H. R. 4173—767 
‘‘(f) Section 129B and any regulations promulgated thereunder 
do not apply to an extension of credit relating to a plan described 
in section 101(53D) of title 11, United States Code.’’. 
(b) DISCLOSURES.—Notwithstanding any other provision of this 
title, in order to improve consumer awareness and understanding 
of transactions involving residential mortgage loans through the 
use of disclosures, the Board may, by rule, exempt from or modify 
disclosure requirements, in whole or in part, for any class of residen-
tial mortgage loans if the Board determines that such exemption 
or modification is in the interest of consumers and in the public 
interest. 
SEC. 1406. STUDY OF SHARED APPRECIATION MORTGAGES. 
(a) STUDY.—The Secretary of Housing and Urban Development, 
in consultation with the Secretary of the Treasury and other rel-
evant agencies, shall conduct a comprehensive study to determine 
prudent statutory and regulatory requirements sufficient to provide 
for the widespread use of shared appreciation mortgages to 
strengthen local housing markets, provide new opportunities for 
affordable homeownership, and enable homeowners at risk of fore-
closure to refinance or modify their mortgages. 
(b) REPORT.—Not later than the expiration of the 6-month 
period beginning on the date of the enactment of this Act, the 
Secretary of Housing and Urban Development shall submit a report 
to the Congress on the results of the study, which shall include 
recommendations for the regulatory and legislative requirements 
referred to in subsection (a). 
Subtitle B—Minimum Standards For 
Mortgages 
SEC. 1411. ABILITY TO REPAY. 
(a) IN GENERAL.— 
(1) RULE OF CONSTRUCTION.—No regulation, order, or guid-
ance issued by the Bureau under this title shall be construed 
as requiring a depository institution to apply mortgage under-
writing standards that do not meet the minimum underwriting 
standards required by the appropriate prudential regulator of 
the depository institution. 
(2) AMENDMENT TO TRUTH IN LENDING ACT.—Chapter 2 
of the Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended 
by inserting after section 129B (as added by section 1402(a)) 
the following new section: 
‘‘§ 129C. Minimum standards for residential mortgage loans 
‘‘(a) ABILITY TO REPAY.— 
‘‘(1) IN
GENERAL.—In accordance with regulations pre-
scribed by the Board, no creditor may make a residential mort-
gage loan unless the creditor makes a reasonable and good 
faith determination based on verified and documented informa-
tion that, at the time the loan is consummated, the consumer 
has a reasonable ability to repay the loan, according to its 
terms, and all applicable taxes, insurance (including mortgage 
guarantee insurance), and assessments. 
‘‘(2) MULTIPLE LOANS.—If the creditor knows, or has reason 
to know, that 1 or more residential mortgage loans secured
H. R. 4173—768 
by the same dwelling will be made to the same consumer, 
the creditor shall make a reasonable and good faith determina-
tion, based on verified and documented information, that the 
consumer has a reasonable ability to repay the combined pay-
ments of all loans on the same dwelling according to the terms 
of those loans and all applicable taxes, insurance (including 
mortgage guarantee insurance), and assessments. 
‘‘(3) BASIS
FOR
DETERMINATION.—A determination under 
this subsection of a consumer’s ability to repay a residential 
mortgage loan shall include consideration of the consumer’s 
credit history, current income, expected income the consumer 
is reasonably assured of receiving, current obligations, debt- 
to-income ratio or the residual income the consumer will have 
after paying non-mortgage debt and mortgage-related obliga-
tions, employment status, and other financial resources other 
than the consumer’s equity in the dwelling or real property 
that secures repayment of the loan. A creditor shall determine 
the ability of the consumer to repay using a payment schedule 
that fully amortizes the loan over the term of the loan. 
‘‘(4) INCOME VERIFICATION.—A creditor making a residential 
mortgage loan shall verify amounts of income or assets that 
such creditor relies on to determine repayment ability, including 
expected income or assets, by reviewing the consumer’s Internal 
Revenue Service Form W–2, tax returns, payroll receipts, finan-
cial institution records, or other third-party documents that 
provide reasonably reliable evidence of the consumer’s income 
or assets. In order to safeguard against fraudulent reporting, 
any consideration of a consumer’s income history in making 
a determination under this subsection shall include the 
verification of such income by the use of— 
‘‘(A) Internal Revenue Service transcripts of tax 
returns; or 
‘‘(B) a method that quickly and effectively verifies 
income documentation by a third party subject to rules 
prescribed by the Board. 
‘‘(5) EXEMPTION.—With respect to loans made, guaranteed, 
or insured by Federal departments or agencies identified in 
subsection (b)(3)(B)(ii), such departments or agencies may 
exempt refinancings under a streamlined refinancing from this 
income verification requirement as long as the following condi-
tions are met: 
‘‘(A) The consumer is not 30 days or more past due 
on the prior existing residential mortgage loan. 
‘‘(B) The refinancing does not increase the principal 
balance outstanding on the prior existing residential mort-
gage loan, except to the extent of fees and charges allowed 
by the department or agency making, guaranteeing, or 
insuring the refinancing. 
‘‘(C) Total points and fees (as defined in section 
103(aa)(4), other than bona fide third party charges not 
retained by the mortgage originator, creditor, or an affiliate 
of the creditor or mortgage originator) payable in connec-
tion with the refinancing do not exceed 3 percent of the 
total new loan amount. 
‘‘(D) The interest rate on the refinanced loan is lower 
than the interest rate of the original loan, unless the bor-
rower is refinancing from an adjustable rate to a fixed-
H. R. 4173—769 
rate loan, under guidelines that the department or agency 
shall establish for loans they make, guarantee, or issue. 
