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Week Ending November 16, 2007

H.R.3915 To amend the Truth in Lending Act to reform consumer mortgage practices and provide accountability for such practices, to establish licensing and registration requirements for residential mortgage originators, to provide certain minimum standards for consumer mortgage loans, and for other purposes.

As many Americans have found themselves in financial distress due largely to having purchased mortgages that later became too expensive for them to manage, the bill aims to regulate the mortgage industry so to avoid the problem in the future.

There is a Truth in Lending law but this bill acts to increase or improve existing standards on the industry. The bill sets forth a duty-of-care standard for residential mortgage loan originators.

Steering incentives by originators are prohibited. Incentive compensation, yield-spread premium based on the term of a residential mortgage loan is prohibited specifically. HUD and other Federal banking regulators are to prescribe joint regulation to prohibit originators from steering any mortgage consumer to a residential mortgage loan that is not in the consumer’s interest. Steering also includes predatory practices such as equity stripping, excessive fees or abusive terms.

Minimum repayment standards for residential home mortgages are to be established and creditors are required to determine, that a consumer has a reasonable ability to repay the loan based on verifiable documented evidence. Payment of applicable taxes, insurance and tax assessments are to be considered in term of the consumer’s ability to pay.

Creditors are prohibited from extending credit for residential home mortgages that involve refinancing of a prior residential mortgage loan unless the creditor can determine that the refinancing provides a ‘net tangible benefit’ to the borrower. Lending without regard to repayment ability is prohibited.

Assignees and those who secure loans are subject to liability for certain violations in connection with residential home mortgages and the bill also allows for certain defenses against liability charges.

The bill goes more in detail to prescribe certain repayment penalties, single premium insurance, mandatory use of arbitration and negative amortization mortgages. The maximum amount of liability of a mortgage originator shall not exceed an amount equal to 3 times the total amount of direct and indirect compensation or gain accrued from the loan that is found to be in violation, plus the costs of the consumer of the action including reasonable attorney fees. A creditor or securitizer who acted in good faith would only be liable for rescission of the loan and cost incurred as a result of the violation in connection to obtaining a rescission of the loan including reasonable attorney fees. No liability is enforceable if the creditor or secrutizer provides a cure or if they have a policy against buying residential mortgage loans or other qualified mortgages, that intends to verify seller or assignor compliance and is in accordance with Federal banking agencies and SEC reasonable due diligence requirements. A ‘cure means the modification or refinancing, at no cost to the consumer, of the loan.

Mortgage originators must be licenses and registered through the State in which the operate. The requirement aims to increase uniformity, reduce regulatory burden, enhance consumer protection and reduce fraud. State must work through banking organizations to establish licensing and a registry of loan originators. Applicants for the license may not have had previous licenses revoked over the past five years, must not have been convicted of, pled guilty or nolo contendere in a domestic, foreign or military court on felony charges in the past seven years, must demonstrate financial responsibility, character and general fitness to command the confidence of the community to warrant a determination that they will operate honestly, fairly and efficiently and meets written test requirements and 20 hours of education in the field. 75% of test question answers must be correct. A background check is required. HUD may issue a cease and desist order and revoke licenses temporarily or permanently.

High cost mortgages are defined and balloon payments for those mortgages are prohibited. Practices regarding high-cost mortgages such as recommending default on an existing loan or other debt in connection with closing a high-cost mortgage that refinances all or any portion of the existing, defaulted debt is prohibited. Also prohibited are late fees other than in specified requirements and exercising sole discretion to accelerate indebtedness, financing points and fees, structuring certain transactions and reciprocal arrangements to evade requirement of this act.

Creditors may not charge mortgage modification or deferral fees and fees for notification of a mortgage being paid off.

Sponsor:  Rep. Brad Miller (D-NC-13^th)

Vote: Passed the House 291 to 127 November 15, 2007 RC 1118. The motion to recommit the bill failed 188 to 231 RC 1117

Cost to the taxpayers: “CBO estimates that $115 million would be required over the 2008-2012 period for HUD to establish an Office of Housing Counseling and support the development of regulations and provide monitoring and oversight of the Nationwide Mortgage Licensing System and Registry (NMLSR). CBO estimates that implementing H.R. 3915 would cost $316 million over the 2008-2012 period, subject to the appropriation of the necessary amounts”

Earmark Certification:   H.R. 3915 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9 of rule XXI.

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MORE INFORMATION

SECTION-BY SECTION ANALYSIS

ADDITIONAL AND DISSENTING VIEWS OF THE BILL

AMENDMENTS - House

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short Title; Table of Contents

This section establishes the short title of the bill as the `Mortgage Reform and Anti-Predatory Lending Act of 2007' (the Act).

TITLE I--RESIDENTIAL MORTGAGE LOAN ORIGINATION

SUBTITLE A--LICENSING SYSTEM FOR RESIDENTIAL MORTGAGE LOAN ORIGINATORS

Section 101. Purposes and methods for establishing a mortgage licensing system and registry

This section sets forth objectives for a Nationwide Mortgage Licensing System and Registry (NMLSR) for the residential mortgage industry to be established by the States through the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators.

Section 102. Definitions

This section establishes definitions for various terms for this subtitle, including: `loan originator,' `loan processor or underwriter,' `nationwide mortgage licensing system and registry,' `registered loan originator,' `residential mortgage loan,' `State-licensed loan originator,' and `unique identifier.'

Section 103. License or registration required

This section provides that an individual may not engage in the business of a loan originator without obtaining and maintaining registration as a registered loan originator or a license and registration as a State-licensed loan originator, and obtaining a unique identifier, and makes clarifications regarding administrative and clerical workers, as well as loan processors and underwriters.

