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[House Report 105-55]
[From the U.S. Government Publishing Office]

105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     105-55
_______________________________________________________________________

 
                  HOMEOWNERS INSURANCE PROTECTION ACT
                                _______
                                

 April 16, 1997.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. Leach, from the Committee on Banking and Financial Services, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 607]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Banking and Financial Services, to whom was 
referred the bill (H.R. 607) to amend the Truth in Lending Act 
to require notice of cancellation rights with respect to 
private mortgage insurance which is required by a creditor as a 
condition for entering into a residential mortgage transaction, 
and for other purposes, having considered the same, report 
favorably thereon with amendments and recommend that the bill 
as amended do pass.
  The amendments are as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Homeowners Insurance Protection Act''.

SEC. 2. PROVISIONS RELATING TO PRIVATE MORTGAGE INSURANCE.

  (a) In General.--Section 6 of the Real Estate Settlement Procedures 
Act of 1974 (12 U.S.C. 2605) is amended--
          (1) by redesignating subsections (f), (g), (h), (i), and (j) 
        as subsections (k), (l), (m), (n), and (o), respectively; and
          (2) by inserting after subsection (e) the following new 
        subsections:
  ``(f) Disclosures Relating to Private Mortgage Insurance.--
          ``(1) Disclosure at settlement relating to existence of 
        pmi.--With regard to any covered mortgage loan, the lender 
        shall disclose, in writing at or before the settlement of such 
        covered mortgage loan, whether any private mortgage insurance 
        will be required to be obtained or maintained with respect to 
        such mortgage loan, including any lender-paid private mortgage 
        insurance, and the period during which such insurance will be 
        required to be in effect.
          ``(2) Disclosure at settlement relating to terminability of 
        pmi.--If the lender requires, as a condition for entering into 
        a covered mortgage loan, the borrower to assume an obligation 
        to make separately designated payments toward the premiums for 
        private mortgage insurance with respect to such loan, the 
        lender shall disclose, in writing at or before the settlement 
        of such covered mortgage loan any of the following notices 
        which are applicable with respect to such loan:
                  ``(A) PMI obligations terminable upon request.--In 
                the case of a loan described in paragraph (3), that--
                          ``(i) the borrower's obligation to make 
                        separately designated payments toward the 
                        premiums for private mortgage insurance may be 
                        able to be terminated while the mortgage is 
                        outstanding (including a cancellation permitted 
                        before the date of automatic termination under 
                        subsection (g)); and
                          ``(ii) the borrower will be notified by the 
                        servicer not less frequently than annually of 
                        an address and a toll-free or collect-call 
                        telephone number which the borrower may use to 
                        contact the servicer to determine--
                                  ``(I) whether the borrower's 
                                obligation to make separately 
                                designated payments toward the premium 
                                for private mortgage insurance may be 
                                terminated while the mortgage loan is 
                                outstanding (or before the date of 
                                automatic termination); and
                                  ``(II) if such obligation may be 
                                terminated while the loan is 
                                outstanding (or before such date), the 
                                conditions and procedures for such 
                                termination.
                  ``(B) PMI obligations terminable by operation of 
                law.--That the borrower's obligation to make separately 
                designated payments toward the premiums for private 
                mortgage insurance will be terminated by operation of 
                law under subsection (g).
                  ``(C) Nonterminable pmi obligations.--In the case of 
                a loan not described in paragraph (3), that the 
                borrower's obligation to pay any amount to be applied 
                to any portion of the premiums for private mortgage 
                insurance will not be terminated at the request of the 
                borrower.
          ``(3) Disclosure with annual statements or other 
        communications.--If--
                  ``(A) private mortgage insurance is required as a 
                condition for entering into a covered mortgage loan; 
                and
                  ``(B) the borrower's obligation to make separately 
                designated payments toward the premiums for such 
                insurance may be terminated at the borrower's request,
        the servicer shall, not less frequently than annually, disclose 
        to the borrower a clear and conspicuous statement containing 
        the disclosures set forth in subparagraphs (A) and (B) of 
        paragraph (2), including the address and telephone number 
        referred to in such paragraph, based on the servicer's 
        knowledge at the time such periodic communication is given. 
        Such disclosure shall be included with any annual statement of 
        account, escrow statement, or related annual communications 
        provided to the borrower, while such private mortgage insurance 
        is in effect.
          ``(4) Disclosures furnished without cost to borrower.--No fee 
        or other cost may be imposed on any borrower for preparing and 
        delivering any disclosure to the borrower pursuant to this 
        subsection.
  ``(g) Mandatory Termination of PMI Obligations at 75 Percent Loan-to-
Value Ratio.--
          ``(1) In general.--Notwithstanding any provision of a covered 
        mortgage loan, any obligation of the borrower to make 
        separately designated payments toward the premiums for any 
        private mortgage insurance in effect with respect to such loan 
        shall terminate, except as provided in paragraph (3), by 
        operation of law as of the 1st day of the 1st month which 
        begins after the date on which the principal balance 
        outstanding on all residential mortgages on the property 
        securing the loan is equal to or less than 75 percent of the 
        lesser of--
                  ``(A) if the loan was made for purchase of the 
                property, the sales price of the property under such 
                purchase; or
                  ``(B) the appraised value of the property, as 
                determined by the appraisal conducted in connection 
                with the making of the loan.
          ``(2) Disclosure upon termination.--Not later than 45 days 
        after the date of termination pursuant to paragraph (1) of a 
        private mortgage insurance requirement for a covered mortgage 
        loan, the servicer shall notify the borrower under the loan, in 
        writing, that--
                  ``(A) the private mortgage insurance has terminated 
                and the borrower no longer has private mortgage 
                insurance; and
                  ``(B) no further premiums, payments, or other fees 
                shall be due or payable by the borrower in connection 
                with the private mortgage insurance.
          ``(3) Exception for delinquent borrowers.--
                  ``(A) In general.--Paragraph (1) shall not apply with 
                respect to any covered mortgage loan on which the 
                payments are not current as of the date that the 
                obligation to make private mortgage insurance premium 
                payments in connection with the loan would otherwise 
                terminate pursuant to paragraph (1).
                  ``(B) Effectiveness once payments are current.--In 
                the case of any covered mortgage loan to which 
                subparagraph (A) applies, paragraph (1) shall apply 
                with respect to such loan as of the 1st day of the 1st 
                month which begins after the date that such payments 
                become current.
          ``(4) Return of payments toward premiums.--
                  ``(A) Return of payments to borrower.--The servicer 
                for a covered mortgage loan shall promptly return to 
                the borrower any payments toward the premiums for any 
                private mortgage insurance for such loan covering any 
                period occurring after the date of automatic 
                termination for such loan under this subsection.
                  ``(B) Return of payments to servicer.--The private 
                mortgage insurer for a covered mortgage loan shall 
                promptly return to the servicer any payments received 
                from the servicer toward the premiums for any private 
                mortgage insurance for such loan covering any period 
                occurring after the date of automatic termination for 
                such loan under this subsection.
  ``(h) Lenders' Conditions for PMI.--
          ``(1) Conditions for termination of borrower's obligation to 
        pay pmi.--The conditions for the termination of the borrower's 
        obligation to make separately designated payments toward the 
        premium for private mortgage insurance with respect to a 
        covered mortgage loan, including any changes in such 
        conditions, shall be reasonably related to the purposes for 
        which the requirement for private mortgage insurance was 
        imposed at the time the loan was made.
          ``(2) Borrower's right to terminate in accordance with 
        conditions.--In the case of any covered mortgage loan described 
        in subsection (f)(3), the borrower shall have the right under 
        this paragraph to terminate the borrower's obligation to make 
        separately designated payments toward the premiums for such 
        insurance if the conditions and procedures for such termination 
        most recently communicated to the borrower (pursuant to a 
        request by the borrower pursuant to notice under subsection 
        (f)(3) or otherwise) have been met.
  ``(i) Effect on Other Agreements.--The provisions of subsections (f), 
(g), and (h) shall supersede any conflicting provision contained in any 
agreement relating to the servicing of a covered mortgage loan entered 
into by the Federal National Mortgage Association, the Federal Home 
Loan Mortgage Corporation, or any private investor or noteholder (or 
any successors thereto). A servicer which cancels private mortgage 
insurance on a covered mortgage loan in compliance with the provisions 
of subsection (g) or (h) or in accordance with investor guidelines in 
existence at the time concerning the cancellation of private mortgage 
insurance (regardless of whether the cancellation by the servicer was 
mandated by such subsections or initiated by the borrower) shall not be 
required to repurchase such mortgage loan from the investor or holder 
of such mortgage loan solely on the grounds that the private mortgage 
insurance was canceled in accordance with the provisions of such 
subsections or investor guidelines, as applicable.
  ``(j) Limitations on Liability.--If the servicer for a covered 
mortgage loan has complied with the requirements under subsections (f) 
and (g) to provide disclosures, the servicer shall not be considered to 
have violated any provision of subsection (f), (g), or (h) and shall 
not be liable for any such violation--
          ``(1) due to any failure on the part of the servicer to 
        provide disclosures required under such subsections resulting 
        from the failure of any mortgage insurer, any mortgage holder, 
        or any other party to timely provide accurate information to 
        the servicer necessary to permit the disclosures; or
          ``(2) due to any failure on the part of any private mortgage 
        insurer, any mortgage holder, or any other party to comply with 
        the provisions of such subsections.
Each private mortgage insurer and each mortgage holder for a covered 
mortgage loan shall provide accurate and timely information to the 
servicer for such loan necessary to permit the disclosures required by 
subsections (f) and (g). In the event of a dispute regarding liability 
for a violation of subsection (f), (g), or (h), and upon request by the 
borrower, a servicer shall provide the borrower with information 
stating the identity of the insurer or mortgage holder.''.
  (b) Definitions.--Subsection (n) of section 6 of the Real Estate 
Settlement Procedures Act of 1974 (as redesignated by subsection 
(a)(1)) is amended--
          (1) by redesignating paragraphs (1), (2), and (3) as 
        paragraphs (2), (5), and (6), respectively;
          (2) by inserting before paragraph (2) (as redesignated by 
        paragraph (1) of this subsection) the following new paragraph:
          ``(1) Covered mortgage loan.--The term `covered mortgage 
        loan' means a federally related mortgage loan under which the 
        property securing the loan is used by the borrower as the 
        borrower's principal residence.''; and
          (3) by inserting after paragraph (2) (as so redesignated) the 
        following new paragraphs:
          ``(3) Mortgage insurance.--The term `mortgage insurance' 
        means insurance, including any mortgage guaranty insurance, 
        against the nonpayment of, or default on, a mortgage or loan 
        involved in a residential mortgage transaction, the premiums 
        for which are paid by the borrower.
          ``(4) Private mortgage insurance.--The term `private mortgage 
        insurance' means mortgage insurance other than mortgage 
        insurance made available under the National Housing Act, title 
        38 of the United States Code, or title V of the National 
        Housing Act of 1949.''.

