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115th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 115-522
======================================================================
MORTGAGE CHOICE ACT OF 2017
_______
January 22, 2018.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 1153]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 1153) to amend the Truth in Lending Act to
improve upon the definitions provided for points and fees in
connection with a mortgage transaction, having considered the
same, report favorably thereon without amendment and recommend
that the bill do pass.
Purpose and Summary
Introduced on February 16, 2017 by Representative Huizenga,
H.R. 1153, the ``Mortgage Choice Act of 2017'' would exclude
insurance held in escrow and, under certain circumstances, fees
paid to companies affiliated with the creditor from the costs
that would be considered in calculating the three percent
``points and fees'' limitation for purposes of determining
whether a mortgage can be a ``Qualified Mortgage.'' H.R. 1153
would direct the Bureau of Consumer Financial Protection (CFPB)
to amend its regulations related to qualified mortgages to
reflect the new exclusions.
Background and Need for Legislation
On January 10, 2013, the CFPB issued its `Ability-to-Repay
and Qualified Mortgage' rule, which implemented sections 1411,
1412 and 1414 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (P.L. 111-203). The final rule, which went into
effect January 10, 2014, generally requires creditors to make a
`reasonable, good faith determination of a consumer's ability
to repay' any consumer credit transaction secured by a
dwelling, but establishes a legal safe harbor from liability
under this requirement for `Qualified Mortgages' (QM) that are
not `higher-priced.' A mortgage will be considered a `Qualified
Mortgage' if, among other required features and underwriting
requirements, it does not have total `points and fees'
exceeding 3 percent of the total loan amount for loan amounts
greater than or equal to $100,000. The rule stipulates which
costs, known at or before consummation, are included in the
`points and fees' cap. These costs include the finance charge,
loan originator compensation, real-estate related fees,
insurance premiums, and loan-level price adjustment fees.
The QM rule permits the exclusion of certain real estate-
related fees, including fees for title examination, abstract of
a title, title insurance, property survey, document
preparation, notaries, credit reports, appraisals, inspections,
flood hazard determinations, and non-tax related amounts paid
into escrow, but only if they are `reasonable,' the lender
receives no direct or indirect compensation in connection with
the charge, or if the charge is not paid to an affiliate of the
lender. Consequently, the points-and-fees definition includes
charges paid to a third party, such as for an appraisal or for
title insurance, if the third party is affiliated with the
lender, but not if the third party is unaffiliated. This is
true even if the affiliate charges less than the non-affiliate,
which is a common occurrence. As a result, many loans involving
affiliated companies, particularly those made to low and
moderate-income borrowers, would exceed the 3 percent cap, and
not qualify as QMs, which could deprive consumers of the
ability to take advantage of the convenience and market
efficiencies offered by one-stop shopping.
In an October 24, 2017, letter of support, the Community
Mortgage Lenders of America, Consumer Mortgage Coalition,
Credit Union National Association, Financial Services
Roundtable, Leading Builders of America, Mortgage Bankers
Association, National Association of Federal Credit Unions,
National Association of Home Builders, National Association of
Realtors, Realty Alliance, and Real Estate Services Providers
Council expressed their support for H.R. 1153, stating:
The QM rule sets the standard for consumer mortgages
by providing significant compliance certainty to loans
that do not have risky features and meet strict federal
requirements. A key requirement is that points and fees
for a QM may not exceed 3 percent of the loan amount.
The problem arises from the fact that, under current
law and rules, what constitutes a ``fee'' or a
``point'' towards the points and fees cap varies
greatly depending upon who is making the loan and what
arrangements are made by consumers to obtain title
insurance. If the consumer chooses a title insurance
provider that is affiliated with the lender, the title
insurance charges count, but if the insurance is
purchased from an unaffiliated title agency, the title
charges do not count. In addition, escrowed homeowners
insurance premiums may count as ``points and fees'' due
to ambiguous drafting in the law. The inclusion of
either title insurance or escrowed homeowners' premiums
has caused many loans, especially those for low- and
moderate-income consumers, to fail the QM test in
situations where the consumer elected to use one stop-
shopping. As a result, many otherwise qualified
borrowers could not avail themselves of in house
services and/or may have received a higher interest
rate.
H.R. 1153 endeavors to restore a full and open
competitive market by clarifying the definition of fees
and points. In doing so, the legislation will ensure
consumers more choices in credit providers and
settlement service options.
Hearings
The Committee on Financial Services held a hearing
examining matters relating to H.R. 1153 on April 26, 2017 and
April 28, 2017.
Committee Consideration
The Committee on Financial Services met in open session on
November 14, 2017 and November 15, 2017 and ordered H.R. 1153
to be reported favorably by a recorded vote of 46 yeas to 13
nays (Record vote no. FC-101), a quorum being present.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
sole recorded vote was on a motion by Chairman Hensarling to
report the bill favorably to the House without amendment. The
motion was agreed to by a recorded vote of 46 yeas to -13 nays
(Record vote no. FC-101), a quorum being present.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the findings and recommendations of
the Committee based on oversight activities under clause
2(b)(1) of rule X of the Rules of the House of Representatives,
are incorporated in the descriptive portions of this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee states that H.R. 1153
will exclude insurance held in escrow and, under certain
circumstances, fees paid to companies affiliated with the
creditor from the costs that would be considered in calculating
the 3 percent ``points and fees'' limitation for purposes of
determining whether a mortgage can be a ``Qualified Mortgage.''
This bill would direct the CFPB to amend its regulations
related to qualified mortgages to reflect the new exclusions.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, January 19, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1153, the Mortgage
Choice Act of 2017.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Stephen
Rabent.
Sincerely,
Keith Hall,
Director.
Enclosure.
H.R. 1153--Mortgage Choice Act of 2017
Under current law, a ``qualified mortgage'' has certain
characteristics that make it more affordable. Borrowers who are
eligible for such loans are presumed to be able to repay
amounts owed, and lenders are provided certain legal
protections when issuing such mortgages. To meet the qualified-
mortgage definition, certain costs that are incidental to the
loan and that are paid by the borrower--for example, title
insurance fees, guarantee fees, and service charges--cannot
exceed 3 percent of the total loan amount. Lenders offering
``high-cost mortgages'' (home mortgages with interest rates and
fees that exceed certain thresholds) must make certain
additional disclosures to borrowers and must comply with
restrictions on the terms of such loans.
H.R. 1153 would exclude insurance premiums held in escrow
and, under certain circumstances, fees paid to companies
affiliated with the creditor from the costs that would be
considered in determining whether a loan is a qualified
mortgage or a high-cost mortgage.
Using information from the Consumer Financial Protection
Bureau, CBO estimates that enacting H.R. 1153 would increase
direct spending by less than $500,000 for the agency to update
its guidance documents. Because H.R. 1153 would affect direct
spending, pay-as-you-go procedures apply. Enacting the bill
would not affect revenues.
