Congressional Record, Volume 153 Issue 190 (Wednesday, December 12, 2007)

[Congressional Record Volume 153, Number 190 (Wednesday, December 12, 2007)]
[Senate]
[Pages S15235-S15251]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

By Mr. REID (for Mr. Dodd (for himself, Mr. Reed, Mr. Schumer,
Mr. Menendez, Mr. Akaka, Mr. Brown, Mr. Casey, Mr. Kennedy, Mr.
Kerry, Mr. Harkin, Ms. Mikulski, Mrs. Boxer, Mrs. McCaskill,
Ms. Klobuchar, Mrs. Feinstein, and Mr. Durbin)):
S. 2452. A bill to amend the Truth in Lending Act to provide
protection to consumers with respect to certain high-cost loans, and
for other purposes; to the Committee on Banking, Housing, and Urban
Affairs.
Mr. DODD. Mr. President, today we are facing a crisis in the mortgage
markets on a scale that has not been seen since the Great Depression:
over 2 million homeowners face foreclosure at a loss of over $160
billion in hard-earned home equity; the Conference of Mayors recently
reported, November 26, 2007, that they expect a decline of $1.2
trillion in property values in 2008 because of the crisis; over one out
of every 5 subprime loans is currently delinquent according to First
American Loan Performance, an industry research firm. These high
default rates have frozen the subprime and jumbo mortgage markets and
infected the capital markets to the point where central banks around
the world have had to inject liquidity into the system to avoid the
crisis from spreading to other segments of the market.
One of the fundamental causes of this serious crisis is abusive and
predatory subprime mortgage lending. The Homeownership Preservation and
Protection Act of 2007, which I am introducing today with a number of
my colleagues, is designed to protect American homeowners from these
practices, and prevent this disaster from happening again. The
legislation will: realign the interests of the mortgage industry with
borrowers to insure the availability of mortgage capital on fair terms
both for the creation and sustainability of homeownership; establish
new lending standards to ensure that loans are affordable and fair, and
provide for adequate remedies to make sure the standards are met; and
create

[[Page S15236]]

a transparent set of rules for the mortgage industry so that capital
can safely return to the market without bad lending practices driving
out the good.
The fundamental problem in the subprime market today is that the
mortgage system has become extremely fragmented, with different
entities responsible for selling, underwriting, originating, funding,
and securitizing the loans. Too few of these entities have a stake in
the long-term success of the mortgage. A recent article in The
Economist, February 17, 2007, described the process succinctly:

Banks are traditionally supposed to know a bit about the
borrowers on their books. But, in many cases, their loans did
not stay on their books long enough for them to care.
Mortgages were written for a fee, sold to investment banks
for a fee, then packaged and floated for another fee. At each
link in the chain, the fees mattered more than the quality of
the loans. . . .

As the GAO concluded, ``Originators [mortgage brokers and lenders]
had financial incentives to increase loan volume, partially at the
expense of loan quality,'' October 10, 2007. For example, mortgage
originators have an incentive to get a borrower to take out a larger
loan than he or she needs, and at a higher interest rate than that for
which the borrower would qualify, because the originator gets a higher
commission for such loans.
Comptroller of the Currency John Dugan recently described the
corrosive impact of this system on underwriting standards. In a speech
to the American Bankers Association October 9, 2007, Mr. Dugan said:

When a bank makes a loan that it plans to hold, the
fundamental standard it uses to underwrite the loan is that
most basic of credit standards that . . . the underwriting
must be strong enough to create a reasonable expectation that
the loan will be repaid. But when a bank makes a loan that it
plans to sell, then the credit evaluation shifts in an
important way: the underwriting must be strong enough to
create a reasonable expectation that the loan can be sold or
put another way, the bank will underwrite to whatever
standard the market will bear.