SEC. 3. SCOPE OF APPLICABILITY.

  (a) Notice at or Before Settlement.--Paragraphs (1) and (2) of 
section 6(f) of the Real Estate Settlement Procedures Act of 1974 (as 
added by section 2(a) of this Act) shall apply only with respect to 
covered mortgage loans made after the end of the 1-year period 
beginning on the date of the enactment of this Act.
  (b) Notice of PMI Obligation Terminability.--Paragraphs (3) and (4) 
of section 6(f) of the Real Estate Settlement Procedures Act of 1974 
(as added by section 2(a) of this Act) shall apply beginning upon the 
end of the 1-year period that begins on the date of the enactment of 
this Act and with respect to any covered mortgage loan without regard 
to the date on which such loan was made.
  (c) Termination of PMI Obligation by Operation of Law.--Subsections 
(g) and (h) of section 6 of the Real Estate Settlement Procedures Act 
of 1974 (as added by section 2(a) of this Act) shall apply only with 
respect to covered mortgage loans made after the end of the 1-year 
period beginning on the date of the enactment of this Act.

SEC. 4. CONFORMING AMENDMENTS.

  (a) Section 6.--Section 6(m) of the Real Estate Settlement Procedures 
Act of 1974 (12 U.S.C. 2605) (as redesignated by section 2(a)(1) of 
this Act) is amended--
          (1) by inserting ``(not including subsection (f))'' before 
        ``regarding timing''; and
          (2) by adding at the end the following new sentence: ``The 
        preceding sentence shall not apply to any State law or 
        regulation relating to notice or disclosure to a borrower 
        regarding obtaining, maintaining, or terminating private 
        mortgage insurance and such State laws and regulations shall be 
        subject to the provisions of section 18.''.
  (b) Section 10.--Section 10(b) of the Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2609(b)) is amended by striking 
``section 6(i)'' and inserting ``section 6(n)''.
  (c) Section 12.--Section 12 of the Real Estate Settlement Procedures 
Act of 1974 (12 U.S.C. 2610) is amended by striking ``section 6(i)'' 
and inserting ``section 6(n)''.

