. SPECTER. Mr. President, I have sought recognition to introduce a
bill to give mortgage servicers an incentive to work out new loan terms
with struggling homeowners who are falling behind in their mortgage
payments. It is possible to avoid foreclosure in some cases by
reworking the payment terms on mortgages. Investors, however, would
have to accept a smaller return on their investment than they otherwise
may have expected. As a result, businesses that service mortgage loans
may fear litigation from investors who are the direct or indirect
holders of those mortgages. This concern may be slowing the pace of or
stopping loan modifications. In testimony on December 6, 2007, before
the House Committee on Financial Services, Mark Pearce, speaking on
behalf of the Conference of State Bank Supervisors, testified that at a
meeting with the top 20 subprime servicers ``many of them brought up
fear of investor lawsuits'' as a hurdle to voluntary loan modification
efforts.
The loan servicers have a legal duty to the investors to maximize the
return on their investments. But in light of the current and changing
economic environment, and the new and complex financial vehicles that
hold mortgages, this ``duty'' is not simple or clear. This bill
clarifies matters by stating that, absent contract provisions to the
contrary, the duty is owed to the investor group as a whole, and not to
individual investors or classes of investors. In addition, the bill
clarifies that the servicer satisfies that duty by ensuring that the
return from a mortgage, as modified, exceeds the return that would be
expected from foreclosure. This may include agreeing to mortgage
modifications or workout plans when a homeowner is in payment default,
or when default or foreclosure appears imminent. Although some
investors may get a smaller return than they may have expected, in the
long run, taking these actions will be in the best interest of all
investors.

This bill is not a bailout. The bill honors contract provisions that
may be contrary to provisions in the bill. This bill would not solve
all of the problems we face today, but it is an important step in
removing barriers that may slow progress as we work to solve the home
mortgage crisis.
This bill is necessary because regulation has not kept pace with
innovation. Years ago, a homeowner would obtain a mortgage from a local
bank. If he couldn't make the mortgage payment, the bank often would be
willing and able to offer a workout, modifying the loan's terms to make
it affordable. The bank would do this because whatever amount the
borrower could pay would be worth more to the bank than foreclosure.
Foreclosure has its costs, sometimes as much as half the value of the
mortgage, and banks did not want to have to resell the home, so the
calculation was often simple. Today, however, many mortgages are often
bundled together with others mortgages and are sold to investment
banks, who in turn slice and dice the bundles to produce securities
that are rated by rating agencies and sold to investors all over the
world.
Investment banks that issue securities backed by mortgages typically
divide the securities into tranches, with some tranches having claims
that are senior to other more junior tranches. None of this, of course,
is transparent to the homeowner, and servicers face a complex
situation. Servicers should not have to first determine precisely how a
loan modification will affect the various tranches of investors and
then make choices among the groups. If the servicer reasonably believes
that a modification increases the net present value of the investment
as a whole, it should be able to agree to the modification.
This month, Federal Reserve Chairman Ben Bernanke encouraged the
nation's bankers to write down the principle on millions of mortgages.
He said banks have not made nearly enough modifications to stop
foreclosures. But there has been some progress. Treasury Secretary
Paulson reported this month that ``since July more than one million
struggling homeowners received a workout--either a loan modification or
a repayment plan that helped them avoid foreclosure.'' In January
alone, there were 167,000 such modifications, with the number of
borrowers receiving help rising faster than the number of foreclosures.
Congress needs to ensure that these modifications continue, and that
they continue at a rapid pace.
We are faced with a crisis caused by mortgage brokers who pushed
risky loans on homeowners, homeowners who assumed the value of their
home would always increase, conflicts of interest at credit rating
agencies, bond underwriters who loosened standards, lax regulators, and
financial institutions that ignored the risks in the instruments they
were buying and selling. There is plenty of blame to go around

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but Congress must now take steps to prevent similar problems in the
future. Right now, we must do what we can to keep families in their
homes by encouraging the companies that service mortgages to modify
mortgages where it will prevent foreclosure. This bill will encourage
servicers to make such modifications and I urge my colleagues to
support it.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:

S. 2901

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 ``Encouraging Mortgage
Modifications Act of 2008''.

SEC. 2. FINDINGS.