The vast majority of subprime loans were made to be sold, and, hence,
their underwriting standards simply were not sufficient to ensure a
reasonable prospect of repayment for too many Americans.
While the focus of much of the news coverage has been on the impact
of the crisis on financial institutions and markets, I ask my
colleagues to keep in mind the affect this is having on individuals who
are losing their homes, and on their neighbors, who are seeing their
home equity erode as foreclosures in their neighborhoods increase.
It is important to keep in mind that only about 10 percent of
subprime mortgages in the past several years have been made to first
time home buyers. This market has not been primarily about creating a
new set of homeowners; a majority of subprime loans have been
refinances. While maintaining access to subprime credit on fair terms
is important, too much of the subprime market in the past several years
has actually put the homes and home equity of American families at
risk.
The legislation seeks to set high standards for brokers, lenders,
appraisers, servicers, and Wall Street and provide for strong remedies
to restore accountability to the system. Specifically, the legislation
will establish new protections for all borrowers including a
prohibition on steering prime borrowers to subprime loans, which the
Wall Street Journal recently found was widespread in the market. The
bill establishes a fiduciary duty for mortgage brokers towards
borrowers. It provides for a duty of good faith and fair dealing toward
borrowers for all lenders.
The bill will establish new protections for subprime borrowers and
borrowers who get exotic mortgages. First and foremost, brokers and
lenders will have to establish the borrowers' ability to repay the
loan, including for interest-only and option ARMs. In addition, the
bill prohibits prepayment penalties and YSPs on these loans, and
requires that these loans provide a net tangible benefit to the
borrower.
The bill will tighten the definition of high cost loans and provide
increased protections for these borrowers, including a prohibition of
balloon payments, financing of points and fees, prepayment penalties
and yield spread premiums, YSPs.
The bill will provide strong remedies to make sure these standards
are met. The bill puts more ``cops on the beat'' by allowing state
attorneys general to enforce the provisions of the law, and it does not
preempt State law. States should be allowed the flexibility to address
new abuses as they arise.
The bill will provide for limited liability for holders of a mortgage
made in violation of law, whether it is the original lender or a
subsequent investment trust. Unlike current law, which puts the burden
on the borrower to find the party responsible for causing the harm, the
legislation allows the borrower to go directly to the current mortgage
holder for a cure.
The bill will also prohibit lenders from influencing appraisers,
limit the ``junk'' fees mortgage servicers can charge, and require them
to credit payments promptly, require foreclosure prevention counseling
or loss mitigation before a foreclosure can take place, and uuthorize
the hiring of additional FBI agents to fight mortgage fraud.
In the coming months, the housing crisis is going to get worse. We
will need to continue to press lenders and servicers to provide real
relief for homeowners threatened with foreclosure. FHA and the GSEs
will have to play an expanded role. But as we deal with the cleaning up
the current crisis, let us keep in mind the need to address the
underlying problems that have created the crisis, and move to address
those underlying causes by passing the ``Homeownership Protection and
Preservation Act.''
Finally, I want to acknowledge the work of a number of my colleagues
on this issue. Senators Schumer, Brown, and Casey introduced a bill on
this topic earlier this year, S. 1299, from which I took some important
provisions. In addition, Senators Reed and Menendez both made important
contributions to the deliberations leading up to the introduction of
this legislation.
Mr. President, I ask unanimous consent that the text of the bill and
a detailed summary be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

S. 2452

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 ``Home
Ownership Preservation and Protection Act of 2007''.
(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. Effective date and regulations.

TITLE I--HIGH-COST MORTGAGES

Sec. 101. Definitions relating to high-cost mortgages.
Sec. 102. Additional protections for HOEPA loans.

TITLE II--PROTECTIONS APPLICABLE TO SUBPRIME AND CERTAIN OTHER LOANS

Sec. 201. Truth in Lending Act amendments.

TITLE III--PROTECTIONS FOR ALL HOME LOAN BORROWERS

Sec. 301. Mortgage protections.

TITLE IV--GOOD FAITH AND FAIR DEALING IN APPRAISALS

Sec. 401. Duties of appraisers.

TITLE V--GOOD FAITH AND FAIR DEALING IN HOME LOAN SERVICING

Sec. 501. Duties of lenders and loan servicers.
Sec. 502. Real estate settlement procedures.
Sec. 503. Effective date.

TITLE VI--FORECLOSURE PREVENTION COUNSELING

Sec. 601. Foreclosure prevention counseling.

