Union Calendar No. 39

105TH CONGRESS

1ST SESSION H. R. 607

[Report No. 105–55]

A BILL

To amend the Truth in Lending Act to require nomortgage transaction, and for other purposes. tor as a condition for entering into a residential mortgage insurance which is required by a credi- tice of cancellation rights with respect to private

APRIL 16, 1997

Reported with amendments, committed to the Committee

dered to be printedof the Whole House on the State of the Union, and or-
IB

Union Calendar No. 39

105TH CONGRESS

1ST SESSION H. R. 607

[Report No. 105–55]

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.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 5, 1997

Mr. HANSEN (for himself, Mr. BAKER, Mr. KENNEDY of Massachusetts, Mr.

CALVERT, Mr. WAXMAN, Ms. RIVERS, Mr. SAWYER, Mr. EVANS, Mr.

BOUCHER, Ms. FURSE, and Mr. FROST) introduced the following bill;

which was referred to the Committee on Banking and Financial Services

APRIL 16, 1997

Additional sponsors: Mr. PACKARD, Mr. LUTHER, Mr. MCDERMOTT, Mr.

ROHRABACHER, Mr. FRANK of Massachusetts, Mr. RUSH, Mr. DELLUMS,

Mr. COOK, Mr. FALEOMAVAEGA, Mr. STUMP, Mr. SISISKY, Mr. GILMAN,

Mr. BARRETT of Wisconsin, Mr. LARGENT, Mr. FILNER, Mr. FARR of

California, Mr. RIGGS, Mr. PARKER, Mr. BROWN of California, Mr.

ROYCE, Mr. KUCINICH, Ms. NORTON, and Mr. SESSIONS

APRIL 16, 1997

Reported with amendments, committed to the Committee of the Whole House

on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on February 5, 1997]

A BILL

To amend the Truth in Lending Act to require notice of
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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.

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 ‘‘Homeowners Insurance

5 Protection Act’’.

6 SEC. 2. PROVISIONS RELATING TO PRIVATE MORTGAGE IN7 SURANCE.

8 (a) IN GENERAL.—Section 6 of the Real Estate Settle9 ment Procedures Act of 1974 (12 U.S.C. 2605) is amend10 ed—

11 (1) by redesignating subsections (f), (g), (h), (i),

12 and (j) as subsections (k), (l), (m), (n), and (o), re13 spectively; and

14 (2) by inserting after subsection (e) the following

15 new subsections:

16 ‘‘(f) DISCLOSURES RELATING TO PRIVATE MORTGAGE

17 INSURANCE.—

18 ‘‘(1) DISCLOSURE AT SETTLEMENT RELATING TO

19 EXISTENCE OF PMI.—With regard to any covered

20 mortgage loan, the lender shall disclose, in writing at

21 or before the settlement of such covered mortgage loan,

22 whether any private mortgage insurance will be re-
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1 quired to be obtained or maintained with respect to

2 such mortgage loan, including any lender-paid pri3 vate mortgage insurance, and the period during

4 which such insurance will be required to be in effect.

5 ‘‘(2) DISCLOSURE AT SETTLEMENT RELATING TO

6 TERMINABILITY OF PMI.—If the lender requires, as a

7 condition for entering into a covered mortgage loan,

8 the borrower to assume an obligation to make sepa9 rately designated payments toward the premiums for

10 private mortgage insurance with respect to such loan,

11 the lender shall disclose, in writing at or before the

12 settlement of such covered mortgage loan any of the

13 following notices which are applicable with respect to

14 such loan:

15 ‘‘(A) PMI OBLIGATIONS TERMINABLE UPON

16 REQUEST.—In the case of a loan described in

17 paragraph (3), that—

18 ‘‘(i) the borrower’s obligation to make

19 separately designated payments toward the

20 premiums for private mortgage insurance

21 may be able to be terminated while the

22 mortgage is outstanding (including a can23 cellation permitted before the date of auto24 matic termination under subsection (g));

25 and
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1 ‘‘(ii) the borrower will be notified by

2 the servicer not less frequently than annu3 ally of an address and a toll-free or collect4 call telephone number which the borrower

5 may use to contact the servicer to deter6 mine—

7 ‘‘(I) whether the borrower’s obliga8 tion to make separately designated

9 payments toward the premium for pri10 vate mortgage insurance may be termi11 nated while the mortgage loan is out12 standing (or before the date of auto13 matic termination); and

14 ‘‘(II) if such obligation may be

15 terminated while the loan is outstand16 ing (or before such date), the condi17 tions and procedures for such termi18 nation.

