[Congressional Record Volume 143, Number 157 (Sunday, November 9, 1997)]
[Senate]
[Pages S12410-S12414]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   HOMEOWNERS PROTECTION ACT OF 1997

  Mr. SESSIONS. Mr. President, I now ask unanimous consent that the 
Senate proceed to the consideration of Calendar No. 243, S. 318.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       A bill (S. 318) to amend the Truth in Lending Act to 
     require automatic cancellation and notice of cancellation 
     rights with respect to private mortgage insurance which is 
     required by a creditor as a condition for entering into a 
     residential mortgage transaction.

  The PRESIDING OFFICER. Is there objection to the immediate 
consideration of the bill?
  There being no objection, the Senate proceeded to consider the 
bill, which had been reported from the Committee on Banking, Housing, 
and Urban Affairs, with an amendment to strike all after the enacting 
clause and inserting in lieu thereof the following:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Homeowners Protection Act of 
     1997''.

     SEC. 2. DEFINITIONS.

       In this Act, the following definitions shall apply:
       (1) Cancellation date.--The term ``cancellation date'' 
     means (at the option of the mortgagor) the date on which the 
     principal balance of a residential mortgage--
       (A) based solely on the initial amortization schedule for 
     that mortgage, and irrespective of the outstanding balance 
     for that mortgage on that date, is first scheduled to reach 
     80 percent of the original value of the property securing the 
     loan; or
       (B) based on actual payments, reaches 80 percent of the 
     original value of the property securing the loan.
       (2) Good payment history.--The term ``good payment 
     history'' means, with respect to a mortgagor, that the 
     mortgagor has not--
       (A) made a mortgage payment that was 60 days or longer past 
     due during the 12-month period beginning 24 months before the 
     date on which the mortgage reaches the cancellation date; or
       (B) made a mortgage payment that was 30 days or longer past 
     due during the 12-month period preceding the date on which 
     the mortgage reaches the cancellation date.
       (3) Initial amortization schedule.--With respect to--
       (A) a residential mortgage for which the interest rate is 
     not subject to change, the term ``initial amortization 
     schedule'' means a schedule established at the time at which 
     a residential mortgage transaction is consummated, showing--
       (i) the amount of principal and interest that is due at 
     regular intervals to retire the principal

[[Page S12411]]

     balance and accrued interest over the amortization period of 
     the loan; and
       (ii) the unpaid principal balance of the loan after each 
     scheduled payment is made; and
       (B) a residential mortgage for which the interest rate is 
     subject to change, the ``initial amortization schedule'' 
     shall be based upon the interest rate or rates applicable to 
     the residential mortgage on the date on which the transaction 
     is consummated.
       (4) Mortgage insurance.--The term ``mortgage insurance'' 
     means insurance, including any mortgage guaranty insurance, 
     against the nonpayment of, or default on, an individual 
     mortgage or loan involved in a residential mortgage 
     transaction.
       (5) Mortgage insurer.--The term ``mortgage insurer'' means 
     a provider of private mortgage insurance, as described in 
     this Act, that is authorized to transact such business in the 
     State in which the provider is transacting such business.
       (6) Mortgagee.--The term ``mortgagee'' means the holder of 
     a residential mortgage at the time at which that mortgage 
     transaction is consummated.
       (7) Mortgagor.--The term ``mortgagor'' means the original 
     borrower under a residential mortgage or his or her 
     successors or assignees.
       (8) Original value.--The term ``original value'', with 
     respect to a residential mortgage, means the lesser of the 
     sales price of the property securing the mortgage, as 
     reflected in the contract, or the appraised value at the time 
     at which the subject residential mortgage transaction was 
     consummated.
       (9) Private mortgage insurance.--The term ``private 
     mortgage insurance'' means mortgage insurance other than 
     mortgage insurance made available under the National Housing 
     Act, title 38 of the United States Code, or title V of the 
     Housing Act of 1949.
       (10) Residential mortgage.--The term ``residential 
     mortgage'' means a mortgage, loan, or other evidence of a 
     security interest created with respect to a single-family 
     dwelling that is the primary residence of the mortgagor.
       (11) Residential mortgage transaction.--The term 
     ``residential mortgage transaction'' means a transaction 
     consummated on or after the date that is 1 year after the 
     date of enactment of this Act, in which a mortgage, deed of 
     trust, purchase money security interest arising under an 
     installment sales contract, or equivalent consensual security 
     interest is created or retained against a single-family 
     dwelling that is the primary residence of the mortgagor to 
     finance the acquisition, initial construction, or refinancing 
     of that dwelling.
       (12) Servicer.--The term ``servicer'' has the same meaning 
     as in section 6(i)(2) of the Real Estate Settlement 
     Procedures Act of 1974, with respect to a residential 
     mortgage.
       (13) Single-family dwelling.--The term ``single-family 
     dwelling'' means a residence consisting of 1 family dwelling 
     unit.
       (14) Termination date.--The term ``termination date'' means 
     the date on which the principal balance of a residential 
     mortgage, based solely on the initial amortization schedule 
     for that mortgage, and irrespective of the outstanding 
     balance for that mortgage on that date, is first scheduled to 
     reach 78 percent of the original value of the property 
     securing the loan.