Section 104. State license and registration application and issuance

This section provides that the applicant to any State for licensing and registration as a State-licensed loan originator has the obligation to furnish certain information to the NMLSR, including fingerprints and personal history and experience. Minimum standards for license issuance include no revocation of loan originator license in the past 5 years, no felony conviction in the past 7 years, demonstration of financial responsibility, completing pre-licensing education reviewed, approved, and published by the NMLSR (at least 20 hours), and passing a written test developed and administered by the NMLSR (at least 75% correct answers out of minimum 100 questions).

Section 105. Standards for State license renewal

This section provides minimum standards for license renewal include the State-licensed loan originator continuing to meet the minimum standards for license issuance and satisfying continuing education requirements.

Section 106. System of registration administration by Federal banking agencies

This section provides that, within one year of the Act's enactment, the Federal banking agencies will jointly develop and maintain a system for registering the employees of banks and their subsidiaries as registered loan originators with the NMLSR, and will furnish or cause to be furnished to the NMLSR certain information including fingerprints and personal history and experience. Under this regime, the Federal banking agencies, at their discretion, may either develop a system to collect registration information from depository institutions and their subsidiary loan originators and furnish that information to the NMLSR, or the Federal banking agencies may arrange for the employee of the depository institution or its subsidiary to supply that information directly to the NMLSR. The Federal banking agencies, through the Federal Financial Institutions Examination Council, will coordinate with the NMLSR to establish a unique identifier for all registered loan originators.

Section 107. Secretary of Housing and Urban Development backup authority to establish a loan originator licensing system

This section provides that if a State does not have in place a system that meets the minimum standards set forth in this section for State-licensed loan originators, or does not participate in the NMLSR, within 1 year of enactment (2 years for those States with legislatures that meet biennially) or any time thereafter, the Secretary of Housing and Urban Development (Secretary) will establish a backup licensing system and maintain and administer a system of licensing and registering loan originators operating in such a State as State-licensed loan originators. The Secretary may grant an extension up to 6 months to those States making a good faith effort to meet the minimum standards. A loan originator licensed by the Secretary can only use the license to originate loans in the State for which it was granted.

Section 108. Backup authority to establish a nationwide mortgage licensing and registry system

This section directs the Secretary to develop and maintain a system for registration and regulation of loan originators if it determines the NMLSR is failing to meet the requirements of the Act.

Section 109. Fees

This section provides that the Federal banking agencies, the Secretary, and the NMLSR may charge reasonable fees to cover costs for maintaining and providing access to the NMLSR, to the extent such fees are not charged to the consumers for accessing the information.

Section 110. Background checks of loan originators

This section provides that the Attorney General will provide access to all criminal history information to States for regulating State-licensed loan originators to the extent criminal background checks are required under State law for licensing loan originators. The Conference of State Bank Supervisors or a wholly owned subsidiary may be used as channeling agent of States for requesting and distributing information between the Department of Justice and the State agencies.

Section 111. Confidentiality of information

This section provides that, except as otherwise provided, requirements under Federal or State privacy or confidentiality laws, and any privilege arising under Federal or State law, will continue to apply after information has been disclosed to the NMLSR or the Department of Housing and Urban Development (HUD) system. Such information may be shared with all State and Federal regulatory officials with mortgage industry oversight authority without loss of privilege or loss of confidentiality protections provided by such laws.

Section 112. Liability provisions

This section provides that the Secretary or any State official or agency or organization serving as the administrator of the NMLSR or the HUD system, or any officer or employee thereof, will not be subject to any civil action for monetary damages for good-faith action or omission while acting within the scope of office or employment.

Section 113. HUD enforcement

This section provides that if the Secretary establishes a backup licensing system pursuant to section 107, then the Secretary will have regulatory authority over the licensees of such backup licensing system (e.g., summons authority, examination authority, and other enforcement authority including the ability to issue cease-and-desist orders and to assess civil money penalties).

SUBTITLE B--RESIDENTIAL MORTGAGE LOAN ORIGINATION STANDARDS

Section 121. Definitions

This section establishes definitions for various terms, including: `Federal banking agencies,' `mortgage originator,' `qualified nationwide registration regime,' `qualifying state licensing law,' `residential mortgage loan,' `securitization vehicle,' and `securitizer.'

Section 122. Residential mortgage loan origination

This section provides that all mortgage originators (including mortgage brokers and depository institutions that originate mortgages) will be subject to a Federal duty of care that requires (1) licensing and registration under State or Federal law (including subtitle A of title I of this Act), (2) diligently working to present the consumer with a range of residential mortgage loan products for which the consumer likely qualifies and are appropriate to the consumer's existing circumstances (i.e., consumer has reasonable ability to repay and receives net tangible benefit, and loan does not have predatory characteristics), (3) making full, complete, and timely disclosures to consumers, (4) certifying to creditors compliance with mortgage origination requirements under this section, and (5) including in all loan documents the unique identifier of the mortgage originator. Mortgage originators are not required, however, to present residential mortgage loan products of creditors that do not accept consumer referrals or applications from the mortgage originator, and creditors are not required to offer products that the creditor does not offer to the general public. The Act expressly does not create an agency or fiduciary relationship, but mortgage originators are free to become an agent or a fiduciary if they so desire. The Federal banking agencies, in consultation with the Secretary and the Federal Trade Commission (Commission), will jointly prescribe regulations to further define the Federal duty of care. The Federal banking agencies will prescribe regulations requiring depository institutions to establish procedures for monitoring compliance with the requirements of this section and the registration procedures of section 106 of the Act.

