I

103D CONGRESS

1ST SESSION H. R. 3153

To protect home ownership and equity through enhanced disclosure of the

risks associated with certain mortgages, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 28, 1993

Mr. KENNEDY (for himself, Mr. GONZALEZ, Mr. MOAKLEY, Mr. SCHUMER,

Mr. FRANK of Massachusetts, Mr. KANJORSKI, Mr. FLAKE, Ms. WATERS,

Mr. HINCHEY, Mr. KLEIN, Mr. WATT, Ms. ROYBAL-ALLARD, Mr. RUSH,

Mr. WYNN, Ms. BROWN of Florida, Mr. FILNER, Mr. HAMBURG, Ms.

WOOLSEY, Mr. NEAL of Massachusetts, Mr. MEEHAN, Mr. COYNE, Mr.

LEWIS of Georgia, Mr. CLAY, Mr. LANTOS, and Mr. DEFAZIO) introduced the following bill; which was referred to the Committee on Banking, Finance and Urban Affairs

A BILL

To protect home ownership and equity through enhanced

disclosure of the risks associated with certain mortgages,

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Home Equity Protec5 tion Act of 1993’’.
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1 SEC. 2. CONSUMER PROTECTIONS FOR HIGH COST MORT2 GAGES.

3 (a) DEFINITION.—Section 103 of the Truth in Lend4 ing Act (15 U.S.C. 1602) is amended by adding after sub5 section (z) the following new subsection:

6 ‘‘(aa) The term ‘high cost mortgage’ means a

7 consumer credit transaction, other than a residential

8 mortgage transaction, that is secured by a consumer’s

9 principal dwelling and that satisfies at least 1 of the fol10 lowing conditions:

11 ‘‘(1) The annual percentage rate at consumma12 tion of the transaction will exceed by more than 10

13 percentage points the rate of interest on obligations

14 of the United States having a period of maturity of

15 1 year on the fifteenth day of the month before such

16 consummation.

17 ‘‘(2) All points and fees payable by the

18 consumer at or before closing will exceed the greater

19 of—

20 ‘‘(A) 8 percent of the amount financed,

21 minus fees and points; or

22 ‘‘(B) $400.’’.

23 (b) MATERIAL DISCLOSURES.—Section 103(u) of the

24 Truth in Lending Act (15 U.S.C. 1602(u)) is amended—

25 (1) by striking ‘‘and the due dates’’ and insert26 ing ‘‘, the due dates’’; and
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1 (2) by inserting before the period ‘‘, and the

2 disclosures for high cost mortgages required by sec3 tion 129(a))’’.

4 (c) DEFINITION OF CREDITOR CLARIFIED.—Section

5 103(f) of the Truth in Lending Act (15 U.S.C. 1602(f))

6 is amended by adding at the end the following: ‘‘Any per7 son who originates 2 or more high cost mortgages in any

8 12-month period or any person who originates 1 or more

9 high cost mortgages through a loan broker shall be consid10 ered to be a creditor for purposes of section 129.’’.

11 (d) DISCLOSURES REQUIRED AND CERTAIN TERMS

12 PROHIBITED.—The Truth in Lending Act (15 U.S.C.

13 1601 et seq.) is amended by inserting after section 128

14 the following new section:

15 ‘‘SEC. 129. REQUIREMENTS FOR HIGH COST MORTGAGES.

16 ‘‘(a) DISCLOSURES.—In addition to any other disclo17 sures required under this title, for each high cost mort18 gage, the creditor shall provide the following written dis19 closures in clear language and in conspicuous type size

20 and format, segregated from other information as a sepa21 rate document:

22 ‘‘(1) The following statement: ‘If you obtain

23 this loan, the lender will have a mortgage on your

24 home. You could lose your home, and any money you
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1 have put into it, if you do not meet your obligations

2 under the loan.’.

3 ‘‘(2) The initial annual percentage rate.

4 ‘‘(3) The consumer’s gross monthly cash in5 come, as verified by the creditor, the total initial

6 monthly payment, and the amount of funds that will

7 remain to meet other obligations of the consumer.