     SEC. 3. TERMINATION OF PRIVATE MORTGAGE INSURANCE.

       (a) Borrower Cancellation.--A requirement for private 
     mortgage insurance in connection with a residential mortgage 
     transaction shall be canceled on the cancellation date, if 
     the mortgagor--
       (1) submits a request in writing to the servicer that 
     cancellation be initiated;
       (2) has a good payment history with respect to the 
     residential mortgage; and
       (3) has satisfied any requirement of the holder of the 
     mortgage (as of the date of a request under paragraph (1)) 
     for--
       (A) evidence (of a type established in advance by the 
     holder and made known to the mortgagor promptly upon receipt 
     of a request under paragraph (1)) that the value of the 
     property securing the mortgage has not declined below the 
     original value of the property; and
       (B) certification that the equity of the mortgagor in the 
     residence securing the mortgage is unencumbered by a 
     subordinate lien.
       (b) Automatic Termination.--A requirement for private 
     mortgage insurance in connection with a residential mortgage 
     transaction shall terminate with respect to payments for that 
     mortgage insurance made by the mortgagor--
       (1) on the termination date if, on that date, the mortgagor 
     is current on the payments required by the terms of the 
     residential mortgage transaction; or
       (2) on the date after the termination date on which the 
     mortgagor becomes current on the payments required by the 
     terms of the residential mortgage transaction.
       (c) Final Termination.--If a requirement for private 
     mortgage insurance is not otherwise canceled or terminated in 
     accordance with subsection (a) or (b), in no case may such a 
     requirement be imposed beyond the first day of the month 
     immediately following the date that is the midpoint of the 
     amortization period of the loan if the mortgagor is current 
     on the payments required by the terms of the mortgage.
       (d) No Further Payments.--No payments or premiums may be 
     required from the mortgagor in connection with a private 
     mortgage insurance requirement terminated or canceled under 
     this section--
       (1) in the case of cancellation under subsection (a), more 
     than 30 days after the later of--
       (A) the date on which a request under subsection (a)(1) is 
     received; or
       (B) the date on which the mortgagor satisfies any evidence 
     and certification requirements under subsection (a)(3);
       (2) in the case of termination under subsection (b), more 
     than 30 days after the termination date or the date referred 
     to in subsection (b)(2), as applicable; and
       (3) in the case of termination under subsection (c), more 
     than 30 days after the final termination date established 
     under that subsection.
       (e) Return of Unearned Premiums.--
       (1) In general.--Not later than 45 days after the 
     termination or cancellation of a private mortgage insurance 
     requirement under this section, all unearned premiums for 
     private mortgage insurance shall be returned to the mortgagor 
     by the servicer.
       (2) Transfer of funds to servicer.--Not later than 30 days 
     after notification by the servicer of termination or 
     cancellation of private mortgage insurance under this Act 
     with respect to a mortgagor, a mortgage insurer that is in 
     possession of any unearned premiums of that mortgagor shall 
     transfer to the servicer of the subject mortgage an amount 
     equal to the amount of the unearned premiums for repayment in 
     accordance with paragraph (1).
       (f) Exceptions for Housing Opportunity Programs and High 
     Risk Loans.--
       (1) In general.--The termination and cancellation 
     provisions in subsections (a) and (b) do not apply to any 
     residential mortgage or mortgage transaction that, at the 
     time at which the residential mortgage transaction is 
     consummated, has high risks associated with the extension of 
     the loan--
       (A) as determined by guidelines published by the Federal 
     National Mortgage Association and Federal Home Loan Mortgage 
     Corporation, so as to require the imposition or continuation 
     of a private mortgage insurance requirement beyond the terms 
     specified in subsection (a) or (b) of section 3; or
       (B) as determined by the mortgagee in accordance with 
     guidelines that are identical to the guidelines published 
     under subparagraph (A).
       (2) Termination at midpoint.--A private mortgage insurance 
     requirement in connection with a residential mortgage or 
     mortgage transaction described in paragraph (1) shall 
     terminate in accordance with subsection (c).
       (3) Rule of construction.--Nothing in this subsection may 
     be construed to require a mortgage or mortgage transaction 
     described in paragraph (1)(A) to be purchased by the Federal 
     National Mortgage Association or the Federal Home Loan 
     Mortgage Corporation.

