HR 1728 RFS 
in the dwelling or real property that secures repay-
ment of the loan. 
‘‘(4) INCOME VERIFICATION.—In order to safe-
guard against fraudulent reporting, any consider-
ation 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 provided by a third party; or 
‘‘(B) such other similar method that quick-
ly and effectively verifies income documentation 
by a third party as the Federal banking agen-
cies may jointly prescribe. 
‘‘(5) NONSTANDARD LOANS.— 
‘‘(A) VARIABLE RATE LOANS THAT DEFER 
REPAYMENT
OF
ANY
PRINCIPAL
OR
INTER-
EST.—For purposes of determining, under this 
subsection, a consumer’s ability to repay a vari-
able rate residential mortgage loan that allows 
or requires the consumer to defer the repay-
ment of any principal or interest, the creditor 
shall use a fully amortizing repayment schedule. 
‘‘(B) INTEREST-ONLY
LOANS.—For pur-
poses of determining, under this subsection, a 
consumer’s ability to repay a residential mort-
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gage loan that permits or requires the payment 
of interest only, the creditor shall use the pay-
ment amount required to amortize the loan by 
its final maturity. 
‘‘(C) CALCULATION FOR NEGATIVE AMOR-
TIZATION.—In making any determination under 
this subsection, a creditor shall also take into 
consideration any balance increase that may ac-
crue from any negative amortization provision. 
‘‘(D) CALCULATION
PROCESS.—For pur-
poses of making any determination under this 
subsection, a creditor shall calculate the month-
ly payment amount for principal and interest on 
any residential mortgage loan by assuming— 
‘‘(i) the loan proceeds are fully dis-
bursed on the date of the consummation of 
the loan; 
‘‘(ii) the loan is to be repaid in sub-
stantially equal monthly amortizing pay-
ments 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 regu-
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lations prescribed by the Federal banking 
agencies, 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 per-
centage points for a first lien residential 
mortgage loan; and by 3.5 or more per-
centage points for a subordinate lien resi-
dential mortgage loan; or (II) using the 
contract’s repayment schedule, with re-
spect to a loan which has an annual per-
centage 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 aver-
age prime offer rate for a subordinate lien 
residential mortgage loan; and 
‘‘(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 introduc-
tory rate. 
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‘‘(E) REFINANCE OF HYBRID LOANS WITH 
CURRENT LENDER.—In considering any appli-
cation 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 the 
sole net-tangible benefit to the mortgagor would 
be a reduction in monthly payment and the 
mortgagor has not been delinquent on any pay-
ment 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 under-
writing practice. 
‘‘(6) FULLY-INDEXED
RATE
DEFINED.—For 
purposes of this subsection, the term ‘fully indexed 
rate’ means the index rate prevailing on a residential 
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mortgage loan at the time the loan is made plus the 
margin that will apply after the expiration of any in-
troductory interest rates.’’. 
(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 102(b)) the following new item: 
‘‘129C. Minimum standards for residential mortgage loans.’’. 
SEC. 202. NET TANGIBLE BENEFIT FOR REFINANCING OF 
RESIDENTIAL MORTGAGE LOANS. 
Section 129C of the Truth in Lending Act (as added 
by section 201(a)) is amended by inserting after sub-
section (a) the following new subsection: 
‘‘(b) NET TANGIBLE BENEFIT FOR REFINANCING OF 
RESIDENTIAL MORTGAGE LOANS.— 
‘‘(1) IN GENERAL.—In accordance with regula-
tions prescribed under paragraph (3), no creditor 
may extend credit in connection with any residential 
mortgage loan that involves a refinancing of a prior 
existing residential mortgage loan unless the creditor 
reasonably and in good faith determines, at the time 
the loan is consummated and on the basis of infor-
mation known by or obtained in good faith by the 
creditor, that the refinanced loan will provide a net 
tangible benefit to the consumer. 
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‘‘(2) CERTAIN LOANS PROVIDING NO NET TAN-
GIBLE BENEFIT.—A residential mortgage loan that 
involves a refinancing of a prior existing residential 
mortgage loan shall not be considered to provide a 
net tangible benefit to the consumer if the costs of 
the refinanced loan, including points, fees and other 
charges, exceed the amount of any newly advanced 
principal without any corresponding changes in the 
terms of the refinanced loan that are advantageous 
to the consumer. 
‘‘(3) NET
TANGIBLE
BENEFIT.—The Federal 
banking agencies shall jointly prescribe regulations 
defining the term ‘net tangible benefit’ for purposes 
of this subsection.’’. 
