I
103D CONGRESS
1ST SESSION
H. R. 3153
To protect home ownership and equity through enhanced disclosure of the
risks associated with certain mortgages, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 28, 1993
Mr. KENNEDY (for himself, Mr. GONZALEZ, Mr. MOAKLEY, Mr. SCHUMER,
Mr. FRANK of Massachusetts, Mr. KANJORSKI, Mr. FLAKE, Ms. WATERS,
Mr. HINCHEY, Mr. KLEIN, Mr. WATT, Ms. ROYBAL-ALLARD, Mr. RUSH,
Mr. WYNN, Ms. BROWN of Florida, Mr. FILNER, Mr. HAMBURG, Ms.
WOOLSEY, Mr. NEAL of Massachusetts, Mr. MEEHAN, Mr. COYNE, Mr.
LEWIS of Georgia, Mr. CLAY, Mr. LANTOS, and Mr. DEFAZIO) intro-
duced the following bill; which was referred to the Committee on Bank-
ing, Finance and Urban Affairs
A BILL
To protect home ownership and equity through enhanced
disclosure of the risks associated with certain mortgages,
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 ‘‘Home Equity Protec-
tion Act of 1993’’.
SEC. 2. CONSUMER PROTECTIONS FOR HIGH COST MORT-
GAGES.
(a) DEFINITION.—Section 103 of the Truth in Lend-
ing Act (15 U.S.C. 1602) is amended by adding after sub-
section (z) the following new subsection:
‘‘(aa) The term ‘high cost mortgage’ means a
consumer credit transaction, other than a residential
mortgage transaction, that is secured by a consumer’s
principal dwelling and that satisfies at least 1 of the fol-
lowing conditions:
‘‘(1) The annual percentage rate at consumma-
tion of the transaction will exceed by more than 10
percentage points the rate of interest on obligations
of the United States having a period of maturity of
1 year on the fifteenth day of the month before such
consummation.
‘‘(2) All points and fees payable by the
consumer at or before closing will exceed the greater
of—
‘‘(A) 8 percent of the amount financed,
minus fees and points; or
‘‘(B) $400.’’.
(b) MATERIAL DISCLOSURES.—Section 103(u) of the
Truth in Lending Act (15 U.S.C. 1602(u)) is amended—
(1) by striking ‘‘and the due dates’’ and insert-
ing ‘‘, the due dates’’; and
(2) by inserting before the period ‘‘, and the
disclosures for high cost mortgages required by sec-
tion 129(a))’’.
(c) DEFINITION OF CREDITOR CLARIFIED.—Section
103(f) of the Truth in Lending Act (15 U.S.C. 1602(f))
is amended by adding at the end the following: ‘‘Any per-
son who originates 2 or more high cost mortgages in any
12-month period or any person who originates 1 or more
high cost mortgages through a loan broker shall be consid-
ered to be a creditor for purposes of section 129.’’.
(d) DISCLOSURES REQUIRED AND CERTAIN TERMS
PROHIBITED.—The Truth in Lending Act (15 U.S.C.
1601 et seq.) is amended by inserting after section 128
the following new section:
‘‘SEC. 129. REQUIREMENTS FOR HIGH COST MORTGAGES.
‘‘(a) DISCLOSURES.—In addition to any other disclo-
sures required under this title, for each high cost mort-
gage, the creditor shall provide the following written dis-
closures in clear language and in conspicuous type size
and format, segregated from other information as a sepa-
rate document:
‘‘(1) The following statement: ‘If you obtain
this loan, the lender will have a mortgage on your
home. You could lose your home, and any money you
have put into it, if you do not meet your obligations
under the loan.’.
‘‘(2) The initial annual percentage rate.
‘‘(3) The consumer’s gross monthly cash in-
come, as verified by the creditor, the total initial
monthly payment, and the amount of funds that will
remain to meet other obligations of the consumer.
‘‘(4) In the case of a variable rate loan, a state-
ment that the annual percentage rate and the inter-
est rate could increase, and the maximum interest
rate and payment.
‘‘(5) In the case of a variable rate loan with an
initial annual percentage rate that is different than
the one which would be applied using the contract
index after the initial period, a statement of the pe-
riod of time the initial rate will be in effect, and the
rate or rates that will go into effect after the initial
period is over, assuming that current interest rates
prevail.
‘‘(6) A statement that the consumer is not re-
quired to complete the transaction merely because he
or she has received disclosures or signed a loan ap-
plication.
‘‘(7) A statement as follows: ‘Under Federal
law, this is a high cost mortgage. You may be able
to obtain a less expensive loan.’.
‘‘(b) TIME OF DISCLOSURES.—The disclosures re-
quired by this section shall be given no later than 3 busi-
ness days prior to consummation of the transaction. A
creditor may not change the terms of the loan after pro-
viding the disclosures required by this section.
‘‘(c) NO PREPAYMENT PENALTY.—
‘‘(1) IN GENERAL.—A high cost mortgage may
not contain terms under which a consumer must pay
a prepayment penalty for paying all or part of the
principal prior to the date on which such principal
is due. If the date of maturity of the high cost mort-
gage is accelerated for any reason, the consumer is
entitled to a rebate that complies with paragraph
(2). No high cost mortgage shall provide for a de-
fault interest rate that is higher than the interest
rate provided by the note for a performing loan.
‘‘(2) REBATE COMPUTATION.—For purposes of
this subsection, any method of computing rebates of
a finance charge less favorable to the consumer than
the actuarial method using simple interest is a pre-
payment penalty.
‘‘(3) CERTAIN OTHER FEES PROHIBITED.—An
agreement to refinance a high cost mortgage by the
same creditor or an affiliate of the creditor may not
require the consumer to pay points, discount fees, or
prepaid finance charges on the portion of the loan
refinanced. For the purpose of this paragraph, the
term ‘affiliate’ has the same meaning as it does in
section 2(k) of the Bank Holding Company Act of
1956.
‘‘(d) NO BALLOON PAYMENTS.—A high cost mort-
gage may not include terms under which the aggregate
amount of the regular periodic payments would not fully
amortize the outstanding principal balance.
‘‘(e) NO NEGATIVE AMORTIZATION.—A high cost
mortgage may not include terms under which the out-
standing principal balance will increase over the course of
the loan.
‘‘(f) NO PREPAID PAYMENTS.—A high cost mortgage
may not include terms under which more than 2 periodic
payments required under the loan are consolidated and
paid in advance from the loan proceeds provided to the
consumer.
‘‘(g) UNFAIR, DECEPTIVE, OR EVASIVE ACTS PRO-
HIBITED.—Creditors of contracts governed by this section
shall not commit, in the making, servicing, or collecting
of a high cost mortgage, any act or practice which is un-
fair or deceptive, including any of the following:
‘‘(1) Entering into a home equity loan if there
is no reasonable probability that the homeowner will
be able to make payments according to the terms of
the loan.
‘‘(2) Taking advantage of the borrower’s infir-
mities, lack of education or sophistication, or lan-
guage skills, necessary to understand fully the terms
of the transaction.
‘‘(3) Refinancing other loans owed by the home-
owner which had not been accelerated by reason of
default of the homeowner prior to the application for
the home equity loan, unless the new loan is at a
lower interest rate or has lower monthly payments.
‘‘(4) Financing a mortgage broker’s commis-
sion, unless the borrower entered into a separate
written contract with the broker prior to the date of
application for the home equity loan, which stated
the dollar amount of the commission, and which was
provided to the borrower prior to the application.
‘‘(5) Taking action or interfering with any
other consumer protection laws or regulation de-
signed to protect the homeowner.
‘‘(6) Assisting in the falsification of information
on the application for a home equity loan.
‘‘(7) Disbursing to a home improvement con-
tractor more than 80 percent of funds due under a
home improvement contract which exceeds $10,000,
before the completion of the work due under the
home improvement contract, or making any dis-
bursement for a home improvement contract in a
form other than an instrument jointly payable to the
borrower and the contractor.
‘‘(8)(A) Engaging in any other unfair, decep-
tive, or unconscionable conduct which creates a like-
lihood of confusion or misunderstanding.
‘‘(B) Any attempt to evade the provisions of
this section by any devise, subterfuge, or pretense
whatsoever is deemed to be unfair conduct under
this paragraph.
‘‘(h) RIGHT OF RESCISSION.—For the purpose of sec-
tion 125, any contract with provisions prohibited by this
section is deemed to not include material disclosures re-
quired under this title. Any provision in a high cost mort-
gage which violates section 125 shall not be enforceable.’’.
SEC. 3. STATE AUTHORITY TO REGULATE HIGH RATE
MORTGAGE LOANS.
The authority of States to establish limitations on the
interest, fees, and other terms of a first mortgage which—
(1) is secured by a first lien on residential real
property; and
(2) is not used to finance the acquisition of that
property;
is not preempted by section 501 of the Depository Institu-
tions Deregulation and Monetary Control Act of 1980 (12
U.S.C. 1735f–7a) or the Alternative Mortgage Trans-
action Parity Act of 1982 (12 U.S.C. 3801 et seq.).
SEC. 4. CIVIL LIABILITY.
(a) DAMAGES.—Section 130(a) of the Truth in Lend-
ing Act (15 U.S.C. 1640(a)) is amended—
(1) by striking ‘‘and’’ at the end of paragraph
(2)(B);
(2) by striking the period at the end of para-
graph (3) and inserting ‘‘; and’’; and
(3) by inserting after paragraph (3) the follow-
ing new paragraph:
‘‘(4) in case of a failure to comply with any re-
quirement under section 129, all finance charges and
fees.’’.
(b) STATE ATTORNEY GENERAL ENFORCEMENT.—
Section 130(e) of the Truth in Lending Act (15 U.S.C.
1640(e)) is amended by adding at the end the following:
‘‘An action to enforce a violation of section 129 may also
be brought by the appropriate State attorney general in
a court of competent jurisdiction, within 5 years after the
date on which the violation occurs.’’.
(c) ASSIGNEE LIABILITY.—Section 131 of the Truth
in Lending Act (15 U.S.C. 1641) is amended by adding
at the end the following new subsection:
‘‘(d) HIGH COST MORTGAGES.—
‘‘(1) IN GENERAL.—In addition to any other li-
ability imposed under this title, any person who pur-
chases or is otherwise assigned a high cost mortgage
shall be subject to all claims and defenses with re-
spect to the mortgage that the consumer could as-
sert against the creditor of the mortgage.
‘‘(2) DAMAGES.—Relief under this subsection
shall be limited to the sum of—
‘‘(A) an offset of all remaining indebted-
ness; and
‘‘(B) the total amount paid by the
consumer in connection with the transaction.
‘‘(3) NOTICE.—Any person who sells or other-
wise assigns a high cost mortgage shall include a
prominent notice of the potential liability under this
subsection as determined by the Board.’’.
SEC. 5. EFFECTIVE DATE.
This Act shall be effective 60 days after the promul-
gation of regulations by the Board of Governors of the
Federal Reserve System, which shall occur not later than
180 days following the date of enactment of this Act.
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