`[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 607 Reported in House (RH)]





                                                  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 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.

_______________________________________________________________________

                             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





                                                  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 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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Homeowners Insurance Protection 
Act''.

SEC. 2. PROVISIONS RELATING TO PRIVATE MORTGAGE INSURANCE.

    (a) In General.--Section 6 of the Real Estate Settlement Procedures 
Act of 1974 (12 U.S.C. 2605) is amended--
            (1) by redesignating subsections (f), (g), (h), (i), and 
        (j) as subsections (k), (l), (m), (n), and (o), respectively; 
        and
            (2) by inserting after subsection (e) the following new 
        subsections:
    ``(f) Disclosures Relating to Private Mortgage Insurance.--
            ``(1) Disclosure at settlement relating to existence of 
        pmi.--With regard to any covered mortgage loan, the lender 
        shall disclose, in writing at or before the settlement of such 
        covered mortgage loan, whether any private mortgage insurance 
        will be required to be obtained or maintained with respect to 
        such mortgage loan, including any lender-paid private mortgage 
        insurance, and the period during which such insurance will be 
        required to be in effect.
            ``(2) Disclosure at settlement relating to terminability of 
        pmi.--If the lender requires, as a condition for entering into 
        a covered mortgage loan, the borrower to assume an obligation 
        to make separately designated payments toward the premiums for 
        private mortgage insurance with respect to such loan, the 
        lender shall disclose, in writing at or before the settlement 
        of such covered mortgage loan any of the following notices 
        which are applicable with respect to such loan:
                    ``(A) PMI obligations terminable upon request.--In 
                the case of a loan described in paragraph (3), that--
                            ``(i) the borrower's obligation to make 
                        separately designated payments toward the 
                        premiums for private mortgage insurance may be 
                        able to be terminated while the mortgage is 
                        outstanding (including a cancellation permitted 
                        before the date of automatic termination under 
                        subsection (g)); and
                            ``(ii) the borrower will be notified by the 
                        servicer not less frequently than annually of 
                        an address and a toll-free or collect-call 
                        telephone number which the borrower may use to 
                        contact the servicer to determine--
                                    ``(I) whether the borrower's 
                                obligation to make separately 
                                designated payments toward the premium 
                                for private mortgage insurance may be 
                                terminated while the mortgage loan is 
                                outstanding (or before the date of 
                                automatic termination); and
                                    ``(II) if such obligation may be 
                                terminated while the loan is 
                                outstanding (or before such date), the 
                                conditions and procedures for such 
                                termination.
                    ``(B) PMI obligations terminable by operation of 
                law.--That the borrower's obligation to make separately 
                designated payments toward the premiums for private 
                mortgage insurance will be terminated by operation of 
                law under subsection (g).
                    ``(C) Nonterminable pmi obligations.--In the case 
                of a loan not described in paragraph (3), that the 
                borrower's obligation to pay any amount to be applied 
to any portion of the premiums for private mortgage insurance will not 
be terminated at the request of the borrower.
            ``(3) Disclosure with annual statements or other 
        communications.--If--
                    ``(A) private mortgage insurance is required as a 
                condition for entering into a covered mortgage loan; 
                and
                    ``(B) the borrower's obligation to make separately 
                designated payments toward the premiums for such 
                insurance may be terminated at the borrower's request,
        the servicer shall, not less frequently than annually, disclose 
        to the borrower a clear and conspicuous statement containing 
        the disclosures set forth in subparagraphs (A) and (B) of 
        paragraph (2), including the address and telephone number 
        referred to in such paragraph, based on the servicer's 
        knowledge at the time such periodic communication is given. 
        Such disclosure shall be included with any annual statement of 
        account, escrow statement, or related annual communications 
        provided to the borrower, while such private mortgage insurance 
        is in effect.
            ``(4) Disclosures furnished without cost to borrower.--No 
        fee or other cost may be imposed on any borrower for preparing 
        and delivering any disclosure to the borrower pursuant to this 
        subsection.
    ``(g) Mandatory Termination of PMI Obligations at 75 Percent Loan-
to-Value Ratio.--
            ``(1) In general.--Notwithstanding any provision of a 
        covered mortgage loan, any obligation of the borrower to make 
        separately designated payments toward the premiums for any 
        private mortgage insurance in effect with respect to such loan 
        shall terminate, except as provided in paragraph (3), by 
        operation of law as of the 1st day of the 1st month which 
        begins after the date on which the principal balance 
        outstanding on all residential mortgages on the property 
        securing the loan is equal to or less than 75 percent of the 
        lesser of--
                    ``(A) if the loan was made for purchase of the 
                property, the sales price of the property under such 
                purchase; or
                    ``(B) the appraised value of the property, as 
                determined by the appraisal conducted in connection 
                with the making of the loan.
            ``(2) Disclosure upon termination.--Not later than 45 days 
        after the date of termination pursuant to paragraph (1) of a 
        private mortgage insurance requirement for a covered mortgage 