CBO estimates that enacting H.R. 1153 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2028.
H.R. 1153 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Stephen Rabent.
The estimate was approved by H. Samuel Papenfuss, Deputy
Assistant Director for Budget Analysis.
Federal Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995.
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139; or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of H. Res. 5, (115th Congress),
the following statement is made concerning directed
rulemakings: The Committee estimates that the bill requires one
directed rulemakings within the meaning of such section.
The rulemaking requires the CFPB to issue final regulations
to carry out the amendments made by the Act within 90 days of
the enactment of the Act, and those regulations shall be
effective upon issuance.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section cites H.R. 1153 as the ``Mortgage Choice Act
of 2017.''
Section 2. Definition of points and fees
This section amends the definition of `points and fees' in
the Truth in Lending Act, as added by the Dodd-Frank Wall
Street Reform and Consumer Protection Act, to exclude insurance
held in escrow and, under certain circumstances, fees paid to
companies affiliated with the creditor from the costs that
would be considered in calculating the 3 percent limitation.
This section would also amend the exclusion from `points and
fees' to include reasonable charges even though a creditor
receives compensation, but only if the creditor or its
affiliate retains the compensation as a result of their
participation in an affiliated business arrangement. Reasonable
charges paid to a third party unaffiliated with the creditor
must be: (1) a bona fide third party charge not retained by the
mortgage originator, creditor, or an affiliate; or (2) a fee or
premium for title examination, title insurance, or similar
purposes. This section also repeals the exception for bona fide
third party charges not retained by the mortgage originator,
creditor, or an affiliate from the requirement that total
points and fees not exceed 3 percent of the total new loan
amount.
Section 3. Rulemaking
This section requires the CFPB to issue final regulations
reflecting the changes within 90 days of enactment.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
TRUTH IN LENDING ACT
* * * * * * *
TITLE I--CONSUMER CREDIT COST DISCLOSURE
* * * * * * *
CHAPTER 1--GENERAL PROVISIONS
* * * * * * *
Sec. 103. Definitions and rules of construction
(a) The definitions and rules of construction set forth in
this section are applicable for the purposes of this title.
(b) Bureau.--The term ``Bureau'' means the Bureau of Consumer
Financial Protection.
(c) The term ``Bureau'' refers to the Bureau of Governors of
the Federal Reserve System.
(d) The term ``organization'' means a corporation, government
or governmental subdivision or agency, trust, estate,
partnership, cooperative, or association.
(e) The term ``person'' means a natural person or an
organization.
(f) The term ``credit'' means the right granted by a creditor
to a debtor to defer payment of debt or to incur debt and defer
its payment.
(g) The term ``creditor'' refers only to a person who both
(1) regularly extends, whether in connection with loans, sales
of property or services, or otherwise, consumer credit which is
payable by agreement in more than four installments or for
which the payment of a finance charge is or may be required,
and (2) is the person to whom the debt arising from the
consumer credit transaction is initially payable on the face of
the evidence of indebtedness or, if there is no such evidence
of indebtedness, by agreement. Notwithstanding the preceding
sentence, in the case of an open-end credit plan involving a
credit card, the card issuer and any person who honors the
credit card and offers a discount which is a finance charge are
creditors. For the purpose of the requirements imposed under
chapter 4 and sections 127(a)(5), 127(a)(6), 127(a)(7),
127(b)(1), 127(b)(2), 127(b)(3), 127(b)(8), and 127(b)(10) of
chapter 2 of this title, the term ``creditor'' shall also
include card issuers whether or not the amount due is payable
by agreement in more than four installments or the payment of a
finance charge is or may be required, and the Bureau shall, by
regulation, apply these requirements to such card issuers, to
the extent appropriate, even though the requirements are by
their terms applicable only to creditors offering open-end
credit plans. Any person who originates 2 or more mortgages
referred to in subsection (aa) in any 12-month period or any
person who originates 1 or more such mortgages through a
mortgage broker shall be considered to be a creditor for
purposes of this title. The term ``creditor'' includes a
private educational lender (as that term is defined in section
140) for purposes of this title.
(h) The term ``credit sale'' refers to any sale in which the
seller is a creditor. The term includes any contract in the
form of a bailment or lease if the bailee or lessee contracts
to pay as compensation for use a sum substantially equivalent
to or in excess of the aggregate value of the property and
services involved and it is agreed that the bailee or lessee
will become, or for no other or a nominal consideration has the
option to become, the owner of the property upon full
compliance with his obligations under the contract.
(i) The adjective ``consumer'', used with reference to a
credit transaction, characterizes the transaction as one in
which the party to whom credit is offered or extended is a
natural person, and the money, property, or services which are
the subject of the transaction are primarily for personal,
family, or household purposes.
(j) The terms ``open end credit plan'' and ``open end
consumer credit plan'' mean a plan under which the creditor
reasonably contemplates repeated transactions, which prescribes
the terms of such transactions, and which provides for a
finance charge which may be computed from time to time on the
outstanding unpaid balance. A credit plan or open end consumer
credit plan which is an open end credit plan or open end
consumer credit plan within the meaning of the preceding
sentence is an open end credit plan or open end consumer credit
plan even if credit information is verified from time to time.
(k) The term ``adequate notice'', as used in section 133,
means a printed notice to a cardholder which sets forth the
pertinent facts clearly and conspicuously so that a person
against whom it is to operate could reasonably be expected to
have noticed it and understood its meaning. Such notice may be
given to a cardholder by printing the notice on any credit
card, or on each periodic statement of account, issued to the
cardholder, or by any other means reasonably assuring the
receipt thereof by the cardholder.
(l) The term ``credit card'' means any card, plate, coupon
book or other credit device existing for the purpose of
obtaining money, property, labor, or services on credit.
(m) The term ``accepted credit card'' means any credit card
which the cardholder has requested and received or has signed
or has used, or authorized another to use, for the purpose of
obtaining money, property, labor, or services on credit.
(n) The term ``cardholder'' means any person to whom a credit
card is issued or any person who has agreed with the card
issuer to pay obligations arising from the issuance of a credit
card to another person.
(o) The term ``card issuer'' means any person who issues a
credit card, or the agent of such person with respect to such
card.
(p) The term ``unauthorized use'', as used in section 133,
means a use of a credit card by a person other than the
cardholder who does not have actual, implied, or apparent
authority for such use and from which the cardholder receives
no benefit.
(q) The term ``discount'' as used in section 167 means a
reduction made from the regular price. The term ``discount'' as
used in section 167 shall not mean a surcharge.
(r) The term ``surcharge'' as used in section 103 and section
167 means any means of increasing the regular price to a
cardholder which is not imposed upon customers paying by cash,
check, or similar means.
