H. R. 1782
IN THE HOUSE OF REPRESENTATIVES
March 30, 2009
Mr. Ellison introduced the following bill; which was referred to the Committee on Financial Services
To amend the Truth in Lending Act to protect consumers from certain practices in connection with the origination of consumer credit transactions secured by the consumer’s principal dwelling, and for other purposes.
This Act may be cited as the
Fairness for Homeowners Act of
Originations of consumer credit transactions secured by the consumer’s principal dwelling
The Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by inserting after section 129A the following new section:
Originations of consumer credit transactions secured by the consumer’s principal dwelling
For purposes of this section, the following definitions shall apply:
Fully indexed rate
The term fully indexed rate means the index rate prevailing at the time a consumer credit transaction secured by a consumer’s principal dwelling is originated, plus the margin that will apply after the expiration of an introductory interest rate.
The term mortgage broker means any person who is defined as a mortgage broker under applicable State law.
Requirements for originators
Ability to pay
No creditor or mortgage broker may make, provide, or arrange for any consumer credit transaction secured by a consumer’s principal dwelling without verifying the consumer’s reasonable ability to pay the scheduled payments of the following, as applicable:
Real estate taxes.
Homeowner’s insurance, assessments, and mortgage insurance premiums.
Variable interest rate
In the case of any consumer credit transaction secured by a consumer’s principal dwelling for which the applicable annual percentage rate may vary over the life of the credit, the reasonable ability to pay shall be determined, for purposes of this paragraph, on the basis of a fully indexed rate plus 200 basis points and a repayment schedule which achieves full amortization over the life of the extension of credit.
Verification of consumer income and financial resources
In the case of any consumer credit transaction secured by a consumer’s principal dwelling, the income and financial resources of the consumer shall be verified for purposes of this paragraph by tax returns, payroll receipts, bank records, or other similarly reliable documents.
Consumer statement insufficient
A statement by a consumer of the consumer’s income or financial resources shall not be sufficient to establish the existence of any income or financial resources when verifying the reasonable ability of the consumer to repay any consumer credit transaction secured by the consumer’s principal dwelling, for purposes of this paragraph.
Creditors or mortgage brokers may rely on additional criteria other than a consumer’s income and financial resources to establish the reasonable ability of the consumer to repay any consumer credit transaction secured by the consumer’s principal dwelling, to the extent such other criteria are also verified through reasonably reliable methods and documentation.
Equity in dwelling not to be taken into account
The consumer’s equity in the principal dwelling that secures or would secure the consumer credit transaction may not be used to establish the ability to make the payments described in subparagraph (A) with respect to such transaction.
Prohibition on steering
In connection with a home mortgage loan, a mortgage broker or creditor may not—
steer, counsel, or direct a consumer to rates, charges, principal amount, or prepayment terms that are more expensive for that which the consumer qualifies; or
make, provide, or arrange for any consumer credit transaction secured by a consumer’s principal dwelling that is more expensive than that for which the consumer qualifies.
Duties to consumers
If unable to suggest, offer, or recommend to a consumer a home loan that is not more expensive than that for which the consumer qualifies, a mortgage originator shall—
based on the information reasonably available and using the skill, care, and diligence reasonably expected for a mortgage originator, originate or otherwise facilitate a suitable home mortgage loan by another creditor to a consumer, if permitted by and in accordance with all otherwise applicable law; or
disclose to a consumer—
that the creditor does not offer a home mortgage loan that is not more expensive than a loan for which the consumer qualifies, but that other creditors may offer such a loan; and
the reasons that the products and services offered by the mortgage originator are not available to or reasonably advantageous for the consumer.
In connection with a home mortgage loan, a mortgage originator may not—
mischaracterize the credit history of a consumer or the home loans available to a consumer;
mischaracterize or suborn the mischaracterization of the appraised value of the property securing the extension of credit; and
if unable to suggest, offer, or recommend to a consumer a loan that is not more expensive than a loan for which the consumer qualifies, discourage a consumer from seeking a home mortgage loan from another creditor or with another mortgage originator.
