[Congressional Record Volume 143, Number 45 (Wednesday, April 16, 1997)]
[House]
[Pages H1557-H1566]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
HOMEOWNERS INSURANCE PROTECTION ACT
Mr. LEACH. Mr. Speaker, I move to suspend the rules and pass the bill
(H.R. 607) to amend the Truth in Lending Act to require 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, as amended.
The Clerk read as follows:
H.R. 607
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 Insurance
Protection Act''.
SEC. 2. PROVISIONS RELATING TO PRIVATE MORTGAGE INSURANCE.
(a) In General.--Section 6 of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2605) is amended--
(1) by redesignating subsections (f), (g), (h), (i), and
(j) as subsections (k), (l), (m), (n), and (o), respectively;
and
(2) by inserting after subsection (e) the following new
subsections:
``(f) Disclosures Relating to Private Mortgage Insurance.--
``(1) Disclosure at settlement relating to existence of
pmi.--With regard to any covered mortgage loan, the lender
shall disclose, in writing at or before the settlement of
such covered mortgage loan, whether any private mortgage
insurance will be required to be obtained or maintained with
respect to such mortgage loan, including any lender-paid
private mortgage insurance, and the period during which such
insurance will be required to be in effect.
``(2) Disclosure at settlement relating to terminability of
pmi.--If the lender requires, as a condition for entering
into a covered mortgage loan, the borrower to assume an
obligation to make separately designated payments toward the
premiums for private mortgage insurance with respect to such
loan, the lender shall disclose, in writing at or before the
settlement of such covered mortgage loan any of the following
notices which are applicable with respect to such loan:
``(A) PMI obligations terminable upon request.--In the case
of a loan described in paragraph (3), that--
``(i) the borrower's obligation to make separately
designated payments toward the premiums for private mortgage
insurance may be able to be terminated while the mortgage is
outstanding (including a cancellation permitted before the
date of automatic termination under subsection (g)); and
``(ii) the borrower will be notified by the servicer not
less frequently than annually of an address and a toll-free
or collect-call telephone number which the borrower may use
to contact the servicer to determine--
``(I) whether the borrower's obligation to make separately
designated payments toward the premium for private mortgage
insurance may be terminated while the mortgage loan is
outstanding (or before the date of automatic termination);
and
``(II) if such obligation may be terminated while the loan
is outstanding (or before such date), the conditions and
procedures for such termination.
``(B) PMI obligations terminable by operation of law.--That
the borrower's obligation to make separately designated
payments toward the premiums for private mortgage insurance
will be terminated by operation of law under subsection (g).
``(C) Nonterminable pmi obligations.--In the case of a loan
not described in paragraph (3), that the borrower's
obligation to pay any amount to be applied to any portion of
the premiums for private mortgage insurance will not be
terminated at the request of the borrower.
[[Page H1558]]
``(3) Disclosure with annual statements or other
communications.--If--
``(A) private mortgage insurance is required as a condition
for entering into a covered mortgage loan; and
``(B) the borrower's obligation to make separately
designated payments toward the premiums for such insurance
may be terminated at the borrower's request,
the servicer shall, not less frequently than annually,
disclose to the borrower a clear and conspicuous statement
containing the disclosures set forth in subparagraphs (A) and
(B) of paragraph (2), including the address and telephone
number referred to in such paragraph, based on the servicer's
knowledge at the time such periodic communication is given.
Such disclosure shall be included with any annual statement
of account, escrow statement, or related annual
communications provided to the borrower, while such private
mortgage insurance is in effect.
``(4) Disclosures furnished without cost to borrower.--No
fee or other cost may be imposed on any borrower for
preparing and delivering any disclosure to the borrower
pursuant to this subsection.
``(g) Mandatory Termination of PMI Obligations at 75
Percent Loan-to-Value Ratio.--
``(1) In general.--Notwithstanding any provision of a
covered mortgage loan, any obligation of the borrower to make
separately designated payments toward the premiums for any
private mortgage insurance in effect with respect to such
loan shall terminate, except as provided in paragraph (3), by
operation of law as of the 1st day of the 1st month which
begins after the date on which the principal balance
outstanding on all residential mortgages on the property
securing the loan is equal to or less than 75 percent of the
lesser of--
``(A) if the loan was made for purchase of the property,
the sales price of the property under such purchase; or
``(B) the appraised value of the property, as determined by
the appraisal conducted in connection with the making of the
loan.
``(2) Disclosure upon termination.--Not later than 45 days
after the date of termination pursuant to paragraph (1) of a
private mortgage insurance requirement for a covered mortgage
loan, the servicer shall notify the borrower under the loan,
in writing, that--
``(A) the private mortgage insurance has terminated and the
borrower no longer has private mortgage insurance: and
``(B) no further premiums, payments, or other fees shall be
due or payable by the borrower in connection with the private
mortgage insurance.
``(3) Exception for delinquent borrowers.--
``(A) In general.--Paragraph (1) shall not apply with
respect to any covered mortgage loan on which the payments
are not current as of the date that the obligation to make
private mortgage insurance premium payments in connection
with the loan would otherwise terminate pursuant to paragraph
(1).
``(B) Effectiveness once payments are current.--In the case
of any covered mortgage loan to which subparagraph (A)
applies, paragraph (1) shall apply with respect to such loan
as of the 1st day of the 1st month which begins after the
date that such payments become current.
``(4) Return of payments toward premiums.--
``(A) Return of payments to borrower.--The servicer for a
covered mortgage loan shall promptly return to the borrower
any payments toward the premiums for any private mortgage
insurance for such loan covering any period occurring after
the date of automatic termination for such loan under this
subsection.
``(B) Return of payments to servicer.--The private mortgage
insurer for a covered mortgage loan shall promptly return to
the servicer any payments received from the servicer toward
the premiums for any private mortgage insurance for such loan
covering any period occurring after the date of automatic
termination for such loan under this subsection.
``(h) Lenders' Conditions for PMI.--
``(1) Conditions for termination of borrower's obligation
to pay pmi.--The conditions for the termination of the
borrower's obligation to make separately designated payments
toward the premium for private mortgage insurance with
respect to a covered mortgage loan, including any changes in
such conditions, shall be reasonably related to the purposes
for which the requirement for private mortgage insurance was
imposed at the time the loan was made.
``(2) Borrower's right to terminate in accordance with
conditions.--In the case of any covered mortgage loan
described in subsection (f)(3), the borrower shall have the
right under this paragraph to terminate the borrower's
obligation to make separately designated payments toward the
premiums for such insurance if the conditions and procedures
for such termination most recently communicated to the
borrower (pursuant to a request by the borrower pursuant to
notice under subsection (f)(3) or otherwise) have been met.
``(i) Effect on Other Agreements.--The provisions of
subsections (f), (g), and (h) shall supersede any conflicting
provision contained in any agreement relating to the
servicing of a covered mortgage loan entered into by the
Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, or any private investor or noteholder
(or any successors thereto). A servicer which cancels private
mortgage insurance on a covered mortgage loan in compliance
with the provisions of subsection (g) or (h) or in accordance
with investor guidelines in existence at the time concerning
the cancellation of private mortgage insurance (regardless of
whether the cancellation by the servicer was mandated by such
subsections or initiated by the borrower) shall not be
required to repurchase such mortgage loan from the investor
or holder of such mortgage loan solely on the grounds that
the private mortgage insurance was canceled in accordance
with the provisions of such subsections or investor
guidelines, as applicable.
``(j) Limitations on Liability.--If the servicer for a
covered mortgage loan has complied with the requirements
under subsections (f) and (g) to provide disclosures, the
servicer shall not be considered to have violated any
provision of subsection (f), (g), or (h) and shall not be
liable for any such violation--
``(1) due to any failure on the part of the servicer to
provide disclosures required under such subsections resulting
from the failure of any mortgage insurer, any mortgage
holder, or any other party to timely provide accurate
information to the servicer necessary to permit the
disclosures; or
``(2) due to any failure on the part of any private
mortgage insurer, any mortgage holder, or any other party to
comply with the provisions of such subsections.
Each private mortgage insurer and each mortgage holder for a
covered mortgage loan shall provide accurate and timely
information to the servicer for such loan necessary to permit
the disclosures required by subsections (f) and (g). In the
event of a dispute regarding liability for a violation of
subsection (f), (g), or (h), and upon request by the
borrower, a servicer shall provide the borrower with
information stating the identity of the insurer or mortgage
holder.''.