8 ‘‘(4) In the case of a variable rate loan, a state9 ment that the annual percentage rate and the inter10 est rate could increase, and the maximum interest

11 rate and payment.

12 ‘‘(5) In the case of a variable rate loan with an

13 initial annual percentage rate that is different than

14 the one which would be applied using the contract

15 index after the initial period, a statement of the pe16 riod of time the initial rate will be in effect, and the

17 rate or rates that will go into effect after the initial

18 period is over, assuming that current interest rates

19 prevail.

20 ‘‘(6) A statement that the consumer is not re21 quired to complete the transaction merely because he

22 or she has received disclosures or signed a loan ap23 plication.
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1 ‘‘(7) A statement as follows: ‘Under Federal

2 law, this is a high cost mortgage. You may be able

3 to obtain a less expensive loan.’.

4 ‘‘(b) TIME OF DISCLOSURES.—The disclosures re5 quired by this section shall be given no later than 3 busi6 ness days prior to consummation of the transaction. A

7 creditor may not change the terms of the loan after pro8 viding the disclosures required by this section.

9 ‘‘(c) NO PREPAYMENT PENALTY.—

10 ‘‘(1) IN GENERAL.—A high cost mortgage may

11 not contain terms under which a consumer must pay

12 a prepayment penalty for paying all or part of the

13 principal prior to the date on which such principal

14 is due. If the date of maturity of the high cost mort15 gage is accelerated for any reason, the consumer is

16 entitled to a rebate that complies with paragraph

17 (2). No high cost mortgage shall provide for a de18 fault interest rate that is higher than the interest

19 rate provided by the note for a performing loan.

20 ‘‘(2) REBATE COMPUTATION.—For purposes of

21 this subsection, any method of computing rebates of

22 a finance charge less favorable to the consumer than

23 the actuarial method using simple interest is a pre24 payment penalty.
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1 ‘‘(3) CERTAIN OTHER FEES PROHIBITED.—An

2 agreement to refinance a high cost mortgage by the

3 same creditor or an affiliate of the creditor may not

4 require the consumer to pay points, discount fees, or

5 prepaid finance charges on the portion of the loan

6 refinanced. For the purpose of this paragraph, the

7 term ‘affiliate’ has the same meaning as it does in

8 section 2(k) of the Bank Holding Company Act of

9 1956.

10 ‘‘(d) NO BALLOON PAYMENTS.—A high cost mort11 gage may not include terms under which the aggregate

12 amount of the regular periodic payments would not fully

13 amortize the outstanding principal balance.

14 ‘‘(e) NO NEGATIVE AMORTIZATION.—A high cost

15 mortgage may not include terms under which the out16 standing principal balance will increase over the course of

17 the loan.

18 ‘‘(f) NO PREPAID PAYMENTS.—A high cost mortgage

19 may not include terms under which more than 2 periodic

20 payments required under the loan are consolidated and

21 paid in advance from the loan proceeds provided to the

22 consumer.

23 ‘‘(g) UNFAIR, DECEPTIVE, OR EVASIVE ACTS PRO24 HIBITED.—Creditors of contracts governed by this section

25 shall not commit, in the making, servicing, or collecting
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1 of a high cost mortgage, any act or practice which is un2 fair or deceptive, including any of the following:

3 ‘‘(1) Entering into a home equity loan if there

4 is no reasonable probability that the homeowner will

5 be able to make payments according to the terms of

6 the loan.

7 ‘‘(2) Taking advantage of the borrower’s infir8 mities, lack of education or sophistication, or lan9 guage skills, necessary to understand fully the terms

10 of the transaction.

11 ‘‘(3) Refinancing other loans owed by the home12 owner which had not been accelerated by reason of

13 default of the homeowner prior to the application for

14 the home equity loan, unless the new loan is at a

15 lower interest rate or has lower monthly payments.

16 ‘‘(4) Financing a mortgage broker’s commis17 sion, unless the borrower entered into a separate

18 written contract with the broker prior to the date of

19 application for the home equity loan, which stated

20 the dollar amount of the commission, and which was

21 provided to the borrower prior to the application.

