Congressional Record, Volume 144 Issue 93 (Tuesday, July 14, 1998)

[Congressional Record Volume 144, Number 93 (Tuesday, July 14, 1998)]
[House]
[Pages H5428-H5437]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

HOMEOWNERS PROTECTION ACT OF 1998

Mr. LEACH. Mr. Speaker, I move to suspend the rules and pass the
Senate bill (S. 318) 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, as amended.
The Clerk read as follows:

S. 318

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) Short Title.--This Act may be cited as the ``Homeowners
Protection Act of 1998''.
(b) Table of Contents.--The table of contents for this Act
is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Termination of private mortgage insurance.
Sec. 4. Disclosure requirements.
Sec. 5. Notification upon cancellation or termination.
Sec. 6. Disclosure requirements for lender paid mortgage insurance.
Sec. 7. Fees for disclosures.
Sec. 8. Civil liability.
Sec. 9. Effect on other laws and agreements.
Sec. 10. Enforcement.
Sec. 11. Construction
Sec. 12. Effective date.
Sec. 13. Abolishment of the Thrift Depositor Protection Oversight
Board.

SEC. 2. DEFINITIONS.

In this Act, the following definitions shall apply:
(1) Adjustable rate mortgage.--The term ``adjustable rate
mortgage'' means a residential mortgage that has an interest
rate that is subject to change.
(2) Cancellation date.--The term ``cancellation date''
means--
(A) with respect to a fixed rate mortgage, at the option of
the mortgagor, the date on which the principal balance of the
mortgage--
(i) 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
(ii) based solely on actual payments, reaches 80 percent of
the original value of the property securing the loan; and
(B) with respect to an adjustable rate mortgage, at the
option of the mortgagor, the date on which the principal
balance of the mortgage--
(i) based solely on amortization schedules 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
(ii) based solely on actual payments, first reaches 80
percent of the original value of the property securing the
loan.
(3) Fixed rate mortgage.--The term ``fixed rate mortgage''
means a residential mortgage that has an interest rate that
is not subject to change.
(4) 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.
(5) Initial amortization schedule.--The term ``initial
amortization schedule'' means a schedule established at the
time at which a residential mortgage transaction is
consummated with respect to a fixed rate mortgage, showing--
(A) the amount of principal and interest that is due at
regular intervals to retire the principal balance and accrued
interest over the amortization period of the loan; and
(B) the unpaid principal balance of the loan after each
scheduled payment is made.
(6) 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.
(7) 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.
(8) Mortgagee.--The term ``mortgagee'' means the holder of
a residential mortgage at the time at which that mortgage
transaction is consummated.
(9) Mortgagor.--The term ``mortgagor'' means the original
borrower under a residential mortgage or his or her
successors or assignees.
(10) 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.
(11) 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.
(12) 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.
(13) 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.
(14) 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.
(15) Single-family dwelling.--The term ``single-family
dwelling'' means a residence consisting of 1 family dwelling
unit.
(16) Termination date.--The term ``termination date''
means--
(A) with respect to a fixed rate mortgage, the date on
which the principal balance of the 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; and
(B) with respect to an adjustable rate mortgage, the date
on which the principal balance of the mortgage, based solely
on amortization schedules 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 and made
known to the mortgagor by the servicer 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

[[Page H5429]]

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 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 in accordance with guidelines published
by the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation, in the case of a mortgage
loan with an original principal balance that does not exceed
the applicable annual conforming loan limit for the secondary
market established pursuant to section 305(a)(2) of the
Federal Home Loan Mortgage Corporation Act, 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 the case of any other
mortgage, except that termination shall occur--
(i) with respect to a fixed rate mortgage, on the date on
which the principal balance of the 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 77 percent of the
original value of the property securing the loan; and
(ii) with respect to an adjustable rate mortgage, on the
date on which the principal balance of the mortgage, based
solely on amortization schedules for that mortgage, and
irrespective of the outstanding balance for that mortgage on
that date, is first scheduled to reach 77 percent of the
original value of the property securing the loan.
(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.
(4) Gao report.--Not later than 2 years after the date of
the enactment of this Act, the Comptroller General of the
United States shall submit to the Congress a report
describing the volume and characteristics of residential
mortgages and residential mortgage transactions that,
pursuant to paragraph (1) of this subsection, are exempt from
the application of subsections (a) and (b). The report
shall--
(A) determine the number or volume of such mortgages and
transactions compared to residential mortgages and
residential mortgage transactions that are not classified as
high-risk for purposes of paragraph (1); and
(B) identify the characteristics of such mortgages and
transactions that result in their classification (for
purposes of paragraph (1)) as having high risks associated
with the extension of the loan and describe such
characteristics, including--
(i) the income levels and races of the mortgagors involved;
(ii) the amount of the downpayments involved and the
downpayments expressed as percentages of the acquisition
costs of the properties involved;
(iii) the types and locations of the properties involved;
(iv) the mortgage principal amounts; and
(v) any other characteristics of such mortgages and
transactions that may contribute to their classification as
high risk for purposes of paragraph (1), including whether
such mortgages are purchase-money mortgages or refinancings
and whether and to what extent such loans are low-
documentation loans.

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) if the transaction relates to a fixed rate mortgage--
(i) a written initial amortization schedule; and
(ii) 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; and

(B) if the transaction relates to an adjustable rate
mortgage, a written notice that--
(i) the mortgagor may cancel the requirement in accordance
with section 3(a) of this Act on the cancellation date, and
that the servicer will notify the mortgagor when the
cancellation date is reached;
(ii) the requirement for private mortgage insurance will
automatically terminate on the termination date, and that on
the termination date, the mortgagor will be notified of the
termination or that the requirement will be terminated as
soon as the mortgagor is current on loan payments; and
(iii) there are exemptions to the right of 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

