[Congressional Record Volume 144, Number 96 (Friday, July 17, 1998)]
[Senate]
[Pages S8514-S8515]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         ADDITIONAL STATEMENTS

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                   HOMEOWNERS PROTECTION ACT OF 1998

 Mr. D'AMATO. Mr. President, I rise today to commend my 
colleagues in the Senate and the House for passing the Senate/House 
agreement on S. 318, the Homeowners Protection Act of 1998. This 
legislation, which I introduced last year, will put an end to forced 
payments by thousands of middle-class homeowners for unnecessary 
private mortgage insurance. These unnecessary premiums--which in some 
cases amount to over $1,000 per year--benefitted no one, other than the 
PMI companies that raked-in risk-free money. This legislation will make 
it thousands of dollars cheaper for struggling middle-class home 
buyers--as well as co-op and condominium buyers--to share in the 
American dream of home ownership without limiting this opportunity for 
people who do need PMI coverage.
  Mr. President, the House passed this legislation late last night, so 
this bill will be sent to the White House for the President's 
signature. Today, requiring unnecessary PMI is unethical--when the 
President signs S. 318 into law, this fleecing of homeowners will 
become illegal.
  Mr. President, let me begin by acknowledging the important and 
beneficial role PMI plays in our mortgage markets. Traditionally, 
lenders have required 20% down for home mortgage loans. PMI was 
developed to allow home buyers purchase with less than 20% down. PMI is 
typically required when a home buyer cannot make the standard 20% down 
payment. In many areas, such as my home region of Long Island, housing 
prices are so high that many middle class home buyers, particularly 
first-time buyers, can't come up with a 20% down payment. The problem 
faced by these home buyers arises because while PMI benefits one party, 
the lender, it is paid for by the home owner. As a result, the lenders 
and servicers have no vested interest in pursuing cancellation, and the 
homeowner who was paying for the PMI could not, or did not know, that 
the coverage could be canceled.
  By passing this legislation, Congress is helping to make the American 
dream of home ownership more affordable for many home buyers--
particularly struggling working families and people in areas with high 
housing costs--who needed PMI because they don't have a lot of cash on 
hand for a down payment.
  Some industry proponents have questioned whether this is a problem. 
Mr. President, the numbers speak for themselves. Every year, 
approximately 1 million mortgage loans are made with PMI coverage.
  In hearings in front of the Senate Banking Committee, even the 
private mortgage insurance industry was forced to admit that at least 
250,000 homeowners have at least 20% equity in their homes and are 
still paying for unnecessary insurance. PMI premiums vary from $20 to 
$100 or more monthly. This means that working families are losing 
anywhere from $240 to $1200 or more per year in unnecessary payments. 
At $100 per month, the savings for 250,000 homeowners would be $300 
million yearly.
  And these are just low-ball estimates of the extent of this problem--
a 1997 analysis of a 20,000 loan portfolio indicated that 1 out of 5 
homeowners were still paying for PMI, despite the fact that they had 
accumulated equity in excess of 20 percent.
  S. 318 will remedy this market anomaly by requiring automatic 
cancellation of PMI once a homeowner has accumulated 22% home equity if 
homeowner is current on payments. In addition, homeowners with good 
payment histories can initiate cancellation at 20% equity. This bill 
will prohibit life-of-the-loan PMI coverage by requiring that coverage 
be canceled half-way through the loan, regardless of circumstances.
  S. 318 also provides that current and future homeowners be given 
notice of their cancellation rights on an annual basis. S. 318 will 
accomplish these goals without adding to the regulatory bureaucracy. 
This legislation is self-effecting and does not have a federal 
regulator.
  In closing, I would like to thank my colleagues in the Senate that 
have worked tirelessly on this legislation--Senator Lauch Faircloth, 
Senator Rod Grams, Senator Paul Sarbanes, Senator Richard Bryan, 
Senator Christopher Dodd, Senator Carol Moseley-Braun and all 
cosponsors of the bill.

[[Page S8515]]

  I would also like to commend Chairman Leach of the House Banking 
Committee for his tireless leadership on this issue, and Representative 
Rick Lazio who chairs the Housing Subcommittee in the House.
  Finally, I would like to thank Representative Jim Hansen of Utah. 
Representative Hansen first discovered the problem confronting 
homeowners when he tried to cancel the PMI on his condominium. It was 
Representative Hansen who brought this abuse to our attention and first 
introduced PMI legislation in the House. I think we all owe 
Representative Hansen a debt of gratitude for his work on this issue.
  One more point that needs to be addressed is what is meant by the 
term ``single-family dwelling.'' This is a defined term in the bill, 
and is incorporated in defined terms ``residential mortgage'' 
``residential mortgage transaction.'' It the intent of the Congress 
that this term, as used in this legislation, apply to condominiums and 
cooperatives as well as more traditional single-family detached homes. 
Many coops and condos are single family dwelling units within multiple 
dwelling unit structures; however, they are still single family 
dwelling units as described in the definition of ``single family 
dwelling'' in this bill (as opposed to multi-family dwellings that 
include rental units). In fact this issue came to the Congress' 
attention when Representative Hansen tried to cancel the PMI on his 
condominium. The authors of this legislation realize that within real 
estate industry the term ``single-family dwelling'' is frequently used 
to refer to detached single family homes alone, and not to the full 
spectrum of single family housing units (including Condos and coops). 
Nevertheless, this industry usage was not what we were attempting 
codify in this bill--in this legislation ``single family dwelling'' 
includes all single family dwelling units, including condominiums and 
cooperatives, and owners of all single family residences, and are 
intended to be covered under this act.

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