II

105TH CONGRESS

1ST SESSION H. R. 607

IN THE SENATE OF THE UNITED STATES

APRIL 17, 1997

Received

AN ACT

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.
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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 Insur5 ance Protection Act’’.

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

8 (a) IN GENERAL.—Section 6 of the Real Estate Set9 tlement Procedures Act of 1974 (12 U.S.C. 2605) is

10 amended—

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

12 (i), and (j) as subsections (k), (l), (m), (n), and (o),

13 respectively; and

14 (2) by inserting after subsection (e) the follow15 ing new subsections:

16 ‘‘(f) DISCLOSURES RELATING TO PRIVATE MORT17 GAGE INSURANCE.—

18 ‘‘(1) DISCLOSURE AT SETTLEMENT RELATING

19 TO EXISTENCE OF PMI.—With regard to any covered

20 mortgage loan, the lender shall disclose, in writing

21 at or before the settlement of such covered mortgage

22 loan, whether any private mortgage insurance will be

23 required to be obtained or maintained with respect

24 to such mortgage loan, including any lender-paid
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1 private mortgage insurance, and the period during

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

3 ‘‘(2) DISCLOSURE AT SETTLEMENT RELATING

4 TO TERMINABILITY OF PMI.—If the lender requires,

5 as a condition for entering into a covered mortgage

6 loan, the borrower to assume an obligation to make

7 separately designated payments toward the pre8 miums for private mortgage insurance with respect

9 to such loan, the lender shall disclose, in writing at

10 or before the settlement of such covered mortgage

11 loan any of the following notices which are applica12 ble with respect to such loan:

13 ‘‘(A) PMI OBLIGATIONS TERMINABLE

14 UPON REQUEST.—In the case of a loan de15 scribed in paragraph (3), that—

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

17 separately designated payments toward the

18 premiums for private mortgage insurance

19 may be able to be terminated while the

20 mortgage is outstanding (including a can21 cellation permitted before the date of auto22 matic termination under subsection (g));

23 and

24 ‘‘(ii) the borrower will be notified by

25 the servicer not less frequently than annu-
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1 ally of an address and a toll-free or collect2 call telephone number which the borrower

3 may use to contact the servicer to deter4 mine—

5 ‘‘(I) whether the borrower’s obli6 gation to make separately designated

7 payments toward the premium for pri8 vate mortgage insurance may be ter9 minated while the mortgage loan is

10 outstanding (or before the date of

11 automatic termination); and

12 ‘‘(II) if such obligation may be

13 terminated while the loan is outstand14 ing (or before such date), the condi15 tions and procedures for such termi16 nation.

17 ‘‘(B) PMI OBLIGATIONS TERMINABLE BY

18 OPERATION OF LAW.—That the borrower’s obli19 gation to make separately designated payments

20 toward the premiums for private mortgage in21 surance will be terminated by operation of law

22 under subsection (g).

23 ‘‘(C) NONTERMINABLE PMI OBLIGA24 TIONS.—In the case of a loan not described in

25 paragraph (3), that the borrower’s obligation to
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1 pay any amount to be applied to any portion of

2 the premiums for private mortgage insurance

3 will not be terminated at the request of the bor4 rower.

5 ‘‘(3) DISCLOSURE WITH ANNUAL STATEMENTS

6 OR OTHER COMMUNICATIONS.—If—

7 ‘‘(A) private mortgage insurance is re8 quired as a condition for entering into a covered

9 mortgage loan; and

10 ‘‘(B) the borrower’s obligation to make

11 separately designated payments toward the pre12 miums for such insurance may be terminated at

13 the borrower’s request,

14 the servicer shall, not less frequently than annually,

15 disclose to the borrower a clear and conspicuous

16 statement containing the disclosures set forth in

17 subparagraphs (A) and (B) of paragraph (2), includ18 ing the address and telephone number referred to in

19 such paragraph, based on the servicer’s knowledge

20 at the time such periodic communication is given.

