1.Short
title; table of contents
(a)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)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.
2.
(a)Chapter 63 of title
18, United States Code, is amended by adding at the end the following:
1351.
(a)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)
(1)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)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)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)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)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)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)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)Section 3293(2) of title 18, United States Code, is
amended by striking or 1343
and inserting , 1343, or
1351
.
3.Mandatory
reporting requirements
(a)Definition of
financial institutionSection 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)
(1)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)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 appropriationsThere are authorized to be appropriated such
sums as are necessary to implement the regulations issued under subsection
(b).
4.Law enforcement
and industry communication
(a)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 appropriationsThere are authorized to be appropriated such
sums as are necessary to establish and maintain the system required under
subsection (a).
5.Debarred or
censured mortgage professional database
(a)
(1)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 boardsAny 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 boardNot 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)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 liabilityAny 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)
(1)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)An officer, agent, or employee injured by a violation of
paragraph (1) may, in a civil action, obtain appropriate relief.
(d)Authorization
of appropriationsThere are
authorized to be appropriated such sums as are necessary to establish and
maintain the database required under subsection (a).
6.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)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)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)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)
(A)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)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 appropriationsThere are authorized to be appropriated
$25,000,000, to implement the provisions of this
subsection.
.
7.State appraisal
demonstration projects
(a)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)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 fraudIn 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 appropriationsThere are
authorized to be appropriated $10,000,000, to implement the provisions of this
section.
8.Law enforcement
grants to State and local law enforcement agencies
(a)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)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 appropriationsThere are
authorized to be appropriated $40,000,000, to implement the provisions of this
section.
9.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.
10.Additional
rights of borrowers
(a)Borrowers
rights in foreclosure proceedings
(1)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)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)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 lawNo 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)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)As
used in this section:
(1)The term home loan
means a loan secured by a
mortgage or lien on residential property.
(2)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)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)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.
11.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.