SEC. 203. SAFE HARBOR AND REBUTTABLE PRESUMPTION. 
Section 129C of the Truth in Lending Act is amend-
ed by inserting after subsection (b) (as added by section 
202) the following new subsection: 
‘‘(c) PRESUMPTION OF ABILITY TO REPAY AND NET 
TANGIBLE BENEFIT.— 
‘‘(1) IN GENERAL.—Any creditor with respect 
to any residential mortgage loan, and any assignee 
or securitizer of such loan, may presume that the 
loan has met the requirements of subsections (a) 
and (b), if the loan is a qualified mortgage. 
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‘‘(2) DEFINITIONS.—For purposes of this sub-
section, the following definitions shall apply: 
‘‘(A) QUALIFIED
MORTGAGE.—The term 
‘qualified mortgage’ means any residential 
mortgage loan— 
‘‘(i) that does not allow a consumer to 
defer repayment of principal or interest, or 
is not otherwise deemed a ‘non-traditional 
mortgage’ under guidance, advisories, or 
regulations prescribed by the Federal 
Banking Agencies; 
‘‘(ii) that does not provide for a re-
payment schedule that results in negative 
amortization at any time; 
‘‘(iii) for which the terms are fully 
amortizing and which does not result in a 
balloon payment, where a ‘balloon pay-
ment’ is a scheduled payment that is more 
than twice as large as the average of ear-
lier scheduled payments; 
‘‘(iv) which has an annual percentage 
rate that does not exceed the average 
prime offer rate for a comparable trans-
action, as of the date the interest rate is 
set— 
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‘‘(I) by 1.5 or more percentage 
points, in the case of a first lien resi-
dential mortgage loan having a origi-
nal principal obligation amount that is 
equal to or less than the amount of 
the maximum limitation on the origi-
nal principal obligation of mortgage in 
effect for a residence of the applicable 
size, as of the date of such interest 
rate set, pursuant to the sixth sen-
tence of section 305(a)(2) the Federal 
Home Loan Mortgage Corporation 
Act (12 U.S.C. 1454(a)(2)); 
‘‘(II) by 2.5 or more percentage 
points, in the case of a first lien resi-
dential mortgage loan having a origi-
nal principal obligation amount that is 
more than the amount of the max-
imum limitation on the original prin-
cipal obligation of mortgage in effect 
for a residence of the applicable size, 
as of the date of such interest rate 
set, pursuant to the sixth sentence of 
section 305(a)(2) the Federal Home 
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Loan Mortgage Corporation Act (12 
U.S.C. 1454(a)(2)); and 
‘‘(III) by 3.5 or more percentage 
points, in the case of a subordinate 
lien residential mortgage loan; 
‘‘(v) for which the income and finan-
cial resources relied upon to qualify the ob-
ligors on the loan are verified and docu-
mented; 
‘‘(vi) in the case of a fixed rate loan, 
for which the underwriting process is based 
on a payment schedule that fully amortizes 
the loan over the loan term and takes into 
account all applicable taxes, insurance, and 
assessments; 
‘‘(vii) in the case of an adjustable rate 
loan, for which the underwriting is based 
on the maximum rate permitted under the 
loan during the first seven years, and a 
payment schedule that fully amortizes the 
loan over the loan term and takes into ac-
count all applicable taxes, insurance, and 
assessments; 
‘‘(viii) that does not cause the con-
sumer’s total monthly debts, including 
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amounts under the loan, to exceed a per-
centage established by regulation of the 
consumer’s monthly gross income or such 
other maximum percentage of such income 
as may be prescribed by regulation under 
paragraph (4), and such rules shall also 
take into consideration the consumer’s in-
come available to pay regular expenses 
after payment of all installment and revolv-
ing debt; 
‘‘(ix) for which the total points and 
fees payable in connection with the loan do 
not exceed 2 percent of the total loan 
amount, where ‘points and fees’ means 
points and fees as defined by Section 
103(aa)(4) of the Truth in Lending Act 
(15 U.S.C. 1602(aa)(4)); and 
‘‘(x) for which the term of the loan 
does not exceed 30 years, except as such 
term may be extended under paragraph 
(4). 
‘‘(B) AVERAGE PRIME OFFER RATE.—The 
term ‘average prime offer rate’ means an an-
nual percentage rate that is derived from aver-
age interest rates, points, and other loan pric-
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ing terms currently offered to consumers by a 
representative sample of creditors for mortgage 
transactions that have low risk pricing charac-
teristics. 
