II 

110TH CONGRESS 

1ST SESSION S. 1299 

To establish on behalf of consumers a fiduciary duty and other standards 

of care for mortgage brokers and originators, and to establish standards 

to assess a consumer’s ability to repay, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

MAY 3, 2007 

Mr. SCHUMER (for himself, Mr. BROWN, and Mr. CASEY) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To establish on behalf of consumers a fiduciary duty and 

other standards of care for mortgage brokers and originators, and to establish standards to assess a consumer’s 

ability to repay, 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 ‘‘Borrower’s Protection 

5 Act of 2007’’. 


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1 SEC. 2. MORTGAGE ORIGINATOR REQUIREMENTS. 

2 The Truth in Lending Act (15 U.S.C. 1601 et seq.) 

3 is amended by inserting after section 129 the following 

4 new section: 

5 ‘‘SEC. 129A. DUTIES OF MORTGAGE ORIGINATORS. 

6 ‘‘(a) DEFINITIONS.—As used in this section— 

7 ‘‘(1) the term ‘home mortgage loan’ means an 

8 extension of credit secured by or to be secured by a 

9 security interest in the principal dwelling of the obli10 gor; 

11 ‘‘(2) the term ‘mortgage broker’ means a per12 son who, for compensation or in anticipation of com13 pensation, arranges or negotiates, or attempts to ar14 range or negotiate, home mortgage loans or commit15 ments for such loans, or refers applicants or pro16 spective applicants to creditors, or selects or offers 

17 to select creditors to whom requests for credit may 

18 be made; 

19 ‘‘(3) the term ‘mortgage originator’ means— 

20 ‘‘(A) any creditor or other person, includ21 ing a mortgage broker, who, for compensation 

22 or in anticipation of compensation, engages ei23 ther directly or indirectly in the acceptance of 

24 applications for home mortgage loans, solicita25 tion of home mortgage loans on behalf of bor26 rowers, negotiation of terms or conditions of 


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1 home mortgage loans on behalf of borrowers or 

2 lenders, or negotiation of sales of existing home 

3 mortgage loans to institutional or non-institu4 tional lenders; and 

5 ‘‘(B) any employee or agent of a creditor 

6 or person described in subparagraph (A); 

7 ‘‘(4) the term ‘qualifying bond’ means a bond 

8 equal to not less than 1 percent of the aggregate 

9 value of all homes appraised by an appraiser of real 

10 property in connection with a home mortgage loan 

11 in the calendar year preceding the date of the trans12 action, with respect to which— 

13 ‘‘(A) the bond shall inure first to the ben14 efit of the homeowners who have claims against 

15 the appraiser under this title or any other ap16 plicable provision of law, and second to the ben17 efit of originating creditors that complied with 

18 their duty of good faith and fair dealing in ac19 cordance with this title; and 

20 ‘‘(B) any assignee or subsequent transferee 

21 or trustee shall be a beneficiary of the bond, 

22 only if the originating creditor qualified for 

23 such treatment; and 

24 ‘‘(5) the term ‘rate spread mortgage trans25 action’ means a home mortgage loan that has an anVerDate Aug 31 2005 22:42 May 04, 2007 Jkt 059200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1299.IS S1299

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1 nual percentage rate of interest that equals or ex2 ceeds the rate that would require reporting under 

3 the Home Mortgage Disclosure Act (12 U.S.C. 2801 

4 et seq.) as a rate spread loan, without regard to 

5 whether such loan is otherwise subject to the Home 

6 Mortgage Disclosure Act. 

7 ‘‘(b) STANDARD OF CARE.— 

8 ‘‘(1) FIDUCIARY RELATIONSHIP.—In the case 

9 of a home mortgage loan, the mortgage broker shall 

10 be deemed to have a fiduciary relationship with the 

11 consumer, and each such mortgage broker shall be 

12 subject to all requirements for fiduciaries otherwise 

13 applicable under State or Federal law. 

14 ‘‘(2) FAIR DEALING.—Each mortgage origi15 nator shall, in addition to the duties imposed by oth16 erwise applicable provisions of State or Federal law, 

17 with respect to each home mortgage loan in which 

18 the mortgage originator is involved— 

19 ‘‘(A) act with reasonable skill, care, and 

20 diligence; and 

21 ‘‘(B) act in good faith and with fair deal22 ing in any transaction, practice, or course of 

23 business associated with the transaction. 