19 ‘‘(B) PMI OBLIGATIONS TERMINABLE BY

20 OPERATION OF LAW.—That the borrower’s obliga21 tion to make separately designated payments to22 ward the premiums for private mortgage insur23 ance will be terminated by operation of law

24 under subsection (g).
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1 ‘‘(C) NONTERMINABLE PMI OBLIGATIONS.—

2 In the case of a loan not described in paragraph

3 (3), that the borrower’s obligation to pay any

4 amount to be applied to any portion of the pre5 miums for private mortgage insurance will not

6 be terminated at the request of the borrower.

7 ‘‘(3) DISCLOSURE WITH ANNUAL STATEMENTS OR

8 OTHER COMMUNICATIONS.—If—

9 ‘‘(A) private mortgage insurance is required

10 as a condition for entering into a covered mort11 gage loan; and

12 ‘‘(B) the borrower’s obligation to make sepa13 rately designated payments toward the pre14 miums for such insurance may be terminated at

15 the borrower’s request,

16 the servicer shall, not less frequently than annually,

17 disclose to the borrower a clear and conspicuous state18 ment containing the disclosures set forth in subpara19 graphs (A) and (B) of paragraph (2), including the

20 address and telephone number referred to in such

21 paragraph, based on the servicer’s knowledge at the

22 time such periodic communication is given. Such dis23 closure shall be included with any annual statement

24 of account, escrow statement, or related annual com-
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1 munications provided to the borrower, while such pri2 vate mortgage insurance is in effect.

3 ‘‘(4) DISCLOSURES FURNISHED WITHOUT COST

4 TO BORROWER.—No fee or other cost may be imposed

5 on any borrower for preparing and delivering any

6 disclosure to the borrower pursuant to this subsection.

7 ‘‘(g) MANDATORY TERMINATION OF PMI OBLIGATIONS

8 AT 75 PERCENT LOAN-TO-VALUE RATIO.—

9 ‘‘(1) IN GENERAL.—Notwithstanding any provi10 sion of a covered mortgage loan, any obligation of the

11 borrower to make separately designated payments to12 ward the premiums for any private mortgage insur13 ance in effect with respect to such loan shall termi14 nate, except as provided in paragraph (3), by oper15 ation of law as of the 1st day of the 1st month which

16 begins after the date on which the principal balance

17 outstanding on all residential mortgages on the prop18 erty securing the loan is equal to or less than 75 per19 cent of the lesser of—

20 ‘‘(A) if the loan was made for purchase of

21 the property, the sales price of the property

22 under such purchase; or

23 ‘‘(B) the appraised value of the property, as

24 determined by the appraisal conducted in con25 nection with the making of the loan.
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1 ‘‘(2) DISCLOSURE UPON TERMINATION.—Not

2 later than 45 days after the date of termination pur3 suant to paragraph (1) of a private mortgage insur4 ance requirement for a covered mortgage loan, the

5 servicer shall notify the borrower under the loan, in

6 writing, that—

7 ‘‘(A) the private mortgage insurance has

8 terminated and the borrower no longer has pri9 vate mortgage insurance: and

10 ‘‘(B) no further premiums, payments, or

11 other fees shall be due or payable by the borrower

12 in connection with the private mortgage insur13 ance.

14 ‘‘(3) EXCEPTION FOR DELINQUENT BORROW15 ERS.—

16 ‘‘(A) IN GENERAL.—Paragraph (1) shall

17 not apply with respect to any covered mortgage

18 loan on which the payments are not current as

19 of the date that the obligation to make private

20 mortgage insurance premium payments in con21 nection with the loan would otherwise terminate

22 pursuant to paragraph (1).