(b) Definitions.--Subsection (n) of section 6 of the Real
Estate Settlement Procedures Act of 1974 (as redesignated by
subsection (a)(1)) is amended--
(1) by redesignating paragraphs (1), (2), and (3) as
paragraphs (2), (5), and (6), respectively;
(2) by inserting before paragraph (2) (as redesignated by
paragraph (1) of this subsection) the following new
paragraph:
``(1) Covered mortgage loan.--The term `covered mortgage
loan' means a federally related mortgage loan under which the
property securing the loan is used by the borrower as the
borrower's principal residence.''; and
(3) by inserting after paragraph (2) (as so redesignated)
the following new paragraphs:
``(3) 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, the premiums
for which are paid by the borrower.
``(4) 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
National Housing Act of 1949.''.
SEC. 3. SCOPE OF APPLICABILITY.
(a) Notice at or Before Settlement.--Paragraphs (1) and (2)
of section 6(f) of the Real Estate Settlement Procedures Act
of 1974 (as added by section 2(a) of this Act) shall apply
only with respect to covered mortgage loans made after the
end of the 1-year period beginning on the date of the
enactment of this Act.
(b) Notice of PMI Obligation Terminability.--Paragraphs (3)
and (4) of section 6(f) of the Real Estate Settlement
Procedures Act of 1974 (as added by section 2(a) of this Act)
shall apply beginning upon the end of the 1-year period that
begins on the date of the enactment of this Act and with
respect to any covered mortgage loan without regard to the
date on which such loan was made.
(c) Termination of PMI Obligation by Operation of Law.--
Subsections (g) and (h) of section 6 of the Real Estate
Settlement Procedures Act of 1974 (as added by section 2(a)
of this Act) shall apply only with respect to covered
mortgage loans made after the end of the 1-year period
beginning on the date of the enactment of this Act.
SEC. 4. CONFORMING AMENDMENTS.
(a) Section 6.--Section 6(m) of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2605) (as redesignated by
section 2(a)(1) of this Act) is amended--
(1) by inserting ``(not including subsection (f))'' before
``regarding timing''; and
(2) by adding at the end the following new sentence: ``The
preceding sentence shall not apply to any State law or
regulation relating to notice or disclosure to a borrower
regarding obtaining, maintaining, or terminating private
mortgage insurance and such State laws and regulations shall
be subject to the provisions of section 18.''.
(b) Section 10.--Section 10(b) of the Real Estate
Settlement Procedures Act of 1974 (12 U.S.C. 2609(b)) is
amended by striking ``section 6(i)'' and inserting ``section
6(n)''.
(c) Section 12.--Section 12 of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2610) is amended by
striking ``section 6(i)'' and inserting ``section 6(n)''.
[[Page H1559]]
The SPEAKER pro tempore (Mr. Gillmor). Pursuant to the rule, the
gentleman from Iowa [Mr. Leach] and the gentleman from Texas [Mr.
Gonzalez] each will control 20 minutes.
The Chair recognizes the gentleman from Iowa [Mr. Leach].
{time} 1300
Mr. LEACH. Mr. Speaker, I yield myself such time as I may consume.
(Mr. LEACH asked and was given permission to revise and extend his
remarks.)
Mr. LEACH. Mr. Speaker, before the House today is H.R. 607, the
Homeowners Insurance Protection Act of 1997, introduced by the
distinguished gentleman from Utah [Mr. Hansen].
Mr. Speaker, before presenting a committee perspective, I yield such
time as he may consume to the gentleman from Utah [Mr. Hansen], who
deserves full credit for bringing this legislation to the attention of
the House and also the thanks of thousands, perhaps millions, of
American homeowners. It is not only fair but 100 percent accurate to
say that without his leadership, this bill would not be before the
House today.
(Mr. HANSEN asked and was given permission to revise and extend his
remarks.)
Mr. HANSEN. Mr. Speaker, I wish to thank the distinguished gentleman
from Iowa for yielding me this time and thank him for the great work
that he has done on this piece of legislation, the ranking member and
many others who have joined in this.
Let me just say to the people of America, what is private mortgage
insurance? It is a very necessary tool that the mortgage industry uses.
Without that, when that young couple finally gets the opportunity to
buy their first house, they are looking forward to it, they can hardly
wait to get their keys, they walk in and they sign papers about that
deep.
There is probably not one person in America, well, maybe one or two,
that really understands what he is even signing, but he gets down to
the time and he signs something on private mortgage insurance, and what
is it that he just bought? He bought something that does not protect
him. It is not a homeowner's, it is not a title insurance. What it does
is it protects the person who is lending him the money. Why does he
have private mortgage insurance? Because he could not come up with 20
percent down payment.
So literally thousands of these are across America. Are they
necessary? Yes. Are they good? Yes. Should we have them? Absolutely.
But what happens when he gets it down to the 20 percent? We are finding
that very, very few lenders take it off. They think of one way after
another to hassle people. ``Oh, the price of your house isn't right''
or ``Maybe you didn't make your payment exactly on time.'' So it goes
on and on and on and there are horror stories all over America.
Go anywhere and some people say, ``I've been paying that all the way
down to the last.'' So what does that mean? That means some servicers,
banks, insurance companies, are literally putting millions of dollars
in their back pocket, and people do not realize they are doing it.
All we are asking in this bill is basically when you take out the
loan, you have the opportunity to understand, full disclosure, what is
PMI. On your annual statement that all of us get at the end of the
year, it will say on there what you paid in principal, what you paid in
interest, what you paid in taxes, and what you paid in PMI and where it
stands and when you can get it off. That is very important.
If they can say ``Happy birthday, Mr. Hansen,'' they can surely put
that on there. It always bothers me when they say it is a big deal when
they cannot put it on. They do that constantly.
All we are saying now is there are millions of people that are
overinsured. There are millions of dollars, multi-millions of dollars
going into pockets, that should not be there and those who can afford
it the least are those who are paying this. These are the people who
cannot come up with the 20 percent. Those of us that sit around here,
probably very few of them do it. I have personally experienced this. I
cannot believe the hassle one goes through.
So this bill will take care of those things plus one thing I have not
mentioned, it has an automatic cancellation at 75 percent. I would urge
Members to vote for this. Members are doing a good thing for consumers
of America. They are doing something right. I urge Members' support of
the bill.
Mr. Speaker, I appreciate the opportunity to bring this important
bill to the floor. H.R. 607, the Homeowners Insurance Protection Act,
puts this Congress squarely on the side of the hard working American
homeowners. First, I would like to thank the chairman and ranking
minority member of the Banking Committee for their bipartisan
leadership in bringing this important bill to the floor in a timely
manner. I would also like to thank their fine staff for all their hard
work and assistance, and leadership for their support in bringing this
good piece of consumer legislation before the House.
H.R. 607 raises the important issue of what homeowners should know
when they obtain a home mortgage, and more importantly, when they can
stop paying for insurance they no longer need.
The last decade has seen many positive changes within the mortgage
industry. These changes have allowed millions of American families to
achieve the American dream and become homeowners. I applaud the
industry for making home ownership a reality for millions of families
by developing alternative mortgage instruments that help get more
families into homes than otherwise could have afforded one.
One widespread, and little understood, instrument in the current
mortgage industry is private mortgage insurance [PMI]. Private mortgage
insurance enables homeowners to purchase homes with as little as a 3-
to-5 percent down payment by insuring the mortgage lender against
default. As such, PMI does not insure the borrower and should not be
confused with a homeowner's property protection policy. For
conventional mortgages, PMI is normally required whenever a borrower
does not have a 20 percent down payment. PMI plays an important part of
the mortgage industry by making home ownership more accessible. The
problem arises when homeowners are not informed of what PMI is and when
and how they can stop paying it. Overpayment of PMI is potentially
costing hundreds of thousands of homeowners millions of dollars per
year.
To get some idea of how widespread this problem may be, consider that
in 1996 of the 2.1 million home mortgages that were insured, over 1
million required private mortgage insurance. The remainder were either
FHA or VA guaranteed. One industry group estimates that at least
250,000 homeowners are overpaying PMI and other estimates suggest this
figure represents the low end. At an average monthly cost of $30-$100
dollars, overpayment of PMI can easily cost homeowners thousands of
dollars in unnecessary payments over the life of their loan. Each of
these cases has one thing in common--homeowners do not understand what
PMI is and are not informed of their right to cancel PMI under certain
circumstances.