Prohibition on prepayment penalties
In the case of any consumer credit transaction secured by a consumer’s principal dwelling, the transaction may not contain terms under which a consumer is required to pay a prepayment penalty for paying all or part of the principal before the date on which the principal is due.
Limitation on financed points, charges, and fees
No creditor or mortgage broker may, in connection with any consumer credit transaction secured by the consumer’s principal dwelling, include in the principal amount of such transaction any portion of any qualified finance charge in excess of the amount which is equal to 5 percent of the principal amount of the transaction.
For purposes of this subsection, the following definitions shall apply:
Qualified finance charge
The term qualified finance charge means the sum of—
the finance charge as determined under section 103(aa)(4); and
all compensation paid to a mortgage broker from any source in connection with this transaction.
The term principal amount means—
in the case of any consumer credit transaction under an open end credit plan secured by the consumer’s principal dwelling, the maximum amount of credit that may be extended under the terms of such plan as determined without taking into account any amount included in determining the finance charge under section 106; and
in the case of any other consumer credit transaction secured by a consumer’s principal dwelling, the face amount of the obligation on the note.
Prohibition on excessive finance charges
Limitation based on amount of transaction
No person may, in connection with any consumer credit transaction secured by the consumer’s principal dwelling, impose or receive any amount included in determining the qualified finance charge for such transaction that exceeds the amount which is equal to 5 percent of the principal amount of the transaction;
Limitation on fee for providing less beneficial terms for consumer
Except as provided in subparagraph (c), no person may provide and no mortgage originator may receive, directly or indirectly, any compensation for originating a consumer credit transaction secured by a consumer’s principal dwelling that is more costly than that for which the consumer qualifies, or that is based on, or varies with, the terms of any home mortgage loan (other than the amount of loan principal.);
Notwithstanding subparagraph (B), a mortgage broker may receive compensation in the form of an increased rate, but only if—
the mortgage broker receives no other compensation, however denominated, directly or indirectly, from the consumer, creditor, or other mortgage originator;
the loan does not include discount points, origination points, or rate reduction points, however denominated, or any payment reduction fee, however denominated;
the loan does not include a prepayment penalty; and
there are no other closing costs associated with the loan, except for fees to government officials or amounts to fund escrow accounts for taxes and insurance.
Mortgage broker duties
Any mortgage broker acting to obtain or arrange for any consumer credit transaction secured by the consumer’s principal dwelling shall owe a duty to the borrower to comply with the following duties:
Mortgage brokers shall act in the consumer’s best interest and in the utmost good faith toward each consumer and shall not compromise a consumer’s right or interest in favor of another’s right or interest, including a right or interest of the mortgage broker.
A mortgage broker shall not accept, give, or charge any undisclosed compensation or realize any undisclosed remuneration, either through direct or indirect means, that inures to the benefit of the mortgage broker on an expenditure made for the consumer.
Mortgage brokers shall carry out all lawful instructions given by the consumer.
Mortgage brokers shall disclose to consumers all material facts of which the mortgage broker has knowledge which might reasonably affect the consumer’s rights, interests, or ability to receive the consumer’s intended benefit from the consumer credit transaction, but not facts which are reasonably susceptible to the knowledge of the consumer.
Mortgage brokers shall use reasonable care in performing duties.
Mortgage brokers shall account to a consumer for all the consumer’s money and property received as agent.
The duties of the mortgage broker to the consumer apply when the mortgage broker is acting in the capacity of mortgage broker providing mortgage brokerage services with respect to any consumer credit transaction secured by the consumer’s principal dwelling for which the broker is not the creditor.
Rules of construction
Fees for services rendered
No provision of this subsection shall be construed as prohibiting a mortgage broker from contracting for or collecting a fee for services actually rendered to the extent the fee has been disclosed to the consumer in advance of the provision of such services and complies with subsection (c)(3).
Duty of broker
Except as required by subsection (b)(2), no provision of this subsection shall be construed as requiring a mortgage broker—
to obtain or arrange for any consumer credit transaction secured by the consumer’s principal dwelling on behalf of a consumer that contains terms or conditions not available to the mortgage broker in the mortgage broker’s usual course of business; or
to obtain or arrange for any consumer credit transaction secured by the consumer’s principal dwelling from a creditor with whom the mortgage broker does not have a business relationship.
