[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1782 Introduced in House (IH)]

111th CONGRESS
  1st Session
                                H. R. 1782

  To amend the Truth in Lending Act to protect consumers from certain 
    practices in connection with the origination of consumer credit 
  transactions secured by the consumer's principal dwelling, and for 
                            other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             March 30, 2009

 Mr. Ellison introduced the following bill; which was referred to the 
                    Committee on Financial Services

_______________________________________________________________________

                                 A BILL


 
  To amend the Truth in Lending Act to protect consumers from certain 
    practices in connection with the origination of consumer credit 
  transactions secured by the consumer's principal dwelling, 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 ``Fairness for Homeowners Act of 
2009''.

SEC. 2. ORIGINATIONS OF CONSUMER CREDIT TRANSACTIONS SECURED BY THE 
              CONSUMER'S PRINCIPAL DWELLING.

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

``SEC. 129B. ORIGINATIONS OF CONSUMER CREDIT TRANSACTIONS SECURED BY 
              THE CONSUMER'S PRINCIPAL DWELLING.

    ``(a) Definitions.--For purposes of this section, the following 
definitions shall apply:
            ``(1) Fully indexed rate.--The term `fully indexed rate' 
        means the index rate prevailing at the time a consumer credit 
        transaction secured by a consumer's principal dwelling is 
        originated, plus the margin that will apply after the 
        expiration of an introductory interest rate.
            ``(2) Mortgage broker.--The term `mortgage broker' means 
        any person who is defined as a mortgage broker under applicable 
        State law.
    ``(b) Requirements for Originators.--
            ``(1) Ability to pay.--
                    ``(A) In general.--No creditor or mortgage broker 
                may make, provide, or arrange for any consumer credit 
                transaction secured by a consumer's principal dwelling 
                without verifying the consumer's reasonable ability to 
                pay the scheduled payments of the following, as 
                applicable:
                            ``(i) Principal.
                            ``(ii) Interest.
                            ``(iii) Real estate taxes.
                            ``(iv) Homeowner's insurance, assessments, 
                        and mortgage insurance premiums.
                    ``(B) Variable interest rate.--In the case of any 
                consumer credit transaction secured by a consumer's 
                principal dwelling for which the applicable annual 
                percentage rate may vary over the life of the credit, 
                the reasonable ability to pay shall be determined, for 
                purposes of this paragraph, on the basis of a fully 
                indexed rate plus 200 basis points and a repayment 
                schedule which achieves full amortization over the life 
                of the extension of credit.
                    ``(C) Verification of consumer income and financial 
                resources.--
                            ``(i) In general.--In the case of any 
                        consumer credit transaction secured by a 
                        consumer's principal dwelling, the income and 
                        financial resources of the consumer shall be 
                        verified for purposes of this paragraph by tax 
                        returns, payroll receipts, bank records, or 
                        other similarly reliable documents.
                            ``(ii) Consumer statement insufficient.--A 
                        statement by a consumer of the consumer's 
                        income or financial resources shall not be 
                        sufficient to establish the existence of any 
                        income or financial resources when verifying 
                        the reasonable ability of the consumer to repay 
                        any consumer credit transaction secured by the 
                        consumer's principal dwelling, for purposes of 
                        this paragraph.
                    ``(D) Other criteria.--Creditors or mortgage 
                brokers may rely on additional criteria other than a 
                consumer's income and financial resources to establish 
                the reasonable ability of the consumer to repay any 
                consumer credit transaction secured by the consumer's 
                principal dwelling, to the extent such other criteria 
                are also verified through reasonably reliable methods 
                and documentation.
                    ``(E) Equity in dwelling not to be taken into 
                account.--The consumer's equity in the principal 
                dwelling that secures or would secure the consumer 
                credit transaction may not be used to establish the 
                ability to make the payments described in subparagraph 
                (A) with respect to such transaction.
            ``(2) Prohibition on steering.--
                    ``(A) In general.--In connection with a home 
                mortgage loan, a mortgage broker or creditor may not--
                            ``(i) steer, counsel, or direct a consumer 
                        to rates, charges, principal amount, or 
                        prepayment terms that are more expensive for 
                        that which the consumer qualifies; or