[[Page H5430]]

under 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 servicer 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;
(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; and
(3) the term ``loan commitment'' means a prospective
mortgagee's written confirmation of its approval, including
any applicable closing conditions, of the application of a
prospective mortgagor for a residential mortgage loan.
(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
property appreciation 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, or mortgage
insurer that violates a provision of this Act shall be liable
to each mortgagor to whom the violation relates for--
(1) in the case of an action by an individual, or a class
action in which the liable party is not subject to section
10, any actual damages sustained by the mortgagor as a result
of the violation, including interest (at a rate determined by
the court) on the amount of actual damages, accruing from the
date on which the violation commences;
(2) in the case of--
(A) an action by an individual, such statutory damages as
the court may allow, not to exceed $2,000; and
(B) in the case of a class action--
(i) in which the liable party is subject to section 10,
such amount as the court may allow, except that the total
recovery under this subparagraph in any class action or
series of class actions arising out of the same violation by
the same liable party shall not exceed the lesser of $500,000
or 1 percent of the net worth of the liable party, as
determined by the court; and
(ii) in which the liable party is not subject to section
10, such amount as the court may allow, not to exceed $1000
as to each member of the class, except that the total
recovery under this subparagraph in any class action or
series of class actions arising out of the same violation by
the same liable party shall not exceed the lesser of $500,000
or 1 percent of the gross revenues of the liable party, as
determined by the court;
(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 or a mortgagee 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 mortgage insurer, a mortgagee, or a 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) Protection of existing state laws.--
(A) In general.--The provisions of this Act do not
supersede protected State laws, except to the extent that the
protected State laws are inconsistent with any provision of
this Act, and then only to the extent of the inconsistency.
(B) Inconsistencies.--A protected State law shall not be
considered to be inconsistent with a provision of this Act if
the protected State law--
(i) requires termination of private mortgage insurance or
other mortgage guaranty insurance--

(I) at a date earlier than as provided in this Act; or
(II) when a mortgage principal balance is achieved that is
higher than as provided in this Act; or

(ii) requires disclosure of information--

(I) that provides more information than the information
required by this Act; or
(II) more often or at a date earlier than is required by
this Act.

(C) Protected state laws.--For purposes of this paragraph,
the term ``protected State law'' means a State law--
(i) regarding any requirements relating to private mortgage
insurance in connection with residential mortgage
transactions;
(ii) that was enacted not later than 2 years after the date
of the enactment of this Act; and
(iii) that is the law of a State that had in effect, on or
before January 2, 1998, any State law described in clause
(i).
(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).

[[Page H5431]]

SEC. 10. ENFORCEMENT.

(a) In General.--Compliance with the requirements imposed
under this Act shall be enforced under--
(1) section 8 of the Federal Deposit Insurance Act--
(A) by the appropriate Federal banking agency (as defined
in section 3(q) of the Federal Deposit Insurance Act) in the
case of insured depository institutions (as defined in
section 3(c)(2) of such Act);
(B) by the Federal Deposit Insurance Corporation in the
case of depository institutions described in clause (i),
(ii), or (iii) of section 19(b)(1)(A) of the Federal Reserve
Act that are not insured depository institutions (as defined
in section 3(c)(2) of the Federal Deposit Insurance Act); and
(C) by the Director of the Office of Thrift Supervision in
the case of depository institutions described in clause (v)
and or (vi) of section 19(b)(1)(A) of the Federal Reserve Act
that are not insured depository institutions (as defined in
section 3(c)(2) of the Federal Deposit Insurance Act);
(2) the Federal Credit Union Act, by the National Credit
Union Administration Board in the case of depository
institutions described in clause (iv) of section 19(b)(1)(A)
of the Federal Reserve Act; and
(3) part C of title V of the Farm Credit Act of 1971 (12
U.S.C. 2261 et seq.), by the Farm Credit Administration in
the case of an institution that is a member of the Farm
Credit System.
(b) Additional Enforcement Powers.--
(1) Violation of this act treated as violation of other
acts.--For purposes of the exercise by any agency referred to
in subsection (a) of such agency's powers under any Act
referred to in such subsection, a violation of a requirement
imposed under this Act shall be deemed to be a violation of a
requirement imposed under that Act.
(2) Enforcement authority under other acts.--In addition to
the powers of any agency referred to in subsection (a) under
any provision of law specifically referred to in such
subsection, each such agency may exercise, for purposes of
enforcing compliance with any requirement imposed under this
Act, any other authority conferred on such agency by law.
(c) Enforcement and Reimbursement.--In carrying out its
enforcement activities under this section, each agency
referred to in subsection (a) shall--
(1) notify the mortgagee or servicer of any failure of the
mortgagee or servicer to comply with 1 or more provisions of
this Act;
(2) with respect to each such failure to comply, require
the mortgagee or servicer, as applicable, to correct the
account of the mortgagor to reflect the date on which the
mortgage insurance should have been canceled or terminated
under this Act; and
(3) require the mortgagee or servicer, as applicable, to
reimburse the mortgagor in an amount equal to the total
unearned premiums paid by the mortgagor after the date on
which the obligation to pay those premiums ceased under this
Act.

SEC. 11. CONSTRUCTION.

(a) PMI Not Required.--Nothing in this Act shall be
construed to impose any requirement for private mortgage
insurance in connection with a residential mortgage
transaction.
(b) No Preclusion of Cancellation or Termination
Agreements.--Nothing in this Act shall be construed to
preclude cancellation or termination, by agreement between a
mortgagor and the holder of the mortgage, of a requirement
for private mortgage insurance in connection with a
residential mortgage transaction before the cancellation or
termination date established by this Act for the mortgage.

SEC. 12. EFFECTIVE DATE.

This Act, other than section 13, shall become effective 1
year after the date of enactment of this Act.

SEC. 13. 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--
(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''.

The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Iowa (Mr. Leach) and the gentleman from New York (Mr. LaFalce) each
will control 20 minutes.
The Chair recognizes the gentleman from Iowa (Mr. Leach).
(Mr. LEACH asked and was given permission to revise and extend his
remarks.)
Mr. LEACH. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise today in support of S. 318, the Homeowners
Protection Act. This legislation is about saving money for America's
homeowners by ensuring that they do not overpay for private mortgage
insurance, or PMI.
Private mortgage insurance, although paid by the homeowner, is
designed to protect lenders from mortgage default risk, and it is
usually required when the homeowner has less than 20 percent equity in
his or her home. While most industry standards allow for cancellation
of PMI once the 20 percent equity level is achieved, homeowners are not
always aware of how it can be terminated. It is estimated that some
borrowers are paying $240 to $1,200 annually for mortgage insurance
that is no longer needed.
By requiring that automatic termination of PMI when insurance is no

[[Page H5432]]

longer necessary and by requiring mortgage companies and other
financial institutions to provide homeowners with information on the
terms and conditions of this insurance and how it can be canceled, S.
318 protects homeowners from paying for PMI after all parties in the
mortgage process agree that it is no longer needed.