Consider the following example. Eighteen years ago, a woman and her
now-deceased husband purchased a home for $20,700. The couple financed
$18,700 and were required by their lender to purchase private mortgage
insurance. At no time were they told that they were entitled to cancel
the mortgage insurance. The last payment on the loan, made in June,
1996, included a private mortgage insurance payment of $13.99. This
widow paid private mortgage insurance premiums for the life of her
loan! Her mortgage company continued to charge these premiums every
month even though they knew that the PMI was unnecessary, that it could
be canceled under their own guidelines and that there was no longer any
risk to the lender.
In another case, a secretary in Texas, purchased a home for $26,000
19 years ago. She financed $22,950 and was required by her lender to
purchase PMI because she did not have a 20 percent down payment. At no
time was she told she could cancel PMI after certain requirements were
met. Over 19 years later, she and her husband were still paying PMI.
Why? She has paid off over 90 percent of the balance of her mortgage,
leaving her debt at less than 10 percent of the value of her property.
Her mortgage servicer continues to charge her PMI premiums every month
even though it knows that the PMI has been unnecessary for years. In
fact, her mortgage servicer has been charging her for PMI, even though
the owner of her mortgage no longer requires the insurance.
Even Members of Congress are not immune from this problem. When I
first came to the Congress I bought a small condominium in Northern
Virginia with less than 20 percent down. As I paid my monthly mortgage
to the mortgage servicer, I noticed that I was paying $20 a month for
PMI. I called the mortgage servicer to find out what this payment was
and what I could do to stop paying it. Just like thousands of other
homeowners, that is when the real adventure began.
[[Page H1560]]
After a short conversation with my mortgage service representative I
was told that I needed to pay $4,000 to arrive at the loan of value
[LTV] ration required by the investor. If the LTV ratio was less than
80 percent, I would not be considered a risky investment, and I would
no longer need PMI. After paying down to the correct LTV, as required,
I realized that my mortgage servicer was still charging me for PMI. I
assumed this was an error and called the mortgage servicer again. I was
now informed that additional requirements needed to be met. One month I
was told to get an appraisal. The next month I had to prove that I had
a good payment history. The next month I needed to use their appraiser.
Each month it was a new requirement and at no time did my mortgage
servicer indicate everything needed to cancel the PMI. After 4 years of
wrangling with my mortgage servicer it finally required direct
intervention by the mortgage investor to cancel PMI on my behalf. As I
soon discovered, mine was not an isolated case.
Now you may not think that $20, or even $100 a month is a lot of
money, but when its paid by millions of homeowners we soon start
talking about real money. In the business world we call this the law of
small sums. As any good businessman can tell you, if you can get a
little bit of money from a whole lot of people you really have
something.
As a small businessman for most of my life, including a short stint
in the mortgage industry, I also 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 the line. That is why I proposed the Homeowner's
Insurance Protection Act (H.R. 607), which requires full disclosure of
what PMI is, who it insures, and how it can be canceled. H.R. 607 would
also require clear periodic notification to the homeowner of both their
right to cancel PMI and any preconditions which must be met.
One issue included in H.R. 607 that does merit careful attention is
the question of automatic cancellation. I believe that some form of
automatic cancellation is the right thing to do. In some segments of
the mortgage industry, for example Navy Federal Credit Union, PMI is
automatically canceled when the loan to value ratio [LTV] reaches 80
percent. New mortgage servicing guidelines from Fannie Mae, one of the
largest investors in home mortgages, also supports some form of
automatic cancellation of PMI. This is both good for the consumer and
good business. However, I would not want to see automatic cancellation
provisions prevent lenders from insuring themselves against consumers
who do not have a good record of payment or against a severely
depreciated real estate market. In addition, I do not want to create
the unintended consequence of shifting costs to lower risk consumers in
the form of higher PMI premiums. I believe the 75 percent LTV automatic
cancellation provision for only new loans with a good payment history
is a responsible compromise in this regard--and which has broad within
the industry.
The bottom line is that thousands of hard working American homeowners
overpay PMI each year because they don't know what it is or how to get
rid of it. Even worse, with PMI overpayment, it is usually the people
who can afford it least that end up paying the most. There is nothing
more frustrating than paying for something that is not needed. We would
not let an auto mechanic charge customers for work that is not needed
or a doctor charge patients for procedures that were not performed. PMI
plays an important role in the mortgage industry, but when that role is
fulfilled the American homeowner should not keep paying for something
that serves no legitimate purpose.
H.R. 607 is a good bill which puts this Congress squarely on the side
of the American consumer and I would ask for its swift passage.
The Truth Behind Private Mortgage Insurance
(By Representative James Hansen)
The last decade has seen many positive changes within the
mortgage industry. These changes have allowed millions of
American families to achieve the American dream and become
homeowners. I applaud the industry for making homeownership a
reality for millions of families by developing alternative
mortgage instruments that help get more families into homes
than otherwise could have afforded them.
One widespread, and little understood, instrument in the
current mortgage industry is private mortgage insurance
(PMI). Private mortgage insurance enables homeowners to
purchase homes with as little as a 3 to 5 percent down by
insuring against default.
But PMI does not insure the borrower and should not be
confused with a homeowner's property protection policy. For
conventional mortgages, PMI is normally required whenever a
borrower does not put 20 percent down.
PMI plays an important part in the mortgage industry by
making homeownership more accessible. The problem arises when
homeowners are not informed of what PMI is and when and how
they can stop paying it. Overpayment of PMI is potentially
costing hundreds of thousands of homeowners millions of
dollars per year.
To get some idea of how widespread this problem may be,
consider that in 1996, of the 2.1 million home mortgages that
were insured, more than one million required private mortgage
insurance. One industry group estimates that at least 250,000
homeowners are overpaying PMI, and other estimates suggest
this figure represents the low end. At an average monthly
cost of $30 to $100, overpayment of PMI can easily cost
homeowners thousands of dollars in unnecessary payments over
the life of their loan.
Each of these cases has one thing in common--homeowners do
not understand what PMI is and are not informed of their
right to cancel PMI under certain circumstances.
Consider the following example: Eighteen years ago, a woman
and her now-deceased husband purchased a home for $20,700.
The couple financed $18,700 and were required by their lender
to purchase private mortgage insurance. At no time were they
told that they were entitled to cancel the mortgage
insurance. The last payment on the loan, made in June 1996,
included a private mortgage insurance payment of $13.99.
This widow paid private mortgage insurance premiums for the
life of her loan. Her mortgage company continued to charge
these premiums every month even though they knew that the PMI
was unnecessary, that it could be canceled under their own
guidelines, and that there was no longer any risk to the
lender.
Even Members of Congress are not immune from this problem.
When I first came to Congress, I bought a small condominium
in Northern Virginia with less than 20 percent down. As I
paid my monthly mortgage to the mortgage servicer, I noticed
that I was paying $20 a month for PMI. I called the mortgage
servicer to find out what this payment was and what I could
do to stop paying it.
Just like thousands of other homeowners, that is when the
real adventure began.
After a short conversation with my mortgage service
representative, I was told that I needed to pay $4,000 to
arrive at the loan to value (LTV) ratio required by the
investor. If the LTV ratio was less than 80 percent, I would
not be considered a risky investment and I would no longer
need PMI. After paying down to the correct LTV, as required,
I realized that my mortgage servicer was still charging me
for PMI. I assumed this was an error and called the mortgage
servicer again. I was now informed that additional
requirements needed to be met.
One month I was told to get an appraisal. The next month I
had to prove that I had a good payment history. The next
month I needed to use their appraiser. Each month, it was a
new requirement, and at no time did my mortgage servicer
indicate everything that I needed in order to cancel the PMI.
After four years of wrangling with my mortgage servicer, it
finally required direct intervention by the mortgage investor
to cancel PMI on my behalf. As I soon discovered, mine was
not an isolated case.
As a small businessman for most of my life, including a
short stint in the mortgage industry, I also 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.
That is why I have proposed the Homeowners Insurance
Protection Act (H.R. 607), which would require full
disclosure of what PMI is, who it insures, and how it can be
canceled. H.R. 607 would also require clear periodic
notification to the homeowner of both their right to cancel
PMI and any preconditions that must be met.
Sen. Alfonse D'Amato (R-NY), chairman of the Senate
Banking, Housing, and Urban Affairs Committee, has also
introduced similar legislation. Hearings were held in the
Senate committee on Feb. 25; the House Banking and Financial
Services Committee will be looking into this issue in the
near future. This legislation is straight forward and long
overdue.
One issue that is not addressed in H.R. 607 but does merit
attention is the question of automatic cancelation. I believe
some form of automatic cancelation is the right thing to do.