                            ``(ii) make, provide, or arrange for any 
                        consumer credit transaction secured by a 
                        consumer's principal dwelling that is more 
                        expensive than that for which the consumer 
                        qualifies.
                    ``(B) Duties to consumers.--If unable to suggest, 
                offer, or recommend to a consumer a home loan that is 
                not more expensive than that for which the consumer 
                qualifies, a mortgage originator shall--
                            ``(i) based on the information reasonably 
                        available and using the skill, care, and 
                        diligence reasonably expected for a mortgage 
                        originator, originate or otherwise facilitate a 
                        suitable home mortgage loan by another creditor 
                        to a consumer, if permitted by and in 
                        accordance with all otherwise applicable law; 
                        or
                            ``(ii) disclose to a consumer--
                                    ``(I) that the creditor does not 
                                offer a home mortgage loan that is not 
                                more expensive than a loan for which 
                                the consumer qualifies, 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.
                    ``(C) Prohibited conduct.--In connection with a 
                home mortgage loan, a mortgage originator may not--
                            ``(i) mischaracterize the credit history of 
                        a consumer or the home loans available to a 
                        consumer;
                            ``(ii) mischaracterize or suborn the 
                        mischaracterization of the appraised value of 
                        the property securing the extension of credit; 
                        and
                            ``(iii) if unable to suggest, offer, or 
                        recommend to a consumer a loan that is not more 
                        expensive than a loan for which the consumer 
                        qualifies, discourage a consumer from seeking a 
                        home mortgage loan from another creditor or 
                        with another mortgage originator.
            ``(3) Prohibition on prepayment penalties.--In the case of 
        any consumer credit transaction secured by a consumer's 
        principal dwelling, the transaction may not contain terms under 
        which a consumer is required to pay a prepayment penalty for 
        paying all or part of the principal before the date on which 
        the principal is due.
    ``(c) Limitation on Financed Points, Charges, and Fees.--
            ``(1) In general.--No creditor or mortgage broker may, in 
        connection with any consumer credit transaction secured by the 
        consumer's principal dwelling, include in the principal amount 
        of such transaction any portion of any qualified finance charge 
        in excess of the amount which is equal to 5 percent of the 
        principal amount of the transaction.
            ``(2) Definitions.--For purposes of this subsection, the 
        following definitions shall apply:
                    ``(A) Qualified finance charge.--The term 
                `qualified finance charge' means the sum of--
                            ``(i) the finance charge as determined 
                        under section 103(aa)(4); and
                            ``(ii) all compensation paid to a mortgage 
                        broker from any source in connection with this 
                        transaction.
                    ``(B) Principal amount.--The term `principal 
                amount' means--
                            ``(i) in the case of any consumer credit 
                        transaction under an open end credit plan 
                        secured by the consumer's principal dwelling, 
                        the maximum amount of credit that may be 
                        extended under the terms of such plan as 
                        determined without taking into account any 
                        amount included in determining the finance 
                        charge under section 106; and
                            ``(ii) in the case of any other consumer 
                        credit transaction secured by a consumer's 
                        principal dwelling, the face amount of the 
                        obligation on the note.
            ``(3) Prohibition on excessive finance charges.--
                    ``(A) Limitation based on amount of transaction.--
                No person may, in connection with any consumer credit 
                transaction secured by the consumer's principal 
                dwelling, impose or receive any amount included in 
                determining the qualified finance charge for such 
                transaction that exceeds the amount which is equal to 5 
                percent of the principal amount of the transaction;
                    ``(B) Limitation on fee for providing less 
                beneficial terms for consumer.--Except as provided in 
                subparagraph (c), no person may provide and no mortgage 
                originator may receive, directly or indirectly, any 
                compensation for originating a consumer credit 
                transaction secured by a consumer's principal dwelling 
                that is more costly than that for which the consumer 
                qualifies, or that is based on, or varies with, the 
                terms of any home mortgage loan (other than the amount 