  Amend the title so as to read:

    A bill to amend the Real Estate Settlement Procedures Act 
of 1974 to require notice of cancellation rights with respect 
to private mortgage insurance which is required as a condition 
of entering into certain federally related mortgage loans and 
to provide for cancellation of such insurance, and for other 
purposes.

                          Purpose and Summary

    The purpose of this legislation is to establish Federal 
guidelines for disclosure and termination of private mortgage 
insurance (PMI). Some states already require disclosures 
regarding PMI and a few states even require automatic 
termination of PMI. For instance, New York requires PMI to be 
terminated when a borrower reaches 75% loan-to-value ratio 
(LTV). Due to the variance in states requirements, a Federal 
guideline would serve as a minimum standard.
    H.R. 607, as amended by the Committee, provides for three 
major reforms of the private mortgage insurance industry. 
First, it requires mortgage lenders and servicers to disclose 
to borrowers if PMI is required and, if so, how borrowers can 
terminate it. These notices are required at the time of 
settlement and annually while PMI is required. Second, the bill 
provides for a statutory right for borrowers to terminate PMI 
once the conditions disclosed under the above-required notices 
are met. Third, the bill provides for automatic termination of 
PMI once the loan reaches a 75% LTV and if the borrower is 
current on payments. The borrower must also be given notice 
once the loan reaches the 75% LTV. The new notice requirement 
at settlement takes effect one year after enactment. The annual 
notice requirement also takes effect one year after enactment 
and applies to existing loans. The new statutory rights to 
terminate PMI when the disclosed conditions are met and when 
the borrower has reached the 75% LTV are effective for loans 
made one year after enactment.
    H.R. 607, as amended, would not preempt State laws. 
Further, the bill would not affect lender paid mortgage 
insurance (LPMI), except for the disclosure requirements made 
at settlement.

                  Background and Need for Legislation

    Private mortgage insurance plays an important role in the 
mortgage industry by allowing low-income borrowers or borrowers 
with little cash greater access to home ownership. PMI enables 
homeowners to purchase homes with as little as a 3% to 5% down 
payment by insuring the mortgage lender or investor against 
default. For conventional mortgages, PMI is normally required 
whenever borrowers do not have 20% down payments.
    Throughout the life of a mortgage, there are approximately 
four key parties: borrower (homeowner); lender (originator of 
loan); servicer (point of contact with the borrower); and 
investor (owner of the loan). In some cases, a lender can also 
serve as the servicer and/or investor of the loan. In the 
majority of cases, however, once a mortgage is originated, the 
loan is eventually sold to the secondary market which is either 
facilitated by the private capital markets or Government 
Sponsored Enterprises (GSEs), such as Federal National Mortgage 
Association (Fannie Mae) or Federal Home Loan Mortgage 
Corporation (Freddie Mac).
    The secondary market participants provide underwriting 
standards which require mortgage insurance for loans with down 
payments of less than 20% of the value of the property. 
Usually, a mortgage with a LTV ratio equal to or less than 80% 
is considered an acceptable risk by the secondary market 
participants. While PMI serves the secondary market, it should 
not be confused with government mortgage insurance programs 
such as the FHA (Federal Housing Administration), VA (Veterans 
Affairs) and RHS (Rural Housing Service). These government 
mortgage insurance programs are packaged by the government and 
owned and operated by GNMA (Government National Mortgage 
Association). In either case, loans with less than 20% equity 
or down payment will require some type of insurance to protect 
the investor from loss by default or non-payment.
    Some reports estimate that approximately 10% to 45% of 
current mortgages are insured by the private sector or the 
Federal government. Industry sources indicate that since 1994, 
PMI ``has saved home buyers $38 billion on down payments [and 
over] the past 40 years, private mortgage insurance has enabled 
17 million American households to become homeowners.''
    Pursuant to industry's practices, including those of Fannie 
Mae and Freddie Mac, investors allow termination of PMI when 
(1) the LTV is less than 80%, (2) the homeowner has a good 
payment history, and (3) the property value has not declined 
which is usually determined by an appraisal paid for by the 
homeowner of the property. Because there can be hundreds of 
investors, including the GSEs, local and state retirement 
funds, private capital markets, etc., no uniform termination 
guidelines exist. Thus, it is possible that homeowners who use 
the same mortgage servicer could be subject to different 
termination guidelines.
    The need for legislation exists because homeowners are not 
always informed when PMI is required, and if it is, how it can 
be terminated. As Fannie Mae and Consumers Union stated in 
their testimonies, borrowers continue to pay PMI premiums when 
such insurance is no longer needed. Congressman Hansen 
testified that, on an average, $16.25 million of overpayments 
are made by homeowners every month. Legislation is needed to 
establish Federal standards for disclosure and termination of 
PMI so that borrowers do not pay for insurance after all 
parties in the mortgage process agree that such insurance is no 
longer necessary.
    Nothing in this bill is intended to increase the regulatory 
burdens on the private sector, especially mortgage servicers 
and lenders. Generally, mortgage servicers and lenders already 
have to make a number of disclosures to homeowners at 
settlement and during the life of the mortgage under the Truth 
in Lending Act and Real Estate Settlement Procedures Act. The 
intent of the Committee in drafting this legislation was to 
ensure that most of the notices concerning PMI are made in 
conjunction with the notice requirements of these acts. In 
addition, the biggest and most reputable mortgage servicers in 
the country are beginning to provide borrowers notices on PMI. 
Finally, a number of states already require or are considering 
requiring notices on PMI. For instance, the states of 
California and New York, which comprise 20% of the home 
mortgage market, require disclosure to borrowers on private 
mortgage insurance. This law would provide a minimum disclosure 
standard for the entire country, which may make other state 
legislatures less likely to impose new state standards on this 
subject.