‘‘(3) PUBLICATION OF AVERAGE PRIME OFFER 
RATE AND APR THRESHOLDS.—The Board— 
‘‘(A) shall publish, and update at least 
weekly, average prime offer rates; 
‘‘(B) may publish multiple rates based on 
varying types of mortgage transactions; and 
‘‘(C) shall adjust the thresholds of 1.50 
percentage points in paragraph (2)(A)(iv)(I), 
2.50 
percentage 
points 
in 
paragraph 
(2)(A)(iv)(II), and 3.50 percentage points in 
paragraph (2)(A)(v)(III), as necessary to reflect 
significant changes in market conditions and to 
effectuate the purposes of the Mortgage Reform 
and Anti-Predatory Lending Act. 
‘‘(4) REGULATIONS.— 
‘‘(A) IN GENERAL.—The Federal banking 
agencies shall jointly prescribe regulations to 
carry out the purposes of this subsection. 
‘‘(B) REVISION
OF
SAFE
HARBOR
CRI-
TERIA.— 
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‘‘(i) IN GENERAL.—The Federal bank-
ing agencies may jointly prescribe regula-
tions that revise, add to, or subtract from 
the criteria that define a qualified mort-
gage upon a finding that such regulations 
are necessary or proper to ensure that re-
sponsible, affordable mortgage credit re-
mains available to consumers in a manner 
consistent with the purposes of this sec-
tion, necessary and appropriate to effec-
tuate the purposes of this section and sec-
tion 129B, to prevent circumvention or 
evasion thereof, or to facilitate compliance 
with such sections. 
‘‘(ii) LOAN
DEFINITION.—The fol-
lowing agencies shall, in consultation with 
the Federal banking agencies, prescribe 
rules defining the types of loans they in-
sure, guarantee or administer, as the case 
may be, that are Qualified Mortgages for 
purposes of subsection (c)(1)(A) upon a 
finding that such rules are consistent with 
the purposes of this section and section 
129B, to prevent circumvention or evasion 
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SEC. 204. LIABILITY. 
Section 129C of the Truth in Lending Act is amend-
ed by inserting after subsection (c) (as added by section 
203) the following new subsection: 
‘‘(d) LIABILITY FOR VIOLATIONS.— 
‘‘(1) IN GENERAL.— 
‘‘(A) RESCISSION.—In addition to any 
other liability under this title for a violation by 
a creditor of subsection (a) or (b) (for example 
under section 130) and subject to the statute of 
limitations in paragraph (9), a civil action may 
be maintained against a creditor for a violation 
of subsection (a) or (b) with respect to a resi-
dential mortgage loan for the rescission of the 
loan, and such additional costs as the obligor 
may have incurred as a result of the violation 
and in connection with obtaining a rescission of 
the loan, including a reasonable attorney’s fee. 
‘‘(B) CURE.—A creditor shall not be liable 
for rescission under subparagraph (A) with re-
spect to a residential mortgage loan if, no later 
than 90 days after the receipt of notification 
from the consumer that the loan violates sub-
section (a) or (b), the creditor, acting in good 
faith, a cure. 
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‘‘(2) LIMITED ASSIGNEE AND SECURITIZER LI-
ABILITY.—Notwithstanding sections 125(e) and 131 
and except as provided in paragraph (3), a civil ac-
tion which may be maintained against a creditor 
with respect to a residential mortgage loan for a vio-
lation of subsection (a) or (b) may be maintained 
against any assignee or securitizer of such residen-
tial mortgage loan, who has acted in good faith, for 
the following liabilities only: 
‘‘(A) Rescission of the loan. 
‘‘(B) Such additional costs as the obligor 
may have incurred as a result of the violation 
and in connection with obtaining a rescission of 
the loan, including a reasonable attorney’s fee. 
‘‘(3) ASSIGNEE
AND
SECURITIZER
EXEMP-
TION.—No assignee or securitizer of a residential 
mortgage loan that has exercised reasonable due dili-
gence in complying with the requirements of sub-
sections (a) and (b), consistent with reasonable due 
diligence practices prescribed by the Federal banking 
agencies, shall be liable under paragraph (2) with re-
spect to such loan if, no later than 90 days after the 
receipt of notification from the consumer that the 
loan violates subsection (a) or (b), the assignee or 
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securitizer provides a cure so that the loan satisfies 
the requirements of subsections (a) and (b). 