     SEC. 4. DISCLOSURE REQUIREMENTS.

       (a) Disclosures for New Mortgages at Time of Transaction.--
       (1) Disclosures for non-exempted transactions.--In any case 
     in which private mortgage insurance is required in connection 
     with a residential mortgage or mortgage transaction (other 
     than a mortgage or mortgage transaction described in section 
     3(f)(1)), at the time at which the transaction is 
     consummated, the mortgagee shall provide to the mortgagor--
       (A) a written initial amortization schedule; and
       (B) written notice--
       (i) that the mortgagor may cancel the requirement in 
     accordance with section 3(a) of this Act indicating the date 
     on which the mortgagor may request cancellation, based solely 
     on the initial amortization schedule;
       (ii) that the mortgagor may request cancellation in 
     accordance with section 3(a) of this Act earlier than 
     provided for in the initial amortization schedule, based on 
     actual payments;
       (iii) that the requirement for private mortgage insurance 
     will automatically terminate on the termination date in 
     accordance with section 3(b) of this Act, and what that 
     termination date is with respect to that mortgage; and
       (iv) that there are exemptions to the right to cancellation 
     and automatic termination of a requirement for private 
     mortgage insurance in accordance with section 3(f) of this 
     Act, and whether such an exemption applies at that time to 
     that transaction.
       (2) Disclosures for excepted transactions.--In the case of 
     a mortgage or mortgage transaction described in section 
     3(f)(1), at the time at which the transaction is consummated, 
     the mortgagee shall provide written notice to the mortgagor 
     that in no case may private mortgage insurance be required 
     beyond the date that is the midpoint of the amortization 
     period of the loan, if the mortgagor is current on payments 
     required by the terms of the residential mortgage.
       (3) Annual disclosures.--If private mortgage insurance is 
     required in connection with a residential mortgage 
     transaction, the servicer shall disclose to the mortgagor in 
     each such transaction in an annual written statement--
       (A) the rights of the mortgagor under this Act to 
     cancellation or termination of the private mortgage insurance 
     requirement; and
       (B) an address and telephone number that the mortgagor may 
     use to contact the servicer to determine whether the 
     mortgagor may cancel the private mortgage insurance.
       (4) Applicability.--Paragraphs (1) through (3) shall apply 
     with respect to each residential mortgage transaction 
     consummated on or after the date that is 1 year after the 
     date of enactment of this Act.
       (b) Disclosures for Existing Mortgages.--If private 
     mortgage insurance was required in connection with a 
     residential mortgage entered into at any time before the 
     effective date of this Act, the servicer shall disclose to 
     the mortgagor in each such transaction in an annual written 
     statement--
       (1) that the private mortgage insurance may, under certain 
     circumstances, be canceled by the mortgagor (with the consent 
     of the mortgagee or in accordance with applicable State law); 
     and
       (2) an address and telephone number that the mortgagor may 
     use to contact the servicer to determine whether the 
     mortgagor may cancel the private mortgage insurance.
       (c) Inclusion in Other Annual Notices.--The information and 
     disclosures required under

[[Page S12412]]

     subsection (b) and paragraphs (1)(B) and (3) of subsection 
     (a) may be provided on the annual disclosure relating to the 
     escrow account made as required under the Real Estate 
     Settlement Procedures Act of 1974, or as part of the annual 
     disclosure of interest payments made pursuant to Internal 
     Revenue Service regulations, and on a form promulgated by the 
     Internal Revenue Service for that purpose.
       (d) Standardized Forms.--The mortgagee or servicer may use 
     standardized forms for the provision of disclosures required 
     under this section.

     SEC. 5. NOTIFICATION UPON CANCELLATION OR TERMINATION.

