‘‘(ii) all compensation paid directly to 
mortgage brokers by or on behalf of the 
consumer (other than borrower credits); 
‘‘(iii) each of the charges listed in sec-
tion 106(e), except an escrow for future 
payment of taxes or insurance, unless—
‘‘(I) the charge is bona fide, com-
petitive, and reasonable; 
‘‘(II) the creditor receives no di-
rect compensation; and 
‘‘(III) the charge is paid to a 
third party; and 
‘‘(iv) all prepayment fees or penalties 
on the new loan that will be incurred by 
the borrower if the loan refinances a pre-
vious loan currently held by the same cred-
itor or an affiliate of the creditor. 
‘‘(B) EXCLUDABLE BONA FIDE DISCOUNT 
POINTS.—Not more than 2 bona fide loan dis-
count points in connection with the loan trans-
action may be excluded from the amount of 
points and fees taken into account for purposes 
of paragraph (1).’’; and 
(3) by redesignating paragraph (5) as para-
graph (4).
(c) BONA FIDE DISCOUNT POINTS AND BENCHMARK 
RATE DEFINED.—Section 103 of the Truth in Lending 
Act (15 U.S.C. 1602) is amended by adding at the end 
the following new subsection: 
‘‘(cc) OTHER INTEREST RATE RELATED TERMS.—
‘‘(1) BONA FIDE DISCOUNT POINTS.—The term 
‘bona fide discount points’ means loan discount 
points that—
‘‘(A) are knowingly paid by the borrower; 
‘‘(B) are paid for the express purpose of 
lowering the interest rate; 
‘‘(C) reduce the interest rate applicable to 
the loan from an interest rate that does not ex-
ceed the benchmark rate; and 
‘‘(D) reduce the interest rate by a min-
imum of 25 basis points per discount point so 
long as all other terms of the loan remain the 
same. 
‘‘(2) BENCHMARK
RATE.—The term ‘bench-
mark rate’ means the interest rate that the con-
sumer can reduce by paying bona fide discount 
points, not to exceed the sum of—
‘‘(A) the yield on Treasury securities hav-
ing comparable periods of maturity on the 15th 
day of the month immediately preceding the
month in which the application for the exten-
sion of credit is received by the creditor; and 
‘‘(B) 4 percentage points.’’. 
(d) TECHNICAL AND CONFORMING AMENDMENT.—
Paragraph (2) of section 103(aa) of the Truth in Lending 
Act (15 U.S.C. 1602(aa)(2)) is amended by striking 
‘‘specified in paragraph (1)(A)’’ and inserting ‘‘specified 
in subparagraph (A) or (B) of paragraph (1)’’. 
SEC. 103. AMENDMENTS TO REQUIREMENTS FOR HIGHER-
COST MORTGAGES. 
(a) PREPAYMENT PENALTIES.—Subsection (c) of 
section 129 of the Truth in Lending Act (15 U.S.C. 
1639(c)) is amended to read as follows: 
‘‘(c) [Repealed]’’. 
(b) BALLOON PAYMENTS.—Section 129(e) of the 
Truth in Lending Act (15 U.S.C. 1639(e)) is amended—
(1) by striking ‘‘PAYMENTS.—A mortgage’’ and 
inserting ‘‘PAYMENTS.—
‘‘(1) IN GENERAL.—A mortgage’’; 
(2) by striking ‘‘having a term of less than 5 
years’’; and 
(3) by adding at the end the following new 
paragraphs: 
‘‘(2) EXCEPTION.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall 
not apply when the payment schedule is ad-
justed to account for the seasonal or irregular 
income of the consumer or if the purpose of the 
loan is a bridge loan. 
‘‘(B) BRIDGE LOAN DEFINED.—For pur-
poses of this subsection, the term ‘bridge loan’ 
means a loan that—
‘‘(i) has a period to maturity of 18 
months or less; and 
‘‘(ii) is made in connection with the 
acquisition or construction of a dwelling. 
‘‘(3) NOTICE REQUIRED.—A creditor that offers 
a higher-cost mortgage having a balloon payment 
term that, in accordance with paragraph (2), is not 
subject to paragraph (1) shall clearly disclose to the 
consumer that—
‘‘(A) the loan contains such a term; 
‘‘(B) the balloon payment amount that will 
be owed by the consumer on the loan maturity 
date will be equal to the initial principal loan 
amount, plus interest and costs that may be 
due, minus any principal payments that may 
have been made over the term of the loan; and
‘‘(C) balloon payments are permissible 
under the circumstances described in paragraph 
(2).’’. 
