II 

110TH CONGRESS 

1ST SESSION S. 1222 

To stop mortgage transactions which operate to promote fraud, risk, abuse, 

and under-development, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 25, 2007 

Mr. OBAMA (for himself and Mr. DURBIN) introduced the following bill; which 

was read twice and referred to the Committee on Banking, Housing, and 

Urban Affairs 

A BILL 

To stop mortgage transactions which operate to promote 

fraud, risk, abuse, and under-development, 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; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Stopping Mortgage Transactions which Operate to Pro6 mote Fraud, Risk, Abuse, and Underdevelopment Act’’ or 

7 the ‘‘STOP FRAUD Act’’. 

8 (b) TABLE OF CONTENTS.—The table of contents for 

9 this Act is as follows: 


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Sec. 1. Short title; table of contents. 

Sec. 2. Mortgage fraud. 

Sec. 3. Mandatory reporting requirements. 

Sec. 4. Law enforcement and industry communication. 

Sec. 5. Debarred or censured mortgage professional database. 

Sec. 6. Housing counseling. 

Sec. 7. State appraisal demonstration projects. 

Sec. 8. Law enforcement grants to State and local law enforcement agencies. 

Sec. 9. Additional DOJ funding. 

Sec. 10. Additional rights of borrowers. 

Sec. 11. Report to Congress. 

1 SEC. 2. MORTGAGE FRAUD. 

2 (a) IN GENERAL.—Chapter 63 of title 18, United 

3 States Code, is amended by adding at the end the fol4 lowing: 

5 ‘‘§ 1351. Mortgage fraud 

6 ‘‘(a) IN GENERAL.—It shall be unlawful for any 

7 mortgage professional to knowingly execute, or attempt to 

8 execute, a scheme or artifice— 

9 ‘‘(1) to defraud any natural person, financial 

10 institution, or purchaser of consumer credit or an in11 terest in consumer credit in connection with the 

12 offer or extension of consumer credit (as such term 

13 is defined in subsections (e) and (h) under section 

14 103 of the Truth in Lending Act (15 U.S.C. 1602(e) 

15 and (h))), which credit is, is to be, or is portrayed 

16 as being secured by an interest— 

17 ‘‘(A) in real property; or 

18 ‘‘(B) in personal property used or expected 

19 to be used as the principal dwelling (as such 

20 term is defined under section 103(v) of the 


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1 Truth in Lending Act (15 U.S.C. 1602(v))) of 

2 the natural person to whom such consumer 

3 credit is offered or extended; or 

4 ‘‘(2) to obtain, by means of false or fraudulent 

5 pretenses, representations, or promises, any money 

6 or property, including without limitation in the form 

7 of fees or charges, from a natural person in connec8 tion with an extension of consumer credit which is, 

9 is to be, or is portrayed as being secured by an in10 terest— 

11 ‘‘(A) in real property; or 

12 ‘‘(B) in personal property used or expected 

13 to be used as the principal dwelling of such nat14 ural person; 

15 ‘‘(b) PENALTIES.— 

16 ‘‘(1) CRIMINAL PENALTIES.—Any mortgage 

17 professional who violates subsection (a) shall be 

18 fined not more than $5,000,000, or imprisoned not 

19 more than 35 years, or both. 

20 ‘‘(2) CIVIL PENALTIES.—Any mortgage profes21 sional who violates subsection (a) shall be liable for 

22 an amount equal to the sum of all finance charges 

23 and fees paid or payable by the natural person, fi24 nancial institution, or purchaser who was defrauded 


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1 unless the mortgage professional demonstrates that 

2 such violation is not material. 

3 ‘‘(c) PRIVATE RIGHT OF ACTION BY PERSONS AG4 GRIEVED.— 

5 ‘‘(1) IN GENERAL.—Any person aggrieved by a 

6 violation of this section, or any regulation under this 

7 section may, but shall not be required to, file suit in 

8 any district court of the United States or any State 

9 court having jurisdiction of the parties to such 

10 suit— 

11 ‘‘(A) without respect to the amount in con12 troversy; 

13 ‘‘(B) without regard to the citizenship of 

14 the parties; and 

15 ‘‘(C) without regard to exhaustion of any 

16 administrative remedies. 