(s) The term ``State'' refers to any State, the Commonwealth
of Puerto Rico, the District of Columbia, and any territory or
possession of the United States.
(t) The term ``agricultural purposes'' includes the
production, harvest, exhibition, marketing, transportation,
processing, or manufacture of agricultural products by a
natural person who cultivates, plants, propagates, or nurtures
those agricultural products, including but not limited to the
acquisition of farmland, real property with a farm residence,
and personal property and services used primarily in farming.
(u) The term ``agricultural products'' includes agricultural,
horticultural, viticultural, and dairy products, livestock,
wildlife, poultry, bees, forest products, fish and shellfish,
and any products thereof, including processed and manufactured
products, and any and all products raised or produced on farms
and any processed or manufactured products thereof.
(v) The term ``material disclosures'' means the disclosure,
as required by this title, of the annual percentage rate, the
method of determining the finance charge and the balance upon
which a finance charge will be imposed, the amount of the
finance charge, the amount to be financed, the total of
payments, the number and amount of payments, the due dates or
periods of payments scheduled to repay the indebtedness, and
the disclosures required by section 129(a).
(w) The term ``dwelling'' means a residential structure or
mobile home which contains one to four family housing units, or
individual units of condominiums or cooperatives.
(x) The term ``residential mortgage transaction'' means a
transaction in which a mortgage, deed of trust, purchase money
security interest arising under an installment sales contract,
or equivalent consensual security interest is created or
retained against the consumer's dwelling to finance the
acquisition or initial construction of such dwelling.
(y) As used in this section and section 167, the term
``regular price'' means the tag or posted price charged for the
property or service if a single price is tagged or posted, or
the price charged for the property or service when payment is
made by use of an open-end credit plan or a credit card if
either (1) no price is tagged or posted, or (2) two prices are
tagged or posted, one of which is charged when payment is made
by use of an open-end credit plan or a credit card and the
other when payment is made by use of cash, check, or similar
means. For purposes of this definition, payment by check,
draft, or other negotiable instrument which may result in the
debiting of an open-end credit plan or a credit cardholder's
open-end account shall not be considered payment made by use of
the plan or the account.
(z) Any reference to any requirement imposed under this title
or any provision thereof includes reference to the regulations
of the Bureau under this title or the provision thereof in
question.
(aa) The disclosure of an amount or percentage which is
greater than the amount or percentage required to be disclosed
under this title does not in itself constitute a violation of
this title.
(bb) High-cost Mortgage.--
(1) Definition.--
(A) In general.--The term ``high-cost
mortgage'', and a mortgage referred to in this
subsection, means a consumer credit transaction
that is secured by the consumer's principal
dwelling, other than a reverse mortgage
transaction, if--
(i) in the case of a credit
transaction secured--
(I) by a first mortgage on
the consumer's principal
dwelling, the annual percentage
rate at consummation of the
transaction will exceed by more
than 6.5 percentage points (8.5
percentage points, if the
dwelling is personal property
and the transaction is for less
than $50,000) the average prime
offer rate, as defined in
section 129C(b)(2)(B), for a
comparable transaction; or
(II) by a subordinate or
junior mortgage on the
consumer's principal dwelling,
the annual percentage rate at
consummation of the transaction
will exceed by more than 8.5
percentage points the average
prime offer rate, as defined in
section 129C(b)(2)(B), for a
comparable transaction;
(ii) the total points and fees
payable in connection with the
transaction, other than bona fide third
party charges not retained by the
mortgage originator, creditor, or an
affiliate of the creditor or mortgage
originator, exceed--
(I) in the case of a
transaction for $20,000 or
more, 5 percent of the total
transaction amount; or
(II) in the case of a
transaction for less than
$20,000, the lesser of 8
percent of the total
transaction amount or $1,000
(or such other dollar amount as
the Bureau shall prescribe by
regulation); or
(iii) the credit transaction
documents permit the creditor to charge
or collect prepayment fees or penalties
more than 36 months after the
transaction closing or such fees or
penalties exceed, in the aggregate,
more than 2 percent of the amount
prepaid.
(B) Introductory rates taken into account.--
For purposes of subparagraph (A)(i), the annual
percentage rate of interest shall be determined
based on the following interest rate:
(i) In the case of a fixed-rate
transaction in which the annual
percentage rate will not vary during
the term of the loan, the interest rate
in effect on the date of consummation
of the transaction.
(ii) In the case of a transaction in
which the rate of interest varies
solely in accordance with an index, the
interest rate determined by adding the
index rate in effect on the date of
consummation of the transaction to the
maximum margin permitted at any time
during the loan agreement.
(iii) In the case of any other
transaction in which the rate may vary
at any time during the term of the loan
for any reason, the interest charged on
the transaction at the maximum rate
that may be charged during the term of
the loan.
(C) Mortgage insurance.--For the purposes of
computing the total points and fees under
paragraph (4), the total points and fees shall
exclude--
(i) any premium provided by an agency
of the Federal Government or an agency
of a State;
(ii) any amount that is not in excess
of the amount payable under policies in
effect at the time of origination under
section 203(c)(2)(A) of the National
Housing Act (12 U.S.C. 1709(c)(2)(A)),
provided that the premium, charge, or
fee is required to be refundable on a
pro-rated basis and the refund is
automatically issued upon notification
of the satisfaction of the underlying
mortgage loan; and
(iii) any premium paid by the
consumer after closing.
(2)(A) After the 2-year period beginning on the effective
date of the regulations promulgated under section 155 of the
Riegle Community Development and Regulatory Improvement Act of
1994, and no more frequently than biennially after the first
increase or decrease under this subparagraph, the Bureau may by
regulation increase or decrease the number of percentage points
specified in paragraph (1)(A), if the Bureau determines that
the increase or decrease is--
(i) consistent with the consumer protections against
abusive lending provided by the amendments made by
subtitle B of title I of the Riegle Community
Development and Regulatory Improvement Act of 1994; and
(ii) warranted by the need for credit.
(B) An increase or decrease under subparagraph (A)--
(i) may not result in the number of
percentage points referred to in paragraph
(1)(A)(i)(I) being less than 6 percentage
points or greater than 10 percentage points;
and
(ii) may not result in the number of
percentage points referred to in paragraph
(1)(A)(i)(II) being less than 8 percentage
points or greater than 12 percentage points.
(C) In determining whether to increase or decrease the number
of percentage points referred to in subparagraph (A), the
Bureau shall consult with representatives of consumers,
including low-income consumers, and lenders.
(3) The amount specified in paragraph (1)(B)(ii) shall be
adjusted annually on January 1 by the annual percentage change
in the Consumer Price Index, as reported on June 1 of the year
preceding such adjustment.