(c) NEGATIVE AMORTIZATION.—Subsection (f) of 
section 129 of the Truth in Lending Act (15 U.S.C. 
1639(f)) is amended—
(1) by striking ‘‘AMORTIZATION.—A mortgage 
referred to in section 103(aa)’’ and inserting ‘‘AM-
ORTIZATION.—
‘‘(1) IN GENERAL.—A higher-cost mortgage’’; 
and 
(2) by adding at the end the following new 
paragraph: 
‘‘(2) EXCEPTION
FOR
PERIOD
OF
FORBEAR-
ANCE.—Paragraph (1) shall not apply with respect 
to negative amortization resulting from periods of 
temporary forbearance allowed by the creditor.’’. 
(d) FINANCING OF POINTS OR FEES.—Section 129 
of the Truth in Lending Act (15 U.S.C. 1639) is amended 
by adding at the end the following new subsection: 
‘‘(m) RESTRICTIONS ON FINANCING OF POINTS OR 
FEES; DISCLOSURES REQUIRED.—
‘‘(1) IN GENERAL.—No creditor may, in con-
nection with the formation or consummation of a 
higher-cost mortgage transaction, finance, directly or
indirectly, any portion of the points and fees applica-
ble to such mortgage that exceeds an amount equal 
to 5 percent of the total loan amount (or, if the total 
loan amount is $40,000 or less, an amount equal to 
6 percent of the total loan amount). 
‘‘(2) DISCLOSURE.—If, in connection with the 
consummation of a higher-cost mortgage, any por-
tion of the points, fees, or other charges payable to 
the creditor or any third party are included, directly 
or indirectly, in the principal amount of the loan or 
otherwise financed by the creditor, the creditor shall 
disclose that fact to the consumer together with a 
statement that the creditor cannot require that such 
point, fee or charge be financed.’’. 
(e) PROHIBITION ON EVASIONS THROUGH STRUC-
TURING
TRANSACTION
OR
RECIPROCAL
ARRANGE-
MENTS.—Section 129 of the Truth in Lending Act (15 
U.S.C. 1639) is amended by inserting after subsection (n) 
(as added by section 104(a) of this Act) the following new 
subsection: 
‘‘(o) PROHIBITION ON EVASIONS THROUGH STRUC-
TURING
TRANSACTION
OR
RECIPROCAL
ARRANGE-
MENTS.—
‘‘(1) IN GENERAL.—No creditor, or any affiliate 
of a creditor, may take any action for the purpose
of, or with the intent to, circumvent or evade any re-
quirement of this title with respect to higher-cost 
mortgages, including—
‘‘(A) entering into any reciprocal arrange-
ment; 
‘‘(B) dividing any loan transaction into 
separate parts for the purpose of evading, and 
with the intent to evade, the provisions of this 
section; and 
‘‘(C) in the case of a credit transaction 
that would be a higher-cost mortgage if struc-
tured as a consumer loan, structuring or re-
structuring such transaction as a business loan 
or other form of credit for the purpose of evad-
ing, and with the intent to evade, the provisions 
of this section. 
‘‘(2) RULE ON NONATTRIBUTION.—If, in the 
case of 2 credit transactions that are consummated 
at the same time and are secured by the same real 
property, the loan-to-value ratio of 1 of such trans-
actions is 80 percent or more, the points and fees 
payable by the consumer at or before closing on such 
transaction may not be imputed or attributed to the 
other transaction for purposes of determining wheth-
er a creditor has attempted to evade any require-
ment of this title. 
‘‘(3) RECIPROCAL ARRANGEMENT DEFINED.—
For purposes of this subsection, the term ‘reciprocal 
arrangement’ means any agreement, understanding, 
or other arrangement under which—
‘‘(A) a creditor or affiliate of a creditor 
agrees to engage in a transaction with, or on 
behalf of, another creditor, or an affiliate of 
such other creditor, in exchange for 
‘‘(B) the agreement of the second creditor 
referred to in subparagraph (A), or any affiliate 
of such creditor, to engage in a transaction 
with, or on behalf of, the first creditor referred 
to in such subparagraph, or any affiliate of 
such creditor, 
for the purpose of evading any requirement or prohi-
bition under this title, or any other provision of any 
Federal law or regulation relating to higher-cost 
mortgages.’’. 