In some segments of the mortgage industry, for example, the
Navy Federal Credit Union, PMI is automatically canceled when
the loan to value ratio reaches 80 percent. New mortgage-
servicing guidelines from Fannie Mae, one of the largest
investors in mortgages, also support some form of automatic
cancelation of PMI.
This is both good for the consumer and good business.
However, I would not want to see automatic cancelation
provisions prevent lenders from insuring themselves against
consumers who do not have a good record of payment or against
a severely depreciated real estate market. If we are not
careful, we may have the unintended consequence of shifting
costs to consumers in the form of higher PMI premiums.
The bottom line is that thousands of hardworking American
homeowners overpay PMI each year because they don't know what
it is or how to get rid of it. Even worse, with PMI
overpayment, it is usually the people who can afford it least
that end up paying the most.
[[Page H1561]]
There is nothing more frustrating than paying for something
that is not needed. We would not let an auto mechanic charge
customers for work that is not needed or a doctor charge
patients for procedures that were not performed. PMI plays an
important role in the mortgage industry, but when that role
is fulfilled, the American homeowner should not keep paying
for something that serves no legitimate purpose.
Mr. LEACH. Mr. Speaker, I yield myself such time as I may consume.
As has been noted, this legislation provides for automatic
cancellation of private mortgage insurance once homeowners' equity
reaches 75 percent of the original value of the house, and as long as
the homeowner is current in making mortgage payments.
In addition, it extends important new consumer disclosure provisions
to this little understood type of insurance which protects the mortgage
holder, but is paid by the homeowner.
The bill is thus designed to strike a balance which protects the
homeowner and at the same time provides an incentive for lenders to
make loans at competitive rates in circumstances where otherwise
credibly priced loans would not be available.
This insurance product has been around for a number of years and
typically costs affected homeowners between $300 and $900 annually. But
until the gentleman from Utah [Mr. Hansen] raised the issue of whether
coverage was necessary after homeowners' equity reached a certain
level, it has not been the subject of congressional action. Since
coming to the attention of the Committee on House Banking and Financial
Services earlier this year, H.R. 607 has been on a fast track.
The committee held a public hearing on March 18 and approved H.R. 607
on a vote of 36 to 1 just 2 days later, on the eve of our departure for
the spring recess. Frankly, it had been my original intention to mark
up the legislation in committee on the day of the hearing, but we
postponed committee consideration at the request of the minority.
Subsequent to the committee's action, I asked the leadership to
schedule this bill for a vote by the full House in the first or second
week after the recess. Here we are today, on schedule, with a bill that
has been brought to the floor, unmodified from the committee product.
In my judgment, the committee has crafted in a bipartisan fashion an
approach which deserves the support of this House. Homeowners should
not be stuck with paying insurance to protect others on a home that
becomes protected by its own collateral value. If insurance fees
continue past the point where 25 percent of the value of the loan has
been paid, one group of homeowners; that is, those who originally may
not be able to make a large down payment, will be prejudiced against in
relation to those able to afford a larger down payment. This bill is
thus, above anything else, about common sense equity. I urge its
adoption.
Mr. Speaker, I reserve the balance of my time.
Mr. GONZALEZ. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, mortgage insurance is and always has been a powerful
tool for American home buyers. Of course, what it does is to reduce the
risk of making a low down payment, long-term mortgage, by insuring that
the lender, or the investor in that mortgage, will be paid in the event
the borrower defaults. With mortgage insurance, tens of millions of
Americans have been able to afford a home. Without mortgage insurance,
buyers would have to come up with a down payment of about 20 percent,
and probably would be able to get only a short-term mortgage.
Before the advent of mortgage insurance, only about a third of
Americans owned a home. Today more than two-thirds do. As great as
mortgage insurance is, the truth is that a vast number of people are
paying for insurance they no longer need. To the average buyer, it
costs anywhere from $30 to $100 a month. Anyone who has a good payment
record and at least 20 percent equity probably does not need mortgage
insurance. But the truth is buyers who should not be paying for
insurance are paying millions of dollars in premiums. Some buyers who
know this, like our colleague, the gentleman from Utah [Mr. Hansen],
have run into brick walls when they have sought to cancel.
This bill does two things. It preserves mortgage insurance as the
valuable and vital tool that it is. Second, it guarantees future buyers
that their mortgage insurance will be canceled when they have a 25-
percent equity stake and allow them to seek cancellation sooner if they
qualify. This bill does not affect contracts, but it does set us on the
path of correcting real abuses and it will save home buyers many
millions of dollars.
This is a good bill. Of course, like everything else, it is not
perfect. Some of us would have liked greater reforms. Some of us wanted
less. But this is a consensus bill with virtually unanimous support in
the Committee on Banking and Financial Services. It deserves Members'
support. I urge an ``aye'' vote.
Mr. Speaker, I reserve the balance of my time.
Mr. LEACH. Mr. Speaker, I yield 2\1/2\ minutes to the gentleman from
North Carolina [Mr. Burr].
Mr. BURR of North Carolina. Mr. Speaker, I thank the chairman of the
full committee for yielding me this time.
I rise today, Mr. Speaker, in support of this legislation. Last week
I had concerns on this legislation. Today I still have several concerns
with this bill. I would like to address those concerns in a colloquy
with the gentleman from Iowa, the chairman of the Committee on Banking
and Financial Services.
Mr. Speaker, I say to the gentleman from Iowa [Mr. Leach], the
chairman, that I am concerned about the effect the bill will have on
pool mortgage insurance, insurance which covers a whole pool of
mortgages as opposed to insurance on individual mortgages. If pool
insurance was covered, would this not increase home ownership costs?
Mr. LEACH. Mr. Speaker, will the gentleman yield?
Mr. BURR of North Carolina. I yield to the gentleman from Iowa.
Mr. LEACH. Mr. Speaker, I will tell the gentleman, this is an
extremely important inquiry. The intent of the legislation is to cover
individual private primary mortgage insurance covering individual loans
and not insurance for an entire pool of mortgages.
The reason it is important that pool insurance not be covered is that
it allows mortgages with PMI to be intermingled in the secondary market
with those without, thus providing more flexibility in their
securitization and lower cost for the homeowner.
Mr. BURR of North Carolina. It is my understanding that in requiring
new disclosure requirements concerning PMI, this bill could add costs
to the private sector, especially mortgage servicers and lenders. This
is of particular concern to me as well as my colleagues in the North
Carolina delegation, because 44 percent of all private mortgage
insurance is issued in my State.
Mr. LEACH. This concern is also a valid one, but certain issues
should be kept in perspective. Generally, mortgage servicers and
lenders already have to make a number of disclosures to homeowners at
settlement and during the life of the mortgage under the Truth in
Lending Act and the Real Estate Settlement Procedures Act. The intent
of the committee in drafting this legislation was to ensure that most
of the notices concerning PMI are made in conjunction with the notice
requirements of these acts.
In addition, I think it should be noted that the biggest and most
reputable mortgage servicers in the country, including one
headquartered in my State, are beginning to provide borrowers notices
on PMI. Finally, a number of States already require or are considering
requiring notices on PMI. For instance, the States of California and
New York, which comprise 20 percent of the home mortgage market,
require disclosure to borrowers on this kind of insurance. This law
would provide a disclosure standard for the entire country, which may
make other State legislatures less likely to impose new State standards
on this subject.
Mr. COBLE. Mr. Speaker, will the gentleman yield?
Mr. BURR of North Carolina. I yield to the gentleman from North
Carolina.
Mr. COBLE. I thank the gentleman for yielding.
Mr. Speaker, I say to the chairman that I would like to extend some
of the remarks uttered by the gentleman from North Carolina [Mr. Burr].
I share his concerns, but not at all as to the intent of the bill. You
start going
[[Page H1562]]
after homeowners and you are opening up a bucket of snakes. I am not
against homeowners at all. But I have a concern, Mr. Speaker, and I
would be happy to hear from the chairman as to whether or not we may be
encouraging and nurturing unnecessary and frivolous litigation.
Mr. LEACH. I would tell the gentleman, this is a very legitimate
concern. I too want to benefit the homeowner and not the class-action
lawyer. Because of some of the industry practices concerning PMI, such
as not providing borrowers sufficient information on how to terminate
the insurance or requiring PMI long after it is needed, mortgage
servicers and insurers are facing more and more lawsuits. This
legislation will clarify what the responsibilities of market
participants are concerning PMI. Without this legislation, in States
which do not have State PMI laws, it will be the courts who will
determine by judicial fiat the legal liability of the mortgage industry
participants on an ad hoc basis. This bill provides more certainty to
the law concerning a borrower's rights and PMI and thus is intended to
make litigation less likely.