Section 123. Anti-steering

This section provides that no mortgage originator can receive, and no person can pay, any incentive compensation (including yield spread premium) that is based on or varies with the terms of such loans (other than amount of principal) for loans that are not qualified mortgages (i.e., not prime loans). The Federal banking agencies, in consultation with the Secretary and the Commission, will jointly prescribe regulations to prohibit (1) mortgage originators from steering any consumer to a residential mortgage loan that the consumer lacks a reasonable ability to repay, that does not provide net tangible benefit, or that has predatory characteristics, (2) mortgage originators from steering any consumer from a qualified mortgage (prime loan) to a loan that is not a qualified mortgage, and (3) abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but of different race, ethnicity, gender, or age. However, nothing in the Act should be construed as limiting the ability of a mortgage originator to sell residential mortgage loans to subsequent purchasers, restricting a consumer's ability to finance origination fees if they were disclosed to the consumer and do not vary with the consumer's decision to finance such fees, or prohibiting incentive payments to a mortgage originator based on the number of loans originated.

Section 124. Liability

This section provides that a cause of action will exist under section 130(a) and 130(b) of the Truth in Lending Act (TILA) for a mortgage originator's failure to comply with this section. The maximum liability of a mortgage originator for violation of this section will not exceed three times the total amount of mortgage originator fees, plus the consumer's costs including reasonable attorney's fees.

Section 125. Regulations

This section provides that regulations under this title will be promulgated within 12 months of the enactment of the Act and take effect no later than 18 months after the enactment of the Act.

TITLE II--MINIMUM STANDARDS FOR MORTGAGES

Section 201. Ability to Repay

This section provides that 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 (including all applicable taxes, insurance, and assessments). The Federal banking agencies, in consultation with the Commission, will jointly prescribe regulations regarding this provision. A determination of reasonable ability to repay will be based on the consumer's credit history, current income, expected income the consumer is reasonably assured of receiving, current obligations, debt-to-income ratio, employment status, and other financial resources other than the consumer's equity in the real property securing the loan.

Section 202. Net Tangible Benefit for Refinancing of Residential Mortgage Loans

This section provides that no creditor may extend credit for refinancing unless the creditor reasonably and in good faith determines, at the time the loan is consummated and on the basis of information known by or obtained in good faith by the creditor, that the refinanced loan will provide a net tangible benefit to the consumer. The refinanced loan will not be considered to provide net tangible benefit if the costs of the loan, including points, fees, and other charges, exceed the amount of newly advanced principal without any corresponding changes in the terms of the refinanced loan that are advantageous to

the consumer. The Federal banking agencies will jointly prescribe regulations further defining the term `net tangible benefit.'

Section 203. Safe harbor and rebuttable presumption

This section provides that a presumption can be made that the minimum standards (reasonable ability to repay and net tangible benefit) are met for `qualified mortgages' and `qualified safe harbor mortgages.' Qualified mortgages are presumed to meet the minimum standards and this presumption may not be rebutted. For qualified safe harbor loans, the presumption may be rebutted only against creditors. Qualified mortgages are loans with annual percentage rates (APRs) that are not equal to or greater than 3 percent over comparable securities issued by the Secretary of Treasury (Treasuries) or 175 basis points over the Federal Reserve Board's H.15 rate for first lien loans, and 5 percent over comparable Treasuries or 375 basis points over the Federal Reserve Board's H.15 rate for non-first lien loans, or loans made or guaranteed by the Secretary of Veterans Affairs. Qualified safe harbor mortgages are loans with (1) documented consumer income, (2) underwriting process based on fully indexed rate (and taking into account taxes, insurance, and assessments), (3) no negative amortization, (4) other requirements that may be established by regulation, and (5) one of the following: (i) fixed payment for at least five years, (ii) for variable-rate loans, the APR varies based on a margin that is less than 3 percent over a single interest rate index, or (iii) the loan does not cause the consumer's total monthly debts, including amounts under the loan, to exceed a percentage (to be established by regulation) of monthly gross income.

The Federal banking agencies may jointly prescribe regulations to revise, add to, or subtract from these safe harbor provisions to the extent necessary and appropriate to effectuate the purposes of this subsection, to prevent circumvention or evasion of this subsection, or to facilitate compliance with this subsection.

Section 204. Liability

This section provides that a consumer has a cause of action against a creditor for rescission of the loan and the consumer's costs for a loan that violates the minimum standards for reasonable ability to repay or net tangible benefits as set forth by regulation. A creditor will not be liable for such rescission if the creditor provides a cure to make the loan conform to the minimum standards within 90 days of receiving notice from the consumer. In addition, for a loan that violates the minimum standards, a consumer has an individual cause of action against any assignee or securitizer for rescission of the loan and the consumer's costs. An assignee or securitizer will not be liable for a loan that violates the minimum standards if the assignee or securitizer: (1) provides a cure to make the loan conform to the minimum standards within 90 days of receiving notice from the consumer, or (2) (a) has a policy against buying mortgage loans that are not qualified mortgages or qualified safe harbor mortgages and, in accordance with regulations that the Federal banking agencies and Securities and Exchange Commission will jointly prescribe, exercises reasonable due diligence to adhere to such policy, including through sampling, and (b) has obtained representations and warranties from the seller or assignor of the loan regarding not selling or assigning loans that violate the minimum standards and takes reasonable steps to obtain the benefit of such representations or warranties. If any creditor, assignee or securitizer and a consumer fail to agree on a cure, or if the consumer fails to accept a cure, the creditor, assignee, or securitizer may provide the cure and the consumer may challenge the adequacy of the cure within six months of the cure. If a creditor, assignee, or securitizer cannot provide rescission, they can provide the financial equivalent. Liability of a creditor, assignee, or securitizer will apply for three years after consummation of the loan or, for a variable rate loan or a negative amortization loan, the earlier of one year after the loan resets or six years after consummation of the loan. Liability will not apply to pools of loans, including the securitization vehicle, or investors in pools of loans. It is not intended that liability will apply to trustees or titleholders who in their capacity hold loans solely for the benefit of the securitization vehicle.