                of loan principal.);
                    ``(C) Exception.--Notwithstanding subparagraph (B), 
                a mortgage broker may receive compensation in the form 
                of an increased rate, but only if--
                            ``(i) the mortgage broker receives no other 
                        compensation, however denominated, directly or 
                        indirectly, from the consumer, creditor, or 
                        other mortgage originator;
                            ``(ii) the loan does not include discount 
                        points, origination points, or rate reduction 
                        points, however denominated, or any payment 
                        reduction fee, however denominated;
                            ``(iii) the loan does not include a 
                        prepayment penalty; and
                            ``(iv) there are no other closing costs 
                        associated with the loan, except for fees to 
                        government officials or amounts to fund escrow 
                        accounts for taxes and insurance.
    ``(d) Mortgage Broker Duties.--
            ``(1) In general.--Any mortgage broker acting to obtain or 
        arrange for any consumer credit transaction secured by the 
        consumer's principal dwelling shall owe a duty to the borrower 
        to comply with the following duties:
                    ``(A) Mortgage brokers shall act in the consumer's 
                best interest and in the utmost good faith toward each 
                consumer and shall not compromise a consumer's right or 
                interest in favor of another's right or interest, 
                including a right or interest of the mortgage broker.
                    ``(B) A mortgage broker shall not accept, give, or 
                charge any undisclosed compensation or realize any 
                undisclosed remuneration, either through direct or 
                indirect means, that inures to the benefit of the 
                mortgage broker on an expenditure made for the 
                consumer.
                    ``(C) Mortgage brokers shall carry out all lawful 
                instructions given by the consumer.
                    ``(D) Mortgage brokers shall disclose to consumers 
                all material facts of which the mortgage broker has 
                knowledge which might reasonably affect the consumer's 
                rights, interests, or ability to receive the consumer's 
                intended benefit from the consumer credit transaction, 
                but not facts which are reasonably susceptible to the 
                knowledge of the consumer.
                    ``(E) Mortgage brokers shall use reasonable care in 
                performing duties.
                    ``(F) Mortgage brokers shall account to a consumer 
                for all the consumer's money and property received as 
                agent.
            ``(2) Scope.--The duties of the mortgage broker to the 
        consumer apply when the mortgage broker is acting in the 
        capacity of mortgage broker providing mortgage brokerage 
        services with respect to any consumer credit transaction 
        secured by the consumer's principal dwelling for which the 
        broker is not the creditor.
            ``(3) Rules of construction.--
                    ``(A) Fees for services rendered.--No provision of 
                this subsection shall be construed as prohibiting a 
                mortgage broker from contracting for or collecting a 
                fee for services actually rendered to the extent the 
                fee has been disclosed to the consumer in advance of 
                the provision of such services and complies with 
                subsection (c)(3).
                    ``(B) Duty of broker.--Except as required by 
                subsection (b)(2), no provision of this subsection 
                shall be construed as requiring a mortgage broker--
                            ``(i) to obtain or arrange for any consumer 
                        credit transaction secured by the consumer's 
                        principal dwelling on behalf of a consumer that 
                        contains terms or conditions not available to 
                        the mortgage broker in the mortgage broker's 
                        usual course of business; or
                            ``(ii) to obtain or arrange for any 
                        consumer credit transaction secured by the 
                        consumer's principal dwelling from a creditor 
                        with whom the mortgage broker does not have a 
                        business relationship.
    ``(e) Independent Verification of Consumer Counseling Before 
Refinancing Special Mortgages.--
            ``(1) In general.--No creditor or mortgage broker may make, 
        provide, or arrange for any consumer credit transaction secured 
        by the consumer's principal dwelling all or a portion of the 
        proceeds of which are used to fully or partially pay off a 
        special mortgage unless the borrower has obtained a written 
        certification from an authorized independent loan counselor 
        that the borrower has received counseling on the advisability 
        of the transaction.
            ``(2) Definitions.--For purposes of this section, the 
        following definitions shall apply:
                    ``(A) Special mortgage.--The term `special 
                mortgage' means any consumer credit transaction secured 
                by the consumer's principal dwelling that was 
