12 USC 1715u – Authority to assist mortgagors in default
(a) Loss mitigation
Upon default or imminent default, as defined by the Secretary 1 of any mortgage insured under this subchapter, mortgagees shall engage in loss mitigation actions for the purpose of providing an alternative to foreclosure (including but not limited to actions such as special forbearance, loan modification, preforeclosure sale, support for borrower housing counseling, subordinate lien resolution, borrower incentives, and deeds in lieu of foreclosure, as required, but not including assignment of mortgages to the Secretary under section 1710(a)(1)(A) of this title) or subsection (c),2 as provided in regulations by the Secretary.
(b) Payment of partial claim
(1) Establishment of program
The Secretary may establish a program for payment of a partial claim to a mortgagee that agrees to apply the claim amount to payment of a mortgage on a 1- to 4-family residence that is in default or faces imminent default, as defined by the Secretary.
(2) Payments and exceptions
Any payment of a partial claim under the program established in paragraph (1) to a mortgagee shall be made in the sole discretion of the Secretary and on terms and conditions acceptable to the Secretary, except that—
(A) the amount of the payment shall be in an amount determined by the Secretary, not to exceed an amount equivalent to 30 percent of the unpaid principal balance of the mortgage and any costs that are approved by the Secretary;
(B) the amount of the partial claim payment shall first be applied to any arrearage on the mortgage, and may also be applied to achieve principal reduction;
(C) the mortgagor shall agree to repay the amount of the insurance claim to the Secretary upon terms and conditions acceptable to the Secretary;
(D) the Secretary may permit compensation to the mortgagee for lost income on monthly payments, due to a reduction in the interest rate charged on the mortgage;
(E) expenses related to the partial claim or modification may not be charged to the borrower;
(F) loans may be modified to extend the term of the mortgage to a maximum of 40 years from the date of the modification; and
(G) the Secretary may permit incentive payments to the mortgagee, on the borrower’s behalf, based on successful performance of a modified mortgage, which shall be used to reduce the amount of principal indebtedness.
(3) Payments in connection with certain activities
The Secretary may pay the mortgagee, from the appropriate insurance fund, in connection with any activities that the mortgagee is required to undertake concerning repayment by the mortgagor of the amount owed to the Secretary.
(c) Assignment and loan modification
(1) Assignment
(A) Program authority
The Secretary may establish a program for assignment to the Secretary, upon request of the mortgagee, of a mortgage on a 1- to 4-family residence insured under this chapter.
(B) Program requirements
The Secretary may accept assignment of a mortgage under this paragraph only if—
(i) the mortgage was in default or facing imminent default, as defined by the Secretary;
(ii) the mortgagee has modified the mortgage to cure the default and provide for mortgage payments within the reasonable ability of the mortgagor to pay, at interest rates not exceeding current market interest rates; and
(iii) the Secretary arranges for servicing of the assigned mortgage by a mortgagee (which may include the assigning mortgagee) through procedures that the Secretary has determined to be in the best interests of the appropriate insurance fund.
(C) Payment of insurance benefits
Upon accepting assignment of a mortgage under this paragraph, the Secretary may pay insurance benefits to the mortgagee from the appropriate insurance fund, in an amount that the Secretary determines to be appropriate, not to exceed the amount necessary to compensate the mortgagee for the assignment and any losses and expenses resulting from the mortgage modification.
(2) Assignment and loan modification
(A) Authority
The Secretary may encourage loan modifications for eligible delinquent mortgages or mortgages facing imminent default, as defined by the Secretary, through the payment of insurance benefits and assignment of the mortgage to the Secretary and the subsequent modification of the terms of the mortgage according to a loan modification approved by the mortgagee.
(B) Payment of benefits and assignment
In carrying out this paragraph, the Secretary may pay insurance benefits for a mortgage, in the amount determined in accordance with section 1710(a)(5) of this title, without reduction for any amounts modified, 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 section 1710(a)(1)(A) of this title.
(C) Disposition
After modification of a mortgage pursuant to this paragraph, the Secretary may provide insurance under this subchapter for the mortgage. The Secretary may subsequently—
(i) re-assign the mortgage to the mortgagee under terms and conditions as are agreed to by the mortgagee and the Secretary;
(ii) act as a Government National Mortgage Association issuer, or contract with an entity for such purpose, in order to pool the mortgage into a Government National Mortgage Association security; or
(iii) re-sell the mortgage in accordance with any program that has been established for purchase by the Federal Government of mortgages insured under this subchapter, and the Secretary may coordinate standards for interest rate reductions available for loan modification with interest rates established for such purchase.
(D) Loan servicing
In carrying out this paragraph, the Secretary may require the existing servicer of a mortgage assigned to the Secretary to continue servicing the mortgage as an agent of the Secretary during the period that the Secretary acquires and holds the mortgage for the purpose of modifying the terms of the mortgage, provided that the Secretary compensates the existing servicer appropriately, as such compensation is determined by the Secretary consistent, to the maximum extent possible, with section 1709(b) of this title. If the mortgage is resold pursuant to subparagraph (C)(iii), the Secretary may provide for the existing servicer to continue to service the mortgage or may engage another entity to service the mortgage.
(d) Prohibition of judicial review
Terms Used In 12 USC 1715u
- association: when used in reference to a corporation, shall be deemed to embrace the words "successors and assigns of such company or association" in like manner as if these last-named words, or words of similar import, were expressed. See 1 USC 5
- Contract: A legal written agreement that becomes binding when signed.
- Evidence: Information presented in testimony or in documents that is used to persuade the fact finder (judge or jury) to decide the case for one side or the other.
- Forbearance: A means of handling a delinquent loan. A
- Foreclosure: A legal process in which property that is collateral or security for a loan may be sold to help repay the loan when the loan is in default. Source: OCC
- Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. Source: OCC
- Lien: A claim against real or personal property in satisfaction of a debt.
- Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
- Mortgagee: The person to whom property is mortgaged and who has loaned the money.
- Mortgagor: The person who pledges property to a creditor as collateral for a loan and who receives the money.
No decision by the Secretary to exercise or forego exercising any authority under this section shall be subject to judicial review.
(e) Repealed. Pub. L. 104-134, title I, §101(e) [title II, §221(b)(2)], Apr. 26, 1996, 110 Stat. 1321-257, 1321-291; renumbered title I, Pub. L. 104-140, §1(a), May 2, 1996, 110 Stat. 1327
(f) Applicability of other laws
No provision of this chapter, or any other law, shall be construed to require the Secretary to provide an alternative to foreclosure for mortgagees with mortgages on 1- to 4-family residences insured by the Secretary under this chapter, or to accept assignments of such mortgages.