[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 1299 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                S. 1299

    To establish on behalf of consumers a fiduciary duty and other 
    standards of care for mortgage brokers and originators, and to 
 establish standards to assess a consumer's ability to repay, and for 
                            other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 3, 2007

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

_______________________________________________________________________

                                 A BILL


 
    To establish on behalf of consumers a fiduciary duty and other 
    standards of care for mortgage brokers and originators, and to 
 establish standards to assess a consumer's ability to repay, 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 ``Borrower's Protection Act of 2007''.

SEC. 2. MORTGAGE ORIGINATOR REQUIREMENTS.

    The Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by 
inserting after section 129 the following new section:

``SEC. 129A. DUTIES OF MORTGAGE ORIGINATORS.

    ``(a) Definitions.--As used in this section--
            ``(1) the term `home mortgage loan' means an extension of 
        credit secured by or to be secured by a security interest in 
        the principal dwelling of the obligor;
            ``(2) the term `mortgage broker' means a person who, for 
        compensation or in anticipation of compensation, arranges or 
        negotiates, or attempts to arrange or negotiate, home mortgage 
        loans or commitments for such loans, or refers applicants or 
        prospective applicants to creditors, or selects or offers to 
        select creditors to whom requests for credit may be made;
            ``(3) the term `mortgage originator' means--
                    ``(A) any creditor or other person, including a 
                mortgage broker, who, for compensation or in 
                anticipation of compensation, engages either directly 
                or indirectly in the acceptance of applications for 
                home mortgage loans, solicitation of home mortgage 
                loans on behalf of borrowers, negotiation of terms or 
                conditions of home mortgage loans on behalf of 
                borrowers or lenders, or negotiation of sales of 
                existing home mortgage loans to institutional or non-
                institutional lenders; and
                    ``(B) any employee or agent of a creditor or person 
                described in subparagraph (A);
            ``(4) the term `qualifying bond' means a bond equal to not 
        less than 1 percent of the aggregate value of all homes 
        appraised by an appraiser of real property in connection with a 
        home mortgage loan in the calendar year preceding the date of 
        the transaction, with respect to which--
                    ``(A) the bond shall inure first to the benefit of 
                the homeowners who have claims against the appraiser 
                under this title or any other applicable provision of 
                law, and second to the benefit of originating creditors 
                that complied with their duty of good faith and fair 
                dealing in accordance with this title; and
                    ``(B) any assignee or subsequent transferee or 
                trustee shall be a beneficiary of the bond, only if the 
                originating creditor qualified for such treatment; and
            ``(5) the term `rate spread mortgage transaction' means a 
        home mortgage loan that has an annual percentage rate of 
        interest that equals or exceeds the rate that would require 
        reporting under the Home Mortgage Disclosure Act (12 U.S.C. 
        2801 et seq.) as a rate spread loan, without regard to whether 
        such loan is otherwise subject to the Home Mortgage Disclosure 
        Act.
    ``(b) Standard of Care.--
            ``(1) Fiduciary relationship.--In the case of a home 
        mortgage loan, the mortgage broker shall be deemed to have a 
        fiduciary relationship with the consumer, and each such 
        mortgage broker shall be subject to all requirements for 
        fiduciaries otherwise applicable under State or Federal law.
            ``(2) Fair dealing.--Each mortgage originator shall, in 
        addition to the duties imposed by otherwise applicable 
        provisions of State or Federal law, with respect to each home 
        mortgage loan in which the mortgage originator is involved--
                    ``(A) act with reasonable skill, care, and 
                diligence; and
                    ``(B) act in good faith and with fair dealing in 
                any transaction, practice, or course of business 
                associated with the transaction.
    ``(c) Assessment of Ability to Repay.--
            ``(1) In general.--Each mortgage originator shall, before 
        entering into or otherwise facilitating any home mortgage loan, 
        verify the reasonable ability of the borrower to pay the 
        principal and interest on the loan, and any real estate taxes 
        and homeowners insurance fees and premiums.
            ``(2) Variable mortgage rates.--In the case of a home 
        mortgage loan with respect to which the applicable rate of 
        interest may vary, for purposes of paragraph (1), the ability 
        to pay shall be determined based on the maximum possible 
        monthly payment that could be due from the borrower during the 
        first 7 years of the loan term, which amount shall be 
        calculated by--
                    ``(A) using the maximum interest rate allowable 
                under the loan; and
                    ``(B) assuming no default by the borrower, a 
                repayment schedule which achieves full amortization 
                over the life of the loan.
            ``(3) Required verification documents.--
                    ``(A) In general.--For purposes of paragraph (1), a 
                mortgage originator shall base a determination of the 
                ability to pay on--
                            ``(i) documentation of the income and 
                        financial resources of the borrower, including 
                        tax returns, payroll receipts, bank records, or 
                        other similarly reliable documents; and
                            ``(ii) the debt-to-income ratio and 
                        residual income of the borrower, as determined 
                        under section 36.4337 of title 38 of the Code 
                        of Federal Regulations, or any successor 
                        thereto.
                    ``(B) Limitation.--A statement provided by the 
                borrower of the income and financial resources of the 
                borrower, without other documentation referred to in 
                this paragraph, is not sufficient verification for 
                purposes of assessing the ability of the consumer to 
                pay.
    ``(d) Rate Spread Mortgages.--