                originated, subsidized, funded, or guaranteed by or 
                through a State, tribal, or local government, or 
                nonprofit organization, that bears 1 or more of the 
                following nonstandard payment terms which substantially 
                benefit the consumer:
                            ``(i) Payments vary with income.
                            ``(ii) Payments of principal or interest 
                        are not required or can be deferred under 
                        specified conditions.
                            ``(iii) Principal or interest is forgivable 
                        under specified conditions.
                            ``(iv) Either no interest or an annual 
                        interest rate of 2 percent or less is charged 
                        in connection with the loan.
                    ``(B) Authorized loan counselor.--The term 
                `authorized independent loan counselor' means any 
                nonprofit, third-party individual or organization 
                providing homebuyer education programs, foreclosure 
                prevention services, mortgage loan counseling, or 
                credit counseling that is certified by the Secretary of 
                Housing and Urban Development, or certified by any 
                State housing agency or nonprofit organization 
                designated by such Secretary, for such purposes.
    ``(f) Minimum Financial Requirements for Mortgage Brokers.--No 
mortgage broker may obtain or arrange for any consumer credit 
transaction secured by the consumer's principal dwelling unless at all 
times the mortgage broker--
            ``(1) maintains a minimum net worth, net of intangibles, of 
        at least $500,000, as determined in accordance with generally 
        accepted accounting principles; or
            ``(2) maintains a surety bond or irrevocable letter of 
        credit in the amount of $50,000.
    ``(g) Enforcement.--For purposes of providing a cause of action for 
any failure by a mortgage broker to comply with any requirement imposed 
under this section, section 130(a) shall be applied with respect to any 
such failure--
            ``(1) by substituting `mortgage broker' for `creditor' each 
        place such term appears in such section; and
            ``(2) by treating all qualified finance charges (as defined 
        in subsection (c)(2)(A)) incurred in the origination of any 
        consumer credit transaction secured by the consumer's principal 
        dwelling and any compensation paid or payable in violation of 
        (c)(3) as actual damages sustained by the consumer as a result 
        of the failure.
    ``(h) Exclusion of Reverse Mortgages.--This section shall not apply 
with respect to any consumer mortgage transaction that constitutes a 
reverse mortgage.''.
    (b) Technical and Conforming Amendments.--The Truth in Lending Act 
is amended--
            (1) in section 103(u) (15 U.S.C. 1602(u)), by striking 
        ``and the disclosures required by section 129(a)'' and 
        inserting ``and the provisions of sections 129 and 129B'';
            (2) in section 130 (15 U.S.C. 1640), by inserting ``or 
        129B'' after ``section 129'' each place such term appears;
            (3) in the heading for subsection (d) of section 131 (15 
        U.S.C. 1641), strike ``Certain'' and insert ``High-Cost'';
            (4) in section 131(c) (15 U.S.C. 1641)--
                    (A) by striking ``(c) Any consumer'' and inserting 
                ``(c) Rescission Rights.--
            ``(1) In general.--Any consumer''; and
                    (B) by inserting after paragraph (1) (as so 
                designated by subparagraph (A) of this paragraph) the 
                following new paragraph:
            ``(2) Civil damages.--In a consumer credit transaction 
        secured by a principal dwelling, other than a mortgage referred 
        to in section 103(aa), an assignee or holder shall be liable 
        for violations of this chapter or, of section 129B in a civil 
        action for monetary damages under section 130(a), 
        notwithstanding paragraph (1), except that any relief made 
        permissible by this subparagraph may not exceed the sum of the 
        amount of any remaining indebtedness and the total amount paid 
        by the consumer in connection with the transaction.''; and
            (5) in section 131 (15 U.S.C. 1641) by adding at the end 
        the following new subsection:
    ``(g) Remedy in Lieu of Rescission for Certain Violations.--At the 
election of a consumer entitled to rescission for violations of section 
129B, any person, including a creditor, who holds, purchases, or is 
otherwise assigned a mortgage or similar security interest in 
connection with a mortgage on a principal dwelling--
            ``(1) may be required to make such adjustments to the 
        balance of the obligation as are required under section 125, 
        and to reflect any other relief pursuant to section 130 and any 
        other legal claims; and
            ``(2) shall modify or refinance the loan, at no cost to the 
        consumer, the resulting balance of which shall provide terms 
        that would have satisfied the requirements of section 129B at 
        the origination of the loan and to pay costs and reasonable 
        attorneys fees.''.
    (c) Clerical Amendment.--The table of sections for chapter 2 of the 
Truth in Lending Act is amended by inserting after the item relating to 
section 129 the following new item:

``129B. Originations of consumer credit transactions secured by the 
                            consumer's principal dwelling.''.
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