                                Hearings

    H.R. 607, the Homeowners Insurance Protection Act, was 
introduced on February 5, 1997, by Congressman James Hansen (R-
UT). On March 18, 1997, the Committee held a hearing on H.R. 
607 and issues relating to PMI.
    Testifying at the hearing were: The Honorable James Hansen; 
the Honorable Joseph Kennedy (D-MA); The Honorable Waters (D-
CA); Ann Logan, Executive Vice President & Chief Credit 
Officer, Fannie Mae; Michael Stamper, Executive Vice President 
for Risk Management, Freddie Mac; William Lacy, Chairman & CEO, 
Mortgage Guaranty Insurance Corporation on behalf of the 
Mortgage Insurance Companies of America (MICA); Ron McCord, 
President, American Mortgage & Investment Company on behalf of 
the Mortgage Bankers Association (MBA); Michelle Meier, Counsel 
for Government Affairs, Consumers Union; and Margot Saunders, 
Managing Attorney, National Consumer Law Center.

                   Committee Consideration and Votes

                      (Rule XI, Clause 2(l)(2)(B))

    On March 20, 1997, the Committee met in open session to 
mark up H.R. 607, the ``Homeowners Insurance Protection Act.'' 
The Committee considered as original text for purposes of 
amendment an Amendment in the Nature of a Substitute which 
incorporated the disclosure provisions of H.R. 607 and 
requirements of automatic termination of private mortgage 
insurance (PMI) at 75% loan-to-value ratio (LTV) and 
termination once a borrower has fulfilled all disclosed 
conditions for termination.
    During the mark up, the Committee adopted three amendments 
by voice vote. First, an amendment to the substitute was 
offered by Mssrs. Leach, Bereuter and Gonzalez making a number 
of clarifications. Second, an amendment to the Leach et al 
amendment was offered by Mr. McCollum to impose an obligation 
on private mortgage insurers and mortgage holders to provide 
accurate and timely information to mortgage servicers on PMI. 
Third, an amendment offered by Mr. Watt to require the servicer 
and mortgage insurer to return to the borrower insurance 
payments made after the date of automatic termination.
    The Committee defeated, by voice vote, two amendments. The 
first defeated amendment, offered by Mr. Vento, would have 
allowed automatic termination of PMI at 80% LTV if the borrower 
had a good payment history, the property value had not 
decreased, and the underlying loan was not specially 
structured; otherwise PMI would have been terminable at the 
half-life of the mortgage. The second amendment, offered by Mr. 
Kennedy, would have allowed PMI on existing mortgages to be 
canceled once the borrower had complied with any conditions 
established by the servicer
    Additionally, the Committee approved, by a recorded vote of 
22-12, an amendment offered by Ms. Waters to strike the 
provisions in the Amendment in the Nature of a Substitute which 
would have preempted state laws regarding the disclosure 
requirements in the bill.
        YEAS                          NAYS
Mrs. Roukema                        Mr. Leach
Mr. Bachus                          Mr. McCollum
Mr. King                            Mr. Bereuter
Mr. Campbell                        Mr. Baker (LA)
Mrs. Kelly                          Mr. Castle
Mr. Paul                            Mr. Royce
Mr. Cook                            Mr. Lucas
Mr. Snowbarger                      Mr. Metcalf
Mr. Riley                           Mr. Ehrlich
Mr. Hill                            Mr. Weldon
Mr. LaFalce                         Mr. Ryun
Mr. Vento                           Mr. Sessions
Mr. Frank
Ms. Waters
Mr. Barrett
Mr. Watt
Mr. Hinchey
Mr. Bentsen
Mr. Jackson
Ms. Kilpatrick
Mr. Maloney
Ms. Hooley

    After adopting the Amendment in the Nature of a Substitute, 
as amended, a motion to adopt H.R. 607, as amended, for final 
passage and to be reported to the full House of Representatives 
for consideration was approved 36-1.
        YEAS                          NAYS
Mr. Leach                           Mr. Paul
Mr. McCollum
Mrs. Roukema
Mr. Bereuter
Mr. Lazio
Mr. Bachus
Mr. Castle
Mr. Royce
Mr. Metcalf
Mr. Ney
Mr. Ehrlich
Mr. Fox
Mrs. Kelly
Mr. Weldon
Mr. Ryun
Mr. Cook
Mr. Snowbarger
Mr. Riley
Mr. Sessions
Mr. LaFalce
Mr. Vento
Mr. Schumer
Mr. Frank
Mr. Kennedy
Mr. Sanders
Mrs. Maloney
Ms. Roybal-Allard
Mr. Barrett
Ms. Velazquez
Mr. Watt
Mr. Hinchey
Mr. Ackerman
Mr. Bentsen
Mr. Jackson
Ms. Hooley
Ms. Carson

    The committee adopted, by voice vote, a motion to authorize 
the Chairman to offer such motions as may be necessary in the 
House of Representatives to go to conference with the Senate.

                      Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(l) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    No findings and recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(d) of rule XI of the Rules of the House of 
Representatives.

                        Constitutional Authority

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the constitutional authority 
for Congress to enact this legislation is derived from the 
interstate commerce clause (Clause 3, Article I). In addition, 
the power ``to coin money'' and ``regulate the value thereof'' 
provided for in Clause 5, Article I, has been broadly construed 
to regulate every phase of the subject of currency, including 
contracts for the payment of money, such as Federal regulation 
of mortgage contracts.

               New Budget Authority and Tax Expenditures

    Clause 2(l)(3)(B) of House rule XI is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                    Congressional Accountability Act

    The reporting requirement under section 102(b)(3) of the 
Congressional Accountability Act (P.L. 104-1) is inapplicable 
because this legislation does not relate to terms and 
conditions of employment or access to public services or 
accommodations.

    Congressional Budget Office Cost Estimate and Unfunded Mandates 
                                Analysis

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, April 7, 1997.
Hon. Jim Leach,
Chairman, Committee on Banking and Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 607, the 
Homeowners Insurance Protection Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Lisa H. 
Daley (for federal costs), John Patterson (for the impact on 
state and local governments), and Patrice Gordon (for the 
private-sector impact).
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).
    Enclosure.