Congress finds that--
(1) mortgage modifications often afford the best
opportunity to avoid foreclosures and provide long term,
sustainable solutions for American homeowners;
(2) reaching mortgage modification agreements with
homeowners has been unacceptably slow and foreclosure rates
continue to rise, with the number of homeowners forced into
foreclosure double the number who receive modifications or
repayment plans;
(3) servicers have an obligation to protect the interests
of investors when determining whether to offer a modification
or repayment plan;
(4) the best course of action for the investor pool as a
whole may disadvantage the interests of individual classes of
investors;
(5) servicers have expressed concern that investor classes
that are disproportionately disadvantaged by a modification
or repayment plan may seek to hold the servicer liable;
(6) without liability protection, many servicers will not
be willing to take on the risk associated with approving a
mortgage modification or repayment plan, and instead, they
will eventually pursue foreclosure even though foreclosure
costs can equal 50 percent or more of mortgage value; and
(7) the net present value of a modified mortgage loan will
almost always exceed the amount recouped by allowing the home
to go into foreclosure.

SEC. 3. LEGAL SAFE HARBOR FOR ENTERING INTO CERTAIN LOAN
MODIFICATIONS OR WORKOUT PLANS.

Section 6 of the Real Estate Settlement Procedures Act of
1974 (12 U.S.C. 2605) is amended--
(1) by redesignating subsections (i) and (j) as subsections
(j) and (k), respectively; and
(2) by inserting after subsection (h) the following:
``(i) Duty of Servicers Regarding Certain Loan
Modifications or Workout Plans.--
``(1) In general.--Notwithstanding any other provision of
law, absent specific contractual provisions to the contrary,
a servicer of pooled qualified residential mortgages--
``(A) owes any duty to determine if the net present value
of the payments on the loan, as modified, is likely to be
greater than the anticipated net recovery that would result
from foreclosure to all investors and parties having a direct
or indirect interest in the pooled loans or securitization
vehicle, but not to any individual party or group of parties;
and
``(B) acts in the best interests of all such investors and
parties, if the servicer agrees to or implements a qualified
loan modification or workout plan for a qualified residential
mortgage, or if, and only if, such efforts are unsuccessful
or infeasible, takes other reasonable loss mitigation
actions, including accepting partial payments or short sale
of the property; and
``(C) if the servicer acts in a manner consistent with the
duty set forth in subparagraphs (A) and (B), shall not be
liable under any law or regulation of the United States, any
State or any political subdivision of any State, for entering
into a qualified loan modification or workout plan in any
action filed by or on behalf of any person--
``(i) based on the person's ownership of any interest in a
residential mortgage, a pool of residential mortgage loans,
or a securitization vehicle, that distributes payments out of
the principal, interest, or other payment on loans in the
pool;
``(ii) based on the person's obligation to make payments
determined in reference to any loan or interest referred to
in clause (i); or
``(iii) based on the person's obligation to insure any loan
or any interest referred to in clause (i).
``(2) Definitions.--As used in this subsection--
``(A) the term `qualified loan modification or workout
plan' means a contract, modification, or plan relating to a
qualified residential mortgage loan consummated on or after
January 1, 2004, with respect to which--
``(i) payment default on the loan or loans has occurred, is
imminent, or is reasonably foreseeable;
``(ii) the dwelling securing the loan or loans is the
primary residence of the owner;
``(iii) the servicer reasonably believes that the
anticipated recovery under the loan modification or workout
plan will exceed the anticipated recovery through
foreclosure, on a net present value basis;
``(iv) the effective period runs for at least 5 years from
the date of adoption of the plan, or until the borrower sells
or refinances the property, if that occurs earlier; and
``(v) the borrower is not required to pay additional fees
to the servicer;
``(B) the term `qualified residential mortgage' means a
consumer credit transaction or loan that is secured by the
consumer's principal dwelling;
``(C) the term `securitization vehicle' means a trust,
corporation, partnership, limited liability entity, special
purpose entity, or other structure that 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
``(D) the term `servicer'--
``(i) means the person responsible for servicing of a loan
(including the person who makes or holds a loan, if such
person also services the loan); and
``(ii) includes the entities listed in subparagraphs (A)
and (B) of subsection (j)(2).
``(3) Effective period.--This subsection shall apply only
with respect to qualified loan modification or workout plans
initiated during the 6-month period beginning on the date of
enactment of this subsection.
``(4) Rule of construction.--Nothing in this subsection may
be construed to limit the ability of a servicer to enter into
a loan modification or workout plan other than a qualified
loan modification or workout plan covered by this
subsection.''.
______

