Short title

This Act may be cited as the

Mortgage Credit Repair Act of 2008

Findings

The Congress finds as follows: (1)The United States housing bubble effectively burst towards the end of 2005, when default rates on subprime and adjustable rate mortgages increased dramatically. (2)Mortgages with negative amelioration or any other lending mechanism for which the loan payment on principal for any period is less than the interest charged over that period for some substantial period of time have high default and foreclosure rates. (3)Mortgages in which there are incidences of fraud or lender misconduct have high foreclosure rates, including those in which— (A)a mortgage was obtained despite the lender fraudulently encouraging or requiring the borrower to falsify or omit information which was then used to call back the loan and leading to foreclosure; (B)a mortgage was obtained despite the failure by the lender to give the borrower proper documentation, including Good Faith Requirements and Truth-in-Lending Disclosures; (C)a mortgage was obtained despite occasions where the borrower was given incomplete forms to sign, with the required information added by the lender after the borrower’s signature was obtained; and (D)a mortgage was obtained despite having terms which was substantially or wholly different at closing than what was previously agreed to. (4)Standard, qualifying front-end debt ratios, that is the monthly cost of a mortgage principal, interest, taxes, and insurance (PITI) against the gross monthly income of the borrower have historically been approximately 28%, increasing for those with stellar credit histories. (5)However, many foreclosures and mortgage-related bankruptcies involve borrowers who were given mortgages with flat or adjustable rates that caused front-end ratios well over 36% in many cases. (6)The effects of foreclosure or a resulting bankruptcy can have a negative impact on an individual’s credit history for up to 7 years (10 years for bankruptcy) for purchases under $150,000 with related effects, and effects for purchases over $150,000 lasting much longer. (7)Borrowers who unknowingly obtained bad, improper or fraudulent mortgages which subsequently led to foreclosure, should be given the opportunity to rebuild their credit in a responsible way without the substantial and lingering effects of foreclosure outweighing present and past responsible borrowing practices.

Amendment to definitions

Section 603 of the Fair Credit Reporting Act (U.S.C. 1681a) is amended by adding at the end the following new subsection:

Front end ratio

The term front end ratio means a ratio that indicates what portion of an individual's income is used to make mortgage payments, calculated by dividing an individual’s gross monthly income by their housing expenses, particularly the mortgage principal, interest, taxes, and insurance (PITI).

Special circumstance relief

Section 605(a) of the Fair Credit Reporting Act (U.S.C. 1681c(a)) is amended— (1)by redesignating paragraphs (2), (3), (4), (5), and (6) as paragraphs (3), (4), (5), (7), and (8), respectively; (2)by inserting after paragraph (1) the following new paragraph:

(2)Cases under title 11 or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of the adjudication, as the case may be, antedate the report by more than 3 years when each of the following are met: (A)During a period not less than 6 months prior to and continuing through the time that the bankruptcy is filed, a consumer’s front-end debt ratio on a mortgage instrument originated or refinanced on or after January 1, 2003, was 37% or higher. (B)The consumer filed for bankruptcy no earlier than January 1, 2004. (C)The consumer has not disputed the accuracy of their report under paragraph (6) during the period beginning January 1, 2004. (D)The consumer notifies the consumer reporting agency directly and is able to submit documentation to verify the above before March 31, 2009.

; and

(3)by inserting after paragraph (5) the following new paragraph:

(6)Any adverse information excluding bankruptcy, but including closed accounts, accounts in collections, accounts charged to profit or loss, repossessions, and foreclosures, shall be excluded if all of the following circumstances have occurred: (A)The adverse information in the consumer’s report was for new accounts and transactions added after the first payment due date on the consumer’s mortgage note, where the front end ratio then became 37% or higher, but not earlier than January 1, 2004. (B)The adverse information in the consumer’s report was not added more than 6 months after a foreclosure on that consumer’s primary residence or March 31, 2009, whichever is earlier. (C)The consumer notifies the consumer reporting agency directly of their intent to seek relief under this paragraph and is able to provide proper documentation and verification before March 31, 2009.

Conforming amendment

Subsection (b) of section 605 of the Fair Credit Reporting Act (U.S.C. 1681c(b)) is amended (in the matter preceding paragraph (1)) by striking paragraphs (1) through (5) and inserting paragraphs (1), (3), (4), (5), and (7).