Mortgage market players have expressed some concern that the
provision of the bill requiring the conditions for terminating PMI be
reasonably related to the requirements for private mortgage insurance
may precipitate unnecessary litigation. This is not the intent of the
committee. It is the expectation of the committee that HUD, which has
rule making authority, would put forth commonsense interpretations of
this provision designed to preclude unreasonable lawsuits.
Mr. COBLE. I thank the gentleman from North Carolina and the
gentleman from Iowa, the chairman.
Mr. BURR of North Carolina. Mr. Speaker, I would like to thank the
chairman for his willingness to address the concerns of the gentleman
from North Carolina [Mr. Coble] and my concerns with this legislation.
I am hopeful that our colleagues that are involved in the completion of
this legislation and the process will continue to refine it and to make
it the best bill in the coming weeks that they possibly can.
Mr. LEACH. I thank both the gentlemen from North Carolina for their
concerns, which are very thoughtful and constructive. I appreciate
that.
{time} 1315
Mr. Speaker, I reserve the balance of my time.
Mr. GONZALEZ. Mr. Speaker, I yield 2 minutes to the gentleman from
New York [Mr. LaFalce].
(Mr. LaFALCE asked and was given permission to revise and extend his
remarks.)
Mr. LaFALCE. Mr. Speaker, after listening to the previous dialog, I
must point out that this is a good bill, this is a consumer bill, this
is not a bill that we have to bring up by a vote of the Committee on
Banking and Financial Services 36 to 1 and then hear apologies for. Not
at all.
Mr. Speaker, the fact of the matter is, the gentleman from Utah [Mr.
Hansen] did us a great service when he pointed out that lenders, banks,
insurance companies, et cetera, have been ripping the consumer off for
years and years to the tune of hundreds of millions of dollars. And
then we took his bill, and we asked for a 2-day delay, and we
negotiated with the majority to make it not simply a bill which would
advise us of the problem, but actually terminate, cancel, these
premiums that were no longer warranted, no longer justified, at least
with respect to future mortgages.
This is the most significant consumer bill brought up in Congress
this year. It is probably going to be the most significant consumer
bill brought up in Congress during this session and the next session.
We should not be apologetic about it. We should rejoice in it, and we
should make sure that this is not amended or refined away by the Senate
or in conference with the Senate.
We have a good bill, let us pass it virtually unanimously, and then
let us hold onto it in conference.
Mr. GONZALEZ. Mr. Speaker, I yield 2 minutes to the gentleman from
Pennsylvania [Mr. Kanjorski].
Mr. KANJORSKI. Mr. Speaker, I rise to have a colloquy with the
gentleman from Iowa, the chairman of the committee. Mr. Speaker, I
commend him for bringing this important consumer legislation to the
House floor today, and I particularly commend our colleague, the
gentleman from Utah [Mr. Hansen], for introducing it. This bill
provides meaningful financial relief of $50 or $100 a month to millions
of American families. Best of all, Mr. Speaker, it provides us relief
at no cost to the U.S. Treasury.
I also commend the chairman for the genuine bipartisan way this
legislation was considered by the committee, which is why it was
reported out of the committee 36 to 1. The entire Democratic membership
of the House Committee on Banking and Financial Services
enthusiastically supported this bipartisan initiative and hopes that
the bipartisanship that was demonstrated on this legislation will be a
model for subsequent legislation from our committee.
I do have one question for him however. Since the legislation was
reported out of committee, it has been brought to my attention that
there are mortgage products in the marketplace that may require
mortgage insurance of a different type or for a period of time that is
not prescribed in statute. I am not aware of all the products, and
since the products in the marketplace are evolutionary in nature and we
cannot always anticipate what tomorrow may bring in the marketplace, I
hope that as the process goes through, the chairman and the members of
the conference pay very close attention to this so that in the final
end the private mortgage insurance disclosure that we are requiring and
the cancellation we are requiring under this act does, in fact,
accomplish the best results for the consumer and for the consumer in
the marketplace by lower interest rates that will be provided.
Mr. LEACH. Mr. Speaker, will the gentleman yield?
Mr. KANJORSKI. I yield to the gentleman from Iowa.
Mr. LEACH. If I could respond briefly to the gentleman, I share his
concerns. I would tell him, though, as we move forward we do want to be
very sensitive to possible new products, but we also have to take very
great care to insure that poor people do not come under a different
standard than others, and if we developed two different standards, we
might put complications in the home lending market as well.
So I am open to any of the concerns the gentleman may have, but I am
unprepared to make firm commitments.
Mr. Speaker, I yield 2 minutes to the distinguished gentlewoman from
New Jersey [Mrs. Roukema].
(Mrs. ROUKEMA asked and was given permission to revise and extend her
remarks.)
Mrs. ROUKEMA. Mr. Speaker, I do rise in support of this legislation.
PMI is a little understood, complicated issue as we have heard through
the colloquies that have gone on and the description by the chairman
and ranking member, but bottom line, PMI does enable homeowners to
purchase homes with as little as 3 to 5 percent down payment and
insures the mortgage lender against that default. PMI plays an
important part in the mortgage industry by making home ownership more
accessible, and we should not lose sight of that.
This is, as my colleague from New York stated, it is a good consumer
protection bill. I support it. That, however, does not mean we should
close our eyes to the fact that we are taking this up under suspension,
that there might not be some issues as outlined in the colloquies that
deserve perhaps closer attention. It does not mean we should be voting
against this, but we should understand that we must weigh very
carefully the costs to the consumer as well as the industry, because if
we too adversely affect the industry we might be charging higher fees
for everybody in the mortgage market, and I think that is important for
us to understand.
Someone earlier did also, and I think it was in the colloquy,
referenced the issue that is of concern to me, and that is we do not
want to have the unintended consequences of providing an incentive for
unnecessary and frivolous litigation. I think we can absolutely protect
against that in the confines within the strictures of this bill and
gain the important consumer protection and at the same time not play a
detrimental role in the mortgage market.
[[Page H1563]]
So I am confident that as the bill moves through conference, if there
are any unintended consequences that we can examine, we can take care
of it at that time. But I stand four square behind the legislation, it
is an important consumer protection reform, and we should pass it today
without exception.
Mr. GONZALEZ. Mr. Speaker, I yield 2 minutes to the gentleman from
Minnesota [Mr. Vento].
(Mr. VENTO asked and was given permission to revise and extend his
remarks.)
Mr. VENTO. Mr. Speaker, I rise in support of the legislation and
commend my colleague from Utah for persisting in bringing a problem to
us, so often as personal experiences are reflected on the House floor,
and this one in which he experienced a difficulty is one frankly that
affects millions of American homeowners across this Nation. There is so
much that happens at closing on a home: the types of insurance, title
insurance, property insurance, other types of insurance. I am certain
that many homeowners, their eyes sort of glaze over, they sign the
documents not realizing that they have had the necessity of having
private mortgage insurance which, incidentally, facilitates the
purchase of homes just as other types of VA and FHA insurance may
facilitate the purchase of homes, with low down payments. But candidly,
on a hundred thousand dollar mortgage it can add anywhere from 35 to a
hundred dollars extra payment a month. On a home that is $200,000 the
consumer can double that cost, and that occurs in many markets.
And so it is important, and I would point out that PMI on an informal
basis, these companies working with lenders have tried and do terminate
the insurance, but it is sometimes a frustrating and confusing
experience. What this legislation does is provide some mandates. It
provides some predictability and certainty to cancel that insurance,
some rights for that homeowner so that they get disclosure, they get
notice, they get to know what is going on at closing and through the
years of the mortgage. It also, while not mandating, provides an
opportunity to in fact extinguish that insurance at a higher than 75
percent loan-to-value ratio and to go back and deal with those that
have that insurance in effect today that is retroactive. But
prospectively it will mandate the lapse of that insurance at 75-percent
saving, literally saving millions of dollars of payments for insurance
that homeowners do not need, and while such insurance is obviously to
the benefit of the lender it is an extreme cost when added to the
homeowner.
But I would point out that the secondary markets, the insurance
companies and others, have had informal policies in place in some
instances, but this measure will provide a more efficient and effective
way of dealing with private mortgage insurance, treating I think
consumers and treating those that provide these services more fairly,
making that American dream that much more attainable, and I commend the
chairman and the Members and am pleased to have played a small role in
working to write and pass this legislation in the Banking Committee.
Mr. Speaker, I rise in support of H.R. 607 as amended by the Banking
Committee and ask my colleagues to support the bill. I would like to
commend Mr. Hansen for introducing and pushing this legislation
forward.