21 Such disclosure shall be included with any annual

22 statement of account, escrow statement, or related

23 annual communications provided to the borrower,

24 while such private mortgage insurance is in effect.
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1 ‘‘(4) DISCLOSURES FURNISHED WITHOUT COST

2 TO BORROWER.—No fee or other cost may be im3 posed on any borrower for preparing and delivering

4 any disclosure to the borrower pursuant to this sub5 section.

6 ‘‘(g) MANDATORY TERMINATION OF PMI OBLIGA7 TIONS AT 75 PERCENT LOAN-TO-VALUE RATIO.—

8 ‘‘(1) IN GENERAL.—Notwithstanding any provi9 sion of a covered mortgage loan, any obligation of

10 the borrower to make separately designated pay11 ments toward the premiums for any private mort12 gage insurance in effect with respect to such loan

13 shall terminate, except as provided in paragraph (3),

14 by operation of law as of the 1st day of the 1st

15 month which begins after the date on which the

16 principal balance outstanding on all residential mort17 gages on the property securing the loan is equal to

18 or less than 75 percent of the lesser of—

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

20 the property, the sales price of the property

21 under such purchase; or

22 ‘‘(B) the appraised value of the property,

23 as determined by the appraisal conducted in

24 connection 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 bor12 rower in connection with the private mortgage

13 insurance.

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

24 ARE CURRENT.—In the case of any covered

25 mortgage loan to which subparagraph (A) ap-
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1 plies, paragraph (1) shall apply with respect to

2 such loan as of the 1st day of the 1st month

3 which begins after the date that such payments

4 become current.

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

13 termination 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

21 termination for such loan under this subsection.

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

23 ‘‘(1) CONDITIONS FOR TERMINATION OF BOR24 ROWER’S OBLIGATION TO PAY PMI.—The conditions

25 for the termination of the borrower’s obligation to
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1 make separately designated payments toward the

2 premium for private mortgage insurance with re3 spect to a covered mortgage loan, including any

4 changes in such conditions, shall be reasonably relat5 ed to the purposes for which the requirement for pri6 vate mortgage insurance was imposed at the time

7 the loan was made.

8 ‘‘(2) BORROWER’S RIGHT TO TERMINATE IN AC9 CORDANCE WITH CONDITIONS.—In the case of any

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

11 the borrower shall have the right under this para12 graph to terminate the borrower’s obligation to

13 make separately designated payments toward the

14 premiums for such insurance if the conditions and

15 procedures for such termination most recently com16 municated to the borrower (pursuant to a request by

17 the borrower pursuant to notice under subsection

18 (f)(3) or otherwise) have been met.

19 ‘‘(i) EFFECT ON OTHER AGREEMENTS.—The provi20 sions of subsections (f), (g), and (h) shall supersede any

21 conflicting provision contained in any agreement relating

22 to the servicing of a covered mortgage loan entered into

23 by the Federal National Mortgage Association, the Fed24 eral Home Loan Mortgage Corporation, or any private in25 vestor or noteholder (or any successors thereto). A servicer
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1 which cancels private mortgage insurance on a covered

2 mortgage loan in compliance with the provisions of sub3 section (g) or (h) or in accordance with investor guidelines

4 in existence at the time concerning the cancellation of pri5 vate mortgage insurance (regardless of whether the can6 cellation by the servicer was mandated by such subsections

7 or initiated by the borrower) shall not be required to re8 purchase such mortgage loan from the investor or holder

9 of such mortgage loan solely on the grounds that the pri10 vate mortgage insurance was canceled in accordance with

11 the provisions of such subsections or investor guidelines,

12 as applicable.

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

14 a covered mortgage loan has complied with the require15 ments under subsections (f) and (g) to provide disclosures,

16 the servicer shall not be considered to have violated any

17 provision of subsection (f), (g), or (h) and shall not be

18 liable for any such violation—

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

20 servicer to provide disclosures required under such

21 subsections resulting from the failure of any mort22 gage insurer, any mortgage holder, or any other

23 party to timely provide accurate information to the

24 servicer necessary to permit the disclosures; or
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1 ‘‘(2) due to any failure on the part of any pri2 vate mortgage insurer, any mortgage holder, or any

3 other party to comply with the provisions of such

4 subsections.