Section 205. Defense to foreclosure

This section provides that, when the holder (including the securitization vehicle) of a residential mortgage loan or anyone acting on such holder's behalf initiates a judicial or non-judicial foreclosure, (1) a consumer who has a rescission right under this section may assert such right as a defense to foreclosure or counterclaim to foreclosure against the holder to forestall such foreclosure, or (2) if the foreclosure proceeding begins after the rescission right expires, the consumer may seek actual damages plus costs against the creditor or any assignee or securitizer. Such holder, anyone acting on behalf of such holder, or any other applicable third party may sell or assign a residential mortgage loan to a creditor, any assignee, or any securitizer, or their designee, to effect a rescission or a cure.

Section 206. Additional standards and requirements

This section prohibits prepayment penalties on loans that are not qualified mortgages as defined in section 203 of the Act and requires that all remaining prepayment penalties expire three months before a loan resets.

This section also provides that, in case of foreclosure, any successor in interest will take over the property subject to any bona fide lease made to bona fide tenant entered into before the notice of foreclosure. Bona fide tenants without a lease will receive at least a 90-day notice before being required to vacate. A lease or tenancy is bona fide if it is the result of arms-length transaction or if the rent is not substantially less than fair market rent.

Single-premium credit insurance and mandatory arbitration on mortgage loans are prohibited. Securitizers must reserve the right in any document or contract establishing pools of loans to obtain access to such loans and to provide for and obtain a remedy under this title. A servicer of a residential mortgage loan must provide annual notice (or whenever there is change in ownership of the loan) to the consumer of the identity of the creditor or assignee who should be contacted concerning the consumer's rights with respect to the loan. Negative amortization loans to a first-time borrower are prohibited unless the creditor makes certain disclosures to the consumer and the consumer has received homeownership counseling from a HUD-certified organization or counselor.

Section 207. Rule of construction

This section provides that, except as otherwise expressly provided, no provisions of the new TILA sections 129A and 129B added by the Act will be construed as superseding, repealing, or affecting any duty, right, obligation, privilege, or remedy of any person under any other provision of TILA or any other provision of Federal or State law.

Section 208. Effect on State laws

This section provides that the provisions of section 204 of the Act will supersede any State law that provides additional remedies against any assignee, securitizer, or securitization vehicle, and the remedies in section 204 of the Act will constitute the sole remedies against any assignee, securitizer, or securitization vehicle for a violation of section 201 or 202 of the Act or any other State law arising out of or relating to the specific subject matter of section 201 and 202 of the Act. No provision of this section will be construed as limiting the application of any State law against a creditor. Nor will any provision of this section be construed as limiting the application of any State law against any assignee, securitizer, or securitization vehicle that does not arise out of or relate to, or provide additional remedies in connection with, the specific subject matter of section 201 or 202 of the Act.

Section 209. Regulations

This section provides that regulations under this title will be promulgated within 12 months of the enactment of the Act, and take effect no later than 18 months after the enactment of the Act.

Section 210. Amendments to civil liability provisions

This section doubles the amount of certain statutory civil liability penalties currently applicable under TILA and extends the statute of limitations from one year to three years.

Section 211. Required disclosures

This section provides additional required disclosures under TILA. A creditor must disclose the maximum amount of regular payment a consumer has to make on a variable rate or otherwise variable payment mortgage. For a residential mortgage loan with an escrow or impound account for the payment of taxes, insurance, and assessments, a creditor must disclose that mortgage payments will be increased to cover taxes and insurance and the monthly dollar amount a consumer will pay to cover taxes and insurance in the first year of the mortgage. For a variable rate residential mortgage with an escrow or impound account, a creditor is required to disclose (1) the amount of initial monthly payment for principal and interest; (2) the amount of initial monthly payment including the amount deposited in an escrow or impound to pay for taxes, insurance, and assessments; (3) the amount of the fully indexed monthly payment for principal and interest; and (4) the amount of fully indexed monthly payment deposited in an escrow or impound to pay for taxes, insurance, and assessments. A creditor must also disclose the aggregate amount of settlement charges, the amount of charges included in a mortgage, the amount of charges a consumer must pay at closing, the approximate amount of the wholesale rate of funds, the aggregate amount of other fees or required payments, the aggregate amount of fees paid to a mortgage originator, the amount of fees paid directly by a consumer, and any additional amounts received by a mortgage originator from a creditor based on the interest rate of the loan. Required disclosures must be made at the earlier of the extension of credit or three days before the closing.

A creditor must provide a consumer who applies for variable rate or variable payment mortgage with a warning that payments will vary based on interest rate changes. A creditor is also required to disclose that a consumer is not required to consummate a mortgage transaction merely because a consumer received disclosures or signed a loan application.

Section 212. Authorization of appropriations

This section provides that for fiscal years 2008, 2009, 2010, 2011, and 2012, there are authorized to be appropriated to the Attorney General a total of (1) $31,250,000 to support the employment of 30 additional FBI agents 2 additional dedicated prosecutors at the Department of Justice to coordinate prosecution of mortgage fraud efforts with the offices of the United States Attorneys, and (2) $750,000 to support the operations of interagency task forces of the FBI in the areas with the 15 highest concentration of mortgage fraud.

