[Congressional Record Volume 143, Number 36 (Wednesday, March 19, 1997)]
[Senate]
[Page S2514]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   HOMEOWNERS' PROTECTION ACT OF 1997

  Mr. BRYAN. Mr. President, yesterday in the Senate Banking Committee 
American consumers were dealt a major setback. The committee was 
expected to vote out legislation that would have ended a practice that 
costs hundreds of thousands of homeowners millions of dollars per year.
  The Banking Committee was scheduled to vote out S. 318, the 
Homeowners' Protection Act of 1997 which is sponsored by Senators 
D'Amato, Dodd, Domenici, and myself. This bill would outlaw the 
practice of overcharging homeowners for private mortgage insurance they 
no longer need.
  Unfortunately, Chairman D'Amato was forced to cancel the markup 
because a number of Members put the interest of a small, yet highly 
profitable, industry over the public's interest. To make matters worse, 
this industry is clearly taking advantage of millions of Americans in 
an unconscionable manner.
  The opponents of Chairman D'Amato's legislation argue that the bill 
places too heavy a burden on this one industry. I do not share their 
opinion and believe the interests of millions of American homeowners 
should be put ahead of an industry that is clearly taking advantage of 
these same homeowners.
  Those protecting the industry need to heed the advice of one of their 
colleagues, Congressman James Hansen. Let me share from Congressman 
Hansen's observations:

       As a small businessman for most of my life . . . I have 
     learned that if an industry polices itself, the government 
     should not interfere. I firmly believe that the government 
     should stay out of the private marketplace. However, when an 
     industry does not follow even its own guidelines, I believe 
     it is our responsibility to draw that line.

  Now that comes, Mr. President, from one of our more conservative 
colleagues who serves in the other body.
  I commend Chairman D'Amato for his leadership in introducing this 
important legislation that will affect millions of homeowners. Let me 
indicate how important that is and how many people are affected.
  In 1996, of the 2.1 million home mortgages that were insured, more 
than 1 million required private mortgage insurance. One industry group 
has estimated that at least 250,000 homeowners are either overpaying 
for this insurance or paying when it is totally unnecessary. At an 
average monthly cost of $30 to $100, unnecessary insurance premiums are 
costing homeowners thousands of dollars every year.
  Now, clearly, private mortgage insurance serves a useful purpose in 
the initial mortgage lending process. It enables many home buyers who 
cannot afford the standard 20-percent downpayment on a home mortgage to 
achieve a dream of home ownership. While private mortgage insurance 
protects lenders against default on a loan, there comes a time when 
that protection afforded to the lender becomes unnecessary, and the 
point, it seems to me, is reached when the homeowner's equity 
investment in the residence gives the lender sufficient assurance 
against default.
  The comfort level generally within the industry has been 20 percent. 
So it stands to reason that PMI is not necessary for risk management 
and prudent underwriting procedures once the homeowner has reached the 
20-percent equity mark. Therefore, borrowers who amass equity equal to 
20 percent of their homes' original value should be treated in the same 
way as borrowers who are able to make a 20-percent downpayment or more 
at the outset of the loan.
  The Homeowners' Protection Act of 1997 would ensure that existing and 
future homeowners would not continue to pay for private insurance when 
it is no longer necessary. Specifically, this legislation would inform 
the borrower at closing about private mortgage insurance and outline 
how the servicer of the loan will automatically cancel the mortgage 
insurance, assuming the transaction is not exempt from cancellation 
when the loan balance reaches 80 percent of the original value.
  Mr. President, there is no doubt that private mortgage insurance is 
an important tool in the American system of mortgage finance. However, 
retaining private mortgage insurance beyond its usefulness to the 
homeowner is a practice that should be ended. The Homeowners' 
Protection Act will prevent present and future homeowners from paying 
for private mortgage insurance that is no longer needed. This proposal 
will end the unfair practice and protect the consumer.
  This legislation is supported by almost every consumer group, but 
also leading industry groups such as the American Bankers Association, 
the National Association of Realtors, and the National Association of 
Homebuilders.
  I urge my colleagues to move forward on this important piece of 
consumer legislation and put the industry's objections below the 
overriding public interest. We must lift this unfair burden from 
American homeowners.
  I thank the Chair. I thank my senior colleague from West Virginia for 
his courtesy. I yield the floor.
  The PRESIDING OFFICER. The Senator from West Virginia.

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