(4) For purposes of [paragraph (1)(B)] paragraph (1)(A) and
section 129C, points and fees shall include--
(A) all items included in the finance charge, except
interest or the time-price differential;
(B) all compensation paid directly or indirectly by a
consumer or creditor to a mortgage originator from any
source, including a mortgage originator that is also
the creditor in a table-funded transaction;
(C) each of the charges listed in section 106(e)
(except an escrow for future payment of taxes and
insurance), unless--
(i) the charge is reasonable;
(ii) the creditor receives no direct or
indirect compensation, except as retained by a
creditor or its affiliate as a result of their
participation in an affiliated business
arrangement (as defined in section 2(7) of the
Real Estate Settlement Procedures Act of 1974
(12 U.S.C. 2602(7)); and
[(iii) the charge is paid to a third party
unaffiliated with the creditor; and]
(iii) the charge is--
(I) a bona fide third-party charge
not retained by the mortgage
originator, creditor, or an affiliate
of the creditor or mortgage originator;
or
(II) a charge set forth in section
106(e)(1);
(D) premiums or other charges payable at or before
closing for any credit life, credit disability, credit
unemployment, or credit property insurance, or any
other [accident,] loss-of-income, life or health
insurance, [or any payments] and any payments directly
or indirectly for any debt cancellation or suspension
agreement or contract, except that insurance premiums
or debt cancellation or suspension fees calculated and
paid in full on a monthly basis shall not be considered
financed by the creditor;
(E) the maximum prepayment fees and penalties which
may be charged or collected under the terms of the
credit transaction;
(F) all prepayment fees or penalties that are
incurred by the consumer if the loan refinances a
previous loan made or currently held by the same
creditor or an affiliate of the creditor; and
(G) such other charges as the Bureau determines to be
appropriate.
(5) Calculation of points and fees for open-end
consumer credit plans.--In the case of open-end
consumer credit plans, points and fees shall be
calculated, for purposes of this section and section
129, by adding the total points and fees known at or
before closing, including the maximum prepayment
penalties which may be charged or collected under the
terms of the credit transaction, plus the minimum
additional fees the consumer would be required to pay
to draw down an amount equal to the total credit line.
(6) This subsection shall not be construed to limit the rate
of interest or the finance charge that a person may charge a
consumer for any extension of credit.
(cc) The term ``reverse mortgage transaction'' means a
nonrecourse transaction in which a mortgage, deed of trust, or
equivalent consensual security interest is created against the
consumer's principal dwelling--
(1) securing one or more advances; and
(2) with respect to which the payment of any
principal, interest, and shared appreciation or equity
is due and payable (other than in the case of default)
only after--
(A) the transfer of the dwelling;
(B) the consumer ceases to occupy the
dwelling as a principal dwelling; or
(C) the death of the consumer.
(cc) Definitions Relating to Mortgage Origination and
Residential Mortgage Loans.--
(1) Commission.--Unless otherwise specified, the term
``Commission'' means the Federal Trade Commission.
(2) Mortgage originator.--The term ``mortgage
originator''--
(A) means any person who, for direct or
indirect compensation or gain, or in the
expectation of direct or indirect compensation
or gain--
(i) takes a residential mortgage loan
application;
(ii) assists a consumer in obtaining
or applying to obtain a residential
mortgage loan; or
(iii) offers or negotiates terms of a
residential mortgage loan;
(B) includes any person who represents to the
public, through advertising or other means of
communicating or providing information
(including the use of business cards,
stationery, brochures, signs, rate lists, or
other promotional items), that such person can
or will provide any of the services or perform
any of the activities described in subparagraph
(A);
(C) does not include any person who is (i)
not otherwise described in subparagraph (A) or
(B) and who performs purely administrative or
clerical tasks on behalf of a person who is
described in any such subparagraph, or (ii) an
employee of a retailer of manufactured homes
who is not described in clause (i) or (iii) of
subparagraph (A) and who does not advise a
consumer on loan terms (including rates, fees,
and other costs);
(D) does not include a person or entity that
only performs real estate brokerage activities
and is licensed or registered in accordance
with applicable State law, unless such person
or entity is compensated by a lender, a
mortgage broker, or other mortgage originator
or by any agent of such lender, mortgage
broker, or other mortgage originator;
(E) does not include, with respect to a
residential mortgage loan, a person, estate, or
trust that provides mortgage financing for the
sale of 3 properties in any 12-month period to
purchasers of such properties, each of which is
owned by such person, estate, or trust and
serves as security for the loan, provided that
such loan--
(i) is not made by a person, estate,
or trust that has constructed, or acted
as a contractor for the construction
of, a residence on the property in the
ordinary course of business of such
person, estate, or trust;
(ii) is fully amortizing;
(iii) is with respect to a sale for
which the seller determines in good
faith and documents that the buyer has
a reasonable ability to repay the loan;
(iv) has a fixed rate or an
adjustable rate that is adjustable
after 5 or more years, subject to
reasonable annual and lifetime
limitations on interest rate increases;
and
(v) meets any other criteria the
Bureau may prescribe;
(F) does not include the creditor (except the
creditor in a table-funded transaction) under
paragraph (1), (2), or (4) of section 129B(c);
and
(G) does not include a servicer or servicer
employees, agents and contractors, including
but not limited to those who offer or negotiate
terms of a residential mortgage loan for
purposes of renegotiating, modifying, replacing
and subordinating principal of existing
mortgages where borrowers are behind in their
payments, in default or have a reasonable
likelihood of being in default or falling
behind.
(3) Nationwide mortgage licensing system and
registry.--The term ``Nationwide Mortgage Licensing
System and Registry'' has the same meaning as in the
Secure and Fair Enforcement for Mortgage Licensing Act
of 2008.
(4) Other definitions relating to mortgage
originator.--For purposes of this subsection, a person
``assists a consumer in obtaining or applying to obtain
a residential mortgage loan'' by, among other things,
advising on residential mortgage loan terms (including
rates, fees, and other costs), preparing residential
mortgage loan packages, or collecting information on
behalf of the consumer with regard to a residential
mortgage loan.
(5) Residential mortgage loan.--The term
``residential mortgage loan'' means any consumer credit
transaction that is secured by a mortgage, deed of
trust, or other equivalent consensual security interest
on a dwelling or on residential real property that
includes a dwelling, other than a consumer credit
transaction under an open end credit plan or, for
purposes of sections 129B and 129C and section 128(a)
(16), (17), (18), and (19), and sections 128(f) and
130(k), and any regulations promulgated thereunder, an
extension of credit relating to a plan described in
section 101(53D) of title 11, United States Code.
(6) Secretary.--The term ``Secretary'', when used in
connection with any transaction or person involved with
a residential mortgage loan, means the Secretary of
Housing and Urban Development.
(7) Servicer.--The term ``servicer'' has the same
meaning as in section 6(i)(2) of the Real Estate
Settlement Procedures Act of 1974 (12 U.S.C.
2605(i)(2)).