5 Each private mortgage insurer and each mortgage holder

6 for a covered mortgage loan shall provide accurate and

7 timely information to the servicer for such loan necessary

8 to permit the disclosures required by subsections (f) and

9 (g). In the event of a dispute regarding liability for a viola10 tion of subsection (f), (g), or (h), and upon request by

11 the borrower, a servicer shall provide the borrower with

12 information stating the identity of the insurer or mortgage

13 holder.’’.

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

15 Real Estate Settlement Procedures Act of 1974 (as redes16 ignated by subsection (a)(1)) is amended—

17 (1) by redesignating paragraphs (1), (2), and

18 (3) as paragraphs (2), (5), and (6), respectively;

19 (2) by inserting before paragraph (2) (as redes20 ignated by paragraph (1) of this subsection) the fol21 lowing new paragraph:

22 ‘‘(1) COVERED MORTGAGE LOAN.—The term

23 ‘covered mortgage loan’ means a federally related

24 mortgage loan under which the property securing
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1 the loan is used by the borrower as the borrower’s

2 principal residence.’’; and

3 (3) by inserting after paragraph (2) (as so re4 designated) the following new paragraphs:

5 ‘‘(3) MORTGAGE INSURANCE.—The term ‘mort6 gage insurance’ means insurance, including any

7 mortgage guaranty insurance, against the nonpay8 ment of, or default on, a mortgage or loan involved

9 in a residential mortgage transaction, the premiums

10 for which are paid by the borrower.

11 ‘‘(4) PRIVATE MORTGAGE INSURANCE.—The

12 term ‘private mortgage insurance’ means mortgage

13 insurance other than mortgage insurance made

14 available under the National Housing Act, title 38 of

15 the United States Code, or title V of the National

16 Housing Act of 1949.’’.

17 SEC. 3. SCOPE OF APPLICABILITY.

18 (a) NOTICE AT OR BEFORE SETTLEMENT.—Para19 graphs (1) and (2) of section 6(f) of the Real Estate Set20 tlement Procedures Act of 1974 (as added by section 2(a)

21 of this Act) shall apply only with respect to covered mort22 gage loans made after the end of the 1-year period begin23 ning on the date of the enactment of this Act.

24 (b) NOTICE OF PMI OBLIGATION TERMINABILITY.—

25 Paragraphs (3) and (4) of section 6(f) of the Real Estate
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1 Settlement Procedures Act of 1974 (as added by section

2 2(a) of this Act) shall apply beginning upon the end of

3 the 1-year period that begins on the date of the enactment

4 of this Act and with respect to any covered mortgage loan

5 without regard to the date on which such loan was made.

6 (c) TERMINATION OF PMI OBLIGATION BY OPER7 ATION OF LAW.—Subsections (g) and (h) of section 6 of

8 the Real Estate Settlement Procedures Act of 1974 (as

9 added by section 2(a) of this Act) shall apply only with

10 respect to covered mortgage loans made after the end of

11 the 1-year period beginning on the date of the enactment

12 of this Act.

13 SEC. 4. CONFORMING AMENDMENTS.

14 (a) SECTION 6.—Section 6(m) of the Real Estate

15 Settlement Procedures Act of 1974 (12 U.S.C. 2605) (as

16 redesignated by section 2(a)(1) of this Act) is amended—

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

18 before ‘‘regarding timing’’; and

19 (2) by adding at the end the following new sen20 tence: ‘‘The preceding sentence shall not apply to

21 any State law or regulation relating to notice or dis22 closure to a borrower regarding obtaining, maintain23 ing, or terminating private mortgage insurance and

24 such State laws and regulations shall be subject to

25 the provisions of section 18.’’.
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1 (b) SECTION 10.—Section 10(b) of the Real Estate

2 Settlement Procedures Act of 1974 (12 U.S.C. 2609(b))

3 is amended by striking ‘‘section 6(i)’’ and inserting ‘‘sec4 tion 6(n)’’.

5 (c) SECTION 12.—Section 12 of the Real Estate Set6 tlement Procedures Act of 1974 (12 U.S.C. 2610) is

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

8 6(n)’’.

Passed the House of Representatives April 16, 1997.

Attest: ROBIN H. CARLE,

Clerk.