       (a) In General.--Not later than 30 days after the date of 
     cancellation or termination of a private mortgage insurance 
     requirement in accordance with this Act, the servicer shall 
     notify the mortgagor in writing--
       (1) that the private mortgage insurance has terminated and 
     that the mortgagor no longer has private mortgage insurance; 
     and
       (2) that no further premiums, payments, or other fees shall 
     be due or payable by the mortgagor in connection with the 
     private mortgage insurance.
       (b) Notice of Grounds.--
       (1) In general.--If a holder of a residential mortgage (or 
     a servicer acting on behalf of that holder) determines that a 
     mortgage did not meet the requirements for termination or 
     cancellation of private mortgage insurance under subsection 
     (a) or (b) of section 3, the servicer shall provide written 
     notice to the mortgagor of the grounds relied on to make the 
     determination (including the results of any appraisal used to 
     make the determination).
       (2) Timing.--Notice required by paragraph (1) shall be 
     provided--
       (A) with respect to cancellation of private mortgage 
     insurance under section 3(a), not later than 30 days after 
     the later of--
       (i) the date on which a request is received under section 
     3(a)(1); or
       (ii) the date on which the mortgagor satisfies any evidence 
     and certification requirements under section 3(a)(3); and
       (B) with respect to termination of private mortgage 
     insurance under section 3(b), not later than 30 days after 
     the scheduled termination date.

     SEC. 6. DISCLOSURE REQUIREMENTS FOR LENDER PAID MORTGAGE 
                   INSURANCE.

       (a) Definitions.--For purposes of this section--
       (1) the term ``borrower paid mortgage insurance'' means 
     private mortgage insurance that is required in connection 
     with a residential mortgage transaction, payments for which 
     are made by the borrower; and
       (2) the term ``lender paid mortgage insurance'' means 
     private mortgage insurance that is required in connection 
     with a residential mortgage transaction, payments for which 
     are made by a person other than the borrower.
       (b) Exclusion.--Sections 3 through 5 do not apply in the 
     case of lender paid mortgage insurance.
       (c) Notices to Mortgagor.--In the case of lender paid 
     mortgage insurance that is required in connection with a 
     residential mortgage or a residential mortgage transaction--
       (1) not later than the date on which a loan commitment is 
     made for the residential mortgage transaction, the 
     prospective mortgagee shall provide to the prospective 
     mortgagor a written notice--
       (A) that lender paid mortgage insurance differs from 
     borrower paid mortgage insurance, in that lender paid 
     mortgage insurance may not be canceled by the mortgagor, 
     while borrower paid mortgage insurance could be cancelable by 
     the mortgagor in accordance with section 3(a) of this Act, 
     and could automatically terminate on the termination date in 
     accordance with section 3(b) of this Act;
       (B) that lender paid mortgage insurance--
       (i) usually results in a residential mortgage having a 
     higher interest rate than it would in the case of borrower 
     paid mortgage insurance; and
       (ii) terminates only when the residential mortgage is 
     refinanced, paid off, or otherwise terminated; and
       (C) that lender paid mortgage insurance and borrower paid 
     mortgage insurance both have benefits and disadvantages, 
     including a generic analysis of the differing costs and 
     benefits of a residential mortgage in the case lender paid 
     mortgage insurance versus borrower paid mortgage insurance 
     over a 10-year period, assuming prevailing interest and 
     inflation rates;
       (D) that lender paid mortgage insurance may be tax-
     deductible for purposes of Federal income taxes, if the 
     mortgagor itemizes expenses for that purpose; and
       (2) not later than 30 days after the termination date that 
     would apply in the case of borrower paid mortgage insurance, 
     the servicer shall provide to the mortgagor a written notice 
     indicating that the mortgagor may wish to review financing 
     options that could eliminate the requirement for private 
     mortgage insurance in connection with the residential 
     mortgage.
       (d) Standard Forms.--The servicer of a residential mortgage 
     may develop and use a standardized form or forms for the 
     provision of notices to the mortgagor, as required under 
     subsection (c).

     SEC. 7. FEES FOR DISCLOSURES.

       No fee or other cost may be imposed on any mortgagor with 
     respect to the provision of any notice or information to the 
     mortgagor pursuant to this Act.

     SEC. 8. CIVIL LIABILITY.

       (a) In General.--Any servicer, mortgagee, mortgage insurer, 
     or holder of a residential mortgage that violates a provision 
     of this Act shall be liable to each mortgagor to whom the 
     violation relates for--
       (1) actual damages;
       (2) in the case of an action by an individual, such 
     additional damage as the court may allow, not to exceed 
     $1,000;
       (3) costs of the action; and
       (4) reasonable attorney fees, as determined by the court.
       (b) Timing of actions.--No action may be brought by a 
     mortgagor under subsection (a) later than 2 years after the 
     date of the discovery of the violation that is the subject of 
     the action.
       (c) Limitations on Liability.--
       (1) In general.--With respect to a residential mortgage 
     transaction, the failure of a servicer to comply with the 
     requirements of this Act due to the failure of a mortgage 
     insurer, a mortgagee, or a holder of a residential mortgage 
     to comply with the requirements of this Act, shall not be 
     construed to be a violation of this Act by the servicer.
       (2) Rule of construction.--Nothing in paragraph (1) shall 
     be construed to impose any additional requirement or 
     liability on a mortgagee or mortgage insurer or holder of a 
     residential mortgage.

