[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 380 Introduced in House (IH)]







104th CONGRESS
  1st Session
                                H. R. 380

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

                            January 4, 1995

  Mr. Towns introduced the following bill; which was referred to the 
              Committee on Banking and Financial Services

_______________________________________________________________________

                                 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 Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Home Ownership and Equity Protection 
Act of 1995''.

SEC. 2. CONSUMER PROTECTIONS FOR HIGH COST MORTGAGES.

    (a) Definition.--Section 103 of the Truth in Lending Act (15 U.S.C. 
1602) is amended--
            (1) by inserting after subsection (u) the following new 
        subsection:
    ``(v) The term `high cost mortgage' means a consumer credit 
transaction, other than a residential mortgage transaction or a 
transaction under an open-end credit plan, that is secured by a 
consumer's principal dwelling and that satisfies at least 1 of the 
following conditions:
            ``(1) The annual percentage rate at the time the loan is 
        originated will exceed by more than 10 percentage points the 
        yield on Treasury securities having comparable maturities, as 
        determined by the Board. In the case of a variable rate loan 
        with an initial interest rate that may be different than the 
        rate or rates that will apply during subsequent periods, the 
        annual percentage rate shall be computed taking into account 
        the subsequent rates.
            ``(2) Based on information provided by the consumer, the 
        consumer's total monthly debt payments will exceed 60 percent 
        of the consumer's monthly gross income, immediately after the 
        loan is consummated. The Board may establish a different debt 
        to income ratio if the Board determines that such a ratio is in 
        the public interest and is consistent with the purposes of this 
        Act.
            ``(3) All points and fees payable at or before closing will 
        exceed 8 percent of the total loan amount.''; and
            (2) by redesignating subsections (v), (w), (x), (y), and 
        (z) as (w), (x), (y), (z), and (aa), respectively.
    (b) Material Disclosures.--Section 103(u) of the Truth in Lending 
Act (15 U.S.C. 1602(u)) is amended by striking ``and the due dates or 
periods of payments scheduled to repay the indebtedness.'' and 
inserting ``the due dates or periods of payments scheduled to repay the 
indebtedness, and the disclosures for high cost mortgages required by 
paragraphs (1) through (6) of section 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: 
``Notwithstanding the above, any person who originates 2 or more high 
cost mortgages a year, or who originates a high cost mortgage through a 
loan broker, is a creditor for the 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 adding after 
section 128 the following new section:

``SEC. 129. REQUIREMENTS FOR HIGH COST MORTGAGES.

    ``(a) Disclosures.--In addition to any other disclosures required 
under this title, for each high cost mortgage, the creditor shall 
provide the following written disclosures in clear language and in 
conspicuous type size and format, segregated from other information as 
a separate 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 income, as reported 
        to the creditor by the consumer, 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 statement that 
        the annual percentage rate and the monthly payment 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 period 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 required to 
        complete the transaction merely because he or she has received 
        disclosures or signed a loan application.
    ``(b) Time of Disclosures.--The disclosures required by this 
section shall be given no later than 3 business days prior to 
consummation of the transaction. A creditor may not change the terms of 
the loan after providing the disclosures required by this section.
    ``(c) No Prepayment Penalty.--
            ``(1) In general.--Except as provided in paragraph (4), 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 of a high cost mortgage prior to the date on which 
        such balance is due.
            ``(2) Rebate computation.--For the purposes of this 
        subsection, any method of computing rebates of interest less 
        advantageous to the consumer than the actuarial method using 
        simple interest is deemed a prepayment 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.
            ``(4) Exception.--A high cost mortgage may include terms 
        under which a consumer is required to pay not more than 1 
        month's interest as a penalty if the consumer prepays the full 
        principal of the loan within 90 days of origination.
    ``(d) No Balloon Payments.--A high cost mortgage 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 outstanding 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.''.
    (e) Conforming Amendment.--The table of sections at the beginning 
of chapter 2 of the Truth in Lending Act is amended by striking the 
item relating to section 129 and inserting the following:

``129. Disclosure requirements for high cost mortgages.''.

SEC. 3. CIVIL LIABILITY.

    (a) Damages.--Section 130(a) of the Truth in Lending 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 paragraph (3) and 
        inserting ``; and''; and
            (3) by inserting after paragraph (3) the following new 
        paragraph:
            ``(4) in case of a failure to comply with any requirement 
        under section 129, all finance charges and fees paid by the 
        consumer.''.
    (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 any 
appropriate United States district court, or any other court of 
competent jurisdiction, within 5 years from the date on which the 
violation occurs.''.
    (c) Assignee Liability.--Section 131 of the Truth in Lending Act is 
amended by adding at the end the following new subsection:
    ``(d) High Cost Mortgages.--If a creditor fails to comply with any 
of the requirements of section 129 in connection with any high cost 
mortgage, any assignee shall be subject to all claims and defenses that 
the consumer could assert against the creditor. Recovery under this 
subsection shall be limited to the total amount paid by the consumer in 
connection with the transaction.''.

SEC. 4. EFFECTIVE DATE.

    This Act shall be effective 60 days after the promulgation 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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