By Ms. SNOWE (for herself and Mr. Pryor):
S. 2902. A bill to ensure the independent operation of the Office of
Advocacy of the Small Business Administration, ensure complete analysis
of potential impacts on small entities of rules, and for other
purposes; to the Committee on Health, Education, Labor, and Pensions.
Ms. SNOWE. Mr. President, I rise today with my colleague Senator
Pryor, during National Small Business Week, to introduce the
Independent Office of Advocacy and Small Business Regulatory Reform Act
of 2008. This bipartisan measure would ensure the independence of the
Small Business Administration, SBA, Office of Advocacy, and provide
targeted small business regulatory reforms that would strengthen the
Office of Advocacy's voice in protecting our small businesses. Our bill
is supported by the SBA Office of Advocacy and National Ombudsman, as
well as the National Federation of Independent Business and the U.S.
Chamber of Commerce.
As Ranking Member of the Senate Committee on Small Business and
Entrepreneurship, I recognize that the SBA Office of Advocacy is,
regrettably, one of our Government's best kept secrets, and in many
cases, the best hope for small businesses faced with overly burdensome
Federal regulations.
Established in 1976, the Office of Advocacy, headed by the Chief
Counsel for Advocacy, is a unique office within the Federal Government.
First, the Office of Advocacy is the ``Regulatory Watchdog'' for small
businesses. In this capacity, it represents small businesses before the
Federal Government in regulatory matters--taking advantage of its
statutorily granted independence to argue against Federal regulatory
actions that impose too great a burden on small businesses for too
little benefit--and to encourage Federal agencies to consider less
costly regulatory alternatives. Second, it conducts valuable research
to further our understanding of the importance of small businesses to
our economy and the forces that have an effect on them.
The SBA Office of Advocacy is part of the SBA, and the Chief Counsel
for Advocacy is nominated by the President and confirmed by the Senate.
At the same time, the office is also intended to be the ``independent''
voice for small business within the Federal Government. It is charged
with the duty of representing the views and interests of small
businesses before other Federal agencies, and developing proposals for
changing government policies to help small businesses. These roles can
sometimes come into conflict.
The Independent Office of Advocacy and Small Business Regulatory
Reform Act of 2008 resolves such conflicts in favor of the small
businesses that rely on the Chief Counsel and the Office of Advocacy to
be a fully independent advocate within the executive branch. The bill
would help to reinforce a clear mandate that the Office of Advocacy
must fight on behalf of small businesses, regardless of the position
taken

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on critical issues by the administration.
Funding for the Office of Advocacy currently comes from the
``Salaries and Expense Account'' of the SBA's budget. Staffing is
allocated by the SBA administrator to the Office of Advocacy from the
overall staff allocation for the Agency. In 1990, there were 70 full-
time employees working on behalf of small businesses in the Office of
Advocacy. The current allocation of staff is 48. The independence and
effectiveness of the office is potentially diminished when the Office
of Advocacy staff is reduced, at the discretion of the administrator.
To address this problem, the Independent Office of Advocacy and Small
Business Regulatory Reform Act of 2008 builds a firewall to minimize
political intrusion into the management of day-to-day operations of the
Office of Advocacy similar to the one that protects Inspectors General
in other agencies. The bill would require the Federal budget to include
a separate account for the Office of Advocacy drawn directly from
General Fund of the Treasury. No longer would its funds come from the
general operating account of the SBA. This will free the Chief Counsel
for Advocacy from having to seek approval from the SBA administrator to
hire staff for the Office of Advocacy.
The bill would leave unchanged current law that allows the Chief
Counsel to hire individuals critical to the mission of the Office of
Advocacy without going through the normal competitive procedures
directed by Federal law and the Office of Personnel Management, OPM.
This long-standing special hiring authority, which is limited only to
employees within the Office of Advocacy, is beneficial because it
allows the Chief Counsel to hire quickly those persons who can best
assist the Office in responding to changing issues and problems
confronting small businesses.
In addition to protecting the Office of Advocacy's independence, this
bill also provides targeted small business regulatory reform. As the
Ranking Member of the Small Business Committee, I have long fought to
ensure that small businesses across the country are treated fairly by
the Federal Government. Unfortunately, in far too many cases, Federal
agencies promulgate rules and regulations without adequately addressing
the economic impacts on small businesses.
The disproportionate burden that Federal regulations often place on
our small businesses cannot be overemphasized. Research published by
the Office of Advocacy indicates that small businesses spend an
astounding 8 billion hours each year complying with government rules
and regulations. More specifically, the smallest firms with fewer than
20 employees, spend approximately 45 percent more per employee than
larger firms to comply with Federal regulations.
The Regulatory Flexibility Act (RFA) recognizes this situation, as it
requires Federal Government agencies to propose rules that keep the
regulatory burden at a minimum on small businesses. Enacted in 1980,
the RFA requires Federal agencies to analyze the economic impact of
proposed regulations when there is likely to be a significant economic
impact on a substantial number of small entities. In 1996, I was
pleased to support, along with all of my colleagues, the Small Business
Regulatory Enforcement Fairness Act, (SBREFA), which amended the RFA.
The intent of SBREFA was to further curb the impact of burdensome or
duplicative regulations on small businesses, by clarifying key RFA
requirements.
The Independent Office of Advocacy and Small Business Regulatory
Reform Act of 2008 would further improve the Regulatory Flexibility Act
by requiring Federal agencies to consider and specifically respond to
comments provided by Office of Advocacy. This critical change would
ensure that agencies give the proper deference to the Office of
Advocacy, and to the comments and concerns of small businesses. This is
a straightforward and simple reform that could have major benefits.
Finally, our proposal would also clarify that Federal agencies are
required to provide pertinent information to the SBA Ombudsman upon
request.
This noncontroversial, bipartisan legislation is absolutely
necessary. I urge my colleagues to support this bill so we can ensure
the complete independence of the Office of Advocacy in all matters, and
provide our Nation's small businesses and their employees with much
needed targeted regulatory relief.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:

S. 2902

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 ``Independent Office of
Advocacy and Small Business Regulatory Reform Act of 2008''.

SEC. 2. PURPOSES.

The purposes of this Act are--
(1) to ensure that the Office of Advocacy of the Small
Business Administration (referred to in this section as the
``Office'') has adequate financial resources to advocate for
and on behalf of small business concerns;
(2) to provide a separate authorization of appropriations
for the Office; and
(3) to enhance the role of the Office pursuant to chapter 6
of title 5, United States Code.

SEC. 3. OFFICE OF ADVOCACY.

(a) In General.--Section 203 of Public Law 94-305 (15
U.S.C. 634c) is amended--
(1) in paragraph (4), by striking ``and'' at the end;
(2) in paragraph (5), by striking the period and inserting
``; and''; and
(3) by adding at the end the following:
``(6) carry out the responsibilities of the Office of
Advocacy under chapter 6 of title 5, United States Code.''.
(b) Budgetary Line Item and Authorization of
Appropriations.--Title II of Public Law 94-305 (15 U.S.C.
634a et seq.) is amended by striking section 207 and
inserting the following:

``SEC. 207. BUDGETARY LINE ITEM AND AUTHORIZATION OF
APPROPRIATIONS.

``(a) Appropriation Requests.--Each budget of the United
States Government submitted by the President under section
1105 of title 31, United States Code, shall include a
separate statement of the amount of appropriations requested
for the Office of Advocacy of the Small Business
Administration, which shall be designated in a separate
account in the General Fund of the Treasury.
``(b) Administrative Operations.--The Administrator of the
Small Business Administration shall provide the Office of
Advocacy with appropriate and adequate office space at
central and field office locations, together with such
equipment, operating budget, and communications facilities
and services as may be necessary, and shall provide necessary
maintenance services for such offices and the equipment and
facilities located in such offices.
``(c) Authorization of Appropriations.--There are
authorized to be appropriated such sums as are necessary to
carry out this title. Any amount appropriated under this
subsection shall remain available, without fiscal year
limitation, until expended.''.

SEC. 4. REGULATORY FLEXIBILITY REFORM FOR SMALL BUSINESSES.

(a) Requirements Providing for More Detailed Analyses.--
(1) Initial regulatory flexibility analysis.--Section 603
of title 5, United States Code, is amended by adding at the
end the following:
``(d) An agency shall notify the Chief Counsel for Advocacy
of the Small Business Administration of any draft rules that
may have a significant economic impact on a substantial
number of small entities either--
``(1) when the agency submits a draft rule to the Office of
Information and Regulatory Affairs at the Office of
Management and Budget under Executive Order 12866, if that
order requires such submission; or
``(2) if no submission to the Office of Information and
Regulatory Affairs is so required, at a reasonable time prior
to publication of the rule by the agency.''.
(2) Final regulatory flexibility analysis.--
(A) Inclusion of response to comments on certification of
proposed rule.--Section 604(a)(2) of title 5, United States
Code, is amended by inserting ``(or certification of the
proposed rule under section 605(b))'' after ``initial
regulatory flexibility analysis''.
(B) Inclusion of response to comments filed by chief
counsel for advocacy.--Section 604(a) of title 5, United
States Code, is amended--
(i) by redesignating paragraphs (3), (4), and (5) as
paragraphs (4), (5), and (6), respectively; and
(ii) by inserting after paragraph (2) the following:
``(3) the response of the agency to any comments filed by
the Chief Counsel for Advocacy of the Small Business
Administration in response to the proposed rule, and a
detailed statement of any changes made to the proposed rule
in the final rule as a result of such comments;''.
(C) Publication of analyses on website.--
(i) Initial regulatory flexibility analysis.--Section 603
of title 5, United States Code, as amended by this Act, is
amended by adding at the end the following:
``(e) An agency shall publish any initial regulatory
flexibility analysis required under this section on the
website of the agency.''.