Section 213. Effective date

This section provides that the amendments made by this title shall apply to transactions consummated on or after the effective date of the regulations specified in section 209.

TITLE III--HIGH-COST MORTGAGES

Section 301. Definitions relating to high-cost mortgages

This section expands the scope of the Home Ownership and Equity Protection Act (HOEPA) to also cover purchase money loans and open-end loans. The section also codifies the existing Federal Reserve standard for the APR trigger which is set at 8 percent above comparable Treasuries for first mortgages and Treasuries plus 10 percent for subordinate mortgages. The points and fees trigger (total points and fees payable in connection with the loan transaction) is lowered from 8 percent to 5 percent for most loans. The points and fees trigger stays at 8 percent for loans secured by a dwelling that is personal property. A third trigger is established for loans with prepayment penalties that exceed 2 percent or 36 months duration. The definition of points and fees is expanded to include all compensation paid directly or indirectly by a consumer or creditor to a mortgage broker from any source (including table-funded transactions), certain insurance premiums, prepayment penalty charges under the loan, and prepayment penalties actually charged in a refinance by the original creditor or the original creditor's affiliate. Certain bona fide discount points and prepayment penalties (up to two points for near-market interest rate loans) are excluded from the determination of the amount of points and fees that trigger HOEPA protections.

Section 302. Amendments to existing requirements for certain mortgages

This section prohibits prepayment penalties on HOEPA loans with principal amounts below the Federal Housing Administration loan limit for a given geographical area. Balloon payments on high-cost mortgages are prohibited unless the payment schedule is adjusted to the seasonal or irregular income of the consumer. Additional high-cost mortgage `ability to repay' protections are provided. A creditor may not extend credit to a consumer under a high-cost mortgage unless a reasonable creditor would believe at the time the mortgage is closed that the consumer will be able to make the scheduled payments associated with the mortgage, based on a consideration of current and expected income, current obligations, employment status, and other financial resources other than equity in the residence. There will be a rebuttable presumption of ability to repay if, at the time the high-cost mortgage is consummated, the consumer's total monthly debts, including amounts under the mortgage, do not exceed 50 percent of monthly

gross income as verified by tax returns, payroll receipts, or other third-party income verification.

Section 303. Additional Requirements for Certain Mortgages

This section prohibits creditors from (1) encouraging that borrowers default on an existing loan when refinancing such existing loan with a high-cost mortgage, (2) charging multiple late fees for a high-cost mortgage on the same delinquent payment and caps any given late fee at 4 percent, (3) unilaterally accelerating a high-cost mortgage, (4) directly or indirectly financing points and fees for high-cost mortgages (the restriction applies to prepayment penalties if the creditor or an affiliate is the noteholder of the note being refinanced), (5) structuring a high-cost mortgage to evade HOEPA protections, (6) modifying or deferring fees unless they can be proven beneficial to the consumer, (7) providing a high-cost mortgage to a consumer unless the creditor has received a certification that the consumer received pre-loan counseling from a HUD-approved entity, and (8) knowingly or intentionally engaging in flipping in connection with a high-cost mortgage. Creditors and servicers are required to disclose and provide free access to payoff amounts.

It is intended that the counseling certification by a HUD-approved entity will indicate that the consumer received counseling, and thus received a written document (i.e., certificate) stating the consumer received counseling. This certificate and certification are intended as evidence that the borrower has received counseling and not that the HUD-approved entity has made a determination on the suitability or affordability of the loan.

Section 304. Amendment to Provision Governing Correction of Errors

This section permits creditors to correct non-bona fide errors within 30 days of the loan closing and prior to the institution of any action. Creditors are permitted to correct bona fide errors within 60 days of the creditors' discovery or receipt of notification and prior to the institution of any action. A creditor may correct an error by making the loan satisfy the applicable requirements of TILA (including requirements of the Act) or, in the case of a high-cost mortgage, changing the terms of the loan so the loan is no longer a high-cost mortgage.

Section 305. Regulations

This section requires the Federal Reserve Board to implement regulations under this title within six months of enactment of the Act.

Section 306. Effective date

The amendments made by this title will be effective upon enactment and will apply to high-cost mortgages consummated on or after that date.

TITLE IV--OFFICE OF HOUSING COUNSELING

Section 401. Short title

This section provides that this title may be cited as the `Expand and Preserve Home Ownership Through Counseling Act.'

Section 402. Establishment of Office of Housing Counseling

This section establishes the Office of Housing Counseling under the Office of the Secretary, headed by a Director of Housing Counseling (Director) appointed by the Secretary. The Director will be responsible for all homeownership and rental housing counseling programs for HUD, and will establish, coordinate and administer all regulations, requirements, standards, and performance measures under the programs that relate to housing counseling, homeownership counseling, mortgage-related counseling, and rental housing counseling. The Director shall establish rules for (1) counseling procedures, (2) carrying out all other related functions, including establishing a toll-free number, (3) information booklets, (4) carrying out the certification of counseling service providers, (5) providing assistance in the provision of counseling services, (6) carrying out functions the Secretary deems appropriate with regard to unscrupulous lending practices in the home mortgage business, (7) support the advisory committee created under this act, (8) collaborate with community-based organizations, and (9) provide for building capacity to provide housing counseling services in areas that lack sufficient services. The Secretary shall appoint an advisory committee composed of no more than 12 individuals representing all aspects of the mortgage and real estate industry, including consumers. Advisory committee members appointed by the Secretary will serve 3-year terms, except that initially, four will be appointed for 1-year terms and four will be appointed for 2-year terms. The Secretary may reappoint members at his discretion. Members will not be paid, but may receive travel expenses. The advisory committee has no role in reviewing or awarding housing counseling grants. Counseling services will cover the entire process of homeownership, including refinancing and foreclosure.