Independent verification of consumer counseling before refinancing special mortgages
No creditor or mortgage broker may make, provide, or arrange for any consumer credit transaction secured by the consumer’s principal dwelling all or a portion of the proceeds of which are used to fully or partially pay off a special mortgage unless the borrower has obtained a written certification from an authorized independent loan counselor that the borrower has received counseling on the advisability of the transaction.
For purposes of this section, the following definitions shall apply:
The term special mortgage means any consumer credit transaction secured by the consumer’s principal dwelling that was originated, subsidized, funded, or guaranteed by or through a State, tribal, or local government, or nonprofit organization, that bears 1 or more of the following nonstandard payment terms which substantially benefit the consumer:
Payments vary with income.
Payments of principal or interest are not required or can be deferred under specified conditions.
Principal or interest is forgivable under specified conditions.
Either no interest or an annual interest rate of 2 percent or less is charged in connection with the loan.
Authorized loan counselor
The term authorized independent loan counselor means any nonprofit, third-party individual or organization providing homebuyer education programs, foreclosure prevention services, mortgage loan counseling, or credit counseling that is certified by the Secretary of Housing and Urban Development, or certified by any State housing agency or nonprofit organization designated by such Secretary, for such purposes.
Minimum financial requirements for mortgage brokers
No mortgage broker may obtain or arrange for any consumer credit transaction secured by the consumer’s principal dwelling unless at all times the mortgage broker—
maintains a minimum net worth, net of intangibles, of at least $500,000, as determined in accordance with generally accepted accounting principles; or
maintains a surety bond or irrevocable letter of credit in the amount of $50,000.
For purposes of providing a cause of action for any failure by a mortgage broker to comply with any requirement imposed under this section, section 130(a) shall be applied with respect to any such failure—
by substituting mortgage broker for creditor each place such term appears in such section; and
by treating all qualified finance charges (as defined in subsection (c)(2)(A)) incurred in the origination of any consumer credit transaction secured by the consumer’s principal dwelling and any compensation paid or payable in violation of (c)(3) as actual damages sustained by the consumer as a result of the failure.
Exclusion of reverse mortgages
This section shall not apply with respect to any consumer mortgage transaction that constitutes a reverse mortgage.
Technical and conforming amendments
The Truth in Lending Act is amended—
in section 103(u) (15 U.S.C. 1602(u)), by
and the disclosures required by section 129(a) and
and the provisions of sections 129 and 129B;
in section 130 (15 U.S.C. 1640), by
or 129B after
section 129 each place
such term appears;
in the heading for subsection (d) of
section 131 (15 U.S.C. 1641), strike
certain and insert
in section 131(c) (15 U.S.C. 1641)—
(c) Any consumer and inserting
(c) Rescission rights.—
by inserting after paragraph (1) (as so designated by subparagraph (A) of this paragraph) the following new paragraph:
In a consumer credit transaction secured by a principal dwelling, other than a mortgage referred to in section 103(aa), an assignee or holder shall be liable for violations of this chapter or, of section 129B in a civil action for monetary damages under section 130(a), notwithstanding paragraph (1), except that any relief made permissible by this subparagraph may not exceed the sum of the amount of any remaining indebtedness and the total amount paid by the consumer in connection with the transaction.
in section 131 (15 U.S.C. 1641) by adding at the end the following new subsection:
Remedy in Lieu of Rescission for Certain Violations
At the election of a consumer entitled to rescission for violations of section 129B, any person, including a creditor, who holds, purchases, or is otherwise assigned a mortgage or similar security interest in connection with a mortgage on a principal dwelling—
may be required to make such adjustments to the balance of the obligation as are required under section 125, and to reflect any other relief pursuant to section 130 and any other legal claims; and
shall modify or refinance the loan, at no cost to the consumer, the resulting balance of which shall provide terms that would have satisfied the requirements of section 129B at the origination of the loan and to pay costs and reasonable attorneys fees.
The table of sections for chapter 2 of the Truth in Lending Act is amended by inserting after the item relating to section 129 the following new item:
129B. Originations of consumer credit transactions secured by the consumer’s principal dwelling.