{time} 1515

Over the last 30 years, the mortgage financial markets have evolved
with innovative products that leverage private sector resources in a
manner that facilitates and expands affordable home ownership
opportunities. In fact, the United States home ownership rate is at a
record level today, with 66 percent of Americans owning their own home.
The Senate bill, S. 318, will further enhance home ownership
opportunities by making home ownership less expensive and by providing
the industry with clear and certain Federal rules on when and how
mortgage insurance can be canceled.
The bill before us, which represents a compromise agreed to by the
Senate Committee on Banking, is based on legislation originally
introduced by the gentleman from Utah (Mr. Hansen). The gentleman's
firsthand difficulties in canceling PMI and the mortgage secured by his
condominium led him to introduce legislation, H.R. 607, on this
subject.
The Committee on Banking and Financial Services reported out the
Hansen bill on March 20, 1997, and the full House approved by a vote of
421 to 7 on April 16, 1997. The Senate followed suit last fall in
approving its version of PMI legislation, which is before the House
today.
The homeowner protections contained in this bill cover owners of
condominiums and cooperatives as well as owners of single-family
detached homes. Under S. 318, the PMI disclosure and cancellation
mandates cover residential mortgages and mortgage transactions for
single-family dwellings. In the context of this legislation, the term
``single-family dwellings'' applies to condominium and cooperative home
ownership arrangements.
In closing, I would like to thank my colleague, the gentleman from
Utah (Mr. Hansen), for his perseverance in his fight for the average
homeowner, and the gentlewoman from Connecticut (Mrs. Roukema), the
gentleman from New York (Mr. Lazio), the gentleman from New York (Mr.
LaFalce), the gentleman from Minnesota (Mr. Vento), the gentleman from
Massachusetts (Mr. Kennedy), the gentlewoman from California (Ms.
Waters), the gentlewoman from Texas (Ms. Jackson-Lee) and other members
of this committee who have been such constructive participants in
crafting the legislation before the House today.
Mr. Speaker, I urge my colleagues to support this legislation.
Mr. Speaker, I reserve the balance of my time.
Mr. LaFALCE. Mr. Speaker, I yield myself such time as I may consume.
(Mr. LaFALCE asked and was given permission to revise and extend his
remarks.)
Mr. LaFALCE. Mr. Speaker, I thank the chairman of the Committee on
Banking and Financial Services for his kind words. This has been a very
bipartisan and collegial process that has brought us to the floor
today.
The fact is, if you are a homeowner today, or are thinking of
becoming one, you do not want to spend any more money than you have to,
especially on unnecessary payments. But, unfortunately, between 250,000
to 400,000 families nationwide are now doing exactly that. They are
making unnecessary payments. They are paying up to $100 each month and
thousands of dollars over the life of their mortgages for unnecessary
private mortgage insurance.
There is nothing inherently wrong with private mortgage insurance, or
PMI. It can be a valuable and essential tool used by many families who
want to buy a home but are unable to finance a full 20 percent down
payment. Fully 54 percent of mortgages offered last year did require
PMI, private mortgage insurance.
That means the lender requires the borrower to buy and pay for
insurance to protect the lender in case of a borrower's default. As a
result, lenders have then been able to issue mortgages to families with
smaller down payments who otherwise could not afford homes. So far, so
good.
The problem with PMI arises once you have established approximately
20 percent equity in your home. This is the figure generally accepted
by the mortgage industry as a benchmark of the risk they take in
financing your home. At that point, PMI should no longer be necessary,
since there is minimal risk to the lender. After all, the lender holds
title to the home if you should default, and can always sell the
property. But many homeowners are never even notified that they can
discontinue their private mortgage insurance, and just keep on paying
and paying and paying. It adds up to thousands of dollars.
Continuing to pay insurance to protect the lender after a borrower no
longer represents a serious risk is an unjustified windfall to
insurance companies, and an unfair burden on homeowners. That practice
must stop, and our action today will insure that it does stop.
Mr. Speaker, I give special credit to the gentleman from Utah (Mr.
Hansen) for bringing this issue to the attention of our Committee on
Banking and Financial Services and for bringing it to the attention of
the full House of Representatives.
The bill he introduced initially would have required disclosure to
homebuyers, both at the mortgage signing and in annual statements, of
the precise conditions that might enable them to cancel payments of
that insurance. But after committee members had time to reflect upon
it, we believed that that would be helpful but not helpful enough. Some
argued we should move beyond disclosure and also create a right to
terminate, at least after certain conditions were met.
But many thought, well, even that is not good enough. We should go
further still. This was my position. Simple disclosure and creation of
a right to cancel is not enough. Unnecessary insurance payments should
be terminated as a matter of law. No borrower in his right mind would
choose to pay for insurance to protect a lender against the borrower's
own default unless forced to do so.
Therefore, rather than create a right to reject and cancel insurance,
which any reasonable person would always exercise, we argued we should
legislate, instead, the actual termination of the insurance once
certain conditions are met. That is the bill we have before us today.
The bill protects the consumer's right to initiate cancellation of
the private mortgage insurance once 20 percent of the mortgage is
satisfied, and requires servicers to cancel a consumer's mortgage
insurance once 22 percent of the mortgage is satisfied.
Nonetheless, I am convinced we could have and should have gone even
further. For instance, the bill does not afford the same automatic
cancellation rights to so-called high-risk consumers, whose PMI will be
canceled at the half-life of the mortgage. The bill does direct the
housing enterprises, FNMA and FreddieMac, to establish industry
guidelines defining what constitutes a risky borrower.
I assume and hope, and will watch to see, that the GSEs use their
authority prudently, but I want to be clear that this provision was not
included to enable lenders or investors to circumvent the intent of
this legislation or to discriminate against certain types of borrowers.
We will be watching this very closely.
With that in mind, I have asked that the bill require the GAO to
evaluate how the high-risk exception is being applied, and report the
findings to the Congress after enactment.
With regard to State preemption, again, I much preferred the House
version. At least in this case the bill does protect State PMI
cancellation and consumer laws in effect prior to January 2, 1998, and
provides those States, eight of them, 2 years to revise and amend their
laws: California, Minnesota, New York, Colorado, Connecticut, Maryland,
Massachusetts, and Missouri.
I would have strongly preferred that the bill simply respect the
rights of all States to enact stronger cancellation and disclosure
laws, or had allowed the eight States with laws on the books to amend
their laws without limitation. Nonetheless, I am pleased that we are
now protecting stronger State consumer laws in States like New York,
where they already do exist.