Section 403. Counseling procedures

This section directs the Secretary to establish, coordinate, and monitor all HUD counseling procedures, including requirements, standards, and performance measures that relate to homeownership and rental housing. `Homeownership counseling' is defined as counseling related to homeownership and residential mortgage loans. `Rental housing counseling' is defined as counseling related to rental of residential property, which may include counseling regarding future homeownership opportunities and providing referral for renters and prospective renters to entities providing counseling. The Secretary shall establish standards for materials and forms used by counseling service providers, and provide for the certification of various computer software programs for consumers to use in evaluating different residential mortgage loan proposals. The mortgage software system shall take into account (1) the consumer's financial situation and the cost of maintaining a home, including insurance, taxes, and utilities, (2) the amount of time the consumer expects to remain in the home or expected time to maturity of the loan, and (3) any other factors to assist the consumer in making choices during the loan application process. The certified software programs shall be used to supplement, not replace, housing counseling, and the software programs initially will be used only in connection with the assistance of certified housing counselors. The Secretary shall develop, implement, and conduct national public service multimedia campaigns to make potentially vulnerable consumers aware of the existence of homeownership counseling. Appropriations not to exceed $3 million are authorized for national public service multimedia campaigns for fiscal years 2008, 2009, and 2010. The Secretary shall provide advice and technical assistance to States, units of local government, and non-profit organizations regarding provisions of counseling services.

Section 404. Grants for housing counseling assistance

This section directs the Secretary to make financial assistance available for homeownership or rental counseling to States, units of local government, and non-profit organizations. The Secretary shall establish standards and guidelines for assistance eligibility. Appropriations of $45 million are authorized for each of fiscal years 2008 through 2011 for the operations of the Office of Housing Counseling; homeownership and rental counseling assistance grants; and the establishment of materials and forms standards, computer software certification, and the national public service multimedia campaigns created in section 403 of the Act.

Section 405. Requirements to use HUD-certified counselors under HUD programs

This section requires any homeownership counseling or rental housing counseling administered by HUD to be provided solely by organizations or counselors certified by the Secretary.

Section 406. Study of defaults and foreclosures

This section directs the Secretary to submit to Congress not later than 12 months after the enactment of the Act a preliminary report on the root causes of default and foreclosure of home loans and the role of escrow accounts in helping prime and nonprime borrowers to avoid defaults and foreclosures. No later than 24 months after the enactment of the Act, the Secretary will submit a final report regarding the results of the study, which will include any recommended legislation relating to the study and recommendations for best practices and for a process to identify populations that need counseling the most.

Section 407. Definitions for counseling-related programs

This section provides definitions of `nonprofit organization,' `State,' and `unit of general local government.'

Section 408. Updating and simplification of mortgage information booklet

This section directs the Secretary to prepare a booklet at least once every 5 years to help consumers applying for Federally related mortgage loans to understand the nature and costs of real estate settlement services. The Secretary must include specific topics in the information booklet in plain and understandable language, including explanation of (1) costs incident to real estate settlement or Federally related mortgage loan (including at a minimum balloon payments, prepayment penalties, and trade-off between closing costs and the interest rate over the life of the loan); (2) the uniform settlement statement; (3) unfair lending practices and unreasonable or unnecessary charges to be avoided by the prospective buyer with respect to a real estate settlement; (4) questions that the consumer should ask about a loan; (5) the right of rescission; (6) variable rate mortgages; (7) home equity line of credit; (8) the availability and the value of homeownership counseling services; (9) escrow accounts; (10) available choices for providers of incidental services; (11) the buyer's responsibilities, liabilities, and obligations; (12) appraisals; and (13) HUD brochure regarding loan fraud.

TITLE V--MORTGAGE DISCLOSURES UNDER REAL ESTATE SETTLEMENT PROCEDURES ACT OF 1974

Section 501. Universal mortgage disclosure in good faith estimate of settlement services costs

This section provides additional disclosures in a good faith estimate (GFE) under the Real Estate Settlement Procedures Act. A GFE must include the loan amount, whether the loan is a fixed- or variable rate loan, the estimated interest rate, the total estimated monthly payment, the rate lock period, any prepayment penalty, any balloon payment, the total estimated settlement charge, and the total estimated cash needed at closing.

The Secretary, in consultation with the Secretary of Veterans Affairs, the Federal Deposit Insurance Corporation, and the Director of the Office of Thrift Supervision, shall develop and prescribe a standard form for GFE disclosures be used in all transactions in the United States that involve Federally related mortgage loans.

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, existing law in which no change is proposed is shown in roman):

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ADDITIONAL VIEWS

The undersigned Members of Committee on Financial Services Committee acknowledge the significant work that the Chairman, the Ranking Member, and other Members and staff have done to address some of H.R. 3951's most problematic provisions.

However, we continue to have very serious concerns about the bill, even as revised, and believe that it will hurt rather than help the consumers for which it is intended to provide relief. Never before have we adopted such far-reaching government restrictions and limitations on loan terms and products and underwriting decisions in the private market, that affect the ability of thousands of this country's borrowers to obtain a mortgage loan to finance or refinance their home. While the bill's breadth will affect the mortgage markets serving all segments of our society, its negative impact on the availability and affordability of credit to those borrowers, including minority borrowers, with blemished credit histories, will be most dire.