(f) NO ENCOURAGEMENT OF DEFAULT OR NON-
PAYMENT ON PRIOR EXISTING LOAN.—Section 129 of the 
Truth in Lending Act (15 U.S.C. 1639) is amended by 
inserting after subsection (o) (as added by subsection (e) 
of this section) the following new subsection:
‘‘(p) NO
ENCOURAGEMENT
OF
DEFAULT
OR 
SKIPPED PAYMENT.—No creditor may recommend or en-
courage default or nonpayment, including nonpayment of 
any periodic payment, on an existing loan or other debt 
prior to and in connection with the consummation or 
planned consummation of a higher-cost mortgage that re-
finances all or any portion of such existing loan or debt.’’. 
(g) ABILITY TO REPAY.—Subsection (h) of section 
129 of the Truth in Lending Act (15 U.S.C. 1639(h)) is 
amended to read as follows: 
‘‘(h) PROHIBITION ON EXTENDING CREDIT WITH-
OUT REGARD TO PAYMENT ABILITY OF CONSUMER.—
‘‘(1) IN GENERAL.—A creditor shall not extend 
credit to a consumer under a higher-cost mortgage 
based on the foreclosure value of the consumer’s 
principal dwelling securing the loan without regard 
to the consumer’s repayment ability, including the 
consumer’s current and expected income, current ob-
ligations, and employment. 
‘‘(2) PRESUMPTION OF ABILITY.—
‘‘(A) IN
GENERAL.—Unless a creditor 
knows or has reason to know otherwise and ex-
cept as provided in paragraphs (3) and (4), a 
creditor may presume that a consumer is able 
to make the scheduled payments to repay the
higher-cost mortgage, if, at the time the exten-
sion of credit is approved—
‘‘(i) the consumer’s total monthly pay-
ments due on outstanding obligations, in-
cluding amounts owed under the higher-
cost mortgage, do not exceed 50 percent of 
the consumer’s monthly gross income, as 
verified by the credit application, the con-
sumer’s financial statement, a credit re-
port, or any other reasonable means, sub-
ject to subparagraph (B); and 
‘‘(ii) the consumer has sufficient re-
sidual income, as determined in accordance 
with regulations issued by the Board, to 
pay essential monthly expenses after pay-
ing the scheduled monthly payments and 
any additional debt. 
‘‘(B) VERIFICATION OF RETIREMENT AND 
OTHER BENEFITS.—If a consumer’s repayment 
ability is based substantially on fixed income 
(from any source, public or private, including 
retirement or disability benefits paid by the So-
cial Security Administration or other govern-
mental agency), the income verification required 
under subparagraph (A)(i) shall include reason-
able documentation of such fixed income, in ad-
dition to any statement by the consumer. 
‘‘(C) RULE OF CONSTRUCTION.—The ab-
sence of any means of verification described in 
clause (i) or (ii) of subparagraph (A) shall not 
be construed as creating a presumption of a 
violation of this subsection. 
‘‘(3) PRESUMPTION NOT APPLICABLE IN CASE 
OF
BALLOON
PAYMENTS.—A balloon payment or 
final payment on a bridge loan otherwise permissible 
under subsection (e) shall not be construed as a pay-
ment for purposes of paragraph (2)(A). 
‘‘(4) VERIFICATION OF INCOME REQUIRED IN 
CASE OF CONSUMER WITHOUT EARNED OR FIXED 
INCOME.—A creditor may rely on a consumer’s 
statement of income for purposes of paragraph 
(2)(A) if—
‘‘(A) the consumer verifies his or her 
monthly income on a signed financial statement 
or other documentation that shows the con-
sumer’s income and obligations before the ex-
tension of credit; and 
‘‘(B) the creditor has a reasonable basis 
for believing that the income exists and will 
support repayment of the transaction.’’.
