[Congressional Record Volume 143, Number 18 (Wednesday, February 12, 1997)]
[Senate]
[Pages S1315-S1316]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. D'AMATO:
  S. 318. A bill to amend the Truth in Lending Act to require automatic 
cancellation and notice of cancellation rights with respect to private 
mortgage insurance which is required by a creditor as a condition for 
entering into a residential mortgage transaction, and for other 
purposes; to the Committee on Banking, Housing, and Urban Affairs.


                 the homeowners' protection act of 1997

 Mr. D'AMATO. Mr. President, I introduce legislation that seeks 
to protect our Nation's homeowners, particularly low-income and first-
time home buyers, from having to pay for unnecessary and costly private 
mortgage insurance. Thousands of hard working Americans who strive 
every day to afford a house of their own are unfairly paying for 
private mortgage insurance which is not required and is no longer 
necessary. We must not have current and future homeowners paying up to 
hundreds of millions of dollars a year for insurance that serves no 
useful purpose. This is a practice which must be stopped. Today, it is 
unethical. Tomorrow, after this bill becomes law, it will be illegal. 
This legislation is intended to stop this injustice, while still 
providing lenders with fair protection against default.
  In 1995, almost 6 million Americans bought homes. Approximately 2 
million of those homeowners also purchased private mortgage insurance. 
Today, over 40 percent of new homeowners purchase private mortgage 
insurance. Thousands of American homeowners--perhaps as many as 20 
percent of homeowners who have private mortgage insurance--are 
overinsuring their homes simply because they are not informed of 
whether they have the right to cancel private mortgage insurance.
  Many homeowners are being forced to make payments for private 
mortgage insurance even after they have accumulated substantial equity 
in their homes; they continue to pay for private mortgage insurance 
long after the loan-to-value ratio is sufficient to protect lenders 
against default. Private mortgage insurance rates average between $20 
and $100 per month, depending on the home purchase price, the amount of 
downpayment and other factors. These consumers are unknowingly paying 
from $240 a year to $1,200 a year for absolutely no reason--no 
potential benefit can accrue to the homeowner who is unnecessarily 
paying for this insurance. When the legitimate need for private 
mortgage insurance ends, the payments should stop immediately.
  My legislation, the Homeowners' Protection Act, would ensure that 
this unfair practice is discontinued by giving future homeowners the 
right to cancel private mortgage insurance when it is no longer needed 
to protect the homeowner--in most cases, when they accumulate equity 
equal to 20 percent of their original loan value. With respect to 
existing mortgages, the Homeowners' Protection Act would mandate 
disclosure of cancellation rights to the homeowner on an annual basis. 
This important legislation potentially could save current and future 
homeowners millions of dollars.
  Now let me make one thing clear--private mortgage insurance does 
serve a purpose. Typically, lenders require home buyers to purchase 
private mortgage insurance if the borrower makes a downpayment of less 
than 20 percent of the purchase price. The purpose of the insurance is 
to provide lenders, and subsequent purchasers of the mortgage, with 
protection in the event of default on the mortgage. It is in the best 
interest of all Americans that lenders have fair protection against 
default, so as to

[[Page S1316]]

ensure their continued safety and soundness. Together, we can encourage 
the pursuit of the American dream of home ownership without allowing 
the fleecing of homeowners in the process.
  I strongly encourage my colleagues to join me in support in this 
legislation which will help to make sure that money for unnecessary 
insurance premiums stays where it belongs--in homeowners' pockets.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 318

       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 ``Homeowners Protection Act of 
     1997''.

     SEC. 2. NOTIFICATION OF CANCELLATION RIGHTS FOR PRIVATE 
                   MORTGAGE INSURANCE.

       (a) In General.--Chapter 2 of the Truth in Lending Act (15 
     U.S.C. 1631 et seq.) is amended by inserting after section 
     125 the following:

     ``SEC. 126. CANCELLATION RIGHTS FOR PRIVATE MORTGAGE 
                   INSURANCE.