[[Page H5433]]

All in all, this is a strong consumer bill. It could have been
stronger, and we might make it even stronger in future years. I urge my
colleagues now to join me in supporting S. 318.
Mr. Speaker, I reserve the balance of my time.
Mr. LEACH. Mr. Speaker, I yield 5 minutes to the distinguished
gentleman from Utah (Mr. Hansen), the author of this bill and our good
friend and great leader on this subject.
(Mr. HANSEN asked and was given permission to revise and extend his
remarks.)
Mr. HANSEN. Mr. Speaker, I thank the chairman of the committee, the
gentleman from Iowa (Mr. Jim Leach), for the great leadership he has
shown on this legislation, and the gentleman from New York (Mr.
LaFalce) for what he has done on this. I just say amen to what they
have said. Both of them have hit it on the head.
Let me add a little, if I may. What is PMI? What is private mortgage
insurance? It is a good thing, and I am grateful that the lending
institutions have come up with this creative way in which to help
people who could not pay at least 20 percent down on their loans. So
they get into these things, they buy the house, they are elated, they
are given the key to the house, this is a big moment, and they walk in.
Then after that goes away after a short time, they start looking at
that payment bill that comes in. Anywhere between $20 to $100 they see
every month, and say, what am I paying this for? They find that they
are paying private mortgage insurance. When we think of insurance, we
think of something that we buy to help us. This is not the case in this
instance. This is something we buy to take care of the lender in case
we do not make our payments.
It is an interesting history. I have to admit I did not know too much
about it. After my first term I sold my place out in Virginia and
bought a little condo across from the Pentagon. I wanted to be close to
the House. I noticed that when I got my bill, there was something about
private mortgage insurance. I did not even know what it was.
I called up the lending institution and said, what is this, anyway?
They explained it to me, as it has been explained today. I said, that
is all well and good, how do I get rid of it? They said, you send us a
check for x amount of dollars and we will take it off.
I sent them the check. They did not take it off. I said, why did you
not take it off? They said, we do not have to take it off. But if you
will have an independent appraisal done on your place, we will be happy
to consider it. How much is that? $1,200. Now, the average American
paying between $20 to $100 for this, he is not going to see a lawyer,
he is not going to fuss, he is going to be mad and hunker down and do
it.
They did not do it after the appraisal. So I called them up again and
they said, we do not have to take it off. Then, just like most people
in our business, I started using this speech around America, and lo and
behold, half the people in the audience would come up and say, I have
this same problem. I have been paying this year after year after year.
A couple of attorneys came to see me, one from Alabama. He had a
class action going of two or three thousand people who had faithfully
made payments on their PMI, and they would not take it off. Then we
started getting letters. I have stacks of letters now in my office
where people would write in and show me the sarcastic and cavalier way
that many of the banks, lending institutions, would come up with, and
say, we do not have to take it off. Pay it the rest of your life.
That is what has happened, Mr. Speaker. Many people in America have
paid it the rest of their lives. It would be interesting some day to
see all of the letters we have, such as from a little lady in Texas,
one in Nevada, one in Massachusetts, scattered all over America, who
have faithfully made their payments on time and are enriching insurance
companies, servicers, and lending institutions to the point of millions
of dollars which did not have to be paid.
This is a piece of consumer legislation which I think is extremely
important. I would like to point out that the language as we got it
from the Senate says ``single-family dwelling.'' If you go into a
homeowner's policy or a policy such as that, that is interpreted to
mean a freestanding place and only one family living in it. I think the
gentleman from Iowa (Mr. Leach) adequately addressed this, but if
someone wants to try this case, I think it comes down to the idea that
we mean a single family in a condo, in any other area, a unit which
they are buying, so we do not exclude all those particular people.
As the gentleman from New York (Mr. LaFalce) pointed out, this bill
will require full disclosure of what PMI is. It will require
notification of their right to cancel, and will have some information
in the bill about automatic cancellation if they live up to it.
I want to thank the members of the Committee on Banking and Financial
Services, who have worked so diligently on this. I really feel that
this is a good piece of legislation. The Senate and the House have
worked diligently to do it. In my humble opinion, this is one of the
better pieces of consumer legislation we have come up with this in
term. I would urge the support of my colleagues in passing this
legislation.
Mr. LaFALCE. Mr. Speaker, I yield 4 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 this measure. It has a
Senate number but, candidly, the catalyst for this was, as has been
indicated, our colleague, the gentleman from Utah (Mr. Jim Hansen), and
the measure that we worked on, H.R. 607, which I think was a good
proposal in terms of disclosure, in terms of bringing the issue into
focus, and one in which we worked to in fact provide an automatic
cancellation.
In fact, private mortgage insurance (PMI) is a good product. We have,
of course, some Federal programs, the Federal Housing Administration
and the insurance that it provides, it means that if a person has a
lower down payment, they can become a homeowner with this insurance
providing a pool of dollars that will provide for default or
delinquency in the case that default occurs with regard to the
mortgage.

{time} 1530

But clearly if you make a large enough down payment, you can
completely avert, such insurance whether it is FHA insurance or if it
is PMI insurance. The case here is that after someone has paid for even
the half-life of the mortgage or paid down to the loan-to-value ratio
of 80 percent, they should be entitled and should have the opportunity
to discharge this responsibility, cost and this insurance because it is
no longer necessary. There is not the risk in that loan. The homeowner
is paying a fair rate of interest on the loan. They should not have to
pay, on a $100,000 mortgage, as is indicated, this could be anywhere
from $40 to $80 a month over the course of a $100,000 mortgage on a
home. That can easily obviously be $1000 a year in insurance payments
that they are making that would not be necessary. This bill provides
for the termination of such insurance and the cost to the consumer.
There are some concerns about the bill specifically with regard to
the high risk mortgages because that is left somewhat undefined. I know
our colleagues in the House were in agreement that we should define hi
risk mortgages. We should be more specific and not leave any
uncertainty. But we were not able to convince our Senate colleagues who
rely upon the Federal National Mortgage Association and others to help
in terms of such guidelines to follow guidelines in terms of defining
high risk mortgages. But if it proves to be a problem, we have, I
think, put in place a measure where we will get needed information from
the General Accounting Office and others to in fact lead us in a
direction to resolve such problems.
This is an important measure because it means that housing,
homeownership will be facilitated. It will cost less. It is fair. It is
fair to those that extend the mortgages. It is fair to the insurance
companies that are making the dollars on real risk and assuming real
risk, and it is certainly fair to the homeowners. So this is a step in
the right direction.
I again commend my colleagues. This is an important issue in terms of