(h) PROHIBITION ON SINGLE PREMIUM CREDIT IN-
SURANCE.—Section 129 of the Truth in Lending Act (15 
U.S.C. 1639) is amended by inserting after subsection (p) 
(as added by subsection (f) of this section) the following 
new subsection: 
‘‘(q) PROHIBITION ON SINGLE PREMIUM CREDIT IN-
SURANCE.—
‘‘(1) IN GENERAL.—No consumer credit trans-
action involving a higher-cost mortgage may include 
the offer or sale of any credit insurance policy, or 
any analogous product whether deemed to be insur-
ance, including any debt cancellation or suspension 
agreement or contract, on a single premium basis. 
‘‘(2) COLLECTION OF MONTHLY PREMIUMS NOT 
AFFECTED.—The prohibition in paragraph (1) shall 
not be construed as affecting the right of a creditor 
to collect premium payments on credit insurance or 
any analogous products that are calculated and paid 
on a regular monthly basis. 
‘‘(3) CREDIT INSURANCE DEFINED.—For pur-
poses of this subsection, the term ‘credit insurance’ 
means a policy of insurance that insures, guarantees 
or indemnifies the creditor, as the primary bene-
ficiary, for the repayment of the outstanding balance 
of the loan against death, illness, accident, disability,
loss of property, or unemployment of the con-
sumer.’’. 
(i) LIMITATIONS ON REFINANCING.—Section 129 of 
the Truth in Lending Act (15 U.S.C. 1639) is amended 
by inserting after subsection (q) (as added by subsection 
(h) of this section) the following new subsection: 
‘‘(r) LIMITATIONS ON REFINANCING.—
‘‘(1) IN GENERAL.—No creditor shall knowingly 
or intentionally engage in the unfair act or practice 
of loan flipping. 
‘‘(2) SAFE HARBOR.—A higher-cost mortgage 
shall be presumed to provide a reasonable tangible 
benefit to the consumer if any 1 of the following fac-
tors applies to the new loan: 
‘‘(A) The purpose of the higher-cost mort-
gage is to finance a personal investment or a 
purchase or acquisition of real property that is 
not the principal dwelling of the consumer. 
‘‘(B) The interest rate on the new fixed-
rate higher-cost mortgage is lower than the in-
terest rate on the fixed-rate refinanced loan and 
it will take 4 years or less for the consumer to 
recoup the costs of the points and fees, and 
other closing costs that are required to be paid 
by the consumer on the new higher-cost mort-
gage through savings resulting from the lower 
interest rate. 
‘‘(C) The creditor makes a good-faith de-
termination that the consumer’s monthly pay-
ment to pay the higher-cost mortgage is a min-
imum of 15 percent less than the total of all 
minimum monthly payments on the obligations 
being financed, based on a consumer credit re-
port or other reasonable documentation utilized 
by the creditor. 
‘‘(D) Any cash proceeds paid either to the 
consumer, or on behalf of the consumer, above 
the payoff of the refinanced loan are in excess 
of twice the amount of total points and fees and 
closing costs that are required to be paid by the 
consumer. 
‘‘(E) The refinanced loan is changed from 
a loan that is not a fixed-rate fully-amortizing 
loan to a fixed-rate fully-amortizing loan. 
‘‘(F) The terms of repayment of the refi-
nanced loan are changed from a longer full am-
ortization term to a shorter full amortization 
term by at least 5 years. 
‘‘(G) The consumer presents a certificate, 
dated not more than 90 days prior to the date
of the application for the new higher-cost mort-
gage, from an independent housing or credit 
counselor approved by the United States De-
partment of Housing and Urban Development, 
or by any State regulatory agency, which states 
that the consumer has received counseling with 
regard to refinancing the existing loan. 
‘‘(H) The consumer provides the creditor 
with a written, signed statement not prepared 
by the creditor, at or before the consummation 
of the new higher-cost mortgage, that the new 
loan is needed to meet a bona fide personal or 
family financial, health or medical emergency, 
or to avoid a filed foreclosure action. 
‘‘(I) The refinancing is necessary under, or 
in response to, any order or judgment of a 
court of competent jurisdiction. 
‘‘(3) SPECIAL MORTGAGES.—
‘‘(A) IN
GENERAL.—A higher-cost mort-
gage may not be used to refinance an existing 
loan if—
‘‘(i) it is apparent on the face of the 
security instrument for the existing loan 
that it is a special mortgage; and
‘‘(ii) as a result of the refinancing, the 
consumer would lose 1 or more of the ben-
efits of the special mortgage. 
