[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 863 Introduced in Senate (IS)]

111th CONGRESS
  1st Session
                                 S. 863

  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 principal dwelling of the consumer, and for 
                            other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 22, 2009

 Ms. Klobuchar introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 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 principal dwelling of the consumer, 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 
              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 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 that a consumer 
        credit transaction secured by the principal dwelling of a 
        consumer is originated, plus the margin that will apply after 
        the expiration of any introductory interest rate.
            ``(2) Mortgage broker.--The term `mortgage broker' means 
        any person who is defined or licensed 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 the principal dwelling of a 
                consumer without first verifying the reasonable ability 
                of the consumer to pay the scheduled payments of, as 
                applicable--
                            ``(i) principal;
                            ``(ii) interest;
                            ``(iii) real estate taxes; and
                            ``(iv) homeowner insurance, assessments, 
                        and mortgage insurance premiums.
                    ``(B) Variable interest rate.--In the case of any 
                consumer credit transaction secured by the principal 
                dwelling of a consumer 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 the 
                        principal dwelling of a consumer, 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 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 principal dwelling 
                        of the consumer for purposes of this paragraph.
                    ``(D) Other criteria.--A creditor or mortgage 
                broker may rely on additional criteria other than 
                income and financial resources to establish the 
                reasonable ability of a consumer to repay any consumer 
                credit transaction secured by the principal dwelling of 
                the consumer, 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 credit 
                transaction secured by the principal dwelling, 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 the 
                        principal dwelling of a consumer 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 the 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 
                credit transaction secured by the principal dwelling, 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 the principal 
        dwelling of a consumer, 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 
        principal dwelling of a consumer, 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 the 
                        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 principal dwelling of the 
                        consumer, 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 the principal 
                        dwelling of a consumer, 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 principal dwelling of a 
                consumer, 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 the principal dwelling of 
                a consumer 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 
        principal dwelling of a consumer shall owe a duty to the 
        borrower to comply with the requirements of paragraph (2).
            ``(2) Requirements.--Mortgage brokers shall--
                    ``(A) act in the best interest of the consumer 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) 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) carry out all lawful instructions given by 
                the consumer;
                    ``(D) disclose to consumers all material facts of 
                which the mortgage broker has knowledge which might 
                reasonably affect the rights, interests, or ability of 
                the consumer to receive the intended benefit from the 
                consumer credit transaction, but not facts which are 
                reasonably susceptible to the knowledge of the 
                consumer;
                    ``(E) use reasonable care in performing duties; and
                    ``(F) account to a consumer for all the money and 
                property of the consumer received as agent.
            ``(3) 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 principal dwelling of the consumer for which the 
        broker is not the creditor.
            ``(4) 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 that 
                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 principal 
                        dwelling of the consumer on behalf of a 
                        consumer that contains terms or conditions not 
                        available to the mortgage broker in the usual 
                        course of the business of the mortgage broker; 
                        or
                            ``(ii) to obtain or arrange for any 
                        consumer credit transaction secured by the 
                        principal dwelling of the consumer 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 principal dwelling of the consumer 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 subsection, the 
        following definitions shall apply:
                    ``(A) Special mortgage.--The term `special 
                mortgage' means any consumer credit transaction secured 
                by the principal dwelling of a consumer that was 
                originated, subsidized, funded, or guaranteed by or 
                through a State, tribal, or local government, or 
                nonprofit organization, and 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 principal dwelling of the consumer 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 principal dwelling 
        of the consumer and any compensation paid or payable in 
        violation of subsection (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 reverse mortgage transaction.''.
    (b) Technical and Conforming 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 
        ``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 that term appears;
            (3) in the subsection heading of section 131(d) (15 U.S.C. 
        1641(d)), by striking ``Certain'' and insert ``High-Cost'';
            (4) in section 131(c) (15 U.S.C. 1641(c))--
                    (A) by striking ``(c) Any consumer'' and inserting 
                ``(c) Rescission Rights.--
            ``(1) In general.--Any consumer''; and
                    (B) by adding at the end 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 
        attorney 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 129A the following new items:

``Sec. 129A. Fiduciary duty of servicers of pooled residential 
                            mortgages.
``Sec. 129B. Originations of consumer credit transactions secured by 
                            the principal dwelling.''.
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