Home Equity Protection Act of 1993

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Home Equity Protection Act of 
1993''.

SEC. 2. CONSUMER PROTECTIONS FOR HIGH COST MORTGAGES.

    (a) Definition.--Section 103 of the Truth in Lending Act (15 U.S.C. 
1602) is amended by adding after subsection (z) the following new 
subsection:
    ``(aa) The term `high cost mortgage' means a consumer credit 
transaction, other than a residential mortgage transaction, that is 
secured by a consumer's principal dwelling and that satisfies at least 
1 of the following conditions:
            ``(1) The annual percentage rate at consummation of the 
        transaction will exceed by more than 10 percentage points the 
        rate of interest on obligations of the United States having a 
        period of maturity of 1 year on the fifteenth day of the month 
        before such consummation.
            ``(2) All points and fees payable by the consumer at or 
        before closing will exceed the greater of--
                    ``(A) 8 percent of the amount financed, minus fees 
                and points; or
                    ``(B) $400.''.
    (b) Material Disclosures.--Section 103(u) of the Truth in Lending 
Act (15 U.S.C. 1602(u)) is amended--
            (1) by striking ``and the due dates'' and inserting ``, the 
        due dates''; and
            (2) by inserting before the period ``, and the disclosures 
        for high cost mortgages required by section 129(a))''.
    (c) Definition of Creditor Clarified.--Section 103(f) of the Truth 
in Lending Act (15 U.S.C. 1602(f)) is amended by adding at the end the 
following: ``Any person who originates 2 or more high cost mortgages in 
any 12-month period or any person who originates 1 or more high cost 
mortgages through a loan broker shall be considered to be a creditor 
for purposes of section 129.''.
    (d) Disclosures Required and Certain Terms Prohibited.--The Truth 
in Lending Act (15 U.S.C. 1601 et seq.) is amended by inserting after 
section 128 the following new section:

``SEC. 129. REQUIREMENTS FOR HIGH COST MORTGAGES.

    ``(a) Disclosures.--In addition to any other disclosures required 
under this title, for each high cost mortgage, the creditor shall 
provide the following written disclosures in clear language and in 
conspicuous type size and format, segregated from other information as 
a separate document:
            ``(1) The following statement: `If you obtain this loan, 
        the lender will have a mortgage on your home. You could lose 
        your home, and any money you have put into it, if you do not 
        meet your obligations under the loan.'.
            ``(2) The initial annual percentage rate.
            ``(3) The consumer's gross monthly cash income, as verified 
        by the creditor, the total initial monthly payment, and the 
        amount of funds that will remain to meet other obligations of 
        the consumer.
            ``(4) In the case of a variable rate loan, a statement that 
        the annual percentage rate and the interest rate could 
        increase, and the maximum interest rate and payment.
            ``(5) In the case of a variable rate loan with an initial 
        annual percentage rate that is different than the one which 
        would be applied using the contract index after the initial 
        period, a statement of the period of time the initial rate will 
        be in effect, and the rate or rates that will go into effect 
        after the initial period is over, assuming that current 
        interest rates prevail.
            ``(6) A statement that the consumer is not required to 
        complete the transaction merely because he or she has received 
        disclosures or signed a loan application.
            ``(7) A statement as follows: `Under Federal law, this is a 
        high cost mortgage. You may be able to obtain a less expensive 
        loan.'.
    ``(b) Time of Disclosures.--The disclosures required by this 
section shall be given no later than 3 business days prior to 
consummation of the transaction. A creditor may not change the terms of 
the loan after providing the disclosures required by this section.
    ``(c) No Prepayment Penalty.--
            ``(1) In general.--A high cost mortgage may not contain 
        terms under which a consumer must pay a prepayment penalty for 
        paying all or part of the principal prior to the date on which 
        such principal is due. If the date of maturity of the high cost 
        mortgage is accelerated for any reason, the consumer is 
        entitled to a rebate that complies with paragraph (2). No high 
        cost mortgage shall provide for a default interest rate that is 
        higher than the interest rate provided by the note for a 
        performing loan.
            ``(2) Rebate computation.--For purposes of this subsection, 
        any method of computing rebates of a finance charge less 
        favorable to the consumer than the actuarial method using 
        simple interest is a prepayment penalty.
            ``(3) Certain other fees prohibited.--An agreement to 
        refinance a high cost mortgage by the same creditor or an 
        affiliate of the creditor may not require the consumer to pay 
        points, discount fees, or prepaid finance charges on the 
        portion of the loan refinanced. For the purpose of this 
        paragraph, the term `affiliate' has the same meaning as it does 
        in section 2(k) of the Bank Holding Company Act of 1956.
    ``(d) No Balloon Payments.--A high cost mortgage may not include 
terms under which the aggregate amount of the regular periodic payments 
would not fully amortize the outstanding principal balance.
    ``(e) No Negative Amortization.--A high cost mortgage may not 
include terms under which the outstanding principal balance will 
increase over the course of the loan.
    ``(f) No Prepaid Payments.--A high cost mortgage may not include 
terms under which more than 2 periodic payments required under the loan 
are consolidated and paid in advance from the loan proceeds provided to 
the consumer.
    ``(g) Unfair, Deceptive, or Evasive Acts Prohibited.--Creditors of 
contracts governed by this section shall not commit, in the making, 
servicing, or collecting of a high cost mortgage, any act or practice 
which is unfair or deceptive, including any of the following:
            ``(1) Entering into a home equity loan if there is no 
        reasonable probability that the homeowner will be able to make 
        payments according to the terms of the loan.
            ``(2) Taking advantage of the borrower's infirmities, lack 
        of education or sophistication, or language skills, necessary 
        to understand fully the terms of the transaction.
            ``(3) Refinancing other loans owed by the homeowner which 
        had not been accelerated by reason of default of the homeowner 
        prior to the application for the home equity loan, unless the 
        new loan is at a lower interest rate or has lower monthly 
        payments.
            ``(4) Financing a mortgage broker's commission, unless the 
        borrower entered into a separate written contract with the 
        broker prior to the date of application for the home equity 
        loan, which stated the dollar amount of the commission, and 
        which was provided to the borrower prior to the application.
            ``(5) Taking action or interfering with any other consumer 
        protection laws or regulation designed to protect the 
        homeowner.
            ``(6) Assisting in the falsification of information on the 
        application for a home equity loan.
            ``(7) Disbursing to a home improvement contractor more than 
        80 percent of funds due under a home improvement contract which 
        exceeds $10,000, before the completion of the work due under 
        the home improvement contract, or making any disbursement for a 
        home improvement contract in a form other than an instrument 
        jointly payable to the borrower and the contractor.
            ``(8)(A) Engaging in any other unfair, deceptive, or 
        unconscionable conduct which creates a likelihood of confusion 
        or misunderstanding.
            ``(B) Any attempt to evade the provisions of this section 
        by any devise, subterfuge, or pretense whatsoever is deemed to 
        be unfair conduct under this paragraph.
    ``(h) Right of Rescission.--For the purpose of section 125, any 
contract with provisions prohibited by this section is deemed to not 
include material disclosures required under this title. Any provision 
in a high cost mortgage which violates section 125 shall not be 
enforceable.''.