‘‘(B) EXCEPTION
UNDER
CERTAIN
CIR-
CUMSTANCES.—The restriction in subparagraph 
(A) shall not apply if—
‘‘(i) the holder of the special mortgage 
being refinanced consents in writing to the 
new higher-cost mortgage; and 
‘‘(ii) a credit counselor referred to in 
paragraph (2)(G) certifies in writing that 
the consumer has obtained counseling on 
the advantages and disadvantages of the 
new loan. 
‘‘(4) DEFINITIONS.—For purposes of this sub-
section, the following definitions shall apply: 
‘‘(A) LOAN FLIPPING.—
‘‘(i) IN
GENERAL.—The term ‘loan 
flipping’ means an extension of credit by a 
creditor to a consumer for a higher-cost 
mortgage that—
‘‘(I) refinances an existing home 
loan that was consummated within the 
prior 24 months; and
‘‘(II) does not have a reasonable 
tangible benefit to the consumer con-
sidering all material circumstances 
known to the creditor. 
‘‘(ii) DETERMINATION
OF
REASON-
ABLE
TANGIBLE
BENEFIT.—In instances 
where one of the safe harbor provisions 
contained in subsection (r) is inapplicable, 
the factors to be considered may include 
the terms and conditions of both the new 
and refinanced loan, the consumer’s known 
economic and non-economic circumstances, 
the purpose of the loan, and the cost of the 
new loan. 
‘‘(B) SPECIAL MORTGAGE.—The term ‘spe-
cial mortgage’ means a consumer credit trans-
action that is originated, subsidized, or guaran-
teed by or through a Federal, State, tribal, or 
local government, government-sponsored enter-
prise (as defined in section 1404(e) of Financial 
Institutions Reform, Recovery, and Enforce-
ment Act of 1989), or nonprofit organization 
(other than a mutual bank, mutual savings as-
sociation, or credit union) that either—
‘‘(i) bears, by at least 2 percentage 
points, a below-market interest rate as of 
the date of its consummation; or 
‘‘(ii) has non-standard payment terms 
beneficial to the consumer, such as pay-
ments that vary with income or are limited 
to a percentage of income, or terms that 
permit the consumer to make no payments 
under specified conditions. 
‘‘(5) RULE
OF
CONSTRUCTION.—No negative 
inference may be drawn from the absence of any fac-
tor or circumstance described in any subparagraph 
of paragraph (2) with regard to any higher-cost 
mortgage so as to create a presumption of a viola-
tion of this subsection with regard to such mortgage 
by reason of such absence. 
‘‘(6) LIMITATION ON LEGAL FEES.—Notwith-
standing section 130 or any other provision of law, 
in any successful action instituted by a person for a 
violation of paragraph (1), the person shall not be 
entitled to recover the costs of the action and attor-
ney’s fees if the court determines, in the court’s dis-
cretion, that a reasonable offer to remedy the viola-
tion and compensate the person for the violation was 
made to such person and the offer was rejected.’’.
(j) REQUIREMENTS RELATING TO HOME IMPROVE-
MENT CONTRACTS.—Section 129(i) of the Truth in Lend-
ing Act (15 U.S.C. 1639(i)) is amended—
(1) by redesignating paragraphs (1) and (2) as 
subparagraphs (A) and (B), respectively, and mov-
ing the left margin of each such subparagraph (as 
so redesignated) 2 ems to the right; 
(2) by striking ‘‘IMPROVEMENT CONTRACTS.—
A creditor shall not’’ and inserting ‘‘IMPROVEMENT 
CONTRACTS.— 
‘‘(1) IN GENERAL.—A creditor shall not’’; and 
(3) by adding at the end the following new 
paragraph: 
‘‘(2) NO PAYMENT IN FULL WITHOUT PROOF 
OF COMPLETION OF THE WORK.—
‘‘(A) IN GENERAL.—No creditor may use 
the proceeds of a higher-cost mortgage to make 
a final payment or payment in full to a home 
improvement contractor under a home improve-
ment contract without proof of completion in 
accordance with subparagraph (B). 
‘‘(B) PROOF OF COMPLETION.—
‘‘(i) 
COMPLETION
CERTIFICATE 
UNDER STATE LAW.—A completion certifi-
cate, completed in compliance with applica-