H.R. 607--Homeowners Insurance Protection Act

    Summary: H.R. 607 would amend the Real Estate Settlement 
Procedures Act (RESPA) to institute certain reforms in the 
private mortgage insurance industry. The bill would require 
mortgage lenders and loan servicers to notify borrowers of 
their rights to cancel mortgage insurance, along with the 
procedures to do so. for loans made one year after enactment, 
the bill also would provide for the automatic cancellation of 
mortgage insurance (including coverage provided by state and 
local governments) when the outstanding principal balance on 
the loan drops to 75 percent of the value of the home at the 
time the loan was issued, provided the borrower's payments are 
current. The Department of Housing and Urban Development (HUD) 
would issue the necessary regulations and enforce the changes 
to RESPA.
    Assuming appropriation of the necessary amounts, CBO 
estimates that the administrative costs of implementing H.R. 
607 would be less than $500,000 annually. In addition, the bill 
would affect direct spending and receipts in 1998, and thus 
pay-as-you-go procedures would apply. However, CBO estimates 
that the net effect of H.R. 607 on both direct spending and 
receipts would not be significant.
    H.R. 607 would impose both private-sector and 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act of 1995 (UMRA). CBO estimates that the direct costs 
of complying with the mandates would not exceed the thresholds 
specified in UMRA ($100 million for the private-sector mandates 
and $50 million for intergovernmental mandates, in 1996 dollars 
adjusted annually for inflation).
    Estimated cost to the Federal Government--Spending subject 
to appropriations: HUD currently is the primary regulatory 
agency for RESPA. To develop regulations and enforce compliance 
with the new procedures required by the bill's changes in 
RESPA, CBO expects that HUD would require a small number of 
additional full-time staff. As a result, CBO estimates that 
enacting H.R. 607 would result in additional discretionary 
spending of less than $500,000 annually, assuming appropriation 
of the necessary amounts.
    Direct spending and revenues: This bill would affect 
insured depository institutions, including banks, thrifts, and 
credit unions that hold qualifying mortgage portfolios. As a 
result, the federal banking regulators--the Federal Reserve, 
the Comptroller of the Currency, the Federal Deposit Insurance 
Corporation, the National Credit Union Administration, and the 
Office of Thrift Supervision--would have some responsibility to 
monitor and enforce the statute. Spending by these agencies is 
not subject to the annual appropriations process. However, CBO 
expects than the additional regulatory costs for these agencies 
would be small and offset by fees in most cases, resulting in 
no significant net costs to the federal government.
    Pay-as-you-go considerations: Section 252 of the Balanced 
Budget and Emergency Deficit Control Act of 1985 sets up pay-
as-you-go procedures for legislation affecting direct spending 
or receipts through 1998. Legislation providing funding 
necessary to meet the government's existing deposit insurance 
commitment is excluded from these procedures. CBO believes that 
requiring insured depository institutions to terminate private 
mortgage insurance would not meet the exemption for full 
funding of deposit insurance and thus would have pay-as-you-go 
implications. Spending by the federal banking regulators to 
monitor and enforce the provisions of the bill is estimated to 
be small, however, and in most cases would be offset by fees 
charged to the depository institutions, resulting in no 
significant net cost to the federal government.
    Intergovernmental and private-sector impact: H.R. 607 would 
impose both private-sector and intergovernmental mandates as 
defined in UMRA. The bill contains mandates on mortgage 
lenders, loan servicers, and private mortgage insurance (PMI) 
companies in the mortgage industry. CBO estimates that the 
annual direct costs of complying with mandates identified in 
this bill are not likely to exceed $60 million in any of the 
first five years that mandates are effective and thus would not 
exceed the statutory thresholds for private-sector or 
intergovernmental mandates. Inasmuch as state and local 
governments finance mortgage loans and service and insure some 
of the loans extended, they would bear some of the costs of 
complying with these mandates. CBO estimates that at least 95 
percent of all identified costs would fall on the private 
sector; less than 5 percent of the costs would be borne by 
state and local governments.
    Private mortgage insurance protects lenders--or the 
ultimate purchaser of a mortgage loan, such as Fannie Mae or 
Freddie Mac--against financial loss if a borrower defaults on a 
mortgage loan. Industry data show that the lower the down 
payment, as a percentage of the properly value, the greater is 
the risk that the loan will default. Mortgage insurance is 
generally used when a borrower makes a down payment of less 
than 20 percent of the value of the home--that is, when the 
mortgage has a loan-to-value (LTV) ratio greater than 80 
percent.
    Mandates: The bill would amend the Real Estate Settlement 
Procedures Act (RESPA) which currently requires that borrowers 
receive disclosures at various times during the loan process. 
H.R. 607 would require lenders and servicers to provide 
additional disclosures to borrowers. Specifically, H.R. 607 
would require lenders to disclose, at or before closing, 
whether private mortgage insurance is required and how long 
such insurance would have to be in effect. The bill would also 
require loan servicers and PMI companies to provide for 
automatic cancellation of private mortgage insurance under 
certain conditions.
    Beginning one year after enactment, H.R. 607 would mandate, 
in cases where the lender requires private mortgage insurance 
(and the insurance is paid for by the borrower through regular 
installments), that the lender must notify the borrower in 
writing, at or before closing, whether the PMI policy may be 
canceled under certain conditions. The lender would also have 
to provide information about whom to contact at the company 
servicing the loans to obtain further information about 
procedures for cancellation. In addition, the lender would have 
to disclose the fact that mortgage insurance may be canceled 
after the outstanding principal of the loan reaches 75 percent 
of the original value of the house at the time of sale. 
Thereafter, loan servicers would be required to notify 
borrowers with PMI (including existing loans with PMI) of the 
above information with the annual written statement of account.
    For new loans, starting one year after enactment, the bill 
would mandate automatic termination of PMI once the loan 
reaches a 75 percent LTV ratio and the borrower is current with 
loan payments. The loan servicer would have to notify borrowers 
that their PMI has been canceled when the LTV reaches 75 
percent; and servicers and PMI companies would have to refund 
to the borrower any premiums paid after the LTV threshold was 
reached. H.R. 607 would also provide a right to terminate PMI 
for borrowers who have complied with the conditions outlined in 
the most recent annual notice concerning mortgage insurance 
termination supplied by the lender or mortgage servicer.
    Estimated costs of mandates: In the first year after 
enactment, the total costs of the mandates identified in this 
bill could range from $35 million to $50 million. According to 
industry experts and officials at the Department of Housing and 
Urban Development, nearly 18,000 lenders and servicers would 
have to modify systems to accommodate the transmittal and 
storage of additional data. They would also be required to 
modify software programs to provide the additional disclosures 
to borrowers and to develop the procedures for automatic 
termination of private mortgage insurance. After the initial 
set-up period of about one year, costs would likely drop to 
between $20 million and $30 million per year. The bulk of these 
costs cover disclosure at or before settlement to roughly 6 
million new borrowers each year and annual disclosure to 5 
million or fewer borrowers who are currently paying for 
mortgage insurance.
    CBO estimates that costs to the mortgage industry would 
start to rise again as the loss in premium income to PMI 
companies and the loss of interest income to servicers start to 
accumulate. (One expert in the private mortgage insurance 
industry estimates that as much as 2 percent of all loans that 
are currently extended to relatively high-risk borrowers would 
no longer be written. In 1996, the eight PMI companies backed 
nearly 1 million residential mortgage loans with PMI. The total 
value of those loans was $127 billion.) By the fifth year after 
implementation, the costs to the industry, measured as 
expenditures to comply with disclosure and termination 
requirements and the reduction in net income from lost 
business, would likely be less than $60 million. Most loans to 
which automatic termination would apply would not reach an LTV 
ratio of 75 percent to qualify for termination until well after 
the 5-year period of analysis required by UMRA.
    Estimated impact on State, local and tribal governments: 
Because State and local governments participate in mortgage 
financing, they would bear some of the costs of complying with 
the mandates imposed by H.R. 607. CBO estimates that the State 
and local share of such costs would total less than $5 million 
per year. All 50 States and some local governments finance 
mortgages (primarily with mortgage revenue bonds), 21 States 
service at least a portion of their own mortgage portfolio, and 
seven States insure mortgages. (Private mortgage insurance as 
defined in this bill would also include insurance provided by 
State governments. Only insurance provided by the Federal 
Government is excluded.) Based on data from the National 
Council of State Housing Agencies and Standard & Poor's, CBO 
estimates that State and local governments are involved in less 
than 5 percent of mortgages that have private mortgage 
insurance. Their share of the total costs described above would 
thus be relatively small.
    Estimate prepared by: Federal cost: Lisa H. Daley; impact 
on State, local, and tribal governments: John Patterson; impact 
on the private sector: Patrice Gordon.
    Estimate approved by: Robert A. Sunshine, Deputy Assistant 
Director for Budget Analysis.