TITLE VII--REMEDIES AND ENFORCEMENT

Sec. 701. Material disclosures and violations.
Sec. 702. Right of rescission.
Sec. 703. Civil liability.
Sec. 704. Liability for monetary damages.
Sec. 705. Remedy in lieu of rescission for certain violations.
Sec. 706. Prohibition on mandatory arbitration.
Sec. 707. Lender liability.

TITLE VIII--OTHER BANKING AGENCY AUTHORITY

Sec. 801. Inclusion of all banking agencies in the regulatory authority
under the Federal Trade Commission Act with respect to
depository institutions.

TITLE IX--MISCELLANEOUS

Sec. 901. Authorizations.

SEC. 2. DEFINITIONS.

Section 103 of the Truth in Lending Act (15 U.S.C. 1602) is
amended by adding at the end the following:
``(cc) Definitions Relating to Home Mortgage Loans.--

[[Page S15237]]

``(1) Home mortgage loan.--The term `home mortgage loan'
means a consumer credit transaction secured by a home, used
or intended to be used as a principal dwelling, regardless of
whether it is real or personal property, or whether the loan
is used to purchase the home.
``(2) Mortgage broker.--The term `mortgage broker' means a
person who, for compensation or in anticipation of
compensation, arranges or negotiates or attempts to arrange
or negotiate home mortgage loans or commitments for such
loans, refers applicants or prospective applicants to
creditors, or selects or offers to select creditors to whom
requests for credit may be made.
``(3) Mortgage originator.--The term `mortgage originator'
means any creditor or other person, including a mortgage
broker, who, for compensation or in anticipation of
compensation, engages either directly or indirectly in the
acceptance of applications for home mortgage loans,
solicitation of home mortgage loans on behalf of consumers,
negotiation of terms or conditions of home mortgage loans on
behalf of consumers or lenders, or negotiation of sales of
existing home mortgage loans to institutional or
noninstitutional lenders. It also includes any employee or
agent of such person.
``(4) Nontraditional mortgage loan.--The term
`nontraditional mortgage loan' means a home mortgage loan
that allows a consumer to defer payment of principal or
interest.
``(5) Subprime mortgage loan.--
``(A) In general.--The term `subprime mortgage loan' means
a home mortgage loan in which the annual percentage rate
exceeds the greater of the thresholds determined under
subparagraph (B) or (C), as applicable.
``(B) Treasury securities rate spread.--A home mortgage
loan is a subprime mortgage loan if the difference between
the annual percentage rate for the loan and the yield on
United States Treasury securities having comparable periods
of maturity is equal to or greater than--
``(i) 3 percentage points, if the loan is secured by a
first lien mortgage or deed of trust; or
``(ii) 5 percentage points, if the loan is secured by a
subordinate lien mortgage or deed of trust.
``(C) Conventional mortgage rate spread.--A home mortgage
loan is a subprime mortgage loan if the difference between
the annual percentage rate for the loan and the annual yield
on conventional mortgages, as published by the Board of
Governors of the Federal Reserve System in statistical
release H.15 (or any successor publication thereto) is either
equal to or greater than--
``(i) 1.75 percentage points, if the loan is secured by a
first lien mortgage or deed of trust; or
``(ii) 3.75 percentage points, if the loan is secured by a
subordinate lien mortgage or deed of trust.
``(D) Rule of construction.--For purposes of subparagraph
(B), the difference between the annual percentage rate of a
home mortgage loan and the yield on United States Treasury
securities having comparable periods of maturity shall be
determined using the same procedures and calculation methods
applicable to loans that are subject to the reporting
requirements of the Federal Home Mortgage Disclosure Act,
whether or not such loan is subject to or reportable under
the provisions of that Act.''.

SEC. 3. EFFECTIVE DATE AND REGULATIONS.

(a) Effective Date.--This Act and the amendments made by
this Act shall become effective 6 months after the date of
enactment of this Act, and shall apply to all transactions
consummated on or after that effective date, except as
otherwise specifically provided herein.
(b) Regulations Required.--Not later than 6 months after
the date of enactment of this Act, the Board of Governors of
the Federal Reserve System shall issue in final form such
regulations as are necessary to carry out this Act and the
amendments made by this Act.