23 ‘‘(B) EFFECTIVENESS ONCE PAYMENTS ARE

24 CURRENT.—In the case of any covered mortgage

25 loan to which subparagraph (A) applies, para-
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1 graph (1) shall apply with respect to such loan

2 as of the 1st day of the 1st month which begins

3 after the date that such payments become cur4 rent.

5 ‘‘(4) RETURN OF PAYMENTS TOWARD PRE6 MIUMS.—

7 ‘‘(A) RETURN OF PAYMENTS TO BOR8 ROWER.—The servicer for a covered mortgage

9 loan shall promptly return to the borrower any

10 payments toward the premiums for any private

11 mortgage insurance for such loan covering any

12 period occurring after the date of automatic ter13 mination for such loan under this subsection.

14 ‘‘(B) RETURN OF PAYMENTS TO

15 SERVICER.—The private mortgage insurer for a

16 covered mortgage loan shall promptly return to

17 the servicer any payments received from the

18 servicer toward the premiums for any private

19 mortgage insurance for such loan covering any

20 period occurring after the date of automatic ter21 mination for such loan under this subsection.

22 ‘‘(h) LENDERS’ CONDITIONS FOR PMI.—

23 ‘‘(1) CONDITIONS FOR TERMINATION OF BORROW24 ER’S OBLIGATION TO PAY PMI.—The conditions for the

25 termination of the borrower’s obligation to make sepa-
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1 rately designated payments toward the premium for

2 private mortgage insurance with respect to a covered

3 mortgage loan, including any changes in such condi4 tions, shall be reasonably related to the purposes for

5 which the requirement for private mortgage insurance

6 was imposed at the time the loan was made.

7 ‘‘(2) BORROWER’S RIGHT TO TERMINATE IN AC8 CORDANCE WITH CONDITIONS.—In the case of any

9 covered mortgage loan described in subsection (f)(3),

10 the borrower shall have the right under this para11 graph to terminate the borrower’s obligation to make

12 separately designated payments toward the premiums

13 for such insurance if the conditions and procedures

14 for such termination most recently communicated to

15 the borrower (pursuant to a request by the borrower

16 pursuant to notice under subsection (f)(3) or other17 wise) have been met.

18 ‘‘(i) EFFECT ON OTHER AGREEMENTS.—The provi19 sions of subsections (f), (g), and (h) shall supersede any con20 flicting provision contained in any agreement relating to

21 the servicing of a covered mortgage loan entered into by

22 the Federal National Mortgage Association, the Federal

23 Home Loan Mortgage Corporation, or any private investor

24 or noteholder (or any successors thereto). A servicer which

25 cancels private mortgage insurance on a covered mortgage
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1 loan in compliance with the provisions of subsection (g) or

2 (h) or in accordance with investor guidelines in existence

3 at the time concerning the cancellation of private mortgage

4 insurance (regardless of whether the cancellation by the

5 servicer was mandated by such subsections or initiated by

6 the borrower) shall not be required to repurchase such mort7 gage loan from the investor or holder of such mortgage loan

8 solely on the grounds that the private mortgage insurance

9 was canceled in accordance with the provisions of such sub10 sections or investor guidelines, as applicable.

11 ‘‘(j) LIMITATIONS ON LIABILITY.—If the servicer for a

12 covered mortgage loan has complied with the requirements

13 under subsections (f) and (g) to provide disclosures, the

14 servicer shall not be considered to have violated any provi15 sion of subsection (f), (g), or (h) and shall not be liable

16 for any such violation—

17 ‘‘(1) due to any failure on the part of the

18 servicer to provide disclosures required under such

19 subsections resulting from the failure of any mortgage

20 insurer, any mortgage holder, or any other party to

21 timely provide accurate information to the servicer

22 necessary to permit the disclosures; or

23 ‘‘(2) due to any failure on the part of any pri24 vate mortgage insurer, any mortgage holder, or any
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1 other party to comply with the provisions of such sub2 sections.

3 Each private mortgage insurer and each mortgage holder

4 for a covered mortgage loan shall provide accurate and

5 timely information to the servicer for such loan necessary

6 to permit the disclosures required by subsections (f) and (g).

