‘‘(B) the compliance failure was not inten-
tional and resulted from a bona fide error not-
withstanding the maintenance of procedures
reasonably adapted to avoid such errors, and
within 60 days after the discovery of the com-
pliance failure and prior to the institution of
any action under this section or the receipt of
written notice of the compliance failure, the
borrower is notified of the compliance failure,
appropriate restitution is made, and whatever
adjustments are necessary are made to the loan
to either, at the choice of the borrower—
‘‘(i) make the high-cost home loan
satisfy the requirements of section 129; or
‘‘(ii) change the terms of the loan in
a manner beneficial to the borrower so that
the loan will no longer be considered a
high-cost home loan subject to the provi-
sions of this section.
‘‘(2) BONA
FIDE
ERROR.—For purposes of
paragraph (1), examples of a bona fide error include
clerical, calculation, computer malfunction and pro-
gramming, and printing errors. An error of legal
judgment with respect to a person’s obligations
under this section is not a bona fide error.’’.
SEC. 4. REQUIREMENTS FOR ALL CONFORMING HOME
LOANS.
(a) IN GENERAL.—Chapter 2 of the Truth in Lend-
ing Act (15 U.S.C. 1601 et seq.) is amended by inserting
after section 129 the following new section:
‘‘SEC. 129A. REQUIREMENTS FOR ALL CONFORMING HOME
LOANS.
‘‘(a) DEFINITION OF CONFORMING HOME LOANS.—
For the purpose of this section, the term ‘conforming
home loan’ means a loan, other than an extension of credit
under an open-end credit plan or a reverse mortgage
transaction, where—
‘‘(1) the principal amount of the loan does not
exceed the conforming loan size limit for a single-
family dwelling as established from time to time by
the Federal National Mortgage Association;
‘‘(2) the borrower is an individual or are indi-
viduals;
‘‘(3) the debt is incurred by the borrower pri-
marily for personal, family, or household purposes;
and
‘‘(4) the loan is secured by a mortgage or deed
of trust on real estate upon which there is located
or there is to be located a structure or structures de-
signed principally for occupancy of from 1 to 4 fami-
lies which is or will be occupied by the borrower as
the borrower’s principal dwelling.
‘‘(b) NO PREPAYMENT PENALTY.—
‘‘(1) LIMITATION
ON
TERMS.—A conforming
home loan may not contain terms under which a
consumer must pay a prepayment penalty for paying
all or part of the principal before the date on which
the principal is due.
‘‘(2) CONSTRUCTION.—For purposes of this
subsection, any method of computing a refund of un-
earned scheduled interest is a prepayment penalty if
it is less favorable to the consumer than the actu-
arial method (as that term is defined in section
933(d)(1) of the Housing and Community Develop-
ment Act of 1992).
‘‘(c) NO NEGATIVE AMORTIZATION.—A conforming
home loan may not include terms under which the out-
standing principal balance will increase at any time over
the course of the loan because the regular periodic pay-
ments do not cover the full amount of interest due.
‘‘(d) PROHIBITION ON EXTENDING CREDIT WITH-
OUT REGARD TO PAYMENT ABILITY OF CUSTOMER.—
‘‘(1) IN GENERAL.—No creditor may make a
conforming home loan, unless the creditor reason-
ably believes at the time the loan is consummated
that 1 or more of the obligors, when considered indi-
vidually or collectively, will be able to make the
scheduled payments to repay the obligation based
upon a consideration of their current and expected
income, current obligations, employment status, and
other financial resources (other than the borrower’s
equity in the dwelling which secures repayment of
the loan).
‘‘(2) OBLIGOR
DEFINED.—For purposes of
paragraph (1), the term ‘obligor’ means each bor-
rower, coborrower, cosigner, or guarantor obligated
to repay a loan.
‘‘(e) PROHIBITION ON FLIPPING OF HOME LOANS.—
‘‘(1) IN GENERAL.—No creditor may knowingly
or intentionally engage in the practice of flipping a
conforming home loan.