                      Section-by-Section Analysis

                         SECTION 1. SHORT TITLE

    ``Homeowners Insurance Protection Act''.

      SECTION 2. PROVISIONS RELATING TO PRIVATE MORTGAGE INSURANCE

    Section 2(a) adds five new subsections to section 6 of the 
Real Estate Settlement Procedures Act of 1974 (RESPA). Section 
6 of RESPA requires the lender to disclose to the borrower 
information relating to the assignment, sale, or transfer of 
servicing of a federally related mortgage loan.
    The new subsection (f) requires lenders and mortgage 
services to make disclosure of certain information regarding 
private mortgage insurance (PMI) to borrowers. The subsection 
requires the lender to disclose to borrowers, in writing, at or 
before the settlement of the mortgage loan, whether PMI is 
required, the duration for maintaining such insurance coverage, 
and information relating to how borrowers can terminate PMI 
which the servicers are required to annually disclose. If the 
borrower is required to obtain PMI, the mortgage servicer is 
required to disclose, if applicable, annual written notices 
that (i) PMI may be terminable while the loan is outstanding, 
(ii) the address and telephone number a borrower can use to 
inquire if and how PMI may be terminated, (iii) that PMI is 
automatically terminable when the outstanding principal balance 
is at 75% loan-to-value ratio (LTV), as prescribed in 
subsection (g), or (iv) that certain PMI obligations are not 
terminable at the borrower's request. Additionally, the 
subsection prohibits the borrowers from being charged fees or 
other costs for the disclosure because of the requirements 
provided under subsection (f).
    New subsection (g) allows automatic termination of PMI when 
the principal balance outstanding is at 75% LTV or less based 
on the lesser of the sales price or the original appraised 
value of the property. The subsection also requires the 
mortgage servicer to notify the borrower in writing not later 
than 45 days after the automatic termination date that the 
borrower no longer has mortgage insurance coverage and that the 
borrower no longer has to pay any premiums, payments, or fees 
in connection with PMI. In addition, if the borrower has made 
payments related to PMI premiums after the date of automatic 
termination, then the mortgage servicer, mortgage insurer, or 
whoever received the payments is required to promptly return 
them to the borrower.
    Subsection (g) does not allow for automatic termination if 
the borrower's payments on the mortgage are not current. Under 
such circumstances, the borrower's right to automatic 
termination under this subsection resumes on the first day of 
the first month that payments become current.
    New subsection (h) provides that the conditions to 
terminate PMI shall be reasonably related to the purpose of 
requiring PMI. Further, the subsection deems that borrowers 
have met the conditions to terminate PMI when they have 
complied with the conditions most recently communicated by the 
mortgage servicers.
    New subsection (i) provides that provisions of subsections 
(f), (g), and (h) preempt any conflicting agreement relating to 
the servicing of a federally related residential mortgage loan 
entered into by Fannie Mae, Freddie Mac, or any private 
investor. The subsection further provides that a servicer is 
not required to repurchase a mortgage loan from the investor 
after PMI is canceled.
    New subsection (j) provides that if mortgage insurers, 
holders or other parties failed to provide mortgage servicers 
with accurate information or to comply with other provisions 
under the Act, servicers who have complied with the 
requirements of the Act are not held liable and the party 
failing to provide timely and accurate information is liable. 
Further, the subsection allows a mortgage servicer to provide 
the borrower with information identifying the appropriate 
parties in the event of a dispute regarding liability.
    Section 2(b) defines the terms ``provide mortgage 
insurance'', ``mortgage insurance'', and ``covered mortgage 
loan'' with the latter being defined as any federally related 
mortgage loan secured by a borrower's principal residence.

                   section 3. scope of applicability

    Section 3 details when the disclosure and termination 
provisions of the bill take effect. Those provisions of the 
bill requiring notice regarding PMI (except for the notice 
required at or before settlement) apply to existing mortgages 
one year after enactment. The provisions authorizing the 75% 
LTV automatic termination of PMI and the borrower's right to 
terminate PMI, once disclosed conditions are met, affect 
existing mortgages one year after enactment.

                    section 4. conforming amendments

    Section 4 makes a number of conforming amendments to RESPA 
including the clarification that state laws or regulations 
relating to notice or disclosure to a borrower regarding PMI 
are not preempted.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 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):