24 ‘‘(c) ASSESSMENT OF ABILITY TO REPAY.— 


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1 ‘‘(1) IN GENERAL.—Each mortgage originator 

2 shall, before entering into or otherwise facilitating 

3 any home mortgage loan, verify the reasonable abil4 ity of the borrower to pay the principal and interest 

5 on the loan, and any real estate taxes and home6 owners insurance fees and premiums. 

7 ‘‘(2) VARIABLE MORTGAGE RATES.—In the case 

8 of a home mortgage loan with respect to which the 

9 applicable rate of interest may vary, for purposes of 

10 paragraph (1), the ability to pay shall be determined 

11 based on the maximum possible monthly payment 

12 that could be due from the borrower during the first 

13 7 years of the loan term, which amount shall be cal14 culated by— 

15 ‘‘(A) using the maximum interest rate al16 lowable under the loan; and 

17 ‘‘(B) assuming no default by the borrower, 

18 a repayment schedule which achieves full amor19 tization over the life of the loan. 

20 ‘‘(3) REQUIRED VERIFICATION DOCUMENTS.— 

21 ‘‘(A) IN GENERAL.—For purposes of para22 graph (1), a mortgage originator shall base a 

23 determination of the ability to pay on— 

24 ‘‘(i) documentation of the income and 

25 financial resources of the borrower, includVerDate Aug 31 2005 22:42 May 04, 2007 Jkt 059200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1299.IS S1299

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1 ing tax returns, payroll receipts, bank 

2 records, or other similarly reliable docu3 ments; and 

4 ‘‘(ii) the debt-to-income ratio and re5 sidual income of the borrower, as deter6 mined under section 36.4337 of title 38 of 

7 the Code of Federal Regulations, or any 

8 successor thereto. 

9 ‘‘(B) LIMITATION.—A statement provided 

10 by the borrower of the income and financial re11 sources of the borrower, without other docu12 mentation referred to in this paragraph, is not 

13 sufficient verification for purposes of assessing 

14 the ability of the consumer to pay. 

15 ‘‘(d) RATE SPREAD MORTGAGES.— 

16 ‘‘(1) ESCROW ACCOUNT REQUIRED.—In the 

17 case of a rate spread mortgage transaction, the obli18 gor shall be required to make monthly payments into 

19 an escrow account established by the mortgage origi20 nator for the purpose of paying taxes, hazard insur21 ance premiums, and, if applicable, flood insurance 

22 premiums. 

23 ‘‘(2) EXCEPTION.—This paragraph does not 

24 apply in any case in which the mortgage originator 

25 reasonably believes that, following the loan closing, 


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1 the obligor will be required, or will continue to be re2 quired, to make escrow payments described in para3 graph (1) on the property securing the loan in con4 nection with another loan secured by the same prop5 erty. 

6 ‘‘(3) LENDER AND BROKER LIABILITY.—In any 

7 case in which a mortgage broker sells or delivers a 

8 rate spread mortgage loan to a lender, the lender 

9 shall be liable for the acts, omissions, and represen10 tations made by the mortgage broker in connection 

11 with that mortgage loan. 

12 ‘‘(e) STEERING PROHIBITED.— 

13 ‘‘(1) IN GENERAL.—In connection with a home 

14 mortgage loan, a mortgage originator may not steer, 

15 counsel, or direct a consumer to rates, charges, prin16 cipal amount, or prepayment terms that are not rea17 sonably advantageous to the consumer, in light of all 

18 of the circumstances associated with the transaction, 

19 including the characteristics of the property that se20 cures or will secure the extension of credit and the 

21 loan terms for which the consumer qualifies. 

22 ‘‘(2) DUTIES TO CONSUMERS.—If unable to 

23 suggest, offer, or recommend to a consumer a rea24 sonably advantageous home loan, a mortgage origi25 nator shall— 


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1 ‘‘(A) based on the information reasonably 

2 available and using the skill, care, and diligence 

3 reasonably expected for a mortgage originator, 

4 originate or otherwise facilitate a reasonably 

5 advantageous home mortgage loan by another 

6 creditor to a consumer, if permitted by and in 

7 accordance with all otherwise applicable law; or 

8 ‘‘(B) disclose to a consumer— 

9 ‘‘(i) that the creditor does not offer a 

10 home mortgage loan that would be reason11 ably advantageous to a consumer, but that 

12 other creditors may offer such a loan; and 

13 ‘‘(ii) the reasons that the products 

14 and services offered by the mortgage origi15 nator are not available to or reasonably ad16 vantageous for the consumer. 