     SEC. 9. EFFECT ON OTHER LAWS AND AGREEMENTS.

       (a) Effect on State Law.--
       (1) In general.--With respect to any residential mortgage 
     or residential mortgage transaction consummated after the 
     effective date of this Act, and except as provided in 
     paragraph (2), the provisions of this Act shall supersede any 
     provisions of the law of any State relating to requirements 
     for obtaining or maintaining private mortgage insurance in 
     connection with residential mortgage transactions, 
     cancellation or automatic termination of such private 
     mortgage insurance, any disclosure of information addressed 
     by this Act, and any other matter specifically addressed by 
     this Act.
       (2) Continued application of certain provisions.--This Act 
     does not supersede any provision of the law of a State in 
     effect on or before September 1, 1989, pertaining to the 
     termination of private mortgage insurance or other mortgage 
     guaranty insurance, to the extent that such law requires 
     termination of such insurance at an earlier date or when a 
     lower mortgage loan principal balance is achieved than as 
     provided in this Act.
       (b) Effect on Other Agreements.--The provisions of this Act 
     shall supersede any conflicting provision contained in any 
     agreement relating to the servicing of a residential mortgage 
     loan entered into by the Federal National Mortgage 
     Association, the Federal Home Loan Mortgage Corporation, or 
     any private investor or note holder (or any successors 
     thereto).

     SEC. 10. CONSTRUCTION.

       Nothing in this Act shall be construed to impose any 
     requirement for private mortgage insurance in connection with 
     a residential mortgage transaction.

     SEC. 11. EFFECTIVE DATE.

       This Act, other than section 12, shall become effective 1 
     year after the date of enactment of this Act.

     SEC. 12. ABOLISHMENT OF THE THRIFT DEPOSITOR PROTECTION 
                   OVERSIGHT BOARD.

       (a) In General.--Effective at the end of the 3-month period 
     beginning on the date of enactment of this Act, the Thrift 
     Depositor Protection Oversight Board established under 
     section 21A of the Federal Home Loan Bank Act (hereafter in 
     this section referred to as the ``Oversight Board'') is 
     hereby abolished.
       (b) Disposition of Affairs.--
       (1) Power of chairperson.--Effective on the date of 
     enactment of this Act, the Chairperson of the Oversight Board 
     (or the designee of the Chairperson) may exercise on behalf 
     of the Oversight Board any power of the Oversight Board 
     necessary to settle and conclude the affairs of the Oversight 
     Board.
       (2) Availability of funds.--Funds available to the 
     Oversight Board shall be available to the Chairperson of the 
     Oversight Board to pay expenses incurred in carrying out 
     paragraph (1).
       (c) Savings Provision.--
       (1) Existing rights, duties, and obligations not 
     affected.--No provision of this section shall be construed as 
     affecting the validity of any right, duty, or obligation of 
     the United States, the Oversight Board, the Resolution Trust 
     Corporation, or any other person that--
       (A) arises under or pursuant to the Federal Home Loan Bank 
     Act, or any other provision of law applicable with respect to 
     the Oversight Board; and
       (B) existed on the day before the abolishment of the 
     Oversight Board in accordance with subsection (a).
       (2) Continuation of suits.--No action or other proceeding 
     commenced by or against the Oversight Board with respect to 
     any function of the Oversight Board shall abate by reason of 
     the enactment of this section.
       (3) Liabilities.--
       (A) In general.--All liabilities arising out of the 
     operation of the Oversight Board during the period beginning 
     on August 9, 1989, and the date that is 3 months after the 
     date of enactment of this Act shall remain the direct 
     liabilities of the United States.
       (B) No substitution.--The Secretary of the Treasury shall 
     not be substituted for the Oversight Board as a party to any 
     action or proceeding referred to in subparagraph (A).
       (4) Continuations of orders, resolutions, determinations, 
     and regulations pertaining to the resolution funding 
     corporation.--
       (A) In general.--All orders, resolutions, determinations, 
     and regulations regarding the Resolution Funding Corporation 
     shall continue in effect according to the terms of such 
     orders, resolutions, determinations, and regulations until 
     modified, terminated, set aside, or superseded in accordance 
     with applicable law if such orders, resolutions, 
     determinations, or regulations--