(dd) Bona Fide Discount Points and Prepayment Penalties.--For
the purposes of determining the amount of points and fees for
purposes of subsection (aa), either the amounts described in
paragraph (1) or (2) of the following paragraphs, but not both,
shall be excluded:
(1) Up to and including 2 bona fide discount points
payable by the consumer in connection with the
mortgage, but only if the interest rate from which the
mortgage's interest rate will be discounted does not
exceed by more than 1 percentage point--
(A) the average prime offer rate, as defined
in section 129C; or
(B) if secured by a personal property loan,
the average rate on a loan in connection with
which insurance is provided under title I of
the National Housing Act (12 U.S.C. 1702 et
seq.).
(2) Unless 2 bona fide discount points have been
excluded under paragraph (1), up to and including 1
bona fide discount point payable by the consumer in
connection with the mortgage, but only if the interest
rate from which the mortgage's interest rate will be
discounted does not exceed by more than 2 percentage
points--
(A) the average prime offer rate, as defined
in section 129C; or
(B) if secured by a personal property loan,
the average rate on a loan in connection with
which insurance is provided under title I of
the National Housing Act (12 U.S.C. 1702 et
seq.).
(3) For purposes of paragraph (1), the term ``bona
fide discount points'' means loan discount points which
are knowingly paid by the consumer for the purpose of
reducing, and which in fact result in a bona fide
reduction of, the interest rate or time-price
differential applicable to the mortgage.
(4) Paragraphs (1) and (2) shall not apply to
discount points used to purchase an interest rate
reduction unless the amount of the interest rate
reduction purchased is reasonably consistent with
established industry norms and practices for secondary
mortgage market transactions.
* * * * * * *
CHAPTER 2--CREDIT TRANSACTIONS
* * * * * * *
Sec. 129C. Minimum standards for residential mortgage loans
(a) Ability To Repay.--
(1) In general.--In accordance with regulations
prescribed by the Board, no creditor may make a
residential mortgage loan unless the creditor makes a
reasonable and good faith determination based on
verified and documented information that, at the time
the loan is consummated, the consumer has a reasonable
ability to repay the loan, according to its terms, and
all applicable taxes, insurance (including mortgage
guarantee insurance), and assessments.
(2) Multiple loans.--If the creditor knows, or has
reason to know, that 1 or more residential mortgage
loans secured by the same dwelling will be made to the
same consumer, the creditor shall make a reasonable and
good faith determination, based on verified and
documented information, that the consumer has a
reasonable ability to repay the combined payments of
all loans on the same dwelling according to the terms
of those loans and all applicable taxes, insurance
(including mortgage guarantee insurance), and
assessments.
(3) Basis for determination.--A determination under
this subsection of a consumer's ability to repay a
residential mortgage loan shall include consideration
of the consumer's credit history, current income,
expected income the consumer is reasonably assured of
receiving, current obligations, debt-to-income ratio or
the residual income the consumer will have after paying
non-mortgage debt and mortgage-related obligations,
employment status, and other financial resources other
than the consumer's equity in the dwelling or real
property that secures repayment of the loan. A creditor
shall determine the ability of the consumer to repay
using a payment schedule that fully amortizes the loan
over the term of the loan.
(4) Income verification.--A creditor making a
residential mortgage loan shall verify amounts of
income or assets that such creditor relies on to
determine repayment ability, including expected income
or assets, by reviewing the consumer's Internal Revenue
Service Form W-2, tax returns, payroll receipts,
financial institution records, or other third-party
documents that provide reasonably reliable evidence of
the consumer's income or assets. In order to safeguard
against fraudulent reporting, any consideration of a
consumer's income history in making a determination
under this subsection shall include the verification of
such income by the use of--
(A) Internal Revenue Service transcripts of
tax returns; or
(B) a method that quickly and effectively
verifies income documentation by a third party
subject to rules prescribed by the Board.
(5) Exemption.--With respect to loans made,
guaranteed, or insured by Federal departments or
agencies identified in subsection (b)(3)(B)(ii), such
departments or agencies may exempt refinancings under a
streamlined refinancing from this income verification
requirement as long as the following conditions are
met:
(A) The consumer is not 30 days or more past
due on the prior existing residential mortgage
loan.
(B) The refinancing does not increase the
principal balance outstanding on the prior
existing residential mortgage loan, except to
the extent of fees and charges allowed by the
department or agency making, guaranteeing, or
insuring the refinancing.
(C) Total points and fees (as defined in
section [103(aa)(4), other than bona fide third
party charges not retained by the mortgage
originator, creditor, or an affiliate of the
creditor or mortgage originator] 103(bb)(4))
payable in connection with the refinancing do
not exceed 3 percent of the total new loan
amount.
(D) The interest rate on the refinanced loan
is lower than the interest rate of the original
loan, unless the borrower is refinancing from
an adjustable rate to a fixed-rate loan, under
guidelines that the department or agency shall
establish for loans they make, guarantee, or
issue.
(E) The refinancing is subject to a payment
schedule that will fully amortize the
refinancing in accordance with the regulations
prescribed by the department or agency making,
guaranteeing, or insuring the refinancing.
(F) The terms of the refinancing do not
result in a balloon payment, as defined in
subsection (b)(2)(A)(ii).
(G) Both the residential mortgage loan being
refinanced and the refinancing satisfy all
requirements of the department or agency
making, guaranteeing, or insuring the
refinancing.
(6) Nonstandard loans.--
(A) Variable rate loans that defer repayment
of any principal or interest.--For purposes of
determining, under this subsection, a
consumer's ability to repay a variable rate
residential mortgage loan that allows or
requires the consumer to defer the repayment of
any principal or interest, the creditor shall
use a fully amortizing repayment schedule.
(B) Interest-only loans.--For purposes of
determining, under this subsection, a
consumer's ability to repay a residential
mortgage loan that permits or requires the
payment of interest only, the creditor shall
use the payment amount required to amortize the
loan by its final maturity.
(C) Calculation for negative amortization.--
In making any determination under this
subsection, a creditor shall also take into
consideration any balance increase that may
accrue from any negative amortization
provision.
(D) Calculation process.--For purposes of
making any determination under this subsection,
a creditor shall calculate the monthly payment
amount for principal and interest on any
residential mortgage loan by assuming--
(i) the loan proceeds are fully
disbursed on the date of the
consummation of the loan;
(ii) the loan is to be repaid in
substantially equal monthly amortizing
payments for principal and interest
over the entire term of the loan with
no balloon payment, unless the loan
contract requires more rapid repayment
(including balloon payment), in which
case the calculation shall be made (I)
in accordance with regulations
prescribed by the Board, with respect
to any loan which has an annual
percentage rate that does not exceed
the average prime offer rate for a
comparable transaction, as of the date
the interest rate is set, by 1.5 or
more percentage points for a first lien
residential mortgage loan; and by 3.5
or more percentage points for a
subordinate lien residential mortgage
loan; or (II) using the contract's
repayment schedule, with respect to a
loan which has an annual percentage
rate, as of the date the interest rate
is set, that is at least 1.5 percentage
points above the average prime offer
rate for a first lien residential
mortgage loan; and 3.5 percentage
points above the average prime offer
rate for a subordinate lien residential
mortgage loan; and
(iii) the interest rate over the
entire term of the loan is a fixed rate
equal to the fully indexed rate at the
time of the loan closing, without
considering the introductory rate.