TITLE I--HIGH-COST MORTGAGES

SEC. 101. DEFINITIONS RELATING TO HIGH-COST MORTGAGES.

(a) High-Cost Mortgage Defined.--Section 103(aa) of the
Truth in Lending Act (15 U.S.C. 1602(aa)) is amended by
striking all that precedes paragraph (2) and inserting the
following:
``(aa) High-Cost Mortgage.--
``(1) Definition.--
``(A) In general.--The term `high-cost mortgage', and a
mortgage referred to in this subsection, mean a consumer
credit transaction that is secured by the principal dwelling
of a consumer, other than a reverse mortgage transaction,
if--
``(i) in the case of a loan secured--

``(I) by a first mortgage on such dwelling, the annual
percentage rate at consummation of the transaction will
exceed by more than 8 percentage points the yield on United
States Treasury securities having comparable periods of
maturity on the 15th day of the month immediately preceding
the month in which the application for the extension of
credit is received by the creditor; or
``(II) by a subordinate or junior mortgage on such
dwelling, the annual percentage rate at consummation of the
transaction will exceed by more than 10 percentage points the
yield on United States Treasury securities having comparable
periods of maturity on the 15th day of the month immediately
preceding the month in which the application for the
extension of credit is received by the creditor; or

``(ii) the total points and fees payable in connection with
the loan exceed--

``(I) in the case of a loan for $20,000 or more, 5 percent
of the total loan amount; or
``(II) in the case of a loan for less than $20,000, the
lesser of 8 percent of the total loan amount or $1,000.

``(B) Introductory rates taken into account.--For purposes
of subparagraph (A)(i), the annual percentage rate shall be
determined as--
``(i) in the case of a fixed-rate loan in which the rate of
interest will not vary during the term of the loan, the
interest rate in effect on the date of consummation of the
transaction;
``(ii) in the case of a loan in which the rate of interest
varies solely in accordance with an index, the interest rate
determined by adding the index rate in effect on the date of
consummation of the transaction to the maximum margin
permitted at any time by the terms of the loan agreement; and
``(iii) in the case of any other loan in which the rate may
vary at any time during the term of the loan for any reason,
the interest charged on the loan at the maximum rate that may
be charged during the term of the loan.''.
(b) Adjustment of Percentage Points.--Section 103(aa)(2) of
the Truth in Lending Act (15 U.S.C. 1602(aa)(2)) is amended
by striking subparagraph (B) and inserting the following:
``(B) An increase or decrease under subparagraph (A)--
``(i) may not result in the number of percentage points
referred to in paragraph (1)(A)(i)(I) being less than 6
percentage points or greater than 10 percentage points; and
``(ii) may not result in the number of percentage points
referred to in paragraph (1)(A)(i)(II) being less than 8
percentage points or greater than 12 percentage points.''.
(c) Points and Fees Defined.--
(1) In general.--Section 103(aa)(4) of the Truth in Lending
Act (15 U.S.C. 1602(aa)(4)) is amended--
(A) by striking ``(1)(B)'' and inserting ``(1)(A)(ii)'';
(B) by striking subparagraph (B) and inserting the
following:
``(B) all compensation paid directly or indirectly by a
consumer or creditor to a mortgage broker or from any source,
including a mortgage broker that originates a loan in the
name of the broker in a table funded transaction;'';
(C) in subparagraph (C)(iii), by striking ``and'' at the
end;
(D) by redesignating subparagraph (D) as subparagraph (G);
and
(E) by inserting after subparagraph (C) the following:
``(D) premiums or other charges payable at or before
consummation of the loan for any credit life, credit
disability, credit unemployment, or credit property
insurance, or any other accident, loss-of-income, life, or
health insurance, or any payments directly or indirectly for
any debt cancellation or suspension agreement or contract,
except that insurance premiums or debt cancellation or
suspension fees calculated and paid in full on a monthly
basis shall not be considered financed by the creditor;
``(E) the maximum prepayment fees and penalties which may
be charged or collected under the terms of the loan
documents;
``(F) all prepayment fees or penalties that are incurred by
the customer, if the loan refinances a previous loan made or
currently held by the same creditor or an affiliate of the
creditor; and''.
(2) Calculation of points and fees for open-end loans.--
Section 103(aa) of the Truth in Lending Act (15 U.S.C.
1602(aa)) is amended--
(A) by redesignating paragraph (5) as paragraph (7); and
(B) by inserting after paragraph (4) the following:
``(5) Calculation of points and fees for open-end loans.--
In the case of a loan under an open-end credit plan, points
and fees shall be calculated, for purposes of this section
and section 129, by adding the total points and fees known at
or before closing, including the maximum prepayment penalties
which may be charged or collected under the terms of the loan
documents, plus the minimum additional fees that the consumer
would be required to pay to draw down an amount equal to the
total credit line.''.
(d) High-Cost Mortgage Lender.--Section 103(f) of the Truth
in Lending Act (15 U.S.C. 1602(f)) is amended by striking the
last sentence and inserting the following: ``Any person who
originates or brokers 2 or more mortgages referred to in
subsection (aa) in any 12-month period, any person who
originates 1 or more such mortgages through a mortgage broker
in any 12-month period or in connection with a table funded
transaction involving such a mortgage, and any person to whom
the obligation is initially assigned at or after settlement,
shall be considered to be a creditor for purposes of this
title.''.
(e) Bona Fide Discount Loan Discount Points and Prepayment
Penalties.--Section 103(aa) of the Truth in Lending Act (15
U.S.C. 1602(aa)) is amended by inserting after paragraph (5),
as added by this Act, the following:
``(6) Bona fide discount points.--