‘‘(4) ABSENT PARTIES.— 
‘‘(A) 
ABSENT
CREDITOR.—Notwith-
standing the exemption provided in paragraph 
(3), if the creditor with respect to a residential 
mortgage loan made in violation of subsection 
(a) or (b) has ceased to exist as a matter of law 
or has filed for bankruptcy protection under 
title 11, United States Code, or has had a re-
ceiver, conservator, or liquidating agent ap-
pointed, a consumer may maintain a civil action 
against an assignee to cure the residential 
mortgage loan, plus the costs and reasonable 
attorney’s fees incurred in obtaining such rem-
edy. 
‘‘(B) ABSENT CREDITOR AND ASSIGNEE.— 
Notwithstanding the exemption provided in 
paragraph (3), if the creditor with respect to a 
residential mortgage loan made in violation of 
subsection (a) or (b) and each assignee of such 
loan have ceased to exist as a matter of law or 
have filed for bankruptcy protection under title 
11, United States Code, or have had receivers, 
conservators, or liquidating agents appointed, 
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the consumer may maintain the civil action re-
ferred to in subparagraph (A) against the 
securitizer. 
‘‘(5) CURE
DEFINED.—For purposes of this 
subsection, the term ‘cure’ means, with respect to a 
residential mortgage loan that violates subsection (a) 
or (b), the modification or refinancing, at no cost to 
the consumer, of the loan to provide terms that sat-
isfy the requirements of subsections (a) and (b) and 
the payment of such additional costs as the obligor 
may have incurred in connection with obtaining a 
cure of the loan, including a reasonable attorney’s 
fee. 
‘‘(6) DISAGREEMENT OVER CURE.—If any cred-
itor, assignee, or securitizer and a consumer fail to 
reach agreement on a cure with respect to a residen-
tial mortgage loan that violates subsection (a) or (b), 
or the consumer fails to accept a cure proffered by 
a creditor, assignee, or securitizer— 
‘‘(A) the creditor, assignee, or securitizer 
may provide the cure; and 
‘‘(B) the consumer may challenge the ade-
quacy of the cure during the 6-month period be-
ginning when the cure is provided. 
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If the consumer’s challenge, under this paragraph, 
of a cure is successful, the creditor, assignee, or 
securitizer shall be liable to the consumer for rescis-
sion of the loan and such additional costs under 
paragraph (2). 
‘‘(7) INABILITY TO PROVIDE OR OBTAIN RE-
SCISSION.—If a creditor, assignee, or securitizer 
cannot provide, or a consumer cannot obtain, rescis-
sion under paragraph (1) or (2), the liability of such 
creditor, assignee, or securitizer shall be met by pro-
viding the financial equivalent of a rescission, to-
gether with such additional costs as the obligor may 
have incurred as a result of the violation and in con-
nection with obtaining a rescission of the loan, in-
cluding a reasonable attorney’s fee. 
‘‘(8) NO CLASS ACTIONS AGAINST ASSIGNEE OR 
SECURITIZER
UNDER
PARAGRAPH (2).—Only indi-
vidual actions may be brought against an assignee 
or securitizer of a residential mortgage loan for a 
violation of subsection (a) or (b). 
‘‘(9) STATUTE OF LIMITATIONS.—The liability 
of a creditor, assignee, or securitizer under this sub-
section shall apply in any original action against a 
creditor under paragraph (1) or an assignee or 
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securitizer under paragraph (2) which is brought be-
fore— 
‘‘(A) in the case of any residential mort-
gage loan other than a loan to which subpara-
graph (B) applies, the end of the 3-year period 
beginning on the date the loan is consummated; 
or 
‘‘(B) in the case of a residential mortgage 
loan that provides for a fixed interest rate for 
an introductory period and then resets or ad-
justs to a variable rate or that provides for a 
nonamortizing payment schedule and then con-
verts to an amortizing payment schedule, the 
earlier of— 
‘‘(i) the end of the 1-year period be-
ginning on the date of such reset, adjust-
ment, or conversion; or 
‘‘(ii) the end of the 6-year period be-
ginning on the date the loan is con-
summated. 
‘‘(10) TRUSTEES, POOLS, AND INVESTORS IN 
POOLS EXCLUDED.—In the case of residential mort-
gage loans acquired or aggregated for the purpose of 
including such loans in a pool of assets held for the 
purpose of issuing or selling instruments rep-
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