[[Page S12413]]

       (i) have been issued, made, and prescribed, or allowed to 
     become effective by the Oversight Board, or by a court of 
     competent jurisdiction, in the performance of functions 
     transferred by this section; and
       (ii) are in effect at the end of the 3-month period 
     beginning on the date of enactment of this section.
       (B) Enforceability of orders, resolutions, determinations, 
     and regulations before transfer.--Before the effective date 
     of the transfer of the authority and duties of the Resolution 
     Funding Corporation to the Secretary of the Treasury under 
     subsection (d), all orders, resolutions, determinations, and 
     regulations pertaining to the Resolution Funding Corporation 
     shall be enforceable by and against the United States.
       (C) Enforceability of orders, resolutions, determinations, 
     and regulations after transfer.--On and after the effective 
     date of the transfer of the authority and duties of the 
     Resolution Funding Corporation to the Secretary of the 
     Treasury under subsection (d), all orders, resolutions, 
     determinations, and regulations pertaining to the Resolution 
     Funding Corporation shall be enforceable by and against the 
     Secretary of the Treasury.
       (d) Transfer of Thrift Depositor Protection Oversight Board 
     Authority and Duties of Resolution Funding Corporation to 
     Secretary of the Treasury.--Effective at the end of the 3-
     month period beginning on the date of enactment of this Act, 
     the authority and duties of the Oversight Board under 
     sections 21A(a)(6)(I) and 21B of the Federal Home Loan Bank 
     Act are transferred to the Secretary of the Treasury (or the 
     designee of the Secretary).
       (e) Membership of the Affordable Housing Advisory Board.--
     Effective on the date of enactment of this Act, section 
     14(b)(2) of the Resolution Trust Corporation Completion Act 
     (12 U.S.C. 1831q note) is amended--
       (1) by striking subparagraph (C); and
       (2) by redesignating subparagraphs (D) and (E) as 
     subparagraphs (C) and (D), respectively.
       (f) Time of Meetings of the Affordable Housing Advisory 
     Board.--
       (1) In general.--Section 14(b)(6)(A) of the Resolution 
     Trust Corporation Completion Act (12 U.S.C. 1831q note) is 
     amended--
       (A) by striking ``4 times a year, or more frequently if 
     requested by the Thrift Depositor Protection Oversight Board 
     or'' and inserting ``2 times a year or at the request of''; 
     and
       (B) by striking the second sentence.
       (2) Clerical amendment.--Section 14(b)(6)(A) of the 
     Resolution Trust Corporation Completion Act (12 U.S.C. 1831q 
     note) is amended, in the subparagraph heading, by striking 
     ``and location''.
       Amend the title so as to read: ``A Bill to require 
     automatic cancellation and notice of cancellation rights with 
     respect to private mortgage insurance which is required as a 
     condition for entering into a residential mortgage 
     transaction, to abolish the Thrift Depositor Protection 
     Oversight Board, and for other purposes.''.

  Mr. D'AMATO. Mr. President, today the Senate will consider, and I 
trust pass, S. 318, the Homeowners Protection Act of 1997. The 
Homeowners Protection Act, which I introduced earlier this year, and 
the Banking Committee passed by a 16-to-1 vote, is truly important 
legislation. This bill will protect homebuyers from excessive mortgage 
insurance premiums for homebuyers. It is a great product of great deal 
of hard work by a number of the Banking Committee's members. As a 
result, the legislation contains the consumer protections of the 
original bill; at the same time, the bill will be less of a compliance 
burden for the businesses that are subject to the legislation.
  Mr. President, the substitute amendment that Senator Sarbanes and I 
will offer for Senate consideration is the result of a great deal of 
hard work by Members on both sides of the aisle. First, I would like to 
begin by thanking my colleague and friend from North Carolina, Senator 
Faircloth, for his hard work on this issue. Senator Faircloth and his 
staff have worked tirelessly to help craft compromise language that 
encompasses real consumer protection without undue regulatory burden. I 
would also like to offer my thanks to ranking minority member Paul 
Sarbanes and the bill's cosponsors, Senator Dodd and Senator Bryan, for 
their continuous support. I truly appreciate their valuable input in 
preparing the floor amendment that we are considering today. Likewise, 
I would like to commend Senators Grams and Moseley-Braun for their 
successful handling of the lender paid mortgage insurance issue, and my 
friend from Utah, Senator Bennett, for helping to craft compromise 
language regarding class action liability.
  Once again, I would particularly like to thank Representative James 
Hansen (R-UT), who has been the leader in the House in the fight to 
address PMI abuses.
  Mr. President, by passing this bill we can remedy a market 
dysfunction--unnecessary private mortgage insurance premiums. These 
premiums are being paid by tens of thousands of American homeowners. 
Private mortgage insurance is typically required when a homebuyer 
cannot make the standard 20-percent downpayment. For many creditworthy, 
cash-poor potential homebuyers, private mortgage insurance has been a 
blessing. Unfortunately, it can also become a curse.

  I will present just one example of this unfair practice. A homebuyer 
purchases a $100,000 home with a 30-year, fixed rate mortgage and a 10-
percent downpayment. After 10 years and $3,500 in mortgage insurance 
premiums, it is likely that the homeowners would have a 20-percent 
equity stake in his or her home. At this time, private mortgage 
insurance is no longer necessary. However, if that homeowner is unaware 
of the right to cancel--as many are--and continues to pay for 
unnecessary insurance, he or she could spend an additional $7,000 in 
premiums over the life of the loan. And this is less costly than many 
of the horror stories we hear. In fact, private mortgage insurance 
rates average between $20 and $100 per month, meaning that some 
consumers are unknowingly paying from $240 to $1,200 a year for 
absolutely no reason. Situations like these are nothing less than a 
fleecing of the American homeowner.
  The private mortgage insurance industry extended coverage on nearly 
900,000 of the approximately 4.4 million mortgages made for the 
purchase of single-family homes in 1995. At a Banking Committee hearing 
earlier this year, the spokesman for the private mortgage insurance 
industry stated that of the approximately 5 million homeowners repaying 
mortgages covered by PMI, 5 percent could be eligible for cancellation. 
That amounts to 250,000 hardworking families. And some estimates go 
much higher.
  In fact, according to a recent Washington Post article by Ken Harney:

       An eye-opening new estimate of the extent of the problem 
     came last week when a Dallas-based loan portfolio analyst 
     said he believes that as much as one-fifth of some lenders' 
     mortgage portfolios consist of PMI-insured loans with 
     equities that are greater than 20 percent of current market 
     resale value.

  Mr. President, clearly, American homeowners, particularly middleclass 
and firsttime homeowners need our help--and I can say today that that 
help is on the way. The committee print enables homeowners to initiate 
cancellation when they have accumulated 20-percent equity. Otherwise, 
the general rule is that PMI must be automatically canceled at 22 
percent.
  The bill also requires that all existing mortgagors who currently 
maintain PMI will receive an annual notice informing them that under 
certain circumstances their insurance may be canceled. The notice must 
include information to allow the homeowner to contact his or her 
servicer regarding cancellation requirements. New homebuyers will be 
informed of their cancellation rights at closing, and will be informed 
of their right under this law at closing and annually.
  Mr. President, let me state for the record: I am opposed to 
unnecessary and excessive government regulation. This bill accomplishes 
the goals of S. 318 without imposing excess regulation. Clearly, the 
Congress should allow the free market to resolve most problems. This 
bill is only needed because, due to the peculiar nature of the PMI 
market, the market has not remedied this problem. I am grateful for the 
cooperation of all the industries and consumer groups that have helped 
bring us to this point.
  Mr. President, the Homeowner's Protection Act is evidence of what 
this body can accomplish with hard work on a bipartisan basis. 
Currently, unnecessary PMI premiums are wrong--when this bill becomes 
law, they will be illegal. I urge my colleagues to support this 
important bill and to vote for its passage.


                           Amendment No. 1623

                   (Purpose: To provide a substitute)

  Mr. SESSIONS. Senator D'Amato has a substitute amendment at the desk. 
I ask for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from Alabama [Mr. Sessions] for Mr. D'Amato, 
     for himself and Mr. Sarbanes, proposes an amendment numbered 
     1623.


[[Page S12414]]


  (The text of the amendment is printed in today's Record under 
``Amendments Submitted.'')
  Mr. DODD. Mr. President. I rise today in strong support for passage 
of S. 318, the Homeowners Protection Act of 1997. This important 
consumer legislation would end the odious practice of forcing hundreds 
of thousands of homeowners to pay for private mortgage insurance long 
after they, or their lender, cease to derive any benefit from it.
  Private mortgage insurance--or PMI as it's known--has played a very 
important role in expanding homeownership opportunities for people who 
have had less than the traditional 20 percent downpayment that many 
lenders required. In the event of a default, the PMI provides insurance 
to the lender for the difference between the downpayment and 20 percent 
or, in rare instances, some other predetermined percentage--equity 
level. This is also known as an 80 percent loan-to-value ratio.
  As beneficial as PMI has been, it has also developed some less savory 
characteristics. Principally, the problem with PMI as it exists today 
is that it is virtually impossible for a homeowner to stop making the 
premium payments, even after the PMI no longer provides any protection. 
As a result, literally hundreds of thousands of homeowners pay as much 
as $1,200 a year in unfair and unnecessary payments.
  Mr. President, this legislation would change all that in a fair and 
simple way. First, the bill provides simple and meaningful disclosure 
to the borrower at the time of the mortgage closing, so that the 
borrower understands when and how they can cancel their PMI. In fact, 
the borrower receives an amortization table that gives them a date 
certain when they may voluntarily cancel the PMI and a date certain 
when the PMI will be automatically canceled. Second, the bill requires 
the mortgage servicer to provide annual notices to the homeowner and 
then to let the homeowner know that they've reached 80 percent loan-to-
value ratio, based upon the original amortization table, and therefore, 
the homeowner may have the right to cancel. Third, the bill provides 
that for the vast majority of homeowners, their PMI will be 
automatically canceled at 78 percent loan-to-value ratio, based upon 
the original amortization table. Lastly, there are some very, very 
narrow exceptions for high-risk loans that allow the continuation of 
PMI to the halflife of the loan.
  Let me put it more simply, Mr. President: for the overwhelming 
majority of homeowners, when you've got 20 percent equity in your home, 
you have the right to initiate cancellation of your PMI. If you choose 
not to initiate the cancellation, your PMI will be automatically 
canceled at 22 percent equity. It's that simple. And the result of 
these reforms will save hundreds of thousands of homeowners as much as 
$1,200 a year.
  As easy as the problem was to identify, it was a complicated and 
difficult process to achieve this legislative remedy. I particularly 
wish to acknowledge the outstanding work of Chairman D'Amato, with whom 
I joined in this effort back in February. I would also like to thank 
Senator Sarbanes, Senator Faircloth, and Senator Bennett for their 
tireless efforts to achieve a bill that serves the interest of 
consumers without inadvertently disrupting the mortgage lending 
industry.
  I urge my colleagues to join me in passing this legislation.
  Mr. FAIRCLOTH. Mr. President, I want to commend my colleagues on the 
Banking Committee for their tireless efforts to craft this piece of 
legislation so that the final bill can enjoy such broad bipartisan 
support. The Banking Committee has passed positive legislation to 
protect consumers and give them new rights for canceling private 
mortgage insurance.
  Private mortgage insurance has been a great tool to increase 
homeownership. But there have been too many cases where people had 
trouble canceling the insurance long after it was needed. This bill 
gives consumers the opportunity to cancel their private mortgage 
insurance at 20-percent equity and requires automatic cancellation at 
22-percent equity. S. 318 requires that homebuyers be informed about 
their right to cancel private mortgage insurance. It creates a national 
standard for cancellation that is clear and simple for consumers to 
understand. I believe it is a winner for all kinds of consumers.
  When S. 318 was first introduced about 9 months ago many on the 
committee could not support it. It created unnecessary government 
mandates and controls on the entire mortgage industry by setting a 
bright line rule for cancellation. As a result, S. 318 as introduced, 
would have increased the cost of obtaining a low downpayment mortgage 
and would have put homeownership out of the reach for many families.
  The version that was reported out of the committee, by a 16-to-1 vote 
on October 23, still provides consumers with important rights, but 
eliminates the Federal Government's role in the marketplace so that 
industry can continue to create innovative products for future 
homebuyers. Further, the bill provides meaningful limitations on class 
action lawsuits without stripping consumers of their enforcement 
mechanisms in the bill.
  I believe that S. 318, as written today, is a good bill for consumers 
everywhere. Mortgage insurance is a valuable financial tool that allows 
people to get into homes years sooner than they would otherwise. But I 
do not want anyone to pay for it longer than it is needed. This bill 
gives consumers that protection.
  Mr. SESSIONS. I ask unanimous consent that the amendment be 
considered as read and agreed to, the bill be considered as read a 
third time and passed as amended, the title amendment be agreed to, the 
motion to reconsider be laid upon the table, and that any statements 
relating to the bill appear at this point in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment (No. 1623) was agreed to.
  The bill (S. 318), as amended, was read the third time and passed.
  The title was amended so as to read: A Bill to require automatic 
cancellation and notice of cancellation rights with respect to private 
mortgage insurance which is required as a condition for entering into a 
residential mortgage transaction, to abolish the Thrift Depositor 
Protection Oversight Board, and for other purposes.

                          ____________________