[[Page S15238]]

``(A) In general.--For the purpose of determining the
amount of points and fees under this subsection--
``(i) not more than 2 bona fide discount points payable by
the consumer in connection with the mortgage shall be
excluded, but only if the interest rate from which the
interest rate on the mortgage will be discounted does not
exceed by more than 1 percentage point the required net yield
for a 90-day standard mandatory delivery commitment for a
reasonably comparable loan from either the Federal National
Mortgage Association or the Federal Home Loan Mortgage
Corporation, whichever is greater; and
``(ii) unless 2 bona fide discount points have been
excluded under subparagraph (A), not more than 1 bona fide
discount point payable by the consumer in connection with the
mortgage shall be excluded, but only if the interest rate
from which the interest rate on the mortgage will be
discounted does not exceed by more than 2 percentage points
the required net yield for a 90-day standard mandatory
delivery commitment for a reasonably comparable loan from
either the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation, whichever is greater.
``(B) Definition.--For purposes of subparagraph (A), the
term `bona fide discount points' means loan discount points
which are knowingly paid by the consumer for the purpose of
reducing, and which in fact result in a bona fide reduction
of, the interest rate or time-price differential applicable
to the mortgage.
``(C) Exception for interest rate reductions inconsistent
with industry norms.--Subparagraph (A) shall not apply to
discount points used to purchase an interest rate reduction,
unless the amount of the interest rate reduction purchased is
reasonably consistent with established industry norms and
practices for secondary mortgage market transactions.''.

SEC. 102. ADDITIONAL PROTECTIONS FOR HOEPA LOANS.