7 In the event of a dispute regarding liability for a violation

8 of subsection (f), (g), or (h), and upon request by the bor9 rower, a servicer shall provide the borrower with informa10 tion stating the identity of the insurer or mortgage holder.’’.

11 (b) DEFINITIONS.—Subsection (n) of section 6 of the

12 Real Estate Settlement Procedures Act of 1974 (as redesig13 nated by subsection (a)(1)) is amended—

14 (1) by redesignating paragraphs (1), (2), and (3)

15 as paragraphs (2), (5), and (6), respectively;

16 (2) by inserting before paragraph (2) (as redesig17 nated by paragraph (1) of this subsection) the follow18 ing new paragraph:

19 ‘‘(1) COVERED MORTGAGE LOAN.—The term ‘cov20 ered mortgage loan’ means a federally related mort21 gage loan under which the property securing the loan

22 is used by the borrower as the borrower’s principal

23 residence.’’; and

24 (3) by inserting after paragraph (2) (as so redes25 ignated) the following new paragraphs:
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1 ‘‘(3) MORTGAGE INSURANCE.—The term ‘mort2 gage insurance’ means insurance, including any

3 mortgage guaranty insurance, against the nonpay4 ment of, or default on, a mortgage or loan involved

5 in a residential mortgage transaction, the premiums

6 for which are paid by the borrower.

7 ‘‘(4) PRIVATE MORTGAGE INSURANCE.—The term

8 ‘private mortgage insurance’ means mortgage insur9 ance other than mortgage insurance made available

10 under the National Housing Act, title 38 of the Unit11 ed States Code, or title V of the National Housing Act

12 of 1949.’’.

13 SEC. 3. SCOPE OF APPLICABILITY.

14 (a) NOTICE AT OR BEFORE SETTLEMENT.—Para15 graphs (1) and (2) of section 6(f) of the Real Estate Settle16 ment Procedures Act of 1974 (as added by section 2(a) of

17 this Act) shall apply only with respect to covered mortgage

18 loans made after the end of the 1-year period beginning on

19 the date of the enactment of this Act.

20 (b) NOTICE OF PMI OBLIGATION TERMINABILITY.—

21 Paragraphs (3) and (4) of section 6(f) of the Real Estate

22 Settlement Procedures Act of 1974 (as added by section 2(a)

23 of this Act) shall apply beginning upon the end of the 1-

24 year period that begins on the date of the enactment of this
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1 Act and with respect to any covered mortgage loan without

2 regard to the date on which such loan was made.

3 (c) TERMINATION OF PMI OBLIGATION BY OPERATION

4 OF LAW.—Subsections (g) and (h) of section 6 of the Real

5 Estate Settlement Procedures Act of 1974 (as added by sec6 tion 2(a) of this Act) shall apply only with respect to cov7 ered mortgage loans made after the end of the 1-year period

8 beginning on the date of the enactment of this Act.

9 SEC. 4. CONFORMING AMENDMENTS.

10 (a) SECTION 6.—Section 6(m) of the Real Estate Set11 tlement Procedures Act of 1974 (12 U.S.C. 2605) (as redes12 ignated by section 2(a)(1) of this Act) is amended—

13 (1) by inserting ‘‘(not including subsection (f))’’

14 before ‘‘regarding timing’’; and

15 (2) by adding at the end the following new sen16 tence: ‘‘The preceding sentence shall not apply to any

17 State law or regulation relating to notice or disclo18 sure to a borrower regarding obtaining, maintaining,

19 or terminating private mortgage insurance and such

20 State laws and regulations shall be subject to the pro21 visions of section 18.’’.

22 (b) SECTION 10.—Section 10(b) of the Real Estate Set23 tlement Procedures Act of 1974 (12 U.S.C. 2609(b)) is

24 amended by striking ‘‘section 6(i)’’ and inserting ‘‘section

25 6(n)’’.
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1 (c) SECTION 12.—Section 12 of the Real Estate Settle2 ment Procedures Act of 1974 (12 U.S.C. 2610) is amended

3 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.’’.