[[Page H5434]]

achieving homeownership, and it is fair to the States that have already
taken actions, such as my State of Minnesota, which has a private
mortgage insurance provision, and the 7 or 8 other States which have
similar provisions. So it is a good measure.
I am pleased to join my colleague from Utah and the others on my
committee in terms of support of the measure and hope to see it signed
into law by President Clinton.
Mr. Speaker, I rise in support of S. 318, the Homeowners Protection
Act of 1998.
Over a year ago, this House passed a similar but better bill that was
drafted on a bipartisan basis using the measure introduced by Mr.
Hansen, H.R. 607, as the vehicle.
We come before the House today having reconciled with the Senate a
bill which will serve the needs of millions of American homeowners
covered by private mortgage insurance.
Consumers spend hundreds of dollars a year extra in mortgage
insurance even though they have paid down the mortgage by 20%, 25% or
more, to a point where such insurance is not required or necessary.
This bill will provide some equity for those homebuyers who make their
payments faithfully for years.
The agreed upon bill prospectively (one year after enactment)
provides for the automatic cancellation of private mortgage insurance
when borrowers have 22% equity, or a 78% loan-to-value (LTV) ratio, in
their homes (based on the original value of the home). Premiums paid
past that date will be refunded.
The bill allows for cancellation of PMI at 80% LTV ratio based on the
initial amortization schedules and would not preclude borrowers from
seeking cancellation using home price appreciation if it is agreed upon
between the lender and the borrower.
Importantly, the bill also provides for the disclosure of borrowers'
rights and protections under this law. 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.
There is, unfortunately, a provision about which I have great
concern. It is because of this concern that changes to the S. 318 were
sought and made. It has been part of the reason for the delay in
considering this Senate-passed bill.
The bill as passed by the Senate would allow FNMA (Fannie May) and
FHLMC (Freddie Mac) to set the standards for a whole class of loans to
be called ``high risk'' that would be exempt from the automatic
termination and cancellation rights. This exemption, undefined and
unregulated, could be used to avoid this entire law or could be used to
discriminate against certain borrowers. That indeed would frustrate the
implementation and results that could be attained from this proposed
new law.
While we could not sway the other body to define ``high risk''; to
have a regulator define it; OR, to simply modify the trigger level for
all to accommodate riskier loans; we were successful in mandating in
this measure a GAO report that will let us know how this exemption is
being used and for whom it is being used or abused if that is the case
in the future. We will be looking very carefully at the results of this
report for possible future policy actions in the event of high risk
misunderstandings.
Mortgage insurance helps provide an opportunity to people to purchase
homes when they cannot come up with a 20% down payment. On a $100.000
home, that would be a hefty $20,000. Private mortgage insurance on a
$100,000 house ranges from $28 to $76 a month depending on down
payment. That works out to $336 to $912 a year! And of course, in many
cities in this nation, including Washington, D.C., you cannot buy most
homes for $100,000, so down payments are tougher to make and consumer
premiums and costs also go up as does the size of the mortgage.
The consensus bill will not preempt state laws in the eight states
that have passed laws on termination or disclosure of rights and rules
to govern terminating private mortgage insurance. Since one of those
innovative states is Minnesota, I wanted to be sure that our good and
fairly simple law would not be unnecessarily preempted. Under the
agreement, all of these states also have two years to further perfect
their own law. While I would have liked to have seen more time and, in
fact, no limitation on changes to those laws, two years is better than
none and seven more states exempted from the initial Senate bill is
better than only the state of New York.
Finally, although I do have some reservations about the complexity of
the many trigger points for cancellation or termination of PMI
generated by this bill's requirements, it is a step forward and a
fairly good consensus bill to bring to our Colleagues in the House. I
hope that should the four basic trigger points be found to be too
complex for consumers or servicers that we can revisit this bill and
perhaps find a more uniform and fair trigger point for automatic
cancellation.
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, but have not
yet found relief. More than phantom tax cut measures or phoney tax code
revisions, this bill will produce real consumer savings in the purse of
consumers paying PMI premiums today. Let's pass this pro-consumer
legislation now and see it signed into law by President Clinton.
Mr. LEACH. Mr. Speaker, I yield 2 minutes to the gentleman from
Delaware (Mr. Castle).
Mr. CASTLE. Mr. Speaker, I thank the gentleman very much for yielding
me the time.
Let me join the others who have congratulated the gentleman from Utah
(Mr. Hansen) who I think really spotted a problem. I am sort of
embarrassed that I did not see it sooner. I actually did some of this
work when I was a lawyer, not for the PMI people but for the consumers.
I should have recognized the fact that there was a problem.
I often raised the question. We never could get exactly correct
answers as to what happened after a period of time. The people did pay
this for some time. I think by spotlighting it, he has brought forward
all of the concerns of a lot of people of this country. This is not the
most major thing that we are going to do in Congress this year, but in
terms of being very black and white, this is that. This is something
that is absolutely correct to do. It is clear. I do not see how anybody
could possibly oppose it. I think that the Homeowners Protection Act is
just good common sense protection for homeowners across the United
States of America to protect them when they have paid down their
private mortgage insurance sufficiently so that there is enough equity
in their home, and the various mortgages companies will be protected.
I think and I agree with those who have said that this is a valuable
service. Without this, quite frankly, a lot of people would not have
been able to buy homes. I am not up here to decry PMI or say that it
was a bad service or whatever it may be. But the bottom line is that I
think often by inattention as much as anything else, people continue to
pay this for years and years after they should have stopped. And when
you start to add up $30 or $40 a month over a period of time, indeed it
becomes a significant sum of money.
This indeed is consumer protection. This is why we in Congress should
be here, to protect our constituents from problems such as this. This
is a problem that is a hidden problem, I think, by and large, but I
think it is a problem which is very real nonetheless. For that reason,
I think it should go forward.
I have often questioned, frankly, whether it should go down to 20
percent or, as we say in this case, perhaps as far as 22 percent before
we cut it off, but that seems to be a number which is agreed to by the
lending industry and even by those who watch over consumers. So indeed
I judge that it is good enough for us.
The bottom line is that this is good legislation. I hope we would all
support it and be proud of a good record. Congratulations again to the
gentleman from Utah (Mr. Hansen).
Mr. LaFALCE. Mr. Speaker, I yield 2 minutes and 30 seconds to the
gentleman from North Carolina (Mr. Watt).
Mr. WATT of North Carolina. Mr. Speaker, I appreciate the gentleman
yielding time to me.
I rise in support of this legislation, although I do so with some
ambivalence.
The bill that we have to consider today in some respects is a better
bill than the bill we passed out of the House originally, but in other
respects it is not as good a bill as we passed out of the House
originally. But clearly it is a bill that is worthy of being supported
because it is better than nothing and it moves us in the right
direction.
I would like to spend a moment talking about some of the concerns I
have about the bill that we are addressing though. First concern is
that we are preempting State law, at least partially preempting State
law, I should not say we are fully preempting it, but there are 8
States that have stronger laws in this area than we are passing here
today. We protect those laws for a