American consumers must be treated fairly when obtaining mortgage loans and the mortgage crisis clearly revealed organizational weaknesses in the mortgage finance system. These should be addressed by fostering greater understanding by borrowers of loan choices, by improving the regulation of and public knowledge of loan originators, and by ensuring that those persons involved in offering and making loans have a stake in the performance of the loans. But consumers are better off if lenders retain the freedom to offer and consumers have the freedom to choose from the widest range of financial products and options. We are committed to improving the mortgage process to empower consumers to make sound choices among these competing options. H.R. 3915, however, will drastically limit options for consumers, precisely at a time when the markets are already tightening, by imposing stringent restrictions, many of which are subjective, on loans that may be made, and creating severe liability for any lender that makes a loan that might be viewed as outside of those restrictions.

Among our major specific concerns with H.R. 3915 are the following:

Highly Subjective Duties and Standards. The bill creates federal duties for loan originators that are highly subjective, and thus difficult to define for purposes of compliance and potential liability. We remain concerned that any federal duty requiring a loan originator to identify loan products that are `appropriate' for the consumer, including those having a `net tangible benefit,' necessitate a determination whether the loan is suitable for the borrower. This type of standard can always be second-guessed, and should be determined by the borrower, after disclosure of the loan terms, not by the originator who is not the agent of the borrower. Even with regulations providing further clarity on terms such as loans with `predatory characteristics (such as equity stripping, excessive fees, and abusive terms),' the bill will understandably make lenders and assignees highly skittish about making or buying loans other than traditional loans to the most qualified customers. The accommodation of subprime borrowers through flexible underwriting will be sharply curtailed, to the detriment of many borrowers who, experience has shown, can and do repay their loans.

It has been noted that some states, such as North Carolina, have a `net tangible benefit' test in their high cost loan law and it has been suggested that this has not resulted in a reduction in loans. While there are conflicting studies regarding the impact on credit availability of the North Carolina law, the reason there have been few challenges under that law's net tangible benefit test is because of the unavailability of attorney's fees in actions brought by borrowers who choose not to accept the lender's previous offer to cure. H.R. 3915 does not have such a provision which would disallow attorney's fees in a borrower action. The full impact of other states' laws has yet to be felt. In any event, creating a federal `net tangible benefit' that applies across the country will undoubtedly cause a much higher focus on this subjective test, resulting in significant claims. Lenders consequently, will be more restrictive in their offerings.

Rebuttable Presumption. The bill creates a presumption that qualified safe harbor loans (those that meet a number of restrictions) will have a `reasonable ability to repay' and a `net tangible benefit,' but that presumption is rebuttable. As a result, there are no safe harbors to ensure lenders in advance of making a loan that the loan is compliant and thus insulated from challenge. Because of the subjective standards mentioned above, lenders will be very hesitant to make loans subject to this presumption because they will be unable to dispose of even unmeritorious litigation through a motion to dismiss, and thus will incur significant additional costs and exposure.

Excessive Potential Liability. The bill creates excessive potential liability for creditors for compliance with the bill's numerous requirements. In addition to a potential liability of three times the total amount `of direct and indirect compensation or gain accruing' in connection with the violation, which arguably includes all interest and fees, the bill creates an extended rescission right for up to 6 years for certain adjustable rate loans, and potentially allows class action rescission claims against creditors for vague and subjective standards.

Other Restrictions on Loan Terms. The bill contains various provisions that prohibit or severely restrict loan terms that consumers today use to their benefit, including:

arbitration, which is often fast, fair and affordable relief to consumers, who choose not to go to court; and

yield spread premiums, on higher cost loans, which has been a valuable mechanism for borrowers to finance upfront broker compensation rather than pay it at closing.

While these mechanisms clearly must be fully disclosed and chosen by a consumer, outlawing them simply restricts the potential pricing package that consumers may choose.

Intrusion into Internal Company Compensation Structures. The bill's prohibition on all types of `incentive compensation' is overbroad, pushing government regulation into companies' internal operations and incentives. We are not aware that the federal government has attempted previously to regulate that intrusively in American business,

whether in the financial industry or in any other industry. This unprecedented incursion into the internal operations and incentives of companies is a major departure from U.S. law, both as traditionally applied to lenders and as currently applied to every other industry. Lenders use incentive compensation for numerous legitimate purposes, including aligning employees' incentives with their company's incentives, ensuring that the company can obtain specific products when necessary to meet the terms of required loan sale commitments, when the company wants to readjust its portfolio to meet new strategic or risk objectives, and other purposes.

Interference with State Foreclosure Laws. The bill preempts state foreclosure laws that permit a foreclosing creditor to evict a renter in possession. This will greatly disrupt an investor's ability to transfer a property after foreclosure. Investors will demand higher rates, especially on higher risk loans, to compensate for their increased losses in the case of a foreclosure.

Expansion of HOEPA. Title III's lowering of the HOEPA thresholds, and including many additional items in the `points and fees' calculation, would result in far too many loans falling under HOEPA restrictions. Very few lenders have any appetite for making HOEPA loans, so in effect this would result in the establishment of a low usury ceiling--and one that would unintentionally cause many loans to be unsaleable. (For example, by adding prepayment penalties on pre-existing loans in refinancings to the `points and fees' calculation, lenders may be unable to refinance a loan subject to a prepayment penalty without the loan becoming an unsaleable HOEPA loan).

The combination of the bill's expansion of HOEPA, the subjective standards applicable to the loan origination and underwriting process, and the vastly increased liability will greatly reduce mortgage lending, other than to those borrowers with pristine credit records and substantial downpayments. That appears to be the general expectation of every industry participant with whom we have spoken. The Federal Reserve Board issued a credit scoring study in August that indicated that members of certain minority groups have, on average, substantially below-average credit scores. If that study is an accurate reflection of the credit scores of the overall population, we are very concerned that the reduction of lending that we foresee as a result of the bill will have particularly negative effects on minority applicants and communities. It would be a true shame if this bill, meant to protect American consumers, were to have the effect of making mortgage credit unavailable to many deserving borrowers who want a piece of the American dream.