22 ‘‘(5) Taking action or interfering with any

23 other consumer protection laws or regulation de24 signed to protect the homeowner.
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1 ‘‘(6) Assisting in the falsification of information

2 on the application for a home equity loan.

3 ‘‘(7) Disbursing to a home improvement con4 tractor more than 80 percent of funds due under a

5 home improvement contract which exceeds $10,000,

6 before the completion of the work due under the

7 home improvement contract, or making any dis8 bursement for a home improvement contract in a

9 form other than an instrument jointly payable to the

10 borrower and the contractor.

11 ‘‘(8)(A) Engaging in any other unfair, decep12 tive, or unconscionable conduct which creates a like13 lihood of confusion or misunderstanding.

14 ‘‘(B) Any attempt to evade the provisions of

15 this section by any devise, subterfuge, or pretense

16 whatsoever is deemed to be unfair conduct under

17 this paragraph.

18 ‘‘(h) RIGHT OF RESCISSION.—For the purpose of sec19 tion 125, any contract with provisions prohibited by this

20 section is deemed to not include material disclosures re21 quired under this title. Any provision in a high cost mort22 gage which violates section 125 shall not be enforceable.’’.
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1 SEC. 3. STATE AUTHORITY TO REGULATE HIGH RATE

2 MORTGAGE LOANS.

3 The authority of States to establish limitations on the

4 interest, fees, and other terms of a first mortgage which—

5 (1) is secured by a first lien on residential real

6 property; and

7 (2) is not used to finance the acquisition of that

8 property;

9 is not preempted by section 501 of the Depository Institu10 tions Deregulation and Monetary Control Act of 1980 (12

11 U.S.C. 1735f–7a) or the Alternative Mortgage Trans12 action Parity Act of 1982 (12 U.S.C. 3801 et seq.).

13 SEC. 4. CIVIL LIABILITY.

14 (a) DAMAGES.—Section 130(a) of the Truth in Lend15 ing Act (15 U.S.C. 1640(a)) is amended—

16 (1) by striking ‘‘and’’ at the end of paragraph

17 (2)(B);

18 (2) by striking the period at the end of para19 graph (3) and inserting ‘‘; and’’; and

20 (3) by inserting after paragraph (3) the follow21 ing new paragraph:

22 ‘‘(4) in case of a failure to comply with any re23 quirement under section 129, all finance charges and

24 fees.’’.

25 (b) STATE ATTORNEY GENERAL ENFORCEMENT.—

26 Section 130(e) of the Truth in Lending Act (15 U.S.C.
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1 1640(e)) is amended by adding at the end the following:

2 ‘‘An action to enforce a violation of section 129 may also

3 be brought by the appropriate State attorney general in

4 a court of competent jurisdiction, within 5 years after the

5 date on which the violation occurs.’’.

6 (c) ASSIGNEE LIABILITY.—Section 131 of the Truth

7 in Lending Act (15 U.S.C. 1641) is amended by adding

8 at the end the following new subsection:

9 ‘‘(d) HIGH COST MORTGAGES.—

10 ‘‘(1) IN GENERAL.—In addition to any other li11 ability imposed under this title, any person who pur12 chases or is otherwise assigned a high cost mortgage

13 shall be subject to all claims and defenses with re14 spect to the mortgage that the consumer could as15 sert against the creditor of the mortgage.

16 ‘‘(2) DAMAGES.—Relief under this subsection

17 shall be limited to the sum of—

18 ‘‘(A) an offset of all remaining indebted19 ness; and

20 ‘‘(B) the total amount paid by the

21 consumer in connection with the transaction.

22 ‘‘(3) NOTICE.—Any person who sells or other23 wise assigns a high cost mortgage shall include a

24 prominent notice of the potential liability under this

25 subsection as determined by the Board.’’.
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1 SEC. 5. EFFECTIVE DATE.

2 This Act shall be effective 60 days after the promul3 gation of regulations by the Board of Governors of the

4 Federal Reserve System, which shall occur not later than

5 180 days following the date of enactment of this Act.

Æ