[[Page H5435]]

period of 2 years but, after that, we do not give them the protection
that they deserve to have going forward for States that have stronger
laws.
Second, and a more important concern, is this high risk loan
situation. If you get a loan that is categorized as a high risk loan,
then you have got to pay 50 percent of the value of that loan before
this law is of any benefit to you. For other people, you pay 22 percent
of the loan or possibly 20 percent of the loan, if you have got an
appraisal, 22 percent of the loan in some circumstances, 23 percent of
the loan in other circumstances, but if you have a high risk loan,
regardless of the value of your house going forward, if you have got a
loan that starts off being categorized as a high risk loan, even if
your area goes through an urban renewal, the value of your home
continues to appreciate, you can not get the benefit of the 80 percent
provision in this bill or the 78 percent provision in this bill or the
77 percent provision in this bill.
So you are kind of stuck with that henceforth now and forever. That
is a concern that we need to pay particular attention to in the future.
On balance, support the bill. It is better than nothing.
Mr. LEACH. Mr. Speaker, I yield myself 1 minute simply to offer a
clarification. On the two-year provision, let me just clarify that
States that have laws can further modify these laws during a two-year
period, but the laws will stay in effect as long as the State wants to
keep those laws in effect. So it is not a cancellation of the law
itself.
Mr. VENTO. Mr. Speaker, will the gentleman yield?
Mr. LEACH. I yield to the gentleman from Minnesota.
Mr. VENTO. Mr. Speaker, I think that the House bill was much more
clear with regard to some of these bend points. I think the gentleman
from North Carolina raises a good point in terms of the complexity that
is added to this and hopefully we will not see the type of frustration
of the intent of this measure. But I think we did the best we could
with the sponsors in the Senate.
Mr. LEACH. In that regard, I share some of the concerns of both the
gentleman from Minnesota and the gentleman from North Carolina.
Mr. WATT of North Carolina. Mr. Speaker, will the gentleman yield?
Mr. LEACH. I yield to the gentleman from North Carolina.
Mr. WATT of North Carolina. Mr. Speaker, I think it was my inartful
articulation of what I was trying to say. I understood that these 8
States have their laws protected going forward, but I appreciate the
gentleman clarifying that. I was not trying to mislead anyone on that
point.
Mr. LEACH. Mr. Speaker, I yield 2 minutes to the distinguished
gentleman from New York (Mr. Lazio).
Mr. LAZIO of New York. Mr. Speaker, I want to begin by commending the
gentleman from Iowa (Mr. Leach) for his hard work in improving this
bill and his dedication in bringing it to the floor today and our
colleague, the gentleman from Utah (Mr. Hansen), whose diligence on
this issue has raised consumer awareness of private mortgage insurance.
And I think it is not too strong to say that he is really a consumer
hero today to homeowners around America.
The mortgage financial markets have experienced dramatic change over
the last few decades, allowing more low and moderate income families to
attain the American dream of homeownership.
One important change is the emergence of private mortgage insurance.
Before PMI, as it is known, families were typically required to make a
20 percent down payment for a new home. Now families who are
creditworthy but are cash strapped can buy a house with down payments
as low as 3 percent or 5 percent. And this private mortgage insurance
also lowers the lender's risk of loss from mortgage defaults.
Private mortgage insurance is a crucial element in achieving our
goals of helping all Americans buy homes so they can give their
families a better quality of life. We should celebrate that our Nation
now has the highest homeownership rate in our history. This is because
of the new tools of the mortgage market, such as PMI, and our hard-
earned Balanced Budget Agreement which lowered interest rates and
created a strong economy.
While we provide a tool for the lenders to provide their investments,
we also need to ensure that home buyers are safeguarded. If we can
prevent homeowners from being exploited, American families can have
peace of mind in buying a home. It is already a right of most
homeowners to cancel their mortgage insurance when the equity in their
homes reaches 20 percent. But many Americans are unaware of these
rights and so they continue to pay the insurance premiums even after
reaching the 20 percent level.
The average rate of private mortgage insurance is between $20 and
$100 per month. That is an annual rate of $1,200. This is $1,200 that
could instead be more money in the pocket of an average American
family. It is food money, school costs, doctor bills and much more. How
can we allow consumers to pay for private mortgage insurance long after
they are considered good borrowers with little risk of default just
because they are not aware of the applicable rules and laws?
I look forward to passage of this bill.
Mr. LaFALCE. 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 rise in strong support of S. 318. I
congratulate our colleague from Utah for his work on this bill.
I came to this body from the banking industry where I looked at a
great number of mortgage portfolios. The standard by which one is
required to attain PMI insurance is when you are putting down less
money than what would require you to get to an 80 percent loan-to-value
ratio.
Like the previous speaker, the gentleman from New York, PMI is a good
tool because it does allow millions of Americans to be able to purchase
a home by only having to put down a small percentage. So it does open
the mortgage market to those Americans. But what is not a good deal is
when you have paid down on your mortgage to a level below the 80
percent loan-to-value ratio and you are still paying for something that
the market says you do not need anymore. That is the problem that the
gentleman from Utah found and that millions of Americans have found and
why this bill is necessary today.
I understand the gentleman from North Carolina's concerns. I
appreciate those concerns. But this is a step in the right direction.
This will help 5 million Americans, it is estimated, immediately who
are paying for PMI insurance, in some cases $30, $60, $90 a month, for
which they really are receiving nothing, because what would happen in a
default is that the PMI company would never have to shell out anything
but they would gain the benefits of all the premiums.
So this is a good piece of consumer legislation. This may well be the
most important piece of consumer legislation that this Congress adopts.
I appreciate the efforts on the part of the chairman of the
committee, the subcommittee and the ranking member on our side of the
full committee and the ranking member of the subcommittee.