        loan, the servicer shall notify the borrower under the loan, in 
        writing, that--
                    ``(A) the private mortgage insurance has terminated 
                and the borrower no longer has private mortgage 
                insurance: and
                    ``(B) no further premiums, payments, or other fees 
                shall be due or payable by the borrower in connection 
                with the private mortgage insurance.
            ``(3) Exception for delinquent borrowers.--
                    ``(A) In general.--Paragraph (1) shall not apply 
                with respect to any covered mortgage loan on which the 
                payments are not current as of the date that the 
                obligation to make private mortgage insurance premium 
                payments in connection with the loan would otherwise 
                terminate pursuant to paragraph (1).
                    ``(B) Effectiveness once payments are current.--In 
                the case of any covered mortgage loan to which 
                subparagraph (A) applies, paragraph (1) shall apply 
                with respect to such loan as of the 1st day of the 1st 
                month which begins after the date that such payments 
                become current.
            ``(4) Return of payments toward premiums.--
                    ``(A) Return of payments to borrower.--The servicer 
                for a covered mortgage loan shall promptly return to 
                the borrower any payments toward the premiums for any 
                private mortgage insurance for such loan covering any 
                period occurring after the date of automatic 
                termination for such loan under this subsection.
                    ``(B) Return of payments to servicer.--The private 
                mortgage insurer for a covered mortgage loan shall 
                promptly return to the servicer any payments received 
                from the servicer toward the premiums for any private 
                mortgage insurance for such loan covering any period 
                occurring after the date of automatic termination for 
                such loan under this subsection.
    ``(h) Lenders' Conditions for PMI.--
            ``(1) Conditions for termination of borrower's obligation 
        to pay pmi.--The conditions for the termination of the 
        borrower's obligation to make separately designated payments 
        toward the premium for private mortgage insurance with respect 
        to a covered mortgage loan, including any changes in such 
        conditions, shall be reasonably related to the purposes 
for which the requirement for private mortgage insurance was imposed at 
the time the loan was made.
            ``(2) Borrower's right to terminate in accordance with 
        conditions.--In the case of any covered mortgage loan described 
        in subsection (f)(3), the borrower shall have the right under 
        this paragraph to terminate the borrower's obligation to make 
        separately designated payments toward the premiums for such 
        insurance if the conditions and procedures for such termination 
        most recently communicated to the borrower (pursuant to a 
        request by the borrower pursuant to notice under subsection 
        (f)(3) or otherwise) have been met.
    ``(i) Effect on Other Agreements.--The provisions of subsections 
(f), (g), and (h) shall supersede any conflicting provision contained 
in any agreement relating to the servicing of a covered mortgage loan 
entered into by the Federal National Mortgage Association, the Federal 
Home Loan Mortgage Corporation, or any private investor or noteholder 
(or any successors thereto). A servicer which cancels private mortgage 
insurance on a covered mortgage loan in compliance with the provisions 
of subsection (g) or (h) or in accordance with investor guidelines in 
existence at the time concerning the cancellation of private mortgage 
insurance (regardless of whether the cancellation by the servicer was 
mandated by such subsections or initiated by the borrower) shall not be 
required to repurchase such mortgage loan from the investor or holder 
of such mortgage loan solely on the grounds that the private mortgage 
insurance was canceled in accordance with the provisions of such 
subsections or investor guidelines, as applicable.
    ``(j) Limitations on Liability.--If the servicer for a covered 
mortgage loan has complied with the requirements under subsections (f) 
and (g) to provide disclosures, the servicer shall not be considered to 
have violated any provision of subsection (f), (g), or (h) and shall 
not be liable for any such violation--
            ``(1) due to any failure on the part of the servicer to 
        provide disclosures required under such subsections resulting 
        from the failure of any mortgage insurer, any mortgage holder, 
        or any other party to timely provide accurate information to 
        the servicer necessary to permit the disclosures; or
            ``(2) due to any failure on the part of any private 
        mortgage insurer, any mortgage holder, or any other party to 
        comply with the provisions of such subsections.
Each private mortgage insurer and each mortgage holder for a covered 
mortgage loan shall provide accurate and timely information to the 
servicer for such loan necessary to permit the disclosures required by 
subsections (f) and (g). In the event of a dispute regarding liability 
for a violation of subsection (f), (g), or (h), and upon request by the 
borrower, a servicer shall provide the borrower with information 
stating the identity of the insurer or mortgage holder.''.
    (b) Definitions.--Subsection (n) of section 6 of the Real Estate 
Settlement Procedures Act of 1974 (as redesignated by subsection 
(a)(1)) is amended--
            (1) by redesignating paragraphs (1), (2), and (3) as 
        paragraphs (2), (5), and (6), respectively;
            (2) by inserting before paragraph (2) (as redesignated by 
        paragraph (1) of this subsection) the following new paragraph:
            ``(1) Covered mortgage loan.--The term `covered mortgage 
        loan' means a federally related mortgage loan under which the 
        property securing the loan is used by the borrower as the 
        borrower's principal residence.''; and
            (3) by inserting after paragraph (2) (as so redesignated) 
        the following new paragraphs:
            ``(3) Mortgage insurance.--The term `mortgage insurance' 
        means insurance, including any mortgage guaranty insurance, 
        against the nonpayment of, or default on, a mortgage or loan 
        involved in a residential mortgage transaction, the premiums 
        for which are paid by the borrower.
            ``(4) Private mortgage insurance.--The term `private 
        mortgage insurance' means mortgage insurance other than 
        mortgage insurance made available under the National Housing 
        Act, title 38 of the United States Code, or title V of the 
        National Housing Act of 1949.''.

