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 no-
tice of cancellation rights with respect to private
mortgage insurance which is required by a credi-
tor 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 or-
dered to be printed
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
cancellation rights with respect to private mortgage in-
surance 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 Representa-
tives 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 IN-
SURANCE.
(a) IN GENERAL.—Section 6 of the Real Estate Settle-
ment Procedures Act of 1974 (12 U.S.C. 2605) is amend-
ed—
(1) by redesignating subsections (f), (g), (h), (i),
and (j) as subsections (k), (l), (m), (n), and (o), re-
spectively; 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 re-
quired to be obtained or maintained with respect to
such mortgage loan, including any lender-paid pri-
vate 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 sepa-
rately 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 can-
cellation permitted before the date of auto-
matic termination under subsection (g));
and
‘‘(ii) the borrower will be notified by
the servicer not less frequently than annu-
ally of an address and a toll-free or collect-
call telephone number which the borrower
may use to contact the servicer to deter-
mine—
‘‘(I) whether the borrower’s obliga-
tion to make separately designated
payments toward the premium for pri-
vate mortgage insurance may be termi-
nated while the mortgage loan is out-
standing (or before the date of auto-
matic termination); and
‘‘(II) if such obligation may be
terminated while the loan is outstand-
ing (or before such date), the condi-
tions and procedures for such termi-
nation.
‘‘(B) PMI OBLIGATIONS
TERMINABLE
BY
OPERATION OF LAW.—That the borrower’s obliga-
tion to make separately designated payments to-
ward the premiums for private mortgage insur-
ance 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 pre-
miums 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 mort-
gage loan; and
‘‘(B) the borrower’s obligation to make sepa-
rately designated payments toward the pre-
miums 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 state-
ment containing the disclosures set forth in subpara-
graphs (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 dis-
closure shall be included with any annual statement
of account, escrow statement, or related annual com-
munications provided to the borrower, while such pri-
vate 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 provi-
sion of a covered mortgage loan, any obligation of the
borrower to make separately designated payments to-
ward the premiums for any private mortgage insur-
ance in effect with respect to such loan shall termi-
nate, except as provided in paragraph (3), by oper-
ation 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 prop-
erty securing the loan is equal to or less than 75 per-
cent 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 con-
nection with the making of the loan.
‘‘(2) DISCLOSURE
UPON
TERMINATION.—Not
later than 45 days after the date of termination pur-
suant to paragraph (1) of a private mortgage insur-
ance 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 pri-
vate 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 insur-
ance.
‘‘(3) EXCEPTION
FOR
DELINQUENT
BORROW-
ERS.—
‘‘(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 con-
nection 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, para-
graph (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 cur-
rent.
‘‘(4) RETURN
OF
PAYMENTS
TOWARD
PRE-
MIUMS.—
‘‘(A) RETURN
OF
PAYMENTS
TO
BOR-
ROWER.—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 ter-
mination 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 ter-
mination for such loan under this subsection.
‘‘(h) LENDERS’ CONDITIONS FOR PMI.—
‘‘(1) CONDITIONS FOR TERMINATION OF BORROW-
ER’S OBLIGATION TO PAY PMI.—The conditions for the
termination of the borrower’s obligation to make sepa-
rately designated payments toward the premium for
private mortgage insurance with respect to a covered
mortgage loan, including any changes in such condi-
tions, 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 AC-
CORDANCE WITH CONDITIONS.—In the case of any
covered mortgage loan described in subsection (f)(3),
the borrower shall have the right under this para-
graph 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 other-
wise) have been met.
‘‘(i) EFFECT ON OTHER AGREEMENTS.—The provi-
sions of subsections (f), (g), and (h) shall supersede any con-
flicting 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 mort-
gage 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 sub-
sections 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 provi-
sion 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 pri-
vate mortgage insurer, any mortgage holder, or any
other party to comply with the provisions of such sub-
sections.
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 bor-
rower, a servicer shall provide the borrower with informa-
tion 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 redesig-
nated 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 redesig-
nated by paragraph (1) of this subsection) the follow-
ing new paragraph:
‘‘(1) COVERED MORTGAGE LOAN.—The term ‘cov-
ered mortgage loan’ means a federally related mort-
gage 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 redes-
ignated) the following new paragraphs:
‘‘(3) MORTGAGE INSURANCE.—The term ‘mort-
gage insurance’ means insurance, including any
mortgage guaranty insurance, against the nonpay-
ment 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 insur-
ance other than mortgage insurance made available
under the National Housing Act, title 38 of the Unit-
ed States Code, or title V of the National Housing Act
of 1949.’’.
SEC. 3. SCOPE OF APPLICABILITY.
(a) NOTICE
AT
OR BEFORE SETTLEMENT.—Para-
graphs (1) and (2) of section 6(f) of the Real Estate Settle-
ment 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 sec-
tion 2(a) of this Act) shall apply only with respect to cov-
ered 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 Set-
tlement Procedures Act of 1974 (12 U.S.C. 2605) (as redes-
ignated 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 sen-
tence: ‘‘The preceding sentence shall not apply to any
State law or regulation relating to notice or disclo-
sure to a borrower regarding obtaining, maintaining,
or terminating private mortgage insurance and such
State laws and regulations shall be subject to the pro-
visions of section 18.’’.
(b) SECTION 10.—Section 10(b) of the Real Estate Set-
tlement Procedures Act of 1974 (12 U.S.C. 2609(b)) is
amended by striking ‘‘section 6(i)’’ and inserting ‘‘section
6(n)’’.