Throughout the week of March 17, the House Banking Committee worked
on a strong bipartisan basis to develop consensus legislation. We
ultimately passed H.R. 607 after a lengthy hearing occurred and all the
witnesses from private mortgage insurance industry, consumer groups,
mortgage bankers, and thrifts, agreed with the substance of the core
issues and the improved substitute product. In the March 20 markup, the
committee worked its will on the bipartisan substitute and in the end
passed out a bill, 36-1.
Our goal was to produce a bill for the suspension calendar which
served the needs of millions of American homeowners covered by private
mortgage insurance and to expedite the work of the House of
Representatives. The Banking Committee worked quickly and well in a
manner that bodes well for future work on financial modernization and
possibly housing bills. I am pleased that our good work product has
been able to jump the hurdle presented last week by industry groups who
had effectively squelched our bill.
Consumers spend hundreds of dollars a year extra in mortgage
insurance even though they have paid down the mortgage by 20 percent,
25 percent or more to a point where such insurance is not required or
necessary. H.R. 607 as reported by committee will provide some equity
for those home buyers who make their payments faithfully for years. The
reported bill was praised by consumer groups who, in fact, sought more
protections and rights for consumers, but had accepted the ``bird-in-
hand'', noncontroversial measure as an acceptable action in this 105th
Congress.
The bill prospectively--1 year after enactment--provides for the
automatic cancellation of private mortgage insurance when borrowers
have 25 percent equity, or a 75-percent loan-to-value ration, in their
homes--based on the original value of the home. Premiums paid past that
date will be refunded.
In a significant addition, the reported bill gives borrowers
prospective rights to terminate premiums once they have met industry
conditions. The bill also provides for the disclosure of borrowers'
rights. Existing loans will get annual statements that their PMI may be
cancelable. Future borrowers will be informed of their rights at or
before closing along with the annual disclosure.
Mortgage insurance helps provide an opportunity to people to purchase
homes when they cannot come up with a 20-percent down payment. On a
$100,000 home, that would be a hefty $20,000 plus closing costs.
Private mortgage insurance on a $100,000 house ranges from $28 to $76 a
month depending on amount of the down payment. That works out to $336
to $912 a year. And of course, in many cities in this Nation, including
Washington, DC area, you cannot buy most homes for $100,000, so down
payments are tougher to make and premiums also go up proportionately.
In the last 40 years, 17 million homeowners have paid PMI to become
homeowners. According to the Mortgage Insurance Companies of America
[MICA] more than a million home buyers bought PMI last year alone.
Although we were unsuccessful in committee in trying to ensure
cancellation rights to those who have purchased PMI already that is
retroactively or automatic cancellation for mortgages which reach the
requisite 20 percent equity on their loans, an amendment I offered, we
were successful in working in good faith with Chairman Leach and our
counterparts on the Banking Committee to write the initial substitute
and a good consensus bill to bring to our colleagues in the House.
Importantly while not requiring cancellation this measure ``provides a
right to cancel'' working with lenders. The mortgage servicer, PMI
companies terminate the insurance at loan amount higher than 75 percent
and permit cancellation to apply retroactively as specific conditions
are met.
Mr. Speaker, I urge my colleagues to support this very important
consumer legislation. This bill will provide hundreds of dollars in
relief to home buyers who have paid their way out of PMI. More than
phantom tax cut measures, the bill will produce real consumer savings
right away. Let's pass this proconsumer legislation now.
Mr. LEACH. Mr. Speaker, I yield 4 minutes to the distinguished
gentleman from Texas [Mr. Paul].
(Mr. PAUL asked and was given permission to revise and extend his
remarks.)
Mr. PAUL. Mr. Speaker, I hesitate to speak out on this legislation,
but having been the only dissenter in the committee I feel compelled to
explain my vote.
I am confident this bill will neither destroy Western civilization
nor save it. However, it does nothing to help it. What we have here is
another problem, another law and another form to fill out, and all
along I thought our new mandate was to reduce government rules and
regulations. Every time Congress passes a new law to solve some
problem, several new unsuspected consequences emerge, requiring even
more problem solving regulations. This new piece of regulatory law, I
am sure, will do the same. This bill will limit consumer choice, raise
costs on consumers and limit availability of consumers to purchase a
home.
Just this past weekend, Alan Greenspan explained why consumers are
often better served by private market regulations rather than
government intervention. He said that, quote: Government regulation can
undermine the effectiveness of private market regulation and can itself
be ineffective in protecting the public interest.
With this I concur. If Congress were really serious about making it
easier for first-time home buyers and others to secure financing, it
would do what it could do to lower the cost of capital. Interest rates
are high because of the lack of sound monetary and fiscal policies
pursued by our government.
What should we do? We should cut taxes. We should cut spending. We
[[Page H1564]]
should cut regulations, not add a new regulation. And follow sound
monetary policy. This approach would lower the interest rates on
mortgages for all homeowners and potential homeowners. This lower
interest rate climate could benefit home buyers in the way that greater
reliance on the nanny state cannot. The Constitution limits the power
of Congress and clearly states that powers not delegated to Congress
are reserved to the States or to the people. We should not interfere in
the private, voluntary, noncoercive contracts of individuals in a free
society. This legislation tramples on States rights. Some States,
notably California and New York, already have laws on the books dealing
with this issue. Congress should not be involved in this issue.
Perhaps this bill is just a veiled attempt to put all mortgages,
public and private, under the control of HUD. Private mortgage
insurance has benefited 20 million consumers over the past 40 years.
Now Congress wants to do for them what they have done for our public
housing tenants. Any new regulatory mandates by Congress would only add
to the cost of private mortgage insurance and hurt the very people the
proponents of the legislation are trying to help.
I suggest that a no vote is the proper vote on this bill. H.R. 607
will limit consumer choice, it will raise the cost to the consumer, it
will push home ownership further from the grasp of poor Americans. If
my colleagues want to vote for the consumer and if they want to help
all potential home buyers, vote no on H.R. 607.
I hesitate to speak out for this legislation, but having been the
lone dissenter in committee, I feel compelled to explain my vote.
I'm confident this bill will neither destroy Western civilization nor
save it. However, it does nothing to help it.
What we have here is another problem, another law, and another form
to fill out. And all along I thought our new mandate was to reduce
government rules and regulations.
Every time Congress passes a new law to solve some problem, several
new unsuspected consequences emerge requiring even more problem-solving
regulations. This new piece of regulatory law, I'm sure, will do the
same.
This bill will limit consumer choice, raise costs on consumers, and
limit the ability of consumers to purchase a home.
Just this past weekend, Alan Greenspan explained why consumers are
often better served by private market regulation rather than government
intervention. He said that ``government regulation can undermine the
effectiveness of private market regulation and can itself be
ineffective in protecting the public interest.'' With this I concur.
He continued,
The real question is not whether a market should be
regulated. Rather, it is whether government intervention
strengthens or weakens private regulation, and at what cost.
At worst, the introduction of government rules may actually
weaken the effectiveness of regulation if government
regulation is itself ineffective or, more importantly,
undermines incentives for private market regulation.
Regulation by government unavoidably involves some element of
perverse incentives.
The perversity of this bill is its effect on consumers. It will
increase premiums on consumers, limit choices, and make home ownership
less affordable.
If Congress were really serious about making it easier for first-time
home buyers and others to secure financing, it would do what it could
to lower the cost of capital. Interest rates are high because of the
lack of sound monetary and fiscal policies pursued by our Government.
What should we do? We should cut taxes, cut spending, cut
regulations--not add a new one--and follow sound monetary policies.
This approach would lower the interest rates on mortgages for all
homeowners and potential homeowners. This lower interest rate climate
would benefit the home buyer in a way that greater reliance on the
nanny State cannot.
The Constitution limits the power of Congress and clearly states that
powers not delegated to Congress are reserved to the States or to the
people. We should not interfere in the private, voluntary, noncoercive
contracts of individuals in our society.
This legislation tramples on States rights. Some States, notably
California and New York, already have laws on the books dealing with
this issue. Congress should not be involved in this issue.
It was that wonderful competition of experiments at the State level
that brought consumers such benefits as private mortgage insurance,
adjustable rate mortgages, and automatic teller machines [ATM's].
Private markets make home ownership more affordable while Washington
interference perversely hurts the consumer.
H.R. 607 is harmful and unnecessary. The overwhelming majority of
homeowners have no problem canceling their private mortgage insurance,
if it is not canceled automatically. In fact, Fannie Mae has studied
this concern and is currently setting clear guidelines regarding PMI.