‘‘(2) FLIPPING
DEFINED.—For purposes of
paragraph (1), the term ‘flipping’ means the act of
making of a new conforming home loan to a bor-
rower to refinance an existing home loan when the
new loan does not have a reasonable, tangible net
benefit to the borrower considering all of the cir-
cumstances, including the terms of both the new and
refinanced loans, the cost of the new loan, and the
borrower’s circumstances.
‘‘(f) NO ENCOURAGEMENT OF DEFAULT.—No cred-
itor may recommend or encourage default on an existing
loan or other debt prior to and in connection with the clos-
ing or planned closing of a conforming home loan that re-
finances all or any portion of such existing loan or debt.
‘‘(g) NO PAYMENTS TO APPRAISERS.—No creditor
may compensate, directly or indirectly, coerce, or intimi-
date an appraiser for the purpose of influencing the inde-
pendent judgment of the appraiser with respect to the
value of real estate that is to be covered by a conforming
home loan or is being offered as security according to an
application for a conforming home loan.
‘‘(h) NO FINANCING OF CREDIT INSURANCE.—
‘‘(1) IN GENERAL.—No creditor may finance,
directly or indirectly, any credit life, credit disability,
or credit unemployment insurance, or any other life
or health insurance premiums through a conforming
home loan.
‘‘(2) RULE OF CONSTRUCTION.—Paragraph (1)
shall not be construed as affecting the right of a
creditor to require the collection of insurance pre-
mium payments into an escrow account in conjunc-
tion with the servicing of a conforming home loan to
the extent the calculation and servicing of such in-
surance premiums are conducted and reported inde-
pendently of the conforming home loan.
‘‘(i) NO BLANK ITEMS.—A conforming home loan
document in which blanks are left to be filled in after the
contract is signed shall not be enforceable under Federal
law or the law of any State.
‘‘(j) SAME LANGUAGE REQUIREMENT.—If the dis-
cussions between a creditor and a borrower or potential
borrower with respect to a conforming home loan are con-
ducted primarily in a language other than English, the
creditor shall, before closing, provide an additional copy
of all information required to be disclosed to the borrower
under this title translated into the language in which the
discussions were conducted.
‘‘(k) ALTERNATIVE MAXIMUM PENALTY.—Notwith-
standing any maximum amount limitation contained in
section 130, in the case of any creditor who fails to comply
with section 129, in connection with any high-cost mort-
gage, or this section, in connection with any conforming
home loan, the liability of the creditor under section 130
to the consumer for such violation shall not exceed the
greater of—
‘‘(1) the amount determined under section 130;
or
‘‘(2) the amount of the principal and the total
amount of the finance charge on such mortgage or
loan.
‘‘(l) NONCOMPLIANT
LOANS
PROHIBITED
FROM
MORTGAGE-BACKED SECURITY POOLS.—
‘‘(1) ISSUANCE OF SECURITIES FROM TAINTED
POOLS PROHIBITED.—No person may issue a secu-
rity representing an interest in or an obligation
backed by a pool of mortgages, deeds of trust, or
other security interests created in connection with
consumer credit transactions secured by principal
dwellings of consumers if such person knows or has
reason to believe that any high-cost mortgage or
conforming home loan included in such pool violates
any provision of this section or section 129.
‘‘(2) INCLUSION
IN
POOLS.—No creditor or
other person may knowingly include any high-cost
mortgage or conforming home loan that violates any
provision of this section or section 129 in any pool
described in paragraph (1).’’.
(b) CLERICAL AMENDMENT.—The table of sections
for chapter 2 of the Truth in Lending Act (15 U.S.C.
1601 et seq.) is amended by inserting after the item relat-
ing to section 129 the following new item:
‘‘129A. Requirements for all conforming home loans.
SEC. 5. EFFECTIVE DATE.
(a) IN GENERAL.—Except as provided in subsection
(b), this Act and the amendments made by this Act shall
take effect at the end of the 90-day period beginning on
the date of the enactment of this Act.
(b) HMDA REQUIREMENTS.—Notwithstanding sub-
section (a), the amendments made by section 2 shall take
effect on January 1 of the 1st calendar year beginning
after the date of the enactment of this Act.
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