       ``(a) Insurance Ratio Standard.--
       ``(1) In general.--No consumer, in connection with a 
     residential mortgage transaction, shall be required by the 
     creditor to obtain or maintain private mortgage insurance if 
     that consumer has, or will have at the time that the 
     transaction is consummated, equity in the property that is 
     the subject of the transaction in excess of the private 
     mortgage insurance ratio.
       ``(2) Regulatory requirement.--The Board--
       ``(A) shall issue rules to implement paragraph (1); and
       ``(B) may issue rules exempting certain classes of 
     transactions from the provisions of paragraph (1) if the 
     Board finds that such exemption is necessary--
       ``(i) to ensure sound underwriting standards; or
       ``(ii) to further the availability of credit to persons who 
     might otherwise be denied credit if paragraph (1) was applied 
     to residential mortgage transactions involving such persons.
       ``(b) Notice of Right or Lack of Right To Cancel.--If a 
     consumer is required to obtain and maintain private mortgage 
     insurance as a condition for entering into a residential 
     mortgage transaction, the creditor shall disclose to the 
     consumer the current private mortgage insurance ratio for the 
     subject property, in writing, at the time that the 
     transaction is entered into.
       ``(c) Information Required To Be Disclosed.--With respect 
     to each residential mortgage transaction, the creditor shall 
     disclose to the consumer, in writing, the following 
     information at the time the transaction is entered into:
       ``(1) Identifying information.--Such information as may be 
     necessary to permit the consumer to communicate with the 
     creditor or any subsequent servicer of the mortgage, 
     concerning the private mortgage insurance of that consumer.
       ``(2) Cancellation procedures.--The procedures required to 
     be followed by the consumer in canceling the private mortgage 
     insurance.
       ``(d) Information Required To Be Disclosed With Each 
     Periodic Statement.--If a consumer is required to obtain and 
     maintain private mortgage insurance as a condition for 
     entering into a residential mortgage transaction, the person 
     servicing the mortgage shall include in or with each written 
     statement of account provided to the consumer, beginning with 
     the first such statement following the date of enactment of 
     the Homeowners Protection Act of 1997, while such insurance 
     is in effect, but not less than annually--
       ``(1) the information required to be disclosed under 
     subsections (b) and (c); or
       ``(2) a clear and conspicuous written statement 
     containing--
       ``(A) a statement that the consumer may cancel the private 
     mortgage insurance and a description of the circumstances 
     under which such a cancellation may be made; and
       ``(B) an address and telephone number that the consumer may 
     use to contact the creditor or the person servicing the 
     mortgage.
       ``(e) Notices Furnished Without Cost to the Consumer.--
       ``(1) In general.--No fee or other cost may be imposed on 
     any consumer with respect to the provision of any notice or 
     information to the consumer pursuant to this section.
       ``(2) Reimbursement.--A creditor or subsequent servicer of 
     the mortgage may seek reimbursement from the issuer of the 
     private mortgage insurance, with respect to any cost incurred 
     by that creditor or subsequent servicer in providing any 
     notice or information to the consumer pursuant to this 
     section.
       ``(f) Existing Mortgages.--If a consumer was required to 
     obtain and maintain private mortgage insurance as a condition 
     for entering into a residential mortgage transaction 
     occurring before the date of enactment of the Homeowners 
     Protection Act of 1997--
       ``(1) not later than 180 days after that date of enactment, 
     the creditor shall disclose, in writing, to each such 
     consumer--
       ``(A) the information described in paragraphs (1) and (2) 
     of subsection (c); and
       ``(B) that the private mortgage insurance may, under 
     certain circumstances, be canceled by the consumer at any 
     time while the mortgage is outstanding; and
       ``(2) the person servicing the mortgage shall include in or 
     with each written statement of account provided to the 
     consumer, beginning with the first such statement following 
     the date of enactment of that Act, while such insurance is in 
     effect, but not less than annually--
       ``(A) the information required to be disclosed under 
     subsection (c); or
       ``(B) a clear and conspicuous written statement 
     containing--
       ``(i) a statement that the consumer may be able to cancel 
     the private mortgage insurance (if such is the case); and
       ``(ii) an address and telephone number that the consumer 
     may use to contact the creditor or the person servicing the 
     mortgage to determine whether the consumer has the right to 
     cancel the private mortgage insurance and, if so, the 
     conditions and procedures for canceling such insurance.
       ``(g) Definitions.--In this section, the following 
     definitions shall apply:
       ``(1) Mortgage insurance.--The term `mortgage insurance' 
     means insurance, including any mortgage guaranty insurance, 
     against the nonpayment of, or default on, a mortgage or loan 
     involved in a residential mortgage transaction.
       ``(2) Private mortgage insurance.--The term `private 
     mortgage insurance' means mortgage insurance other than 
     mortgage insurance made available under the National Housing 
     Act, title 38 of the United States Code, or title V of the 
     Housing Act of 1949.
       ``(3) Private mortgage insurance ratio.--The term `private 
     mortgage insurance ratio' means a principal balance 
     outstanding on a residential mortgage equal to less than 80 
     percent of the original value (at the time at which the 
     consumer entered into the original residential mortgage 
     transaction) of the property securing the loan.
       ``(h) Applicability.--This section, other than as provided 
     in subsection (d), shall apply with respect to residential 
     mortgage transactions entered into beginning 90 days after 
     the date of enactment of the Homeowners Protection Act of 
     1997.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     2 of the Truth in Lending Act (15 U.S.C. 1631 et seq.) is 
     amended by striking the item relating to section 126 and 
     inserting the following:

``126. Cancellation rights for private mortgage insurance.''.
                                 ______