We are confident that consumers can receive appropriate protections without unduly restricting credit or creating enormous liability for the mortgage lending industry. For the foregoing reasons, however, we believe H.R. 3915 must be significantly changed to achieve that objective.
Tom Feeney.
Peter J. Roskam.
Adam H. Putnam.
Geoff Davis.
Stevan Pearce.
Michele Bachmann.
Thomas Price.
Patrick T. McHenry.
Scott Garrett.
John Campbell.
Kenny Marchant.
Randy Neugebauer.

DISSENTING VIEWS

H.R. 3915 is a bill that, in an attempt to improve conditions in the housing market, will end up making it more difficult and more expensive for hard-working Americans to obtain a mortgage. I am afraid that if this bill is adopted into law, its effects would be as severe in the housing market as Sarbanes-Oxley was in the financial industry. Like Sarbanes-Oxley, this is a rushed response to a financial crisis.

I object to the scapegoating of mortgage brokers and lenders that typifies the current legislative response to the subprime housing crisis. The root of this crisis, as with other financial and economic crises, results from the federal government intervention into monetary policy and the housing market, not the actions of market participants. Yet, Congress has failed to identify the causes of the crisis, and instead aims to solve the crisis with more intervention.

The introduction of mandatory fingerprinting and background checks for loan originators is a grave misstep and sets a dangerous precedent. Mandatory background checks and fingerprinting are not a panacea, will not eliminate mortgage fraud, and are an affront to a free and open labor market. Furthermore, by introducing a national mortgage licensing system and registry, Congress would restrict the number of people able to work in the mortgage industry. According to the laws of economics, when the supply of mortgage providers decreases, the cost of retaining those services will increase.

H.R. 3915 also makes restrictions on the types of mortgages which can be offered, utilizing language which is vague enough that its definition will likely be finally determined in time-consuming federal court cases. By restricting the number of people licensed to work in the mortgage industry and the types of mortgages that can be offered, the availability of mortgages would decrease and the cost would increase. H.R. 3915, which has as its purported aim the protection of American homebuyers, would have the perverse effect of keeping more Americans from being able to purchase homes.

The collapse of the housing market has served as a catalyst for much of the recent turbulence in the financial markets, and it appears as though the worst is yet to come. For years the federal government has made it one of its prime aims to encourage homeownership among people who otherwise would not be able to afford homes. Various federal mortgage programs through the FHA, Fannie Mae, and Freddie Mac have distorted the normal workings of the housing market.

The implicit government backing of Fannie Mae and Freddie Mac provides investors an incentive to provide funds to Fannie and Freddie that otherwise would have been put to use in other, more productive sectors of the economy. This flood of investor capital helped to fuel the housing bubble, which as it implodes is causing concern among both homeowners and investors.

Previous legislation passed by this committee made it possible for people who could not afford down payments on houses to receive assistance from the federal government, or even to pay no down payment at all, courtesy of the taxpayers. The requirement of a down payment has always helped to ascertain the ability of a buyer to pay off a mortgage. It requires the buyer to show hard work and thrift, the ability to delay present consumption in order to make a larger acquisition in the future.

When this requirement is minimized or eliminated, you introduce a new class of homebuyers, people who are unable to budget and save for the purchase of a home, or who should wait for a few years until they have saved enough to purchase a home. Federal policies have encouraged investors, lenders, and brokers to cater to these people, so it is no surprise that market actors came up with ever more sophisticated means of bringing these people into the real estate market. The implicit backing of Fannie Mae and Freddie Mac attracted unsavory characters, much as any other federal gravy train. This does not reflect badly on the market, but rather on the government policies which incentivize such behavior. Ironically, today Congress is attacking brokers for providing mortgages to people who arguably could not afford them, when these brokers were merely following the lead of Congress.

Finally, legislative solutions to the housing crisis fail to take into account that fact that the Federal Reserve's loose monetary policy and lowering of interest rates were a major spur to the housing boom. Low interest rates influence marginal buyers, those who are sitting on the fence, and encourage them to take on a mortgage that they otherwise would not. Even when interest rates are raised, no one expects them to stay high for long, as there is always pressure from politicians and investors to keep rates low, as no one wants the cheap credit to end.

Thinking that interest rates will cycle from low to higher, back to low, lenders begin to offer adjustable rate mortgages and other sophisticated mechanisms that may trap many unsavvy buyers. Buyers hope for low interest rates, lenders hope for higher rates, and many homebuyers, lenders, and investors have been harmed as a result of their attempts to foresee the Fed's cyclical policy. Some people might frown on these types of mortgages as excessively risky or even predatory. Risk, however, is endemic to every action in the marketplace, and no amount of legislation will change that fact.

In conclusion, it is time for the federal government to get out of legislating and regulating the housing and mortgage industry. Through interventionist federal legislation we laid the groundwork for the housing bubble, and any attempts at reform that fail to address the causes of our current problem will only exacerbate the problem. H.R. 3915 is no exception, and will only serve to add additional unnecessary complexity to an already over-regulated industry.

RON PAUL.

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AMENDMENTS - House

Amendment offered by Mrs. Maloney (NY).

Agreed to by voice vote November 15, 2007

 Failed 169 to 250 November 15, 2007 RC 1112

Amendment offered by Mr. Price (GA).

Failed 172 to 229 RC 1114

Failed by voice vote November 15, 2007

Amendment offered by Mr. Putnam.

Agreed to by voice vote November 15, 2007

Amendment offered by Mr. Watt to the Hensarling amendment