17 ‘‘(3) PROHIBITED CONDUCT.—In connection 

18 with a home mortgage loan, a mortgage originator 

19 may not— 

20 ‘‘(A) mischaracterize the credit history of a 

21 consumer or the home loans available to a con22 sumer; 

23 ‘‘(B) mischaracterize or suborn 

24 mischaracterization of the appraised value of 

25 the property securing the extension of credit; or 


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1 ‘‘(C) if unable to suggest, offer, or rec2 ommend to a consumer a reasonably advan3 tageous home mortgage loan, discourage a con4 sumer from seeking a home mortgage loan from 

5 another creditor or with another mortgage 

6 originator. 

7 ‘‘(4) RULE OF CONSTRUCTION.—Nothing in 

8 this subsection shall be deemed to prohibit a mort9 gage originator from providing a consumer with ac10 curate, unbiased, general information about home 

11 mortgage loans, underwriting standards, ways to im12 prove credit history, or any other matter relevant to 

13 a consumer. 

14 ‘‘(f) GOOD FAITH AND FAIR DEALING IN APPRAISAL

15 PROCESS.— 

16 ‘‘(1) IN GENERAL.—No mortgage originator 

17 may enter into a home mortgage loan with respect 

18 to which the mortgage originator has reason to be19 lieve that, with respect to the appraisal of the value 

20 of the property securing the loan— 

21 ‘‘(A) the appraiser failed to act in good 

22 faith and fair dealing with respect to the con23 sumer in connection with the appraisal; 

24 ‘‘(B) the appraisal was conducted other 

25 than in accordance with all applicable State and 


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1 Federal standards required of certified apprais2 ers, or was otherwise not accurate and reason3 able; 

4 ‘‘(C) the appraiser had a direct or indirect 

5 interest in the property or the transaction; 

6 ‘‘(D) the appraiser charged, sought, or re7 ceived compensation for the appraisal, and the 

8 appraisal was not covered by a qualifying bond; 

9 or 

10 ‘‘(E) the appraisal order or any other com11 munication in any form includes the requested 

12 loan amount or any estimate of value for the 

13 property to serve as collateral, either express or 

14 implied. 

15 ‘‘(2) PROHIBITED INFLUENCE.—No mortgage 

16 originator may, with respect to a home mortgage 

17 loan, in any way— 

18 ‘‘(A) seek to influence an appraiser or oth19 erwise to encourage a targeted value in order to 

20 facilitate the making or pricing of the home 

21 mortgage loan; or 

22 ‘‘(B) select an appraiser on the basis of an 

23 expectation that such appraiser would provide a 

24 targeted value in order to facilitate the making 

25 or pricing of the home mortgage loan. 


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1 ‘‘(3) LIMITATION ON DEFENSES.—It shall not 

2 be a defense to enforcement of the requirements of 

3 this subsection that the mortgage originator used 

4 another person in the appraisal process or to review 

5 the appraisal process. 

6 ‘‘(4) NOTICE OF APPRAISAL.—In any case in 

7 which an appraisal is performed in connection with 

8 a home mortgage loan, the mortgage originator shall 

9 provide a copy of the appraisal report to an appli10 cant for a home mortgage loan, whether credit is 

11 granted, denied, or the application was withdrawn.’’. 

12 SEC. 3. CONFORMING AND CLERICAL AMENDMENTS. 

13 The Truth in Lending Act (15 U.S.C. 1601 et seq.) 

14 is amended— 

15 (1) in section 103(u) (15 U.S.C. 1602(u)), by 

16 striking ‘‘disclosures required by section 129(a)’’ 

17 and inserting ‘‘provisions of section 129 and 129A’’; 

18 (2) in section 130 (15 U.S.C. 1640) by insert19 ing ‘‘or 129A’’ after ‘‘section 129’’ each place that 

20 term appears; and 

21 (3) in the table of sections for chapter 2 (15 

22 U.S.C. 1631 et seq.), by inserting after the item re23 lating to section 129 the following: 

‘‘129A. Duties of mortgage originators.’’. 

Æ 


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