(E) Refinance of hybrid loans with current
lender.--In considering any application for
refinancing an existing hybrid loan by the
creditor into a standard loan to be made by the
same creditor in any case in which there would
be a reduction in monthly payment and the
mortgagor has not been delinquent on any
payment on the existing hybrid loan, the
creditor may--
(i) consider the mortgagor's good
standing on the existing mortgage;
(ii) consider if the extension of new
credit would prevent a likely default
should the original mortgage reset and
give such concerns a higher priority as
an acceptable underwriting practice;
and
(iii) offer rate discounts and other
favorable terms to such mortgagor that
would be available to new customers
with high credit ratings based on such
underwriting practice.
(7) Fully-indexed rate defined.--For purposes of this
subsection, the term ``fully indexed rate'' means the
index rate prevailing on a residential mortgage loan at
the time the loan is made plus the margin that will
apply after the expiration of any introductory interest
rates.
(8) Reverse mortgages and bridge loans.--This
subsection shall not apply with respect to any reverse
mortgage or temporary or bridge loan with a term of 12
months or less, including to any loan to purchase a new
dwelling where the consumer plans to sell a different
dwelling within 12 months.
(9) Seasonal income.--If documented income, including
income from a small business, is a repayment source for
a residential mortgage loan, a creditor may consider
the seasonality and irregularity of such income in the
underwriting of and scheduling of payments for such
credit.
(b) Presumption of Ability To Repay.--
(1) In general.--Any creditor with respect to any
residential mortgage loan, and any assignee of such
loan subject to liability under this title, may presume
that the loan has met the requirements of subsection
(a), if the loan is a qualified mortgage.
(2) Definitions.--For purposes of this subsection,
the following definitions shall apply:
(A) Qualified mortgage.--The term ``qualified
mortgage'' means any residential mortgage
loan--
(i) for which the regular periodic
payments for the loan may not--
(I) result in an increase of
the principal balance; or
(II) except as provided in
subparagraph (E), allow the
consumer to defer repayment of
principal;
(ii) except as provided in
subparagraph (E), the terms of which do
not result in a balloon payment, where
a ``balloon payment'' is a scheduled
payment that is more than twice as
large as the average of earlier
scheduled payments;
(iii) for which the income and
financial resources relied upon to
qualify the obligors on the loan are
verified and documented;
(iv) in the case of a fixed rate
loan, for which the underwriting
process is based on a payment schedule
that fully amortizes the loan over the
loan term and takes into account all
applicable taxes, insurance, and
assessments;
(v) in the case of an adjustable rate
loan, for which the underwriting is
based on the maximum rate permitted
under the loan during the first 5
years, and a payment schedule that
fully amortizes the loan over the loan
term and takes into account all
applicable taxes, insurance, and
assessments;
(vi) that complies with any
guidelines or regulations established
by the Board relating to ratios of
total monthly debt to monthly income or
alternative measures of ability to pay
regular expenses after payment of total
monthly debt, taking into account the
income levels of the borrower and such
other factors as the Board may
determine relevant and consistent with
the purposes described in paragraph
(3)(B)(i);
(vii) for which the total points and
fees (as defined in subparagraph (C))
payable in connection with the loan do
not exceed 3 percent of the total loan
amount;
(viii) for which the term of the loan
does not exceed 30 years, except as
such term may be extended under
paragraph (3), such as in high-cost
areas; and
(ix) in the case of a reverse
mortgage (except for the purposes of
subsection (a) of section 129C, to the
extent that such mortgages are exempt
altogether from those requirements), a
reverse mortgage which meets the
standards for a qualified mortgage, as
set by the Board in rules that are
consistent with the purposes of this
subsection.
(B) Average prime offer rate.--The term
``average prime offer rate'' means the average
prime offer rate for a comparable transaction
as of the date on which the interest rate for
the transaction is set, as published by the
Board..
(C) Points and fees.--
(i) In general.--For purposes of
subparagraph (A), the term ``points and
fees'' means points and fees as defined
by section [103(aa)(4) (other than bona
fide third party charges not retained
by the mortgage originator, creditor,
or an affiliate of the creditor or
mortgage originator)] 103(bb)(4).
(ii) Computation.--For purposes of
computing the total points and fees
under this subparagraph, the total
points and fees shall exclude either of
the amounts described in the following
subclauses, but not both:
(I) Up to and including 2
bona fide discount points
payable by the consumer in
connection with the mortgage,
but only if the interest rate
from which the mortgage's
interest rate will be
discounted does not exceed by
more than 1 percentage point
the average prime offer rate.
(II) Unless 2 bona fide
discount points have been
excluded under subclause (I),
up to and including 1 bona fide
discount point payable by the
consumer in connection with the
mortgage, but only if the
interest rate from which the
mortgage's interest rate will
be discounted does not exceed
by more than 2 percentage
points the average prime offer
rate.
(iii) Bona fide discount points
defined.--For purposes of clause (ii),
the term ``bona fide discount points''
means loan discount points which are
knowingly paid by the consumer for the
purpose of reducing, and which in fact
result in a bona fide reduction of, the
interest rate or time-price
differential applicable to the
mortgage.
(iv) Interest rate reduction.--
Subclauses (I) and (II) of clause (ii)
shall not apply to discount points used
to purchase an interest rate reduction
unless the amount of the interest rate
reduction purchased is reasonably
consistent with established industry
norms and practices for secondary
mortgage market transactions.
(D) Smaller loans.--The Board shall prescribe
rules adjusting the criteria under subparagraph
(A)(vii) in order to permit lenders that extend
smaller loans to meet the requirements of the
presumption of compliance under paragraph (1).
In prescribing such rules, the Board shall
consider the potential impact of such rules on
rural areas and other areas where home values
are lower.