(a) No Prepayment Penalties.--Section 129(c) of the Truth
in Lending Act (15 U.S.C. 1639(c)) is amended--
(1) by striking paragraph (2); and
(2) in paragraph (1)--
(A) by striking ``(1) In general.--''; and
(B) by redesignating subparagraphs (A) and (B) as
paragraphs (1) and (2), respectively, and moving the margins
2 ems to the left.
(b) No Balloon Payments.--Section 129(e) of the Truth in
Lending Act (15 U.S.C. 1639(e)) is amended to read as
follows:
``(e) No Balloon Payments.--No high-cost mortgage may
contain a scheduled payment that is more than twice as large
as the average of any earlier required scheduled payments,
except that this subsection shall not apply when the payment
schedule is adjusted to the seasonal or irregular income of
the consumer.''.
(c) Other Prohibitions on High-Cost Mortgages.--Section 129
of the Truth in Lending Act (15 U.S.C. 1639) is amended by
adding at the end the following:
``(m) No Yield Spread Premiums.--No person may provide, and
no mortgage originator may receive, directly or indirectly,
any compensation for originating a home mortgage loan that is
more costly than that for which the consumer qualifies, or
that is based on, or varies with, the terms of any home
mortgage loan.
``(n) Acceleration of Debt.--No high-cost mortgage may
contain a provision which permits the creditor, in its sole
discretion, to accelerate the indebtedness, other than in any
case in which repayment of the loan has been accelerated by
default, pursuant to a due-on-sale provision, or for a breach
of a material provision of the loan documents unrelated to
the payment schedule.
``(o) Restriction on Financing Points and Fees.--No
creditor may, directly or indirectly, finance, in connection
with any high-cost mortgage--
``(1) any prepayment fee or penalty payable by the consumer
in a refinancing transaction, if the creditor or an affiliate
of the creditor is the noteholder of the note being
refinanced; or
``(2) any points or fees as defined in section 103(aa)(4).
``(p) Prohibition on Evasions, Structuring of Transactions,
and Reciprocal Arrangements.--A creditor may not take any
action in connection with a high-cost mortgage--
``(1) to structure a loan transaction as an open-end credit
plan or another form of loan for the purpose and with the
intent of evading the provisions of this title; or
``(2) to divide any loan transaction into separate parts
for the purpose and with the intent of evading the provisions
of this title.
``(q) Modification and Deferral Fees Prohibited.--A
creditor may not charge a consumer any fee to modify, renew,
extend, or amend a high-cost mortgage, or to defer any
payment due under the terms of such mortgage, unless the
modification, renewal, extension, or amendment results in a
lower annual percentage rate on the mortgage for the
consumer, and then only if the fee is bona fide and
reasonable.
``(r) Net Tangible Benefit.--In accordance with regulations
prescribed by the Board, no originator may make, provide, or
arrange a high-cost mortgage loan that involves a refinancing
of a prior existing home mortgage loan, unless the new loan
will provide a net tangible benefit to the consumer.''.

TITLE II--PROTECTIONS APPLICABLE TO SUBPRIME AND CERTAIN OTHER LOANS

SEC. 201. TRUTH IN LENDING ACT AMENDMENTS.

The Truth in Lending Act (15 U.S.C. 1601 et seq.) is
amended by inserting after section 129 the following new
section:

``SEC. 129A. PROTECTIONS FOR SUBPRIME AND NONTRADITIONAL HOME
LOANS.