             REAL ESTATE SETTLEMENT PROCEDURES ACT OF 1974

          * * * * * * *

   servicing of mortgage loans and administration of escrow accounts

  Sec. 6. (a) * * *
          * * * * * * *
  (f) Disclosures Relating to Private Mortgage Insurance.--
          (1) Disclosure at settlement relating to existence of 
        pmi.--With regard to any covered mortgage loan, the 
        lender shall disclose, in writing at or before the 
        settlement of such covered mortgage loan, whether any 
        private mortgage insurance will be required to be 
        obtained or maintained with respect to such mortgage 
        loan, including any lender-paid private mortgage 
        insurance, and the period during which such insurance 
        will be required to be in effect.
          (2) Disclosure at settlement relating to 
        terminability of pmi.--If the lender requires, as a 
        condition for entering into a covered mortgage loan, 
        the borrower to assume an obligation to make separately 
        designated payments toward the premiums for private 
        mortgage insurance with respect to such loan, the 
        lender shall disclose, in writing at or before the 
        settlement of such covered mortgage loan any of the 
        following notices which are applicable with respect to 
        such loan:
                  (A) PMI obligations terminable upon 
                request.--In the case of a loan described in 
                paragraph (3), that--
                          (i) the borrower's obligation to make 
                        separately designated payments toward 
                        the premiums for private mortgage 
                        insurance may be able to be terminated 
                        while the mortgage is outstanding 
                        (including a cancellation permitted 
                        before the date of automatic 
                        termination under subsection (g)); and
                          (ii) the borrower will be notified by 
                        the servicer not less frequently than 
                        annually of an address and a toll-free 
                        or collect-call telephone number which 
                        the borrower may use to contact the 
                        servicer to determine--
                                  (I) whether the borrower's 
                                obligation to make separately 
                                designated payments toward the 
                                premium for private mortgage 
                                insurance may be terminated 
                                while the mortgage loan is 
                                outstanding (or before the date 
                                of automatic termination); and
                                  (II) if such obligation may 
                                be terminated while the loan is 
                                outstanding (or before such 
                                date), the conditions and 
                                procedures for such 
                                termination.
                  (B) PMI obligations terminable by operation 
                of law.--That the borrower's obligation to make 
                separately designated payments toward the 
                premiums for private mortgage insurance will be 
                terminated by operation of law under subsection 
                (g).
                  (C) Nonterminable pmi obligations.--In the 
                case of a loan not described in paragraph (3), 
                that the borrower's obligation to pay any 
                amount to be applied to any portion of the 
                premiums for private mortgage insurance will 
                not be terminated at the request of the 
                borrower.
          (3) Disclosure with annual statements or other 
        communications.--If--
                  (A) private mortgage insurance is required as 
                a condition for entering into a covered 
                mortgage loan; and
                  (B) the borrower's obligation to make 
                separately designated payments toward the 
                premiums for such insurance may be terminated 
                at the borrower's request,
        the servicer shall, not less frequently than annually, 
        disclose to the borrower a clear and conspicuous 
        statement containing the disclosures set forth in 
        subparagraphs (A) and (B) of paragraph (2), including 
        the address and telephone number referred to in such 
        paragraph, based on the servicer's knowledge at the 
        time such periodic communication is given. Such 
        disclosure shall be included with any annual statement 
        of account, escrow statement, or related annual 
        communications provided to the borrower, while such 
        private mortgage insurance is in effect.
          (4) Disclosures furnished without cost to borrower.--
        No fee or other cost may be imposed on any borrower for 
        preparing and delivering any disclosure to the borrower 
        pursuant to this subsection.
  (g) Mandatory Termination of PMI Obligations at 75 Percent 
Loan-to-Value Ratio.--
          (1) In general.--Notwithstanding any provision of a 
        covered mortgage loan, any obligation of the borrower 
        to make separately designated payments toward the 
        premiums for any private mortgage insurance in effect 
        with respect to such loan shall terminate, except as 
        provided in paragraph (3), by operation of law as of 
        the 1st day of the 1st month which begins after the 
        date on which the principal balance outstanding on all 
        residential mortgages on the property securing the loan 
        is equal to or less than 75 percent of the lesser of--
                  (A) if the loan was made for purchase of the 
                property, the sales price of the property under 
                such purchase; or
                  (B) the appraised value of the property, as 
                determined by the appraisal conducted in 
                connection with the making of the loan.
          (2) Disclosure upon termination.--Not later than 45 
        days after the date of termination pursuant to 
        paragraph (1) of a private mortgage insurance 
        requirement for a covered mortgage loan, the servicer 
        shall notify the borrower under the loan, in writing, 
        that--
                  (A) the private mortgage insurance has 
                terminated and the borrower no longer has 
                private mortgage insurance; and
                  (B) no further premiums, payments, or other 
                fees shall be due or payable by the borrower in 
                connection with the private mortgage insurance.
          (3) Exception for delinquent borrowers.--
                  (A) In general.--Paragraph (1) shall not 
                apply with respect to any covered mortgage loan 
                on which the payments are not current as of the 
                date that the obligation to make private 
                mortgage insurance premium payments in 
                connection with the loan would otherwise 
                terminate pursuant to paragraph (1).
                  (B) Effectiveness once payments are 
                current.--In the case of any covered mortgage 
                loan to which subparagraph (A) applies, 
                paragraph (1) shall apply with respect to such 
                loan as of the 1st day of the 1st month which 
                begins after the date that such payments become 
                current.
          (4) Return of payments toward premiums.--
                  (A) Return of payments to borrower.--The 
                servicer for a covered mortgage loan shall 
                promptly return to the borrower any payments 
                toward the premiums for any private mortgage 
                insurance for such loan covering any period 
                occurring after the date of automatic 
                termination for such loan under this 
                subsection.
                  (B) Return of payments to servicer.--The 
                private mortgage insurer for a covered mortgage 
                loan shall promptly return to the servicer any 
                payments received from the servicer toward the 
                premiums for any private mortgage insurance for 
                such loan covering any period occurring after 