(E) Balloon loans.--The Board may, by
regulation, provide that the term ``qualified
mortgage'' includes a balloon loan--
(i) that meets all of the criteria
for a qualified mortgage under
subparagraph (A) (except clauses
(i)(II), (ii), (iv), and (v) of such
subparagraph);
(ii) for which the creditor makes a
determination that the consumer is able
to make all scheduled payments, except
the balloon payment, out of income or
assets other than the collateral;
(iii) for which the underwriting is
based on a payment schedule that fully
amortizes the loan over a period of not
more than 30 years and takes into
account all applicable taxes,
insurance, and assessments; and
(iv) that is extended by a creditor
that--
(I) operates in rural or
underserved areas;
(II) together with all
affiliates, has total annual
residential mortgage loan
originations that do not exceed
a limit set by the Board;
(III) retains the balloon
loans in portfolio; and
(IV) meets any asset size
threshold and any other
criteria as the Board may
establish, consistent with the
purposes of this subtitle.
(3) Regulations.--
(A) In general.--The Board shall prescribe
regulations to carry out the purposes of this
subsection.
(B) Revision of safe harbor criteria.--
(i) In general.--The Board may
prescribe regulations that revise, add
to, or subtract from the criteria that
define a qualified mortgage upon a
finding that such regulations are
necessary or proper to ensure that
responsible, affordable mortgage credit
remains available to consumers in a
manner consistent with the purposes of
this section, necessary and appropriate
to effectuate the purposes of this
section and section 129B, to prevent
circumvention or evasion thereof, or to
facilitate compliance with such
sections.
(ii) Loan definition.--The following
agencies shall, in consultation with
the Board, prescribe rules defining the
types of loans they insure, guarantee,
or administer, as the case may be, that
are qualified mortgages for purposes of
paragraph (2)(A), and such rules may
revise, add to, or subtract from the
criteria used to define a qualified
mortgage under paragraph (2)(A), upon a
finding that such rules are consistent
with the purposes of this section and
section 129B, to prevent circumvention
or evasion thereof, or to facilitate
compliance with such sections:
(I) The Department of Housing
and Urban Development, with
regard to mortgages insured
under the National Housing Act
(12 U.S.C. 1707 et seq.).
(II) The Department of
Veterans Affairs, with regard
to a loan made or guaranteed by
the Secretary of Veterans
Affairs.
(III) The Department of
Agriculture, with regard loans
guaranteed by the Secretary of
Agriculture pursuant to 42
U.S.C. 1472(h).
(IV) The Rural Housing
Service, with regard to loans
insured by the Rural Housing
Service.
(c) Prohibition on Certain Prepayment Penalties.--
(1) Prohibited on certain loans.--
(A) In general.--A residential mortgage loan
that is not a ``qualified mortgage'', as
defined under subsection (b)(2), may not
contain terms under which a consumer must pay a
prepayment penalty for paying all or part of
the principal after the loan is consummated.
(B) Exclusions.--For purposes of this
subsection, a ``qualified mortgage'' may not
include a residential mortgage loan that--
(i) has an adjustable rate; or
(ii) has an annual percentage rate
that exceeds the average prime offer
rate for a comparable transaction, as
of the date the interest rate is set--
(I) by 1.5 or more percentage
points, in the case of a first
lien residential mortgage loan
having a original principal
obligation amount that is equal
to or less than the amount of
the maximum limitation on the
original principal obligation
of mortgage in effect for a
residence of the applicable
size, as of the date of such
interest rate set, pursuant to
the 6th sentence of section
305(a)(2) the Federal Home Loan
Mortgage Corporation Act (12
U.S.C. 1454(a)(2));
(II) by 2.5 or more
percentage points, in the case
of a first lien residential
mortgage loan having a original
principal obligation amount
that is more than the amount of
the maximum limitation on the
original principal obligation
of mortgage in effect for a
residence of the applicable
size, as of the date of such
interest rate set, pursuant to
the 6th sentence of section
305(a)(2) the Federal Home Loan
Mortgage Corporation Act (12
U.S.C. 1454(a)(2)); and
(III) by 3.5 or more
percentage points, in the case
of a subordinate lien
residential mortgage loan.
(2) Publication of average prime offer rate and apr
thresholds.--The Board--
(A) shall publish, and update at least
weekly, average prime offer rates;
(B) may publish multiple rates based on
varying types of mortgage transactions; and
(C) shall adjust the thresholds established
under subclause (I), (II), and (III) of
paragraph (1)(B)(ii) as necessary to reflect
significant changes in market conditions and to
effectuate the purposes of the Mortgage Reform
and Anti-Predatory Lending Act.
(3) Phased-out penalties on qualified mortgages.--A
qualified mortgage (as defined in subsection (b)(2))
may not contain terms under which a consumer must pay a
prepayment penalty for paying all or part of the
principal after the loan is consummated in excess of
the following limitations:
(A) During the 1-year period beginning on the
date the loan is consummated, the prepayment
penalty shall not exceed an amount equal to 3
percent of the outstanding balance on the loan.
(B) During the 1-year period beginning after
the period described in subparagraph (A), the
prepayment penalty shall not exceed an amount
equal to 2 percent of the outstanding balance
on the loan.
(C) During the 1-year period beginning after
the 1-year period described in subparagraph
(B), the prepayment penalty shall not exceed an
amount equal to 1 percent of the outstanding
balance on the loan.
(D) After the end of the 3-year period
beginning on the date the loan is consummated,
no prepayment penalty may be imposed on a
qualified mortgage.
(4) Option for no prepayment penalty required.--A
creditor may not offer a consumer a residential
mortgage loan product that has a prepayment penalty for
paying all or part of the principal after the loan is
consummated as a term of the loan without offering the
consumer a residential mortgage loan product that does
not have a prepayment penalty as a term of the loan.
(d) Single Premium Credit Insurance Prohibited.--No creditor
may finance, directly or indirectly, in connection with any
residential mortgage loan or with any extension of credit under
an open end consumer credit plan secured by the principal
dwelling of the consumer, any credit life, credit disability,
credit unemployment, or credit property insurance, or any other
accident, loss-of-income, life, or health insurance, or any
payments directly or indirectly for any debt cancellation or
suspension agreement or contract, except that--
(1) insurance premiums or debt cancellation or
suspension fees calculated and paid in full on a
monthly basis shall not be considered financed by the
creditor; and
(2) this subsection shall not apply to credit
unemployment insurance for which the unemployment
insurance premiums are reasonable, the creditor
receives no direct or indirect compensation in
connection with the unemployment insurance premiums,
and the unemployment insurance premiums are paid
pursuant to another insurance contract and not paid to
an affiliate of the creditor.
(e) Arbitration.--
(1) In general.--No residential mortgage loan and no
extension of credit under an open end consumer credit
plan secured by the principal dwelling of the consumer
may include terms which require arbitration or any
other nonjudicial procedure as the method for resolving
any controversy or settling any claims arising out of
the transaction.
(2) Post-controversy agreements.--Subject to
paragraph (3), paragraph (1) shall not be construed as
limiting the right of the consumer and the creditor or
any assignee to agree to arbitration or any other
nonjudicial procedure as the method for resolving any
controversy at any time after a dispute or claim under
the transaction arises.