These guidelines would quickly become industry standard given the
influence they have in the market.
If Congress were so concerned about consumers' alleged overpayment
regarding PMI, then we should do something about the mortgages in which
we have a vested interest; namely, FHA loans. But this bill exempts FHA
homeowners even though it is the FHA mortgages where the Government has
some influence.
Perhaps this bill is just a veiled attempt to put all mortgages,
public and private, under the control of HUD. Private mortgage
insurance has benefited 20 million consumers over the past 40 years.
Now Congress wants to do for them what they have done to our public
housing tenants.
A dynamic, free market is the best vehicle for prosperity. By
overregulating the marketplace, the flexibility to deal with the law of
unforseen consequences is lost. Loan to current value is a better
indication of the current situation than loan to original value.
Forcing mortgage companies to only look at the loan to original value
ignores potential changes in that value. In short, it ignores reality.
We cannot ignore the realities of the marketplace. Real values of
real estate declined as much as 50 to 60 percent over a 6-month period
in the late 1980's. Mortgage decisions should include a combination of
factors and individual choices.
Any new regulatory mandates by Congress would only add to the cost of
private mortgage insurance and hurt the very people the proponents of
the legislation are trying to help. There is a cost to any regulatory
burden imposed on the economy. This misguided legislation would
increase the cost, and thus limit the availability, of mortgage
insurance for everyone. Since very few people would gain from this
legislation, it punishes the vast majority for the benefit of the few.
We should reject this special interest favoritism and get our own
fiscal house in order so all of us can benefit. We should not impose
unfunded mandates on those that are helping consumers realize their
goal of home ownership.
H.R. 607 will limit consumer choice.
H.R. 607 will raise costs to the consumer, and push home ownership
further from the grasp of poor Americans. If you want to vote for the
consumer and all potential home buyers, vote ``no'' on H.R. 607.
Mr. GONZALEZ. Mr. Speaker, I yield 2 minutes to the gentlewoman from
California [Ms. Waters].
{time} 1330
Ms. WATERS. Mr. Speaker, I rise in support of H.R. 607. This is a
rather proud moment in the history of this Congress and certainly of
the 105th Congress.
I would like to commend the gentleman from Utah [Mr. Hansen] for his
work on this legislation. I would like to commend the members of the
Committee on Banking and Financial Services who joined together from
both sides of the aisle to do something real for the consumers.
I am so proud we beat the special interests on this bill. I am proud
that the leadership understood finally and brought this bill to the
floor.
Simply put, American consumers who had home mortgages that paid less
than perhaps 20 percent down on those mortgages had to have private
mortgage insurance. They should have been able to opt out and not to
have to pay that after they had paid 20 or 25 percent, but the mortgage
insurance companies did not tell them, their mortgage holders did not
tell them, and so we have people paying for insurance beyond the point
that they need to pay for it after they had paid and have about 25-
percent equity.
This bill would create automatic disclosure. Those families that are
giving up $35 and $40 and $50, $100 a month paying this insurance they
do not need can now put this money in their pocket, they can put it in
their savings account, they can keep the money.
This is a strong consumer bill. I am proud that I amended it so that
I could protect States who have strong disclosure laws. Me, the most
unlikely person to talk about States' rights, was joined by all of the
Members and said yes, that makes good sense.
This bill is going to pass off the floor because it should. Those
people who are not going to support it should be
[[Page H1565]]
dealt with by the consumers. This is indeed a proud moment. I am
pleased to be a part of it. I would urge an ``aye'' vote. Hooray for
the consumers. We have won one for a change.
Mr. LEACH. Mr. Speaker, I yield 2 minutes to the distinguished
gentleman from Washington [Mr. Metcalf].
(Mr. METCALF asked and was given permission to revise and extend his
remarks.)
Mr. METCALF. Mr. Speaker, I rise to thank the gentleman from Utah
[Mr. Hansen] for bringing this important issue to our attention, and to
thank the gentleman from Iowa [Mr. Leach] and the gentleman from New
York [Mr. Lazio], the housing subcommittee chairman.
Nothing is more frustrating than paying for something one no longer
needs. Clearly, some homeowners have unknowingly paid private mortgage
insurance without the knowledge that they could cancel it when it
reached a prescribed equity level. This bipartisan bill addresses that
issue, protecting consumers by ensuring automatic cancellation of
private mortgage insurance at the proper time. It is a fairness issue
for homeowners and potential homebuyers.
As chairman of the Republican Housing Opportunity Caucus, I have
heard many stories of people who have been overcharged for this
particular insurance. We must protect the consumer from unnecessary
costs while balancing the needs of the industry in providing this
insurance.
Mr. GONZALEZ. Mr. Speaker, I yield 2 minutes to the gentlewoman from
New York [Mrs. Maloney].
Mrs. MALONEY of New York. Mr. Speaker, I rise in strong support of
this pro-consumer legislation. Owning a home is the centerpiece of the
American dream. It is difficult enough for working families to come up
with enough money necessary to purchase and maintain a home. When that
family is overcharged, it is unfair, it is anticonsumer.
Mr. Speaker, it has come to light that some lenders are allowing
homeowners to unknowingly continue to carry private insurance long
after it is required. The lender simply looks the other way while the
homeowner continues to struggle, making overpayments amounting to as
much as $900 per year. They are not asking for the money; they are just
taking it.
People who need private mortgage insurance are often low and moderate
income families who can ill afford to make these extra payments. Today,
members of the Committee on Banking and Financial Services, Democrats
and Republicans, are coming together on the floor to say we will not
tolerate this rip-off of the American consumer.
The bipartisan agreement before us today requires mandatory, full
disclosure of all private mortgage insurance terms and places an
automatic termination of PMI payments once a homeowner has paid back 25
percent of the original value of the home.
Mr. Speaker, when anyone attacks the ability of hard-working American
families to afford a home, it is not partisan concern, it is an
American concern.
I want to thank the bill's sponsor, the gentleman from Utah [Mr.
Hansen], our committee chairman, the gentleman from Iowa [Mr. Leach],
and our ranking committee member, the gentleman from Texas [Mr.
Gonzalez], for working together effectively to help preserve the
American dream.
Mr. GONZALEZ. Mr. Speaker, I yield 2 minutes to the gentleman from
Massachusetts [Mr. Kennedy].
Mr. LEACH. Mr. Speaker, I yield 30 seconds to the gentleman from
Massachusetts [Mr. Kennedy].
The SPEAKER pro tempore (Mr. Gillmor). The gentleman from
Massachusetts [Mr. Kennedy] is recognized for 2\1/2\ minutes.
Mr. KENNEDY of Massachusetts. Mr. Speaker, first of all, let me speak
very frankly about the efforts of my good friend, the gentleman from
Utah [Mr. Hansen] to bring this issue to the floor of this House. This
is really a tribute to one individual Member's persistence.
While this bill has been knocked off track more times than a dog sled
in the Iditarod, the truth is that the gentleman has every time come to
its rescue, and I think everyone here on both sides of the aisle
recognizes the tremendous work that he has put into essentially
bringing back into the pocket of the American taxpayer about $200
million a year in overpayments due to private mortgage insurance
overreach once the insurance level has hit the automatic 20 percent.
We ought to keep in mind that private mortgage insurance is in fact a
good thing, and it has helped millions of homeowners be able to buy
homes in this country that, without that, industry could not in fact
borrow funds from the banks and the savings and loans and other lending
institutions in order to have the highest homeownership in the world.
However, the truth is that within the wonderful work of this
industry, there has been a simple overreach into the back pockets of
taxpayers and into the back pockets of mortgage owners who have reached
the 20 percent equity provisions that private mortgage insurance is
designed to fulfill, and yet the industry continues to charge those
individuals despite the fact that they have met all of the requirements
of the contract that the insurance policy initially created.
While we have seen Freddie and Fannie and others in the secondary
market try to provide for some relief in terms of what has gone on, the
truth of the matter is that there are still over 250,000 individual
mortgages in this country that have reached the 20 to 25 percent equity
levels.
The point is that despite the fact that we have seen 250,000
mortgages paid off at the 20- to 25-percent level, there are still
thousands more that are out there that, simply because the equity value
in the mortgages have reached that 20- to 25-percent, are still not
taken into account.
This is a good consumer bill, this is important legislation, and it
is a demonstration of one individual's willingness to take on the
system and win.
I thank the gentleman from Iowa [Mr. Leach], the chairman of the
Committee on Banking and Financial Services, and I also thank the
former chairman, the gentleman from Texas [Mr. Gonzalez].