SEC. 3. SCOPE OF APPLICABILITY.

    (a) Notice at or Before Settlement.--Paragraphs (1) and (2) of 
section 6(f) of the Real Estate Settlement Procedures Act of 1974 (as 
added by section 2(a) of this Act) shall apply only with respect to 
covered mortgage loans made after the end of the 1-year period 
beginning on the date of the enactment of this Act.
    (b) Notice of PMI Obligation Terminability.--Paragraphs (3) and (4) 
of section 6(f) of the Real Estate Settlement Procedures Act of 1974 
(as added by section 2(a) of this Act) shall apply beginning upon the 
end of the 1-year period that begins on the date of the enactment of 
this Act and with respect to any covered mortgage loan without regard 
to the date on which such loan was made.
    (c) Termination of PMI Obligation by Operation of Law.--Subsections 
(g) and (h) of section 6 of the Real Estate Settlement Procedures Act 
of 1974 (as added by section 2(a) of this Act) shall apply only with 
respect to covered mortgage loans made after the end of the 1-year 
period beginning on the date of the enactment of this Act.

SEC. 4. CONFORMING AMENDMENTS.

    (a) Section 6.--Section 6(m) of the Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2605) (as redesignated by section 
2(a)(1) of this Act) is amended--
            (1) by inserting ``(not including subsection (f))'' before 
        ``regarding timing''; and
            (2) by adding at the end the following new sentence: ``The 
        preceding sentence shall not apply to any State law or 
        regulation relating to notice or disclosure to a borrower 
        regarding obtaining, maintaining, or terminating private 
        mortgage insurance and such State laws and regulations shall be 
        subject to the provisions of section 18.''.
    (b) Section 10.--Section 10(b) of the Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2609(b)) is amended by striking 
``section 6(i)'' and inserting ``section 6(n)''.
    (c) Section 12.--Section 12 of the Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2610) is amended 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.''.`