``(a) Assessment of Ability To Pay.--
``(1) In general.--
``(A) In general.--Before entering into or otherwise
facilitating a subprime or nontraditional mortgage loan, each
mortgage originator shall verify the reasonable ability of
the borrower to pay the principal and interest on the loan
and any real estate taxes and homeowner insurance fees and
premiums.
``(B) Considerations.--A determination under subparagraph
(A) shall include consideration of--
``(i) the income of the borrower;
``(ii) the credit history of the borrower;
``(iii) the current obligations and employment status of
the borrower;
``(iv) the debt-to-income ratio of the monthly gross income
of the borrower, inclusive of all scheduled or otherwise
significant debt payments and total monthly housing payments,
including taxes, property and private mortgage insurance, any
required homeowner or condominium fees, and any subordinate
mortgages, including those that will be made
contemporaneously to the same borrower;
``(v) the residual income of the borrower; and
``(vi) other available financial resources, other than the
equity of the borrower in the principal dwelling that secures
or would secure the loan.
``(2) Variable mortgage rates.--In the case of a subprime
or nontraditional mortgage loan, with respect to which the
applicable rate of interest may vary, for purposes of
paragraph (1), the ability to pay shall be determined based
on the monthly payment that could be due from the borrower,
using as assumptions--
``(A) the fully indexed interest rate;
``(B) a repayment schedule which achieves full amortization
over the life of the loan, assuming no default by the
borrower;
``(C) for products that permit negative amortization, the
initial loan amount plus any balance increase that may accrue
from the negative amortization provision;
``(D) that the loan is to be repaid in substantially equal
monthly amortizing payments for principal and interest over
that period of time which would be permitted after the
consumer has made lower payments, as permitted under the
terms of the loan, and which includes any additions to
principal that will result from such permitted lower
payments, with no balloon payment, unless the loan contract
requires a more rapid repayment schedule to be used in the
calculation; and
``(E) the reasonably foreseeable capacity of the borrower
to make payments, assuming market changes as to the contract
index rate over the period of the loan, using, to make such
assessment, a credible market rate determined according to
regulations issued by the Board, which regulations shall
require reasonable market expectations to be a factor.
``(3) Rebuttable presumption.--
``(A) In general.--For purposes of this subsection there is
a rebuttable presumption that a mortgage was made without
regard to repayment ability if, at the time at which the loan
was consummated, the total monthly debts of the borrower,
including total monthly housing payments, taxes, property,
and private mortgage insurance, any required homeowner or
condominium fees, and any subordinate mortgages, including
those that will be made contemporaneously to the same
borrower, exceed 45 percent of the monthly gross income of
the borrower.
``(B) Rebuttal.--To rebut the presumption of inability to
repay under subparagraph (A) the creditor shall, at minimum,
determine and consider the residual income of the borrower
after payment of current expenses and proposed home loan
payments, except that no presumption of ability to make the
scheduled payments to repay the obligation shall arise solely
from the fact that, at the time at which the loan is
consummated, the total monthly debts of the borrower
(including amounts owed under the loan) does not exceed 45
percent of the monthly gross income of the borrower.
``(b) Requirement of Tax and Insurance Escrows.--No
subprime or nontraditional mortgage loan may be arranged,
approved, or made without requiring escrow of tax and
insurance installments calculated in accordance with the
requirements of section 10 of the Real Estate Settlement
Procedures Act of 1974, and regulations promulgated pursuant
thereto, and mortgage insurance premiums, if any.
``(c) Prohibition on Prepayment Penalties.--No subprime or
nontraditional mortgage loan may contain a provision that
requires a consumer to pay a penalty for paying all or part
of the principal before the date on which it is due.
``(d) Prohibition on Yield-Spread Premiums.--No person may
provide, and no mortgage originator may receive, directly or
indirectly, any compensation for originating a subprime or
nontraditional mortgage loan that is more costly than that
for which the consumer qualifies, or that is based on, or
varies with, the terms (other than the amount of loan
principal) of any home mortgage loan.
``(e) Net Tangible Benefit.--

[[Page S15239]]

``(1) In general.--In accordance with regulations
prescribed by the Board, no originator may make, provide, or
arrange a subprime or nontraditional mortgage loan that
involves a refinancing of a prior existing home mortgage
loan, unless the new loan will provide a net tangible benefit
to the consumer.
``(2) Certain loans providing no net tangible benefit.--For
purposes of paragraph (1), a mortgage loan that involves
refinancing of a prior existing mortgage loan shall not be
considered to provide a net tangible benefit to the borrower
if the costs of the refinanced loan, including points, fees,
and other charges, exceed the amount of any newly advanced
principal, less the points, fees, and other charges, without
any corresponding changes in the terms of the refinanced loan
that are advantageous to the borrower.''.

TITLE III--PROTECTIONS FOR ALL HOME LOAN BORROWERS

SEC. 301. MORTGAGE PROTECTIONS.

The Truth in Lending Act (15 U.S.C. 1601 et seq.) is
amended by inserting after section 129A, as added by this
Act, the following new section:

``SEC. 129B. PROTECTIONS FOR ALL HOME LOANS.

``(a) Duties of All Mortgage Originators.--Each mortgage
originator shall, with respect to each home mortgage loan
and, in addition to requirements under other applicable
provisions of Federal or State law--
``(1) safeguard and account for any money handled for the
borrower;
``(2) follow reasonable and lawful instructions from the
borrower;
``(3) act with reasonable skill, care, and diligence;
``(4) act in good faith and with fair dealing in any
transaction, practice, or course of business in connection
with the originating of any home mortgage loan; and
``(5) make reasonable efforts to secure a home mortgage
loan that is appropriately advantageous to the borrower,
considering all of the circumstances, including the product
type, rