[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 1222 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                S. 1222

  To stop mortgage transactions which operate to promote fraud, risk, 
         abuse, and under-development, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 25, 2007

 Mr. Obama (for himself and Mr. Durbin) introduced the following bill; 
which was read twice and referred to the Committee on Banking, Housing, 
                           and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  To stop mortgage transactions which operate to promote fraud, risk, 
         abuse, and under-development, 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; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Stopping Mortgage 
Transactions which Operate to Promote Fraud, Risk, Abuse, and 
Underdevelopment Act'' or the ``STOP FRAUD Act''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Mortgage fraud.
Sec. 3. Mandatory reporting requirements.
Sec. 4. Law enforcement and industry communication.
Sec. 5. Debarred or censured mortgage professional database.
Sec. 6. Housing counseling.
Sec. 7. State appraisal demonstration projects.
Sec. 8. Law enforcement grants to State and local law enforcement 
                            agencies.
Sec. 9. Additional DOJ funding.
Sec. 10. Additional rights of borrowers.
Sec. 11. Report to Congress.

SEC. 2. MORTGAGE FRAUD.

    (a) In General.--Chapter 63 of title 18, United States Code, is 
amended by adding at the end the following:
``Sec. 1351. Mortgage fraud
    ``(a) In General.--It shall be unlawful for any mortgage 
professional to knowingly execute, or attempt to execute, a scheme or 
artifice--
            ``(1) to defraud any natural person, financial institution, 
        or purchaser of consumer credit or an interest in consumer 
        credit in connection with the offer or extension of consumer 
        credit (as such term is defined in subsections (e) and (h) 
        under section 103 of the Truth in Lending Act (15 U.S.C. 
        1602(e) and (h))), which credit is, is to be, or is portrayed 
        as being secured by an interest--
                    ``(A) in real property; or
                    ``(B) in personal property used or expected to be 
                used as the principal dwelling (as such term is defined 
                under section 103(v) of the Truth in Lending Act (15 
                U.S.C. 1602(v))) of the natural person to whom such 
                consumer credit is offered or extended; or
            ``(2) to obtain, by means of false or fraudulent pretenses, 
        representations, or promises, any money or property, including 
        without limitation in the form of fees or charges, from a 
        natural person in connection with an extension of consumer 
        credit which is, is to be, or is portrayed as being secured by 
        an interest--
                    ``(A) in real property; or
                    ``(B) in personal property used or expected to be 
                used as the principal dwelling of such natural person;
    ``(b) Penalties.--
            ``(1) Criminal penalties.--Any mortgage professional who 
        violates subsection (a) shall be fined not more than 
        $5,000,000, or imprisoned not more than 35 years, or both.
            ``(2) Civil penalties.--Any mortgage professional who 
        violates subsection (a) shall be liable for an amount equal to 
        the sum of all finance charges and fees paid or payable by the 
        natural person, financial institution, or purchaser who was 
        defrauded unless the mortgage professional demonstrates that 
        such violation is not material.
    ``(c) Private Right of Action by Persons Aggrieved.--
            ``(1) In general.--Any person aggrieved by a violation of 
        this section, or any regulation under this section may, but 
        shall not be required to, file suit in any district court of 
        the United States or any State court having jurisdiction of the 
        parties to such suit--
                    ``(A) without respect to the amount in controversy;
                    ``(B) without regard to the citizenship of the 
                parties; and
                    ``(C) without regard to exhaustion of any 
                administrative remedies.
            ``(2) Remedies.--Any court in which a civil action has been 
        brought under paragraph (1) may--
                    ``(A) award damages and appropriate declaratory and 
                injunctive relief for each violation of this section; 
                and
                    ``(B) provide such additional relief as the court 
                deems appropriate, including the award of court costs, 
                investigative costs, and reasonable attorneys' fees 
                incurred by persons aggrieved.
    ``(d) Rule of Construction.--Nothing in this section shall be 
construed to modify, lessen, or otherwise affect any other provision of 
this title relating to the rights afforded to financial institutions or 
purchasers of consumer credit or interests in consumer credit.
    ``(e) Definition.--As used in this section, the term `mortgage 
professional' includes real estate appraisers, real estate accountants, 
real estate attorneys, real estate brokers, mortgage brokers, mortgage 
underwriters, mortgage processors, mortgage settlement companies, 
mortgage title companies, mortgage loan originators, and any other 
provider of professional services engaged in the mortgage process.''.
    (b) Table of Sections.--The table of sections for chapter 63 of 
title 18, United States Code, is amended by inserting after the item 
relating to section 1350 the following:

``1351. Mortgage fraud.''.
    (c) Conforming Amendment.--Section 3293(2) of title 18, United 
States Code, is amended by striking ``or 1343'' and inserting ``, 1343, 
or 1351''.

SEC. 3. MANDATORY REPORTING REQUIREMENTS.

    (a) Definition of Financial Institution.--Section 5312(a)(2)(U) of 
title 31, United States Code, is amended by--
            (1) inserting ``companies and other legal entities'' after 
        ``persons'';
            (2) inserting ``, transactions,'' after ``closings''; and
            (3) inserting after ``settlements'' the following: ``, 
        including the Federal National Mortgage Association, the 
        Government National Mortgage Association, the Federal Home Loan 
        Mortgage Corporation, mortgage appraisers, real estate 
        accountants, real estate attorneys, real estate brokers, 
        mortgage underwriters, mortgage processors, mortgage settlement 
        and title companies, mortgage brokers, mortgage loan 
        originators, and any other mortgage professional engaged in the 
        mortgage industry''.
    (b) Regulations.--
            (1) In general.--Not later than 1 year after the date of 
        enactment of this Act, the Secretary of the Treasury shall 
        issue regulations to implement the amendments made in 
        subsection (a).
            (2) Content of regulation.--A regulation required under 
        paragraph (1) shall--
                    (A) include a requirement that any suspicious 
                activity by an individual or entity described in 
                section 5312(a)(2)(U) of title 31, United States Code, 
                be reported to the Secretary of the Treasury; and
                    (B) ensure compliance by an individual or entity 
                described in such section with the requirement 
                described under subparagraph (A), while simultaneously 
                seeking to avoid any unnecessary duplication of 
                paperwork or other administrative details.
    (c) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as are necessary to implement the regulations 
issued under subsection (b).

SEC. 4. LAW ENFORCEMENT AND INDUSTRY COMMUNICATION.

    (a) In General.--Not later than 18 months after the date of 
enactment of this Act, the Attorney General, in consultation with the 
Secretary of the Treasury, shall establish a system by which mortgage 
brokers, lenders, title company employees, mortgage appraisers, 
securities and bond rating agencies, and other authorized mortgage 
professionals may register and receive updates from Federal law 
enforcement agencies on--
            (1) suspicious activity trends in the mortgage industry; 
        and
            (2) mortgage fraud-related convictions.
    (b) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as are necessary to establish and maintain the 
system required under subsection (a).

SEC. 5. DEBARRED OR CENSURED MORTGAGE PROFESSIONAL DATABASE.

    (a) Establishment.--
            (1) In general.--Not later than 18 months after the date of 
        enactment of this Act, the Attorney General shall establish a 
        Debarred or Censured Mortgage Professional Database that may be 
        accessed by authorized depository institutions, mortgage 
        lenders, mortgage professionals, securities and bond rating 
        agencies, and consumers to determine the Federal and State bar 
        status of mortgage professionals regulated by any Federal or 
        State agency.
            (2) Private certification boards.--Any widely accepted 
        private certification board shall have authority to access, 
        maintain, and update the Debarred or Censured Mortgage 
        Professional Database established in paragraph (1) for purposes 
        of adding or removing the information of any mortgage 
        professional contained in such Database.
            (3) Widely accepted private certification board.--Not later 
        than 18 months after the date of enactment of this Act, the 
        Attorney General, in consultation with the Secretary of the 
        Treasury, shall--
                    (A) determine the definition of the term ``widely 
                accepted private certification board''; and
                    (B) issue procedures and guidance on how officers, 
                agents, and employees of such boards shall conduct the 
                responsibilities described in paragraph (2).
            (4) Public availability.--The Attorney General shall make 
        the Debarred or Censured Mortgage Professional Database 
        established in paragraph (1) available to the public on the 
        Internet, without fee or other access charge, in a searchable, 
        sortable, and downloadable manner.
    (b) Immunity From Civil Liability.--Any officer, agent, or employee 
of a widely accepted private certification board, who in good faith 
follows the procedures and guidance set forth under subsection 
(a)(3)(B), shall not be liable in any court of any State or the United 
States to any mortgage professional or other person--
            (1) for carrying out the responsibilities described in 
        subsection (a)(2); or
            (2) for nondisclosure to that mortgage professional or 
        other person that such conduct occurred.
    (c) Whistleblower Protection.--
            (1) In general.--No officer, agent, or employee of a widely 
        accepted private certification board may be discharged, 
        demoted, threatened, suspended, harassed, or in any other 
        manner discriminated against in the terms and conditions of the 
        employment of such officer, agent, or employee because of any 
        lawful act done by such officer, agent, or employee to provide 
        information, cause information to be provided, or otherwise 
        assist in an investigation regarding any--
                    (A) possible violation of this section, including 
                not following the procedures and guidance set forth 
                under subsection (a)(3)(B); or
                    (B) other misconduct, by any other officer, agent, 
                or employee of the board.
            (2) Civil action.--An officer, agent, or employee injured 
        by a violation of paragraph (1) may, in a civil action, obtain 
        appropriate relief.
    (d) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as are necessary to establish and maintain the 
database required under subsection (a).

SEC. 6. HOUSING COUNSELING.

    Section 106 of the Housing and Urban Development Act of 1968 (12 
U.S.C. 1701x), is amended by adding at the end the following:
    ``(g) Counseling for Mortgage Fraud.--
            ``(1) In general.--The Secretary is authorized to provide, 
        or contract with public or private organizations to provide, 
        information, advice, counseling, and technical assistance to 
        tenants, homeowners, and other consumers with respect--
                    ``(A) to mortgage fraud, as such activity is 
                described in section 1351 of title 18, United States 
                Code; and
                    ``(B) to any other activities or practices that the 
                Secretary determines are likely to increase the risk of 
                foreclosure by such individuals.
            ``(2) Preferences.--In distributing any funds authorized 
        under paragraph (5), the Secretary shall give preference to--
                    ``(A) organizations in those States with the 
                highest rates of mortgage fraud, as such rates are 
                determined by--
                            ``(i) the Director of the Federal Bureau of 
                        Investigation; and
                            ``(ii) mortgage industry statistics;
                    ``(B) those nonprofit organizations--
                            ``(i) approved by the Secretary under 
                        subsection (d); and
                            ``(ii) that--
                                    ``(I) are experienced in the 
                                provision of prepurchase and 
                                foreclosure-prevention counseling; and
                                    ``(II) have a demonstrated record 
                                of success in the provision of such 
                                counseling services; and
                    ``(C) organizations that provide--
                            ``(i) in-person prepurchase and 
                        foreclosure-prevention counseling; and
                            ``(ii) a brief assessment and review of the 
                        financial mortgage documents of a tenant, 
                        homeowner, or other consumer.
            ``(3) Duties of the secretary.--The Secretary shall--
                    ``(A) monitor, record, track, and evaluate the 
                performance of each public or private organization that 
                is a recipient of a grant under subsection (a); and
                    ``(B) make each evaluation under subparagraph (A) 
                available to the public on the Internet, without fee or 
                other access charge, in a searchable, sortable, and 
                downloadable manner.
            ``(4) Report.--
                    ``(A) In general.--Each public or private 
                organization that is a recipient of a grant under 
                subsection (a) shall report to the Secretary, on a 
                quarterly basis, on any instances or occurrences of 
                fraud or deceptive practices by mortgage professionals 
                uncovered in the course of providing the prepurchase 
                and foreclosure-prevention counseling required under 
                this section.
                    ``(B) Use by the secretary.--Based upon the reports 
                submitted under subparagraph (A), the Secretary shall--
                            ``(i) identify and evaluate trends in the 
                        use and frequency of fraud or deceptive 
                        practices in the mortgage industry;
                            ``(ii) identify new fraudulent schemes or 
                        deceptive practices, and forward to the 
                        appropriate Federal law enforcement agency 
                        information relating to such new schemes and 
                        practices; and
                            ``(iii) establish, as needed, new 
                        requirements to train officers, agents, or 
                        employees of any public or private organization 
                        that is a recipient of a grant under subsection 
                        (a) to identify such schemes and practices, 
                        including by providing educational material to 
                        such officers, agents, or employees on such 
                        schemes and practices.
            ``(5) Authorization of appropriations.--There are 
        authorized to be appropriated $25,000,000, to implement the 
        provisions of this subsection.''.

SEC. 7. STATE APPRAISAL DEMONSTRATION PROJECTS.

    (a) In General.--Not later than 18 months after the date of 
enactment of this Act, the Secretary of Housing and Urban Development 
shall provide grants to State appraisal agencies to improve the 
monitoring and enforcement of housing appraisal regulations in that 
State.
    (b) Application.--Each State appraisal agency seeking a grant under 
this section shall submit an application to the Secretary of Housing 
and Urban Development at such time, in such manner, and containing such 
information as the Secretary may require.
    (c) Preference for States With Higher Incidents of Mortgage 
Fraud.--In distributing any grant amounts authorized under this 
section, the Secretary of Housing and Urban Development shall give 
preference to those States with the highest rates of mortgage fraud, as 
such rates are determined by--
            (1) the Director of the Federal Bureau of Investigation; 
        and
            (2) mortgage industry statistics.
    (d) Authorization of Appropriations.--There are authorized to be 
appropriated $10,000,000, to implement the provisions of this section.

SEC. 8. LAW ENFORCEMENT GRANTS TO STATE AND LOCAL LAW ENFORCEMENT 
              AGENCIES.

    (a) In General.--Not later than 18 months after the date of 
enactment of this Act, the Attorney General shall provide grants to 
assist State and local law enforcement agencies in--
            (1) establishing and improving mortgage fraud task forces; 
        and
            (2) improving communications regarding mortgage fraud cases 
        between such agencies and other Federal, State and local law 
        enforcement agencies.
    (b) Application.--Each State or local law enforcement agency 
seeking a grant under this section shall submit an application to the 
Attorney General at such time, in such manner, and containing such 
information as the Attorney General may require.
    (c) Authorization of Appropriations.--There are authorized to be 
appropriated $40,000,000, to implement the provisions of this section.

SEC. 9. ADDITIONAL DOJ FUNDING.

    In addition to any other amounts otherwise authorized to be 
appropriated under this Act, there are authorized to be appropriated to 
the Attorney General $5,000,000, to increase mortgage fraud 
investigation efforts undertaken by the Department of Justice.

SEC. 10. ADDITIONAL RIGHTS OF BORROWERS.

    (a) Borrowers Rights in Foreclosure Proceedings.--
            (1) In general.--Any creditor making a subprime mortgage 
        related loan who has the legal right to foreclosure shall use 
        the judicial foreclosure procedures, or if no such judicial 
        proceeding exists the appropriate administrative proceeding, of 
        the State where the property securing the loan is located if--
                    (A) the creditor is a party to a home loan contract 
                described in paragraph (3); and
                    (B) the property to be secured is the principal 
                residence (as determined by the Secretary of Housing 
                and Urban Development) of the borrower.
            (2) Affirmative defense.--In any foreclosure proceeding 
        described in paragraph (1), the borrower may assert as an 
        affirmative defense against any party to such contract, or any 
        successor or assignee of such party--
                    (A) that such contract was the result of fraud or 
                deceptive practices and as result of such fraud and 
                deception that the terms of such contract are void; and
                    (B) any other claim or defense to acceleration and 
                foreclosure, including any claim or defense based on a 
                violation of this Act, though no such claim or defense 
                shall be deemed a compulsory counterclaim.
            (3) Home loan contract.--A home loan contract described in 
        paragraph (1) is a contract that--
                    (A) does not include a fully-disclosed statement by 
                the lender that the lending institution or the 
                authorized representative or agent of such institution 
                has evaluated and affirmed the ability of the 
                individual to repay the loan based upon, at minimum, 
                the maximum monthly payments that could be due during 
                the first 7 years of the loan term, which shall be 
                calculated with reference to the maximum interest rate 
                allowable under the loan being offered based on a fully 
                amortizing repayment schedule, taking into account 
                negative amortization and escrows for taxes and 
                insurance;
                    (B) does not contain a statement, the format of 
                which shall be determined by the Secretary of Housing 
                and Urban Development, with a plain language summary 
                providing the borrower with a calculation of--
                            (i) the maximum monthly required minimum 
                        payment the borrower could face under the terms 
                        of the loan for each of the first 10 years of 
                        the loan in order to keep the loan in good 
                        standing, or if the borrower is receiving more 
                        than 1 loan, the same information for each loan 
                        separately and for the total of all of the 
                        loans together; and
                            (ii) how much it would cost the borrower to 
                        pay off the loan at the end of each of the 
                        first 10 years if the borrower makes the 
                        minimum required payments to keep the loan in 
                        good standing;
                    (C) was underwritten based only on the stated 
                income of the individual, without third-party 
                verification of all sources of income and assets of the 
                individual, including by an examination of the 
                individual's tax returns, payroll receipts, bank 
                records, or other reliable documentation; or
                    (D) includes loan prepayment penalties that are 
                applicable for prepayments made beyond 2 years after 
                the loan origination date, beyond the initial interest 
                rate adjustment period stated in such contract, or 
                whichever is less.
    (b) Coordination With Other Law.--No provision of this section 
shall be construed as annulling, altering, affecting, or superseding 
any Federal law, or the laws of any State, relating to foreclosure 
proceedings in connection with home loans, except to the extent that 
those laws are inconsistent with the provisions of this section, and 
then only to the extent of the inconsistency.
    (c) Applicability.--This section shall apply to all home loan 
contracts entered into on, or after the date that is 90 days after the 
date of the enactment of this Act and to all controversies arising 
after such date.
    (d) Definitions.--As used in this section:
            (1) Home loan.--The term ``home loan'' means a loan secured 
        by a mortgage or lien on residential property.
            (2) Residential property.--The term ``residential 
        property'' means a 1-4 family, owner-occupied residence, 
        including a 1-family unit in a condominium project, a 
        membership interest and occupancy agreement in a cooperative 
        housing project, and a manufactured home and the lot on which 
        the home is situated.
            (3) Subprime mortgage related loan.--
                    (A) In general.--The term ``subprime mortgage 
                related loan'' means with respect to a home loan, that 
                the borrower under the loan, or the loan terms, exhibit 
                characteristics that indicate that the loan is subject 
                to a significantly higher risk of default than 
                federally related mortgage loans made to borrowers at 
                prime lending rates.
                    (B) Regulations.--The Secretary of Housing and 
                Urban Development shall prescribe regulations to carry 
                out this paragraph, which shall specify characteristics 
                referred to in subparagraph (A) that indicate a higher 
                risk of default and shall establish criteria based on 
                such characteristics for determining whether a home 
                loan is a subprime loan. Such characteristics shall 
                include--
                            (i) higher loan fees or penalties;
                            (ii) higher interest rates;
                            (iii) higher debt-to-income ratios;
                            (iv) a history of loan delinquency;
                            (v) higher loan-to-value ratios;
                            (vi) lower credit scores or other credit 
                        ratings;
                            (vii) more recent declaration of 
                        bankruptcy;
                            (viii) lack of a credit history;
                            (ix) no-documentation or low-documentation 
                        loan underwriting; and
                            (x) any other factors that the Secretary 
                        considers appropriate.

SEC. 11. REPORT TO CONGRESS.

    Not later than 120 days after the date of enactment of this Act, 
the Comptroller General of the United States shall survey, evaluate, 
and report to Congress on State mortgage lending practices and 
regulations related to--
            (1) mortgage fraud and deception;
            (2) predatory lending practices relating to mortgages; and
            (3) foreclosure prevention and homeownership preservation 
        programs offered by each State.
                                 <all>