mortgage (or other consumer credit transaction se-
cured by the consumer’s principal dwelling) if—
‘‘(A) the annual percentage rate applicable 
with respect to such mortgage or transaction 
(as determined for purposes of subsection 
(aa)(1)(A)(i))—
‘‘(i) in the case of a first mortgage on 
the consumer’s principal dwelling, does not 
exceed by more than 2 percentage points 
the yield on Treasury securities having 
comparable periods of maturity on the 
15th day of the month immediately pre-
ceding the month in which the application 
for the extension of credit is received by 
the creditor; or 
‘‘(ii) in the case of a subordinate or 
junior mortgage on the consumer’s prin-
cipal dwelling, does not exceed by more 
than 4 percentage points the yield on such 
Treasury securities; and 
‘‘(B) the total amount of any prepayment 
fees or penalties permitted under the terms of 
the high-cost mortgage or transaction does not 
exceed 2 percent of the amount prepaid.’’.
SEC. 3. AMENDMENTS TO EXISTING REQUIREMENTS FOR 
CERTAIN MORTGAGES. 
(a) PREPAYMENT PENALTY PROVISIONS.—Section 
129(c)(2) of the Truth in Lending Act (15 U.S.C. 
1639(c)(2)) is amended—
(1) by striking ‘‘and’’ after the semicolon at the 
end of subparagraph (C); 
(2) by redesignating subparagraph (D) as sub-
paragraph (E); and 
(3) by inserting after subparagraph (C) the fol-
lowing new subparagraph: 
‘‘(D) the amount of the principal obliga-
tion of the mortgage exceeds the maximum 
principal obligation limitation (for the applica-
ble size residence) under section 203(b)(2) of 
the National Housing Act for the area in which 
the residence subject to the mortgage is located; 
and’’. 
(b) NO BALLOON PAYMENTS.—Section 129(e) of the 
Truth in Lending Act (15 U.S.C. 1639(e)) is amended to 
read as follows: 
‘‘(e) NO BALLOON PAYMENTS.—No high-cost mort-
gage may contain a scheduled payment that is more than 
twice as large as the average of earlier scheduled pay-
ments. This subsection shall not apply when the payment
schedule is adjusted to the seasonal or irregular income 
of the consumer.’’. 
(c) NO LENDING WITHOUT DUE REGARD TO ABIL-
ITY TO REPAY.—Section 129(h) of the Truth in Lending 
Act (15 U.S.C. 1639(h)) is amended—
(1) by striking ‘‘PAYMENT ABILITY OF CON-
SUMER.—A creditor shall not’’ and inserting ‘‘PAY-
MENT ABILITY OF CONSUMER.— 
‘‘(1) PATTERN OR PRACTICE.—
‘‘(A) IN GENERAL.—A creditor shall not’’; 
(2) by inserting after subparagraph (A) (as so 
designated by paragraph (1) of this subsection) the 
following new subparagraph: 
‘‘(B) 
PRESUMPTION
OF
VIOLATION.—
There shall be a presumption that a creditor 
has violated this subsection if the creditor en-
gages in a pattern or practice of making high-
cost mortgages without verifying or docu-
menting the repayment ability of consumers 
with respect to such loans.’’; and 
(3) by adding at the end the following new 
paragraph: 
‘‘(2) PROHIBITION
ON
EXTENDING
CREDIT 
WITHOUT REGARD TO PAYMENT ABILITY OF CON-
SUMER.—
‘‘(A) IN
GENERAL.—A creditor may not 
extend credit to a consumer under a high-cost 
mortgage unless a reasonable creditor would be-
lieve at the time the loan is closed that the con-
sumer or consumers that are residing or will re-
side in the residence subject to the mortgage 
will be able to make the scheduled payments as-
sociated with the loan, based upon a consider-
ation of current and expected income, current 
obligations, employment status, and other fi-
nancial resources, other than equity in the resi-
dence. 
‘‘(B) PRESUMPTION
OF
ABILITY.—For 
purposes of this subsection, there shall be a re-
buttable presumption that a consumer is able to 
make the scheduled payments to repay the obli-
gation if, at the time the loan is consummated, 
the consumer’s total monthly debts, including 
amounts under the loan, do not exceed 50 per-
cent of his or her monthly gross income as 
verified by tax returns, payroll receipts, or other 
third-party income verification.’’.