17 ‘‘(2) REMEDIES.—Any court in which a civil ac18 tion has been brought under paragraph (1) may— 

19 ‘‘(A) award damages and appropriate de20 claratory and injunctive relief for each violation 

21 of this section; and 

22 ‘‘(B) provide such additional relief as the 

23 court deems appropriate, including the award of 

24 court costs, investigative costs, and reasonable 

25 attorneys’ fees incurred by persons aggrieved. 


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1 ‘‘(d) RULE OF CONSTRUCTION.—Nothing in this sec2 tion shall be construed to modify, lessen, or otherwise af3 fect any other provision of this title relating to the rights 

4 afforded to financial institutions or purchasers of con5 sumer credit or interests in consumer credit. 

6 ‘‘(e) DEFINITION.—As used in this section, the term 

7 ‘mortgage professional’ includes real estate appraisers, 

8 real estate accountants, real estate attorneys, real estate 

9 brokers, mortgage brokers, mortgage underwriters, mort10 gage processors, mortgage settlement companies, mort11 gage title companies, mortgage loan originators, and any 

12 other provider of professional services engaged in the 

13 mortgage process.’’. 

14 (b) TABLE OF SECTIONS.—The table of sections for 

15 chapter 63 of title 18, United States Code, is amended 

16 by inserting after the item relating to section 1350 the 

17 following: 

‘‘1351. Mortgage fraud.’’. 

18 (c) CONFORMING AMENDMENT.—Section 3293(2) of 

19 title 18, United States Code, is amended by striking ‘‘or 

20 1343’’ and inserting ‘‘, 1343, or 1351’’. 

21 SEC. 3. MANDATORY REPORTING REQUIREMENTS. 

22 (a) DEFINITION OF FINANCIAL INSTITUTION.—Sec23 tion 5312(a)(2)(U) of title 31, United States Code, is 

24 amended by— 


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1 (1) inserting ‘‘companies and other legal enti2 ties’’ after ‘‘persons’’; 

3 (2) inserting ‘‘, transactions,’’ after ‘‘closings’’; 

4 and 

5 (3) inserting after ‘‘settlements’’ the following: 

6 ‘‘, including the Federal National Mortgage Associa7 tion, the Government National Mortgage Associa8 tion, the Federal Home Loan Mortgage Corporation, 

9 mortgage appraisers, real estate accountants, real 

10 estate attorneys, real estate brokers, mortgage un11 derwriters, mortgage processors, mortgage settle12 ment and title companies, mortgage brokers, mort13 gage loan originators, and any other mortgage pro14 fessional engaged in the mortgage industry’’. 

15 (b) REGULATIONS.— 

16 (1) IN GENERAL.—Not later than 1 year after 

17 the date of enactment of this Act, the Secretary of 

18 the Treasury shall issue regulations to implement 

19 the amendments made in subsection (a). 

20 (2) CONTENT OF REGULATION.—A regulation 

21 required under paragraph (1) shall— 

22 (A) include a requirement that any sus23 picious activity by an individual or entity de24 scribed in section 5312(a)(2)(U) of title 31, 


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1 United States Code, be reported to the Sec2 retary of the Treasury; and 

3 (B) ensure compliance by an individual or 

4 entity described in such section with the re5 quirement described under subparagraph (A), 

6 while simultaneously seeking to avoid any un7 necessary duplication of paperwork or other ad8 ministrative details. 

9 (c) AUTHORIZATION OF APPROPRIATIONS.—There 

10 are authorized to be appropriated such sums as are nec11 essary to implement the regulations issued under sub12 section (b). 

13 SEC. 4. LAW ENFORCEMENT AND INDUSTRY COMMUNICA14 TION. 

15 (a) IN GENERAL.—Not later than 18 months after 

16 the date of enactment of this Act, the Attorney General, 

17 in consultation with the Secretary of the Treasury, shall 

18 establish a system by which mortgage brokers, lenders, 

19 title company employees, mortgage appraisers, securities 

20 and bond rating agencies, and other authorized mortgage 

21 professionals may register and receive updates from Fed22 eral law enforcement agencies on— 

23 (1) suspicious activity trends in the mortgage 

24 industry; and 

25 (2) mortgage fraud-related convictions. 