                the date of automatic termination for such loan 
                under this subsection.
  (h) Lenders' Conditions for PMI.--
          (1) Conditions for termination of borrower's 
        obligation to pay pmi.--The conditions for the 
        termination of the borrower's obligation to make 
        separately designated payments toward the premium for 
        private mortgage insurance with respect to a covered 
        mortgage loan, including any changes in such 
        conditions, shall be reasonably related to the purposes 
        for which the requirement for private mortgage 
        insurance was imposed at the time the loan was made.
          (2) Borrower's right to terminate in accordance with 
        conditions.--In the case of any covered mortgage loan 
        described in subsection (f)(3), the borrower shall have 
        the right under this paragraph to terminate the 
        borrower's obligation to make separately designated 
        payments toward the premiums for such insurance if the 
        conditions and procedures for such termination most 
        recently communicated to the borrower (pursuant to a 
        request by the borrower pursuant to notice under 
        subsection (f)(3) or otherwise) have been met.
  (i) Effect on Other Agreements.--The provisions of 
subsections (f), (g), and (h) shall supersede any conflicting 
provision contained in any agreement relating to the servicing 
of a covered mortgage loan entered into by the Federal National 
Mortgage Association, the Federal Home Loan Mortgage 
Corporation, or any private investor or noteholder (or any 
successors thereto). A servicer which cancels private mortgage 
insurance on a covered mortgage loan in compliance with the 
provisions of subsection (g) or (h) or in accordance with 
investor guidelines in existence at the time concerning the 
cancellation of private mortgage insurance (regardless of 
whether the cancellation by the servicer was mandated by such 
subsections or initiated by the borrower) shall not be required 
to repurchase such mortgage loan from the investor or holder of 
such mortgage loan solely on the grounds that the private 
mortgage insurance was canceled in accordance with the 
provisions of such subsections or investor guidelines, as 
applicable.
  (j) Limitations on Liability.--If the servicer for a covered 
mortgage loan has complied with the requirements under 
subsections (f) and (g) to provide disclosures, the servicer 
shall not be considered to have violated any provision of 
subsection (f), (g), or (h) and shall not be liable for any 
such violation--
          (1) due to any failure on the part of the servicer to 
        provide disclosures required under such subsections 
        resulting from the failure of any mortgage insurer, any 
        mortgage holder, or any other party to timely provide 
        accurate information to the servicer necessary to 
        permit the disclosures; or
          (2) due to any failure on the part of any private 
        mortgage insurer, any mortgage holder, or any other 
        party to comply with the provisions of such 
        subsections.
Each private mortgage insurer and each mortgage holder for a 
covered mortgage loan shall provide accurate and timely 
information to the servicer for such loan necessary to permit 
the disclosures required by subsections (f) and (g). In the 
event of a dispute regarding liability for a violation of 
subsection (f), (g), or (h), and upon request by the borrower, 
a servicer shall provide the borrower with information stating 
the identity of the insurer or mortgage holder.
  [(f)] (k) Damages and Costs.--Whoever fails to comply with 
any provision of this section shall be liable to the borrower 
for each such failure in the following amounts:
          (1) * * *
          * * * * * * *
  [(g)] (l) Administration of Escrow Accounts.--If the terms of 
any federally related mortgage loan require the borrower to 
make payments to the servicer of the loan for deposit into an 
escrow account for the purpose of assuring payment of taxes, 
insurance premiums, and other charges with respect to the 
property, the servicer shall make payments from the escrow 
account for such taxes, insurance premiums, and other charges 
in a timely manner as such payments become due.
  [(h)] (m) Preemption of Conflicting State Laws.--
Notwithstanding any provision of any law or regulation of any 
State, a person who makes a federally related mortgage loan or 
a servicer shall be considered to have complied with the 
provisions of any such State law or regulation requiring notice 
to a borrower at the time of application for a loan or transfer 
of the servicing of a loan if such person or servicer complies 
with the requirements under this section (not including 
subsection (f)) regarding timing, content, and procedures for 
notification of the borrower. The preceding sentenceshall not 
apply to any State law or regulation relating to notice or disclosure 
to a borrower regarding obtaining, maintaining, or terminating private 
mortgage insurance and such State laws and regulations shall be subject 
to the provisions of section 18.
  [(i)] (n) Definitions.--For purposes of this section:
          (1) Covered mortgage loan.--The term ``covered 
        mortgage loan'' means a federally related mortgage loan 
        under which the property securing the loan is used by 
        the borrower as the borrower's principal residence.
          [(1)] (2) Effective date of transfer.--The term 
        ``effective date of transfer'' means the date on which 
        the mortgage payment of a borrower is first due to the 
        transferee servicer of a mortgage loan pursuant to the 
        assignment, sale, or transfer of the servicing of the 
        mortgage loan.
          (3) Mortgage insurance.--The term ``mortgage 
        insurance'' means insurance, including any mortgage 
        guaranty insurance, against the nonpayment of, or 
        default on, a mortgage or loan involved in a 
        residential mortgage transaction, the premiums for 
        which are paid by the borrower.
          (4) Private mortgage insurance.--The term ``private 
        mortgage insurance'' means mortgage insurance other 
        than mortgage insurance made available under the 
        National Housing Act, title 38 of the United States 
        Code, or title V of the National Housing Act of 1949.
          [(2)] (5) Servicer.--The term ``servicer'' means the 
        person responsible for servicing of a loan (including 
        the person who makes or holds a loan if such person 
        also services the loan). The term does not include--
                  (A) * * *
          * * * * * * *
          [(3)] (6) Servicing.--The term ``servicing'' means 
        receiving any scheduled periodic payments from a 
        borrower pursuant to the terms of any loan, including 
        amounts for escrow accounts described in section 10, 
        and making the payments of principal and interest and 
        such other payments with respect to the amounts 
        received from the borrower as may be required pursuant 
        to the terms of the loan.
      [(j)] (o) Transition.--
          (1) * * *
          * * * * * * *

                            escrow accounts

    Sec. 10. (a) * * *
    (b) Notification of Shortage in Escrow Account.--If the 
terms of any federally related mortgage loan require the 
borrower to make payments to the servicer (as the term is 
defined in [section 6(i)] section 6(n)) of the loan for deposit 
into an escrow account for the purpose of assuring payment of 
taxes, insurance premiums, and other charges with respect to 
the property, the servicer shall notify the borrower not less 
than annually of any shortage of funds in the escrow account.
          * * * * * * *

   prohibition of fees for preparation of truth-in-lending, uniform 
               settlement, and escrow account statements

    Sec. 12. No fee shall be imposed or charge made upon any 
other person (as a part of settlement costs or otherwise) by a 
lender in connection with a federally related mortgage loan 
made by it (or a loan for the purchase of a mobile home), or by 
a servicer (as the term is defined under [section 6(i)] section 
6(n)), for or on account of the preparation and submission by 
such lender or servicer of the statement or statements required 
(in connection with such loan) by sections 4 and 10(c) of this 
Act or by the Truth in Lending Act.
          * * * * * * *

                                
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