            ``(1) Escrow account required.--In the case of a rate 
        spread mortgage transaction, the obligor shall be required to 
        make monthly payments into an escrow account established by the 
        mortgage originator for the purpose of paying taxes, hazard 
        insurance premiums, and, if applicable, flood insurance 
        premiums.
            ``(2) Exception.--This paragraph does not apply in any case 
        in which the mortgage originator reasonably believes that, 
        following the loan closing, the obligor will be required, or 
        will continue to be required, to make escrow payments described 
        in paragraph (1) on the property securing the loan in 
        connection with another loan secured by the same property.
            ``(3) Lender and broker liability.--In any case in which a 
        mortgage broker sells or delivers a rate spread mortgage loan 
        to a lender, the lender shall be liable for the acts, 
        omissions, and representations made by the mortgage broker in 
        connection with that mortgage loan.
    ``(e) Steering Prohibited.--
            ``(1) In general.--In connection with a home mortgage loan, 
        a mortgage originator may not steer, counsel, or direct a 
        consumer to rates, charges, principal amount, or prepayment 
        terms that are not reasonably advantageous to the consumer, in 
        light of all of the circumstances associated with the 
        transaction, including the characteristics of the property that 
        secures or will secure the extension of credit and the loan 
        terms for which the consumer qualifies.
            ``(2) Duties to consumers.--If unable to suggest, offer, or 
        recommend to a consumer a reasonably advantageous home loan, a 
        mortgage originator shall--
                    ``(A) based on the information reasonably available 
                and using the skill, care, and diligence reasonably 
                expected for a mortgage originator, originate or 
                otherwise facilitate a reasonably advantageous home 
                mortgage loan by another creditor to a consumer, if 
                permitted by and in accordance with all otherwise 
                applicable law; or
                    ``(B) disclose to a consumer--
                            ``(i) that the creditor does not offer a 
                        home mortgage loan that would be reasonably 
                        advantageous to a consumer, but that other 
                        creditors may offer such a loan; and
                            ``(ii) the reasons that the products and 
                        services offered by the mortgage originator are 
                        not available to or reasonably advantageous for 
                        the consumer.
            ``(3) Prohibited conduct.--In connection with a home 
        mortgage loan, a mortgage originator may not--
                    ``(A) mischaracterize the credit history of a 
                consumer or the home loans available to a consumer;
                    ``(B) mischaracterize or suborn mischaracterization 
                of the appraised value of the property securing the 
                extension of credit; or
                    ``(C) if unable to suggest, offer, or recommend to 
                a consumer a reasonably advantageous home mortgage 
                loan, discourage a consumer from seeking a home 
                mortgage loan from another creditor or with another 
                mortgage originator.
            ``(4) Rule of construction.--Nothing in this subsection 
        shall be deemed to prohibit a mortgage originator from 
        providing a consumer with accurate, unbiased, general 
        information about home mortgage loans, underwriting standards, 
        ways to improve credit history, or any other matter relevant to 
        a consumer.
    ``(f) Good Faith and Fair Dealing in Appraisal Process.--
            ``(1) In general.--No mortgage originator may enter into a 
        home mortgage loan with respect to which the mortgage 
        originator has reason to believe that, with respect to the 
        appraisal of the value of the property securing the loan--
                    ``(A) the appraiser failed to act in good faith and 
                fair dealing with respect to the consumer in connection 
                with the appraisal;
                    ``(B) the appraisal was conducted other than in 
                accordance with all applicable State and Federal 
                standards required of certified appraisers, or was 
                otherwise not accurate and reasonable;
                    ``(C) the appraiser had a direct or indirect 
                interest in the property or the transaction;
                    ``(D) the appraiser charged, sought, or received 
                compensation for the appraisal, and the appraisal was 
                not covered by a qualifying bond; or
                    ``(E) the appraisal order or any other 
                communication in any form includes the requested loan 
                amount or any estimate of value for the property to 
                serve as collateral, either express or implied.
            ``(2) Prohibited influence.--No mortgage originator may, 
        with respect to a home mortgage loan, in any way--
                    ``(A) seek to influence an appraiser or otherwise 
                to encourage a targeted value in order to facilitate 
                the making or pricing of the home mortgage loan; or
                    ``(B) select an appraiser on the basis of an 
                expectation that such appraiser would provide a 
                targeted value in order to facilitate the making or 
                pricing of the home mortgage loan.
            ``(3) Limitation on defenses.--It shall not be a defense to 
        enforcement of the requirements of this subsection that the 
        mortgage originator used another person in the appraisal 
        process or to review the appraisal process.
            ``(4) Notice of appraisal.--In any case in which an 
        appraisal is performed in connection with a home mortgage loan, 
        the mortgage originator shall provide a copy of the appraisal 
        report to an applicant for a home mortgage loan, whether credit 
        is granted, denied, or the application was withdrawn.''.

SEC. 3. CONFORMING AND CLERICAL AMENDMENTS.

    The Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended--
            (1) in section 103(u) (15 U.S.C. 1602(u)), by striking 
        ``disclosures required by section 129(a)'' and inserting 
        ``provisions of section 129 and 129A'';
            (2) in section 130 (15 U.S.C. 1640) by inserting ``or 
        129A'' after ``section 129'' each place that term appears; and
            (3) in the table of sections for chapter 2 (15 U.S.C. 1631 
        et seq.), by inserting after the item relating to section 129 
        the following:

``129A. Duties of mortgage originators.''.
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