‘‘(E) The refinancing is subject to a payment schedule 
that will fully amortize the refinancing in accordance with 
the regulations prescribed by the department or agency 
making, guaranteeing, or insuring the refinancing. 
‘‘(F) The terms of the refinancing do not result in 
a balloon payment, as defined in subsection (b)(2)(A)(ii). 
‘‘(G) Both the residential mortgage loan being 
refinanced and the refinancing satisfy all requirements 
of the department or agency making, guaranteeing, or 
insuring the refinancing. 
‘‘(6) NONSTANDARD LOANS.— 
‘‘(A) VARIABLE
RATE
LOANS
THAT
DEFER
REPAYMENT 
OF ANY PRINCIPAL OR INTEREST.—For purposes of deter-
mining, under this subsection, a consumer’s ability to repay 
a variable rate residential mortgage loan that allows or 
requires the consumer to defer the repayment of any prin-
cipal or interest, the creditor shall use a fully amortizing 
repayment schedule. 
‘‘(B) INTEREST-ONLY
LOANS.—For purposes of deter-
mining, under this subsection, a consumer’s ability to repay 
a residential mortgage loan that permits or requires the 
payment of interest only, the creditor shall use the payment 
amount required to amortize the loan by its final maturity. 
‘‘(C) CALCULATION
FOR
NEGATIVE
AMORTIZATION.—In 
making any determination under this subsection, a creditor 
shall also take into consideration any balance increase 
that may accrue from any negative amortization provision. 
‘‘(D) CALCULATION PROCESS.—For purposes of making 
any determination under this subsection, a creditor shall 
calculate the monthly payment amount for principal and 
interest on any residential mortgage loan by assuming— 
‘‘(i) the loan proceeds are fully disbursed on the 
date of the consummation of the loan; 
‘‘(ii) the loan is to be repaid in substantially equal 
monthly amortizing payments for principal and 
interest over the entire term of the loan with no balloon 
payment, unless the loan contract requires more rapid 
repayment (including balloon payment), in which case 
the calculation shall be made (I) in accordance with 
regulations prescribed by the Board, with respect to 
any loan which has an annual percentage rate that 
does not exceed the average prime offer rate for a 
comparable transaction, as of the date the interest 
rate is set, by 1.5 or more percentage points for a 
first lien residential mortgage loan; and by 3.5 or more 
percentage points for a subordinate lien residential 
mortgage loan; or (II) using the contract’s repayment 
schedule, with respect to a loan which has an annual 
percentage rate, as of the date the interest rate is 
set, that is at least 1.5 percentage points above the 
average prime offer rate for a first lien residential 
mortgage loan; and 3.5 percentage points above the 
average prime offer rate for a subordinate lien residen-
tial mortgage loan; and
H. R. 4173—770 
‘‘(iii) the interest rate over the entire term of the 
loan is a fixed rate equal to the fully indexed rate 
at the time of the loan closing, without considering 
the introductory rate. 
‘‘(E) REFINANCE
OF
HYBRID
LOANS
WITH
CURRENT 
LENDER.—In considering any application for refinancing 
an existing hybrid loan by the creditor into a standard 
loan to be made by the same creditor in any case in 
which there would be a reduction in monthly payment 
and the mortgagor has not been delinquent on any payment 
on the existing hybrid loan, the creditor may— 
‘‘(i) consider the mortgagor’s good standing on the 
existing mortgage; 
‘‘(ii) consider if the extension of new credit would 
prevent a likely default should the original mortgage 
reset and give such concerns a higher priority as an 
acceptable underwriting practice; and 
‘‘(iii) offer rate discounts and other favorable terms 
to such mortgagor that would be available to new 
customers with high credit ratings based on such 
underwriting practice. 
‘‘(7) FULLY-INDEXED RATE DEFINED.—For purposes of this 
subsection, the term ‘fully indexed rate’ means the index rate 
prevailing on a residential mortgage loan at the time the loan 
is made plus the margin that will apply after the expiration 
of any introductory interest rates. 
‘‘(8) REVERSE MORTGAGES AND BRIDGE LOANS.—This sub-
section shall not apply with respect to any reverse mortgage 
or temporary or bridge loan with a term of 12 months or 
less, including to any loan to purchase a new dwelling where 
the consumer plans to sell a different dwelling within 12 
months. 
‘‘(9) SEASONAL INCOME.—If documented income, including 
income from a small business, is a repayment source for a 
residential mortgage loan, a creditor may consider the 
seasonality and irregularity of such income in the underwriting 
of and scheduling of payments for such credit.’’. 
(b) CLERICAL AMENDMENT.—The table of sections for chapter 
2 of the Truth in Lending Act is amended by inserting after the 
item relating to section 129B (as added by section 1402(b)) the 
following new item: 
‘‘129C. Minimum standards for residential mortgage loans.’’. 
SEC. 1412. SAFE HARBOR AND REBUTTABLE PRESUMPTION. 
Section 129C of the Truth in Lending Act is amended by 
inserting after subsection (a) (as added by section 1411) the fol-
lowing new subsection: 
‘‘(b) PRESUMPTION OF ABILITY TO REPAY.— 
‘‘(1) IN GENERAL.—Any creditor with respect to any residen-
tial mortgage loan, and any assignee of such loan subject to 
liability under this title, may presume that the loan has met 
the requirements of subsection (a), if the loan is a qualified 
mortgage. 
‘‘(2) DEFINITIONS.—For purposes of this subsection, the fol-
lowing definitions shall apply: 
‘‘(A) QUALIFIED MORTGAGE.—The term ‘qualified mort-
gage’ means any residential mortgage loan—