I

104TH CONGRESS

1ST SESSION H. R. 380

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

JANUARY 4, 1995

Mr. TOWNS introduced the following bill; which was referred to the Committee

on Banking and Financial Services

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 Ownership and

5 Equity Protection Act of 1995’’.

6 SEC. 2. CONSUMER PROTECTIONS FOR HIGH COST MORT7 GAGES.

8 (a) DEFINITION.—Section 103 of the Truth in Lend9 ing Act (15 U.S.C. 1602) is amended—
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1 (1) by inserting after subsection (u) the follow2 ing new subsection:

3 ‘‘(v) The term ‘high cost mortgage’ means a

4 consumer credit transaction, other than a residential

5 mortgage transaction or a transaction under an open-end

6 credit plan, that is secured by a consumer’s principal

7 dwelling and that satisfies at least 1 of the following condi8 tions:

9 ‘‘(1) The annual percentage rate at the time

10 the loan is originated will exceed by more than 10

11 percentage points the yield on Treasury securities

12 having comparable maturities, as determined by the

13 Board. In the case of a variable rate loan with an

14 initial interest rate that may be different than the

15 rate or rates that will apply during subsequent peri16 ods, the annual percentage rate shall be computed

17 taking into account the subsequent rates.

18 ‘‘(2) Based on information provided by the

19 consumer, the consumer’s total monthly debt pay20 ments will exceed 60 percent of the consumer’s

21 monthly gross income, immediately after the loan is

22 consummated. The Board may establish a different

23 debt to income ratio if the Board determines that

24 such a ratio is in the public interest and is consist25 ent with the purposes of this Act.
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1 ‘‘(3) All points and fees payable at or before

2 closing will exceed 8 percent of the total loan

3 amount.’’; and

4 (2) by redesignating subsections (v), (w), (x),

5 (y), and (z) as (w), (x), (y), (z), and (aa), respec6 tively.

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

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

9 by striking ‘‘and the due dates or periods of payments

10 scheduled to repay the indebtedness.’’ and inserting ‘‘the

11 due dates or periods of payments scheduled to repay the

12 indebtedness, and the disclosures for high cost mortgages

13 required by paragraphs (1) through (6) of section

14 129(a).’’.

15 (c) DEFINITION OF CREDITOR CLARIFIED.—Section

16 103(f) of the Truth in Lending Act (15 U.S.C. 1602(f))

17 is amended by adding at the end: ‘‘Notwithstanding the

18 above, any person who originates 2 or more high cost

19 mortgages a year, or who originates a high cost mortgage

20 through a loan broker, is a creditor for the purposes of

21 section 129.’’.

22 (d) DISCLOSURES REQUIRED AND CERTAIN TERMS

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

24 1601 et seq.) is amended by adding after section 128 the

25 following new section:
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1 ‘‘SEC. 129. REQUIREMENTS FOR HIGH COST MORTGAGES.

2 ‘‘(a) DISCLOSURES.—In addition to any other disclo3 sures required under this title, for each high cost mort4 gage, the creditor shall provide the following written dis5 closures in clear language and in conspicuous type size

6 and format, segregated from other information as a sepa7 rate document:

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

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

10 home. You could lose your home, and any money you

11 have put into it, if you do not meet your obligations

12 under the loan.’

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

14 ‘‘(3) The consumer’s gross monthly cash in15 come, as reported to the creditor by the consumer,

16 the total initial monthly payment, and the amount of

17 funds that will remain to meet other obligations of

18 the consumer.

19 ‘‘(4) In the case of a variable rate loan, a state20 ment that the annual percentage rate and the

21 monthly payment could increase, and the maximum

22 interest rate and payment.

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

24 initial annual percentage rate that is different than

25 the one which would be applied using the contract

26 index after the initial period, a statement of the pe-
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1 riod of time the initial rate will be in effect, and the

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

3 period is over, assuming that current interest rates

4 prevail.

5 ‘‘(6) A statement that the consumer is not re6 quired to complete the transaction merely because he

7 or she has received disclosures or signed a loan ap8 plication.

9 ‘‘(b) TIME OF DISCLOSURES.—The disclosures re10 quired by this section shall be given no later than 3 busi11 ness days prior to consummation of the transaction. A

12 creditor may not change the terms of the loan after pro13 viding the disclosures required by this section.

14 ‘‘(c) NO PREPAYMENT PENALTY.—

15 ‘‘(1) IN GENERAL.—Except as provided in para16 graph (4), a high cost mortgage may not contain

17 terms under which a consumer must pay a prepay18 ment penalty for paying all or part of the principal

19 of a high cost mortgage prior to the date on which

20 such balance is due.

21 ‘‘(2) REBATE COMPUTATION.—For the pur22 poses of this subsection, any method of computing

23 rebates of interest less advantageous to the

24 consumer than the actuarial method using simple in25 terest is deemed a prepayment 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 ‘‘(4) EXCEPTION.—A high cost mortgage may

11 include terms under which a consumer is required to

12 pay not more than 1 month’s interest as a penalty

13 if the consumer prepays the full principal of the loan

14 within 90 days of origination.

15 ‘‘(d) NO BALLOON PAYMENTS.—A high cost mort16 gage may not include terms under which the aggregate

17 amount of the regular periodic payments would not fully

18 amortize the outstanding principal balance.

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

20 mortgage may not include terms under which the out21 standing principal balance will increase over the course of

22 the loan.

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

24 may not include terms under which more than 2 periodic

25 payments required under the loan are consolidated and
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1 paid in advance from the loan proceeds provided to the

2 consumer.’’.

3 (e) CONFORMING AMENDMENT.—The table of sec4 tions at the beginning of chapter 2 of the Truth in Lend5 ing Act is amended by striking the item relating to section

6 129 and inserting the following:

‘‘129. Disclosure requirements for high cost mortgages.’’.

7 SEC. 3. CIVIL LIABILITY.

8 (a) DAMAGES.—Section 130(a) of the Truth in Lend9 ing Act (15 U.S.C. 1640(a)) is amended—

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

11 (2)(B);

12 (2) by striking the period at the end of para13 graph (3) and inserting ‘‘; and’’; and

14 (3) by inserting after paragraph (3) the follow15 ing new paragraph:

16 ‘‘(4) in case of a failure to comply with any re17 quirement under section 129, all finance charges and

18 fees paid by the consumer.’’.

19 (b) STATE ATTORNEY GENERAL ENFORCEMENT.—

20 Section 130(e) of the Truth in Lending Act (15 U.S.C.

21 1640(e)) is amended by adding at the end the following:

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

23 be brought by the appropriate State attorney general in

24 any appropriate United States district court, or any other
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1 court of competent jurisdiction, within 5 years from the

2 date on which the violation occurs.’’.

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

4 in Lending Act is amended by adding at the end the fol5 lowing new subsection:

6 ‘‘(d) HIGH COST MORTGAGES.—If a creditor fails to

7 comply with any of the requirements of section 129 in con8 nection with any high cost mortgage, any assignee shall

9 be subject to all claims and defenses that the consumer

10 could assert against the creditor. Recovery under this sub11 section shall be limited to the total amount paid by the

12 consumer in connection with the transaction.’’.

13 SEC. 4. EFFECTIVE DATE.

14 This Act shall be effective 60 days after the promul15 gation of regulations by the Board of Governors of the

16 Federal Reserve System, which shall occur not later than

17 180 days following the date of enactment of this Act.

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