[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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