(3) No waiver of statutory cause of action.--No
provision of any residential mortgage loan or of any
extension of credit under an open end consumer credit
plan secured by the principal dwelling of the consumer,
and no other agreement between the consumer and the
creditor relating to the residential mortgage loan or
extension of credit referred to in paragraph (1), shall
be applied or interpreted so as to bar a consumer from
bringing an action in an appropriate district court of
the United States, or any other court of competent
jurisdiction, pursuant to section 130 or any other
provision of law, for damages or other relief in
connection with any alleged violation of this section,
any other provision of this title, or any other Federal
law.
(f) Mortgages With Negative Amortization.--No creditor may
extend credit to a borrower in connection with a consumer
credit transaction under an open or closed end consumer credit
plan secured by a dwelling or residential real property that
includes a dwelling, other than a reverse mortgage, that
provides or permits a payment plan that may, at any time over
the term of the extension of credit, result in negative
amortization unless, before such transaction is consummated--
(1) the creditor provides the consumer with a
statement that--
(A) the pending transaction will or may, as
the case may be, result in negative
amortization;
(B) describes negative amortization in such
manner as the Board shall prescribe;
(C) negative amortization increases the
outstanding principal balance of the account;
and
(D) negative amortization reduces the
consumer's equity in the dwelling or real
property; and
(2) in the case of a first-time borrower with respect
to a residential mortgage loan that is not a qualified
mortgage, the first-time borrower provides the creditor
with sufficient documentation to demonstrate that the
consumer received homeownership counseling from
organizations or counselors certified by the Secretary
of Housing and Urban Development as competent to
provide such counseling.
(g) Protection Against Loss of Anti-deficiency Protection.--
(1) Definition.--For purposes of this subsection, the
term ``anti-deficiency law'' means the law of any State
which provides that, in the event of foreclosure on the
residential property of a consumer securing a mortgage,
the consumer is not liable, in accordance with the
terms and limitations of such State law, for any
deficiency between the sale price obtained on such
property through foreclosure and the outstanding
balance of the mortgage.
(2) Notice at time of consummation.--In the case of
any residential mortgage loan that is, or upon
consummation will be, subject to protection under an
anti-deficiency law, the creditor or mortgage
originator shall provide a written notice to the
consumer describing the protection provided by the
anti-deficiency law and the significance for the
consumer of the loss of such protection before such
loan is consummated.
(3) Notice before refinancing that would cause loss
of protection.--In the case of any residential mortgage
loan that is subject to protection under an anti-
deficiency law, if a creditor or mortgage originator
provides an application to a consumer, or receives an
application from a consumer, for any type of
refinancing for such loan that would cause the loan to
lose the protection of such anti-deficiency law, the
creditor or mortgage originator shall provide a written
notice to the consumer describing the protection
provided by the anti-deficiency law and the
significance for the consumer of the loss of such
protection before any agreement for any such
refinancing is consummated.
(h) Policy Regarding Acceptance of Partial Payment.--In the
case of any residential mortgage loan, a creditor shall
disclose prior to settlement or, in the case of a person
becoming a creditor with respect to an existing residential
mortgage loan, at the time such person becomes a creditor--
(1) the creditor's policy regarding the acceptance of
partial payments; and
(2) if partial payments are accepted, how such
payments will be applied to such mortgage and if such
payments will be placed in escrow.
(i) Timeshare Plans.--This section and any regulations
promulgated under this section do not apply to an extension of
credit relating to a plan described in section 101(53D) of
title 11, United States Code.
* * * * * * *
MINORITY VIEWS
H.R. 1153, the Mortgage Choice Act of 2017, would amend the
Truth in Lending Act (``TILA'') to exempt certain affiliated
businesses from the definition of ``points and fees'' under the
Dodd-Frank Wall Street Reform and Consumer Protection Act's
(``Dodd-Frank Act'') ``qualified mortgage'' (``QM'')
definition. This bill would return consumers to the days before
the enactment of the Dodd-Frank Act, when the true cost of a
loan--inclusive of all costs and fees that the borrower would
incur--could be obscured on mortgage documents, and before all
lenders had to make sure that borrowers actually had the
ability to pay back the full cost of a mortgage when it was
originated.
The 2007-2009 financial crisis was triggered, in part, by
predatory mortgage lending and the widespread availability of
subprime mortgages with little verification or analysis of
borrower income or assets, meaning that neither lenders nor
borrowers knew if borrowers could actually afford to repay
their loans. The impact of this lack of analysis came into play
when interest rates rose and property values declined, causing
many borrowers to experience payment shock that led to mortgage
default and ultimately foreclosure.
An essential piece of the Dodd-Frank Act is Section 1411,
which amends TILA and establishes an ``ability to repay''
(``ATR'') standard for residential mortgage loans. This helps
to ensure that creditors conduct reasonable and good faith
determinations, based on verified and documented information
that, at the time a loan is made, a borrower actually has a
reasonable ability to repay the loan, including all applicable
taxes, insurance, and assessments for it.
This vital provision lays the groundwork to make sure
consumers and the economy are better protected. Section 1412 of
the Dodd-Frank Act further creates a safe harbor and rebuttable
presumption for creditors to demonstrate that they have
complied with ATR duties by satisfying certain factors, which
allows them to classify a residential mortgage loan as a QM
loan. The underwriting standards for QM loans are intended to
reduce the risk that a borrower will default on the loan.
One of the QM standards prohibits the imposition of upfront
fees that exceed three percent of the total loan amount. This
three percent cap is in place to ensure that borrowers are
actually paying for the underlying mortgage, and not high,
unnecessary expenses. H.R. 1153 would modify the points and
fees calculation for QM loans to exclude from this three
percent amount charges for title services of firms affiliated
with the lender. The bill does not impose any limitations on
the costs relating to title services that could be charged as
upfront fees for QM loans. For this reason, the bill would
create a significant loophole in the upfront points and fees
cap created under the Dodd-Frank Act, allowing borrowers to be
charged high costs for title insurance, costs they may not have
budgeted for.
Furthermore, when this legislation moved through the 114th
Congress as H.R. 685, the Obama Administration issued a veto
threat, stating that the measure ``[risked] eroding consumer
protections and returning the mortgage market to the days of
careless lending focused on short-term profits.''\1\ We agree
with this assessment with respect to H.R. 1153, and believe
that it would be irresponsible to weaken ATR standards so that
affiliated title companies have a chance to charge additional
upfront fees.
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\1\https://obamawhitehouse.archives.gov/sites/default/files/omb/
legislative/sap/114/saphr685r_20150413.pdf
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For these reasons, we oppose H.R. 1153.
Maxine Waters.
Keith Ellison.
Gwen Moore.
Michael E. Capuano.
Nydia M. Velazquez.
Carolyn B. Maloney.
Al Green.
Stephen F. Lynch.
[all]