{time} 1545

Mr. LaFALCE. Mr. Speaker, I yield 1 minute to the gentlewoman from
Texas (Ms. Jackson-Lee).
(Ms. JACKSON-LEE of Texas asked and was given permission to revise
and extend her remarks.)
Ms. JACKSON-LEE of Texas. Mr. Speaker, I thank the gentleman for
yielding me this time. I wish to say ``hats off'' to the gentleman from
Utah (Mr. Hansen). This is an excellent, excellent response to the
needs for housing in America, particularly in districts like mine.
Just a few weeks ago we participated in the Habitat for Humanity.
That is one form of housing. But there is another form of housing where
the working Americans are at a certain level and they are looking
forward to having the opportunity to have and purchase homes. This bill
allows homeowners to voluntarily cancel their private mortgage
insurance when the loan-to-value ratio of the mortgage reaches 80
percent of the original value of the property, but only for loans
originating 1 year after the enactment. It moves us forward.

[[Page H5436]]

I appreciate very much the story that the gentleman from Utah
recounted for us because so many others have not caught that. And so we
look forward to the fact that in America we encourage home ownership,
we encourage people to pay down on their loans, and then we reward them
by taking away the private mortgage insurance when it is not needed.
This is good legislation. I hope we pass it quickly.
Mr. Speaker, I strongly support this bill. Given the prosperity of
our current economic climate, I believe that we should create
mechanisms that make home buying easier and more practical. Such acts
will protect these consumers who are so vital to the American economy.
It seems to me that automatic cancellation of private mortgage
insurance (PMI) would create a buyer-friendly environment in the
residential housing industry by ending the current problems associated
with PMI.
Under the status quo, lenders usually require borrowers to purchase
PMI if the borrower makes a downpayment on a home of less than 20
percent (i.e., if the mortgage loan will account for more than 80
percent of the home's purchase price). It is intended to offset the
risk to lenders of making low downpayment loans.
However, many homeowners have reported difficulty in canceling PMI
after paying down their loan to a level where it constitutes less than
80 percent of the home's value, and other homeowners have been unaware
that they can cancel their policies at a certain point--often
continuing to pay up to $100 a month for PMI.
By establishing three levels at which PMI must be automatically
terminated by a mortgage service firm, the difficulties associated with
PMI, and homebuying in general, would be alleviated to a limited
extent.
The bill generally establishes three levels at which PMI paid for by
a borrower must be canceled automatically by a mortgage servicing firm.
Such automatic termination occurs when (1) the loan-to-value ratio of
the mortgage reaches 78 percent of the original value of the property,
(2) the loan-to-value ratio reaches 77 percent for larger ``non-
conforming'' loans, or (3) the mid-point or ``half-life'' of the
mortgage payment schedule for ``high risk'' loans (loans with higher
risks of default).
The bill also allows homeowners to voluntarily cancel their PMI when
the loan-to-value ratio of the mortgage reaches 80 percent of the
original value of the property--but only for loans originated beginning
one year after enactment, and only if the homeowner meets three
requirements.
It appears that this bill adequately solves the problem before us. I
do maintain some reservations about the involvement of Fannie Mae and
Freddie Mac because the definition of ``high risk'' loans would be
determined by these two entities. I would have preferred the use of a
Federal regulator, instead of a private body acting as a government
entity, but Fannie Mae and Freddie Mac have served us well in the past,
and I believe that they are up to the task at hand.
With this measure, we can simultaneously create an incentive for
homebuyers and protection for homeowners allow homebuyers to more
easily terminate private mortgage insurance (PMI) once they have paid a
requisite portion of their loan.
Mr. LaFALCE. Mr. Speaker, I yield myself such time as I may consume.
I support this legislation strongly for a good many reasons, most of
which I have already articulated. Let me make three points, however.
One of the primary reasons I am supporting this legislation is
because we are now going to provide for automatic termination for
homeowners in each of the 50 States, whereas today there are only three
states that provide for automatic termination. That makes this probably
the most important consumer bill that will have passed the Congress in
this session.
There are some difficulties, however. With the exception of a limited
exemption for eight states, we preempt States from enacting stronger
consumer protection legislation. This is offensive, especially because
it involves the insurance industry. The Federal Government has had
little role regarding, or knowledge or experience with the insurance
industry, certainly not so much that we should go in and say we know so
much more than all the other States that we are going to preempt them.
We should not be doing that if the states think they can pass even
stronger consumer protection laws. The Senate insisted upon that. We
could have done better.
Third, I do not like the process of avoiding conferences between the
House and the Senate. We have been ping-ponging this bill back and
forth. That is a permissible process, but it is not as good as a direct
dialogue with the Members of the United States Senate. I do not want
the Senate to think that it is going to be able to do this in other
legislation, whether it is credit union legislation, financial services
modernization, et cetera, virtually saying to the House take it or
leave it. That is not an appropriate approach.
I support this bill and I go along with this approach because we are
providing for automatic termination for homeowners in 50 States,
whereas it now only exists in three states. But I have great
difficulties with high-risk mortgages, the general state preemption and
the process itself.
Mr. Speaker, I reserve the balance of my time.
Mr. LEACH. Mr. Speaker, I yield myself such time as I may consume and
simply say, in conclusion, that I would like to stress that, as has
been uttered by others, this is extraordinarily important consumer
legislation, it is extraordinarily important home ownership
legislation, it is common sense, and I would hope this body would adopt
it unanimously.
Mr. Speaker, I have no further requests for time, and I yield back
the balance of my time.
Mr. LaFALCE. Mr. Speaker, I yield myself such time as I may consume
to point out that the chairman of the committee, the gentleman from
Iowa (Mr. Leach), has been a champion on this issue. He has been
totally cooperative, and we have been in lockstep on virtually each and
every issue that we have discussed today. I thank him and his staff.
Mrs. ROUKEMA. Mr. Speaker, I rise in strong support of S. 318 and
want to commend my colleague from Utah, Congressman Hansen, for his
perseverance on this important legislation. This legislation evolved
out of Congressman Hansen's personal trials and tribulations of trying
to cancel his own Private Mortgage Banking Insurance. And
Representative Hansen's testimony before the committee defined the
problem and the solution. Think of this as a ``Consumer Bill of
Rights.''
Private Mortgage Insurance is both an important but little understood
instrument in the current mortgage industry. PMI enables families to
purchase homes with as little as a 3-5 percent downpayment by insuring
the mortgage lender against default. In 1996, more than 1 million
people bought or refinanced a home with PMI. It made homeowners out of
more than 16 million families.
PMI is normally required whenever a borrower does not have a 20-
percent downpayment. PMI costs homeowners between $20 to $100 per month
and protects the lender against the risk of loss on low-downpayment
loans. PMI can be canceled under certain conditions, when a good
payment history is met and 30 percent or more is achieved on the cost
of the home.
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.
Passage of this bill will ensure that homeowners will be better
equipped to understand what PMI is, who it insures, and what rights the
homeowner has to cancel it. This legislation requires automatic
termination of private mortgage insurance after the homeowner attains a
certain equity level in his or her home. In addition, the bill would
require the mortgage companies and financial institutions that
originate and service mortgages provide homeowners with information on
the terms and conditions of PMI and how it can be canceled, both
voluntarily and by law.
It is time to correct this problem and to stop overcharging the
consumer. This is good public policy and I urge my colleagues to
support it.
Mr. LaFALCE. Mr. Speaker, it has been a very bipartisan and collegial
process that has brought us to the floor today, and I thank the
Chairman of the Committee on Banking and Financial Services.
All in all, I believe this is probably one of the most important
consumer bills that will have passed the Congress this session. One of
the primary reasons I am supporting it is that we are now going to
provide for automatic termination of private mortgage insurance (PMI),
and therefore the considerable reduction of the costs associated with
homeownership, for homeowners in each of the 50 states. Today there are
only three states that provide for automatic termination. Extending
that right to homeowners in all of the fifty states is an enormous step
forward for consumers.
The fact is, if you are a homeowner today, or are thinking of
becoming one, you do not want to spend any more money than you have