SEC. 3. STATE AUTHORITY TO REGULATE HIGH RATE MORTGAGE LOANS.

    The authority of States to establish limitations on the interest, 
fees, and other terms of a first mortgage which--
            (1) is secured by a first lien on residential real 
        property; and
            (2) is not used to finance the acquisition of that 
        property;
is not preempted by section 501 of the Depository Institutions 
Deregulation and Monetary Control Act of 1980 (12 U.S.C. 1735f-7a) or 
the Alternative Mortgage Transaction Parity Act of 1982 (12 U.S.C. 3801 
et seq.).

SEC. 4. CIVIL LIABILITY.

    (a) Damages.--Section 130(a) of the Truth in Lending Act (15 U.S.C. 
1640(a)) is amended--
            (1) by striking ``and'' at the end of paragraph (2)(B);
            (2) by striking the period at the end of paragraph (3) and 
        inserting ``; and''; and
            (3) by inserting after paragraph (3) the following new 
        paragraph:
            ``(4) in case of a failure to comply with any requirement 
        under section 129, all finance charges and fees.''.
    (b) State Attorney General Enforcement.--Section 130(e) of the 
Truth in Lending Act (15 U.S.C. 1640(e)) is amended by adding at the 
end the following: ``An action to enforce a violation of section 129 
may also be brought by the appropriate State attorney general in a 
court of competent jurisdiction, within 5 years after the date on which 
the violation occurs.''.
    (c) Assignee Liability.--Section 131 of the Truth in Lending Act 
(15 U.S.C. 1641) is amended by adding at the end the following new 
subsection:
    ``(d) High Cost Mortgages.--
            ``(1) In general.--In addition to any other liability 
        imposed under this title, any person who purchases or is 
        otherwise assigned a high cost mortgage shall be subject to all 
        claims and defenses with respect to the mortgage that the 
        consumer could assert against the creditor of the mortgage.
            ``(2) Damages.--Relief under this subsection shall be 
        limited to the sum of--
                    ``(A) an offset of all remaining indebtedness; and
                    ``(B) the total amount paid by the consumer in 
                connection with the transaction.
            ``(3) Notice.--Any person who sells or otherwise assigns a 
        high cost mortgage shall include a prominent notice of the 
        potential liability under this subsection as determined by the 
        Board.''.

SEC. 5. EFFECTIVE DATE.

    This Act shall be effective 60 days after the promulgation of 
regulations by the Board of Governors of the Federal Reserve System, 
which shall occur not later than 180 days following the date of 
enactment of this Act.

Summary: Home Equity Protection Act of 1993 - Amends the Truth in Lending Act to require the creditor of each high cost mortgage to provide certain clearly written, conspicuous disclosures regarding the risks associated with such mortgages. Prohibits such mortgages from containing: (1) a prepayment penalty for paying all or part of the principal prior to the date on which the balance is due, (2) certain refinancing fees, (3) balloon payments, (4) negative amortization, (5) certain prepared payments. And (6) specified unfair, deceptive, or evasive acts. Declares that State authority to regulate certain high rate mortgage loans is not preempted by specified Federal statutes. Includes within the creditor's liability for damages for noncompliance with this Act all finance charges and fees paid by the consumer. Empowers the appropriate State attorney general to bring an action to enforce this Act. Subjects an assignee of a high cost mortgage to all the claims and defenses that the consumer could assert against the creditor.