HR 3081 - Fairness for Homeowners Act of 2007

HR 3081

110th CONGRESS
1st Session

H. R. 3081

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.

IN THE HOUSE OF REPRESENTATIVES

July 18, 2007

Mr. ELLISON (for himself, Mr. CLAY, Mr. CLEAVER, Mr. JOHNSON of Georgia, Ms. LEE, Ms. MCCOLLUM of Minnesota, Mr. OBERSTAR, Mr. WALZ of Minnesota, and Ms. WOOLSEY) introduced the following bill; which was referred to the Committee on Financial Services

A BILL

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Fairness for Homeowners Act of 2007'.

SEC. 2. ORIGINATIONS OF CONSUMER CREDIT TRANSACTIONS SECURED BY THE CONSUMER'S PRINCIPAL DWELLING.

(a) In General- The Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by inserting after section 129 the following new section:

`Sec. 129A. Originations of consumer credit transactions secured by the consumer's principal dwelling

`(a) Definitions- For purposes of this section, the following definitions shall apply:

`(1) FULLY INDEXED RATE- The term `fully indexed rate' equals 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.

`(2) MORTGAGE BROKER- The term `mortgage broker' means any person who is defined as a mortgage broker under applicable State law.

`(b) Requirements for Originators-

`(1) ABILITY TO PAY-

`(A) IN GENERAL- 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: principal; interest; real estate taxes; homeowner's insurance, assessments, and mortgage insurance premiums.

`(B) 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.

`(C) 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.

`(D) OTHER CRITERIA- No provision of this paragraph shall be construed as prohibiting reliance on 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.

`(E) CONSUMER STATEMENT IS INSUFFICIENT PROOF- 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.

`(2) PROHIBITION ON STEERING- No creditor or mortgage broker may make, provide, or arrange for any consumer credit transaction secured by a consumer's principal dwelling that is of a lower investment grade if--

`(A) the consumer's credit score; or

`(B) comparable underwriting data, in any case in which the creditor or mortgage broker does not utilize credit scoring or a credit score for the consumer is unavailable,

indicates that the borrower may qualify for a consumer credit transaction, available from or through the creditor or mortgage broker, that is of a higher investment grade.

`(3) PROHIBITION ON PREPAYMENT PENALTIES FOR ARMS-

`(A) IN GENERAL- In the case of any consumer credit transaction secured by a consumer's principal dwelling that provides for variable rates of interest on the credit extended under the transaction, the transaction may not contain terms under which a consumer must pay a prepayment penalty for paying all or part of the principal before the date on which the principal is due.

`(B) EXCLUSION FOR JUMBO MORTGAGES- Subparagraph (A) shall not apply to any consumer credit transaction secured by a consumer's principal dwelling the principal amount (as defined in subsection (c)(2)) of which exceeds the maximum dollar amount limitation (for a residence of the applicable size) on the amount of the principal obligation of a mortgage for a 1- to 4-family residence that may be purchased by the Federal Home Loan Mortgage Corporation, as then in effect pursuant to section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act.

`(c) Limitation on Financed Points, Charges, and Fees-

`(1) IN GENERAL- 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.

`(2) DEFINITIONS- For purposes of this subsection, the following definitions shall apply:

`(A) QUALIFIED FINANCE CHARGE- The term `qualified finance charge' means the sum of--

`(i) the finance charge as determined under section 106, minus any interest and time price differential; and

`(ii) all compensation paid to a mortgage broker from any source in connection with this transaction.

`(B) PRINCIPAL AMOUNT- The term `principal amount' means--

`(i) 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

`(ii) in the case of any other consumer credit transaction secured by a consumer's principal dwelling, the amount financed (as defined in section 138(a)(2)).

`(3) PROHIBITION ON EXCESSIVE FINANCE CHARGES- No creditor or mortgage broker 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.

`(4) EXCEPTION- This subsection shall not apply to any consumer credit transaction secured by the consumer's principal dwelling that is ensured or guaranteed by the Secretary of Housing and Urban Development, the Secretary of Veterans Affairs, or the Farmers Home Administration.

`(d) Mortgage Broker Duties of Agency-

`(1) IN GENERAL- Any mortgage broker acting to obtain or arrange for any consumer credit transaction secured by the consumer's principal dwelling shall be considered to have an agency relationship with the consumer in all cases by operation of law and shall comply with the following duties:

`(A) 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.

`(B) 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.

`(C) Mortgage brokers shall carry out all lawful instructions given by the consumer.

`(D) 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.

`(E) Mortgage brokers shall use reasonable care in performing duties.

`(F) Mortgage brokers shall account to a consumer for all the consumer's money and property received as agent.

`(2) SCOPE- The duty of agency between mortgage broker and consumer applies 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.

`(3) RULES OF CONSTRUCTION-

`(A) 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 rendered which had been disclosed to the consumer in advance of the provision of such services.

`(B) DUTY OF BROKER- No provision of this subsection shall be construed as requiring a mortgage broker--

`(i) 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

`(ii) 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.

`(e) Independent Verification of Consumer Counseling Before Refinancing Special Mortgages-

`(1) IN GENERAL- 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.

`(2) DEFINITIONS- For purposes of this section, the following definitions shall apply:

`(A) SPECIAL MORTGAGE- 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:

`(i) Payments vary with income.

`(ii) Payments of principal or interest are not required or can be deferred under specified conditions.

`(iii) Principal or interest is forgivable under specified conditions.

`(iv) Either no interest or an annual interest rate of 2 percent or less is charged in connection with the loan.

`(B) 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.

`(f) 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--

`(1) maintains a minimum net worth, net of intangibles, of at least $500,000, as determined in accordance with generally accepted accounting principles; or

`(2) maintains a surety bond or irrevocable letter of credit in the amount of $50,000.

`(g) Enforcement- 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--

`(1) by substituting `mortgage broker' for `creditor' each place such term appears in such section; and

`(2) 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 as actual damages sustained by the consumer as a result of the failure.

`(h) Exclusion of Reverse Mortgages- This section shall not apply with respect to any consumer mortgage transaction that constitutes a reverse mortgage.'.

(b) Technical and Conforming Amendments- The Truth in Lending Act is amended--

(1) in section 103 (u) (15 U.S.C. 1602(u)), by striking `and the disclosures required by section 129(a)' and inserting `and the provisions of section 129 and 129A'; and

(2) in section 130 (15 U.S.C. 1640), by inserting `or 129A' after section 129 each place such term appears.

(c) Clerical Amendment- 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:

`129A. Originations of consumer credit transactions secured by the consumer's principal dwelling.'.

END