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(ii) Final regulatory flexibility analysis.--Section 604(b)
of title 5, United States Code, is amended to read as
follows:
``(b) The agency shall make copies of the final regulatory
flexibility analysis available to the public, including
placement of the entire analysis on the website, and shall
publish in the Federal Register the final regulatory
flexibility analysis, or a summary thereof that includes the
telephone number, mailing address, and link to the website
where the complete analysis may be obtained.''.
(3) Cross-references to other analyses.--Section 605(a) of
title 5, United States Code, is amended to read as follows:
``(a) A Federal agency shall be treated as satisfying any
requirement regarding the content of an agenda or regulatory
flexibility analysis under section 602, 603, or 604, if such
agency provides in such agenda or analysis a cross-reference
to the specific portion of another agenda or analysis that is
required by any other law and which satisfies such
requirement.''.
(4) Certifications.--The second sentence of section 605(b)
of title 5, United States Code, is amended by inserting
``detailed'' before ``statement''.
(5) Quantification requirements.--Section 607 of title 5,
United States Code, is amended to read as follows:

``Sec. 607. Quantification requirements

``In complying with sections 603 and 604, an agency shall
provide--
``(1) a quantifiable or numerical description of the
effects of the proposed or final rule and alternatives to the
proposed or final rule; or
``(2) a more general descriptive statement and a detailed
statement explaining why quantification is not practicable or
reliable.''.
(b) Technical and Conforming Amendments.--
(1) Heading.--The heading of section 605 of title 5, United
States Code, is amended to read as follows:

``Sec. 605. Incorporations by reference and certifications''.

(2) Table of sections.--The table of sections for chapter 6
of title 5, United States Code, is amended--
(A) by striking the item relating to section 605 and
inserting the following:

``605. Incorporations by reference and certifications.''; and

(B) by striking the item relating to section 607 and
inserting the following:

``607. Quantification requirements.''.

SEC. 5. OVERSIGHT OF REGULATORY ENFORCEMENT.

Section 30 of the Small Business Act (15 U.S.C. 657) is
amended--
(1) in subsection (b)--
(A) in paragraph (1)--
(i) by inserting ``(A)'' before ``Not later than'';
(ii) by striking ``Nothing in this section is intended to
replace'' and inserting the following:
``(B) Nothing in this section--
``(i) is intended to replace'';
(iii) by striking the period at the end and inserting ``;
or''; and
(iv) by adding at the end the following:
``(ii) may be construed to exempt an agency from providing
relevant information to the Ombudsman upon request.'';
(B) in paragraph (2)--
(i) in subparagraph (A)--

(I) by inserting ``(i)'' before ``work with each agency'';
(II) by inserting ``fine, forfeiture,'' before ``or other
enforcement related''; and
(III) by adding at the end the following: ``or

``(ii) refer any substantiated comment to the affected
agency for response to the Ombudsman;''; and
(ii) by amending subparagraph (C) to read as follows:
``(C) based on cases that are substantiated by the
Ombudsman, annually submit to Congress and affected agencies
a report evaluating the enforcement activities of agency
personnel, including--
``(i) ratings of the responsiveness to small business
concerns; and
``(ii) a description of the policies, actions, and
activities impacting small business concerns described in
subparagraph (A), for each Federal agency and regional or
program office of each Federal agency, as determined
appropriate by the Ombudsman.'';
(2) in subsection (d)(1), by inserting ``, in coordination
with the Ombudsman,'' after ``hold such hearings''; and
(3) by adding at the end the following:
``(e) The Board shall coordinate with the Ombudsman
regarding any official correspondence to be sent by the
Board.''.

____________________