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1 (b) AUTHORIZATION OF APPROPRIATIONS.—There 

2 are authorized to be appropriated such sums as are nec3 essary to establish and maintain the system required 

4 under subsection (a). 

5 SEC. 5. DEBARRED OR CENSURED MORTGAGE PROFES6 SIONAL DATABASE. 

7 (a) ESTABLISHMENT.— 

8 (1) IN GENERAL.—Not later than 18 months 

9 after the date of enactment of this Act, the Attorney 

10 General shall establish a Debarred or Censured 

11 Mortgage Professional Database that may be 

12 accessed by authorized depository institutions, mort13 gage lenders, mortgage professionals, securities and 

14 bond rating agencies, and consumers to determine 

15 the Federal and State bar status of mortgage pro16 fessionals regulated by any Federal or State agency. 

17 (2) PRIVATE CERTIFICATION BOARDS.—Any 

18 widely accepted private certification board shall have 

19 authority to access, maintain, and update the 

20 Debarred or Censured Mortgage Professional Data21 base established in paragraph (1) for purposes of 

22 adding or removing the information of any mortgage 

23 professional contained in such Database. 

24 (3) WIDELY ACCEPTED PRIVATE CERTIFI25 CATION BOARD.—Not later than 18 months after the 


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1 date of enactment of this Act, the Attorney General, 

2 in consultation with the Secretary of the Treasury, 

3 shall— 

4 (A) determine the definition of the term 

5 ‘‘widely accepted private certification board’’; 

6 and 

7 (B) issue procedures and guidance on how 

8 officers, agents, and employees of such boards 

9 shall conduct the responsibilities described in 

10 paragraph (2). 

11 (4) PUBLIC AVAILABILITY.—The Attorney Gen12 eral shall make the Debarred or Censured Mortgage 

13 Professional Database established in paragraph (1) 

14 available to the public on the Internet, without fee 

15 or other access charge, in a searchable, sortable, and 

16 downloadable manner. 

17 (b) IMMUNITY FROM CIVIL LIABILITY.—Any officer, 

18 agent, or employee of a widely accepted private certifi19 cation board, who in good faith follows the procedures and 

20 guidance set forth under subsection (a)(3)(B), shall not 

21 be liable in any court of any State or the United States 

22 to any mortgage professional or other person— 

23 (1) for carrying out the responsibilities de24 scribed in subsection (a)(2); or 


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1 (2) for nondisclosure to that mortgage profes2 sional or other person that such conduct occurred. 

3 (c) WHISTLEBLOWER PROTECTION.— 

4 (1) IN GENERAL.—No officer, agent, or em5 ployee of a widely accepted private certification 

6 board may be discharged, demoted, threatened, sus7 pended, harassed, or in any other manner discrimi8 nated against in the terms and conditions of the em9 ployment of such officer, agent, or employee because 

10 of any lawful act done by such officer, agent, or em11 ployee to provide information, cause information to 

12 be provided, or otherwise assist in an investigation 

13 regarding any— 

14 (A) possible violation of this section, in15 cluding not following the procedures and guid16 ance set forth under subsection (a)(3)(B); or 

17 (B) other misconduct, by any other officer, 

18 agent, or employee of the board. 

19 (2) CIVIL ACTION.—An officer, agent, or em20 ployee injured by a violation of paragraph (1) may, 

21 in a civil action, obtain appropriate relief. 

22 (d) AUTHORIZATION OF APPROPRIATIONS.—There 

23 are authorized to be appropriated such sums as are nec24 essary to establish and maintain the database required 

25 under subsection (a). 


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1 SEC. 6. HOUSING COUNSELING. 