[[Page H5437]]

to, especially on unnecessary payments. But, unfortunately, between
250,000 to 400,000 families nationwide are now doing exactly that. They
are paying up to $100 each month and thousands of dollars over the life
of their mortgages for unnecessary private mortgage insurance.
There is nothing inherently wrong with private mortgage insurance, or
PMI. It can be a valuable and essential tool used by many families who
want to buy a home but are unable to finance a full 20 percent down
payment. Fully 54 percent of mortgages offered last year did require
PMI.
That means the lender requires the borrowers to buy and pay for
insurance to protect the lender in case of a borrower's default. As a
result, lenders have then been able to issue mortgages to families with
smaller down payments, who otherwise could not afford homes. that is of
benefit to the consumer. So far, so good.
The problem with PMI arises once you have established approximately
20 percent equity in your home. This is the figure generally accepted
by the mortgage industry as a benchmark of the risk they take in
financing your home. At that point, PMI should no longer be necessary,
since there is minimal risk to the lender. After all, the lender holds
title to the home if you should default, and can always sell the
property.
But many homeowners are never even notified that they can discontinue
their private mortgage insurance, and just keep on paying and paying
and paying. It adds up to thousands of dollars. Continuing to pay
insurance to protect the lender after a borrower no longer represents a
serious risk is an unjustified windfall to insurance companies, and an
unfair burden on homeowners. That practice must stop, and our action
today will insure that it does stop.
Mr. Speaker, I give special credit to the gentleman from Utah (Mr.
Hansen) for bringing this issue to the attention of our Committee on
Banking and Financial Services and for bringing it to the attention of
the full House of Representatives.
The bill Congressman Hansen introduced initially would have required
disclosure to homebuyers, both at the mortgage signing and in annual
statements, of the precise conditions that might enable them to cancel
payments of private mortgage insurance. But after Committee Members had
time to reflect upon it, we believed that that would be helpful but not
helpful enough. Some argued we should move beyond disclosure and also
create a right to terminate, at least after certain conditions were
met.
Many thought that even that was insufficient and we should go further
still. This was my position. Simple disclosure and creation of a right
to cancel is not enough. Unnecessary insurance payments should be
terminated as a matter of law. Certainly, no sensible borrower would
choose to pay for insurance to protect a lender against the borrower's
own default unless forced to do so.
Therefore, rather than create a right to reject and cancel insurance,
which any reasonable person would always exercise, we argued we should
legislate instead the actual termination of the insurance once certain
conditions were met. That is an essential element of the bill we have
before us today.
The bill protects the consumer's right to initiate cancellation of
the private mortgage insurance once 20 percent of the mortgage is
satisfied, and requires servicers to cancel a consumer's mortgage
insurance once 22 percent of the mortgage is satisfied.
Nonetheless, I am convinced we could have and should have gone even
further. For instance, the bill does not afford the same automatic
cancellation rights to so-called high-risk consumers, whose PMI will be
canceled at the half-life of the mortgage. The bill does direct the
housing enterprises, FNMA and Freddie Mac, to establish industry
guidelines defining what constitutes a risky borrower.
I assume and hope, and will watch to see, that the GSEs use their
authority prudently. But I want to be clear that this provision was not
included to enable lenders or investors to circumvent the intent of
this legislation or to discriminate against certain types of borrowers.
We will be watching implementation of this provision very closely.
With that in mind, I have asked that the bill require the GAO to
evaluate how the high-risk exception is being applied, and report the
findings to the Congress after enactment.
With regard to state preemption, again, I much preferred the House
version. At least in this case, the bill we have before us does protect
state PMI cancellation and consumer laws in effect prior to January 2,
1998, and provides those states, eight of them, two years to revise and
amend their laws: California, Minnesota, New York, Colorado,
Connecticut, Maryland, Massachusetts and Missouri.
I would have strongly preferred that the bill simply respect the
rights of all states to enact stronger cancellation and disclosure
laws, or had allowed the eight states with laws on the books to amend
their laws without limitation. But the Senate would not agree to this
approach. Nonetheless, I am pleased that we are now protecting stronger
state consumer laws in states like New York, where they already do
exist.
All in all, this is a strong consumer bill. It could have been
stronger in some regards, and we might make it even stronger in future
years. But it represents real and significant progress for consumers. I
urge my colleagues now to join me in supporting S. 318.
Mr. LaFALCE. Mr. Speaker, I have no further requests for time, and I
yield back the balance of my time.
The SPEAKER pro tempore (Mr. Hayworth). The question is on the motion
offered by the gentleman from Iowa (Mr. Leach) that the House suspend
the rules and pass the Senate bill, S. 318, as amended.
The question was taken; and (two-thirds having voted in favor
thereof), the rules were suspended and the Senate bill, as amended, was
passed.
A motion to reconsider was laid on the table.

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