Mr. GONZALEZ. Mr. Speaker, I yield 2 minutes to the gentleman from
Texas [Mr. Bentsen].
(Mr. BENTSEN asked and was given permission to revise and extend his
remarks.)
Mr. BENTSEN. Mr. Speaker, I thank my colleague from Texas for
yielding me this time.
Let me echo my colleague from Massachusetts. Private mortgage
insurance is good. It has helped a lot of Americans who can put down as
little as 5 percent, 6, 7, 8, 9, 10 percent, to get into a house. This
is one of the reasons why homeownership is so high in this country and
has been rising. What it does, and I think Members need to understand
what it does, is it covers the first 20 percent of the exposure. It
limits the exposure for the investor of the overall mortgage.
Now, what happens is once one has paid down that amount, the investor
is already protected because they hold a first lien on the property and
it is assumed, it is now universal, that the property is going to cover
the additional 80 percent.
So what happens, and the problem that we are dealing with here, is
people are paying for something they no longer need, and it may be $30
a month, which adds up to more than $300 a year over a 15-year life of
a 30-year mortgage when somebody would have gotten to 75 percent. That
is real money to a lot of Americans. So that is what we are trying to
deal with.
I think this is a sound bill, as well. It only affects future
mortgages, so it does not affect existing contracts, it does not affect
existing mortgage pools, which protects investors. It protects the
credit structure of traditional mortgage products and again protects
investors and does not affect the efficiency of the mortgage market
which we enjoy today.
With respect to the mortgage insurance companies that our colleagues
from North Carolina were talking about, I do not believe it is going to
affect their business, because their primary business is at the front
end of the mortgage product and that is where they make the bulk of
their money. So I think they will come out of this just fine.
Finally, it protects the inter- mediaries within the payment
structure of mortgages; the mortgage brokers, the servicers, the
bankers. I
[[Page H1566]]
think the committee has taken great pains to do that.
So this is a very good consumer bill; it is also a very sound bill.
That is why it passed 36 to 1 in the committee. I do not think it will
have any effect on interest rates, as one of my colleagues suggested,
but what I think it will do is put money back into the pockets of
consumers, and I think that is good for the American people.
Mr. GONZALEZ. Mr. Speaker, we have no additional requests for time,
and I yield back the balance of my time.
Mr. LEACH. Mr. Speaker, I yield myself such time as I may consume.
In conclusion, I would like to thank again the gentleman from Utah
[Mr. Hansen] for his thoughtfulness and dedication to this issue; the
gentlewoman from New Jersey [Mrs. Roukema], whose subcommittee had
thoughtful jurisdiction; the minority for their substantive
participation, particularly the gentleman from Texas [Mr. Gonzalez],
the gentleman from Massachusetts [Mr. Kennedy], and the gentlewoman
from California [Ms. Waters], who passed a very significant amendment.
In the final measure, this bill is pro-consumer, pro-homeowner, pro
States' rights, and above anything else, it underscores decency and
fairness under the law.
Finally, I would also like to say that it is symbolic of a Congress
able to work together in trying political times for the public
interest.
Mr. HILL. Mr. Speaker, I rise today to oppose House Resolution 607
and urge my colleagues to vote no on this legislation so that parts of
the bill can be corrected under regular order.
Mr. Speaker, I am very concerned that House Resolution 607 would
adversely affect new home buyers in Montana and throughout the country.
As the bill is currently written, it will drive new home buyers, with a
low downpayment, to pay higher interest rates and higher premiums for
their private mortgage insurance. Due to the bill's automatic
cancellation trigger of private mortgage insurance at the 75 percent
loan to value ratio, the available pool of insurance funds will shift
the risk to lenders which in turn will raise interest rates for low
downpayment mortgages. In addition, the bill would increase the
premiums significantly for new homeowners who would be required to
purchase private mortgage insurance below the 75 percent loan to value
ratio.
In addition to the automatic trigger provisions, I am also concerned
with the bill's section (h) which is so loosely worded that it exposes
the mortgage industry and lender to frivolous class action lawsuits
that will benefit only a handful of trial lawyers, without commensurate
benefit to borrowers. As a result, the increased cost of these lawsuits
would be passed on to home buyers in the form of higher costs for
mortgages.
Finally, Mr. Speaker, this bill has gone from a simple disclosure
bill to one that attempts to micro manage the day-to-day business
transactions of the mortgage market. This is done by making the
Department of Housing and Urban Development [HUD], a bureaucratic
agency that cannot manage its own affairs, responsible for regulating
of the mortgage insurance industry.
Mr. Speaker, House Resolution 607 is onerous legislation that aims
high but misses the mark. Under suspension it cannot be amended.
Therefore, I urge my colleagues to defeat this bill under suspension so
that a better bill can be worked out for all home buyers.
Mr. SESSIONS. Mr. Speaker, I rise to commend Chairman Leach and the
Banking Committee for working on this legislation as well as
Congressman Jim Hansen for his hard work in bringing this issue before
the House for the American taxpayer. I cosponsored the original bill,
House Resolution 607, because I support full and increased consumer
disclosure regarding private mortgage insurance.
Private mortgage insurance provides a valuable role in expanding the
American dream of homeownership. With PMI, families can buy homes with
as little as 3 to 5 percent down rather than the usual 20 percent
downpayment required.
I want to work with the committee as this bill moves forward to the
Senate to ensure that some of the concerns expressed in the markup are
addressed. The role of mortgage insurance should be preserved because
consumers benefit by being allowed to put a lower downpayment down on
their home. But I understand that it's difficult to craft perfect
legislation, and I want to ensure that any technical problems or
unintended consequences like frivolous litigation with this bill get
worked out as we move to conference.
I also want to ensure that the automatic cancellation standards are
set at a reasonable level to protect both the consumer and the mortgage
industry from problems such as downturns in the economy such as we had
in Texas in the eighties. We all benefit from a fair mortgage insurance
system that remains safe and sound and also allows consumers to be
fully aware of their rights.
Mr. HOYER. Mr. Speaker, I rise today in enthusiastic support of the
bill House Resolution 607, the Homeowner's Insurance Protection Act of
1997.
This bill will ensure that millions of homeowners who pay private
mortgage insurance [PMI] will no longer pay needlessly and unknowingly
once the benefits of paying PMI expire.
Private Mortgage Insurance [PMI] provides important protection to
mortgage lenders against losses in the event a homeowner defaults on a
mortgage loan. PMI works to the immense benefit of lenders and
borrowers alike. By offsetting the risk to lenders of providing low
downpayment loans--less than 20 percent of the purchase value--PMI
substantially expands homeownership opportunities across America while
preventing economic catastrophe for lenders during downturns in the
housing market.
PMI has helped make the dream of homeownership a reality for more
than 17 million American families who have been able to purchase a home
with downpayments as low as 3 to 5 percent of the value of their home.
Recently, however, problems with PMI have come to light.
Thousands of American homeowners, Mr. Speaker, are overpaying their
PMI--making payments well after PMI becomes cancellable and after the
risk to the lender of making a low downpayment loan has expired. In
many cases, these homeowners are unaware that their PMI is cancellable
or that they are receiving no benefit from continuing to make PMI
payments. In other cases, informed homeowners who have attempted to
cancel their PMI have encountered difficulty in doing so.
House Resolution 607 addresses this problem by providing for
automatic termination of PMI payments once the loan-to-value ratio
reaches 75 percent of the value of the home at the time of purchase and
by requiring mortgage lenders to notify homeowners as to whether, when
and under what conditions their PMI is cancellable.
House Resolution 607 thus empowers homeowners by requiring lenders to
inform them of their PMI cancellation rights and by guaranteeing that
homeowners will no longer pay for PMI once they have built up 25
percent equity in their new home.
Homeowner beneficiaries of PMI, by and large, are middle-income
Americans who are not in a position to invest hard-earned income in
overinsuring against a risk to mortgage lenders. This bill preserves
the intended protection of lenders provided by PMI while ensuring that
the equally important aim of preserving the American dream of
homeownership for families is not defeated.
Mr. Speaker, I want to commend Congressman Jim Hansen for introducing
this important legislation which will provide valuable protection to
homeowners in the Fifth Congressional District of Maryland and across
this great Nation. I strongly urge my colleagues to join me in
supporting passage of this important bill.
Mr. LEACH. Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Iowa [Mr. Leach] that the House suspend the rules and
pass the bill, H.R. 607, as amended.
The question was taken.
Mr. LEACH. Mr. Speaker, on that I demand the yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 5 of rule I and the
Chair's prior announcement, further proceedings on this motion will be
postponed.
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