2 Section 106 of the Housing and Urban Development 

3 Act of 1968 (12 U.S.C. 1701x), is amended by adding 

4 at the end the following: 

5 ‘‘(g) COUNSELING FOR MORTGAGE FRAUD.— 

6 ‘‘(1) IN GENERAL.—The Secretary is authorized 

7 to provide, or contract with public or private organi8 zations to provide, information, advice, counseling, 

9 and technical assistance to tenants, homeowners, 

10 and other consumers with respect— 

11 ‘‘(A) to mortgage fraud, as such activity is 

12 described in section 1351 of title 18, United 

13 States Code; and 

14 ‘‘(B) to any other activities or practices 

15 that the Secretary determines are likely to in16 crease the risk of foreclosure by such individ17 uals. 

18 ‘‘(2) PREFERENCES.—In distributing any funds 

19 authorized under paragraph (5), the Secretary shall 

20 give preference to— 

21 ‘‘(A) organizations in those States with the 

22 highest rates of mortgage fraud, as such rates 

23 are determined by— 

24 ‘‘(i) the Director of the Federal Bu25 reau of Investigation; and 

26 ‘‘(ii) mortgage industry statistics; 


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1 ‘‘(B) those nonprofit organizations— 

2 ‘‘(i) approved by the Secretary under 

3 subsection (d); and 

4 ‘‘(ii) that— 

5 ‘‘(I) are experienced in the provi6 sion of prepurchase and foreclosure7 prevention counseling; and 

8 ‘‘(II) have a demonstrated record 

9 of success in the provision of such 

10 counseling services; and 

11 ‘‘(C) organizations that provide— 

12 ‘‘(i) in-person prepurchase and fore13 closure-prevention counseling; and 

14 ‘‘(ii) a brief assessment and review of 

15 the financial mortgage documents of a ten16 ant, homeowner, or other consumer. 

17 ‘‘(3) DUTIES OF THE SECRETARY.—The Sec18 retary shall— 

19 ‘‘(A) monitor, record, track, and evaluate 

20 the performance of each public or private orga21 nization that is a recipient of a grant under 

22 subsection (a); and 

23 ‘‘(B) make each evaluation under subpara24 graph (A) available to the public on the InterVerDate Aug 31 2005 00:53 Apr 27, 2007 Jkt 059200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1222.IS S1222

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1 net, without fee or other access charge, in a 

2 searchable, sortable, and downloadable manner. 

3 ‘‘(4) REPORT.— 

4 ‘‘(A) IN GENERAL.—Each public or private 

5 organization that is a recipient of a grant under 

6 subsection (a) shall report to the Secretary, on 

7 a quarterly basis, on any instances or occur8 rences of fraud or deceptive practices by mort9 gage professionals uncovered in the course of 

10 providing the prepurchase and foreclosure-pre11 vention counseling required under this section. 

12 ‘‘(B) USE BY THE SECRETARY.—Based 

13 upon the reports submitted under subparagraph 

14 (A), the Secretary shall— 

15 ‘‘(i) identify and evaluate trends in 

16 the use and frequency of fraud or deceptive 

17 practices in the mortgage industry; 

18 ‘‘(ii) identify new fraudulent schemes 

19 or deceptive practices, and forward to the 

20 appropriate Federal law enforcement agen21 cy information relating to such new 

22 schemes and practices; and 

23 ‘‘(iii) establish, as needed, new re24 quirements to train officers, agents, or em25 ployees of any public or private organizaVerDate Aug 31 2005 00:53 Apr 27, 2007 Jkt 059200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\S1222.IS S1222

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1 tion that is a recipient of a grant under 

2 subsection (a) to identify such schemes 

3 and practices, including by providing edu4 cational material to such officers, agents, 

5 or employees on such schemes and prac6 tices. 

7 ‘‘(5) AUTHORIZATION OF APPROPRIATIONS.— 

8 There are authorized to be appropriated 

9 $25,000,000, to implement the provisions of this 

10 subsection.’’. 

11 SEC. 7. STATE APPRAISAL DEMONSTRATION PROJECTS. 

12 (a) IN GENERAL.—Not later than 18 months after 

13 the date of enactment of this Act, the Secretary of Hous14 ing and Urban Development shall provide grants to State 

15 appraisal agencies to improve the monitoring and enforce16 ment of housing appraisal regulations in that State. 

17 (b) APPLICATION.—Each State appraisal agency 

18 seeking a grant under this section shall submit an applica19 tion to the Secretary of Housing and Urban Development 

20 at such time, in such manner, and containing such infor21 mation as the Secretary may require. 

22 (c) PREFERENCE FOR STATES WITH HIGHER INCI23 DENTS OF MORTGAGE FRAUD.—In distributing any grant 

24 amounts authorized under this section, the Secretary of 

25 Housing and Urban Development shall give preference to 


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1 those States with the highest rates of mortgage fraud, as 

2 such rates are determined by— 

3 (1) the Director of the Federal Bureau of In4 vestigation; and 

5 (2) mortgage industry statistics. 

6 (d) AUTHORIZATION OF APPROPRIATIONS.—There 

7 are authorized to be appropriated $10,000,000, to imple8 ment the provisions of this section. 

9 SEC. 8. LAW ENFORCEMENT GRANTS TO STATE AND LOCAL 

10 LAW ENFORCEMENT AGENCIES. 

11 (a) IN GENERAL.—Not later than 18 months after 

12 the date of enactment of this Act, the Attorney General 

13 shall provide grants to assist State and local law enforce14 ment agencies in— 

15 (1) establishing and improving mortgage fraud 

16 task forces; and 

17 (2) improving communications regarding mort18 gage fraud cases between such agencies and other 

19 Federal, State and local law enforcement agencies. 

20 (b) APPLICATION.—Each State or local law enforce21 ment agency seeking a grant under this section shall sub22 mit an application to the Attorney General at such time, 

23 in such manner, and containing such information as the 

24 Attorney General may require. 


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1 (c) AUTHORIZATION OF APPROPRIATIONS.—There 

2 are authorized to be appropriated $40,000,000, to imple3 ment the provisions of this section. 

4 SEC. 9. ADDITIONAL DOJ FUNDING. 

5 In addition to any other amounts otherwise author6 ized to be appropriated under this Act, there are author7 ized to be appropriated to the Attorney General 

8 $5,000,000, to increase mortgage fraud investigation ef9 forts undertaken by the Department of Justice. 

10 SEC. 10. ADDITIONAL RIGHTS OF BORROWERS. 

11 (a) BORROWERS RIGHTS IN FORECLOSURE PRO12 CEEDINGS.— 

13 (1) IN GENERAL.—Any creditor making a 

14 subprime mortgage related loan who has the legal 

15 right to foreclosure shall use the judicial foreclosure 

16 procedures, or if no such judicial proceeding exists 

17 the appropriate administrative proceeding, of the 

18 State where the property securing the loan is located 

19 if— 

20 (A) the creditor is a party to a home loan 

21 contract described in paragraph (3); and 

22 (B) the property to be secured is the prin23 cipal residence (as determined by the Secretary 

24 of Housing and Urban Development) of the 

25 borrower. 


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1 (2) AFFIRMATIVE DEFENSE.—In any fore2 closure proceeding described in paragraph (1), the 

3 borrower may assert as an affirmative defense 

4 against any party to such contract, or any successor 

5 or assignee of such party— 

6 (A) that such contract was the result of 

7 fraud or deceptive practices and as result of 

8 such fraud and deception that the terms of such 

9 contract are void; and 

10 (B) any other claim or defense to accelera11 tion and foreclosure, including any claim or de12 fense based on a violation of this Act, though 

13 no such claim or defense shall be deemed a 

14 compulsory counterclaim. 

15 (3) HOME LOAN CONTRACT.—A home loan con16 tract described in paragraph (1) is a contract that— 

17 (A) does not include a fully-disclosed state18 ment by the lender that the lending institution 

19 or the authorized representative or agent of 

20 such institution has evaluated and affirmed the 

21 ability of the individual to repay the loan based 

22 upon, at minimum, the maximum monthly pay23 ments that could be due during the first 7 years 

24 of the loan term, which shall be calculated with 

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1 able under the loan being offered based on a 

2 fully amortizing repayment schedule, taking 

3 into account negative amortization and escrows 

4 for taxes and insurance; 

5 (B) does not contain a statement, the for6 mat of which shall be determined by the Sec7 retary of Housing and Urban Development, 

8 with a plain language summary providing the 

9 borrower with a calculation of— 

10 (i) the maximum monthly required 

11 minimum payment the borrower could face 

12 under the terms of the loan for each of the 

13 first 10 years of the loan in order to keep 

14 the loan in good standing, or if the bor15 rower is receiving more than 1 loan, the 

16 same information for each loan separately 

17 and for the total of all of the loans to18 gether; and 

19 (ii) how much it would cost the bor20 rower to pay off the loan at the end of 

21 each of the first 10 years if the borrower 

22 makes the minimum required payments to 

23 keep the loan in good standing; 

24 (C) was underwritten based only on the 

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1 party verification of all sources of income and 

2 assets of the individual, including by an exam3 ination of the individual’s tax returns, payroll 

4 receipts, bank records, or other reliable docu5 mentation; or 

6 (D) includes loan prepayment penalties 

7 that are applicable for prepayments made be8 yond 2 years after the loan origination date, be9 yond the initial interest rate adjustment period 

10 stated in such contract, or whichever is less. 

11 (b) COORDINATION WITH OTHER LAW.—No provi12 sion of this section shall be construed as annulling, alter13 ing, affecting, or superseding any Federal law, or the laws 

14 of any State, relating to foreclosure proceedings in connec15 tion with home loans, except to the extent that those laws 

16 are inconsistent with the provisions of this section, and 

17 then only to the extent of the inconsistency. 

18 (c) APPLICABILITY.—This section shall apply to all 

19 home loan contracts entered into on, or after the date that 

20 is 90 days after the date of the enactment of this Act and 

21 to all controversies arising after such date. 

22 (d) DEFINITIONS.—As used in this section: 

23 (1) HOME LOAN.—The term ‘‘home loan’’ 

24 means a loan secured by a mortgage or lien on resi25 dential property. 


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1 (2) RESIDENTIAL PROPERTY.—The term ‘‘resi2 dential property’’ means a 1–4 family, owner-occu3 pied residence, including a 1-family unit in a condo4 minium project, a membership interest and occu5 pancy agreement in a cooperative housing project, 

6 and a manufactured home and the lot on which the 

7 home is situated. 

8 (3) SUBPRIME MORTGAGE RELATED LOAN.— 

9 (A) IN GENERAL.—The term ‘‘subprime 

10 mortgage related loan’’ means with respect to a 

11 home loan, that the borrower under the loan, or 

12 the loan terms, exhibit characteristics that indi13 cate that the loan is subject to a significantly 

14 higher risk of default than federally related 

15 mortgage loans made to borrowers at prime 

16 lending rates. 

17 (B) REGULATIONS.—The Secretary of 

18 Housing and Urban Development shall pre19 scribe regulations to carry out this paragraph, 

20 which shall specify characteristics referred to in 

21 subparagraph (A) that indicate a higher risk of 

22 default and shall establish criteria based on 

23 such characteristics for determining whether a 

24 home loan is a subprime loan. Such characteris25 tics shall include— 


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1 (i) higher loan fees or penalties; 

2 (ii) higher interest rates; 

3 (iii) higher debt-to-income ratios; 

4 (iv) a history of loan delinquency; 

5 (v) higher loan-to-value ratios; 

6 (vi) lower credit scores or other credit 

7 ratings; 

8 (vii) more recent declaration of bank9 ruptcy; 

10 (viii) lack of a credit history; 

11 (ix) no-documentation or low-docu12 mentation loan underwriting; and 

13 (x) any other factors that the Sec14 retary considers appropriate. 

15 SEC. 11. REPORT TO CONGRESS. 

16 Not later than 120 days after the date of enactment 

17 of this Act, the Comptroller General of the United States 

18 shall survey, evaluate, and report to Congress on State 

19 mortgage lending practices and regulations related to— 

20 (1) mortgage fraud and deception; 

21 (2) predatory lending practices relating to 

22 mortgages; and 

23 (3) foreclosure prevention and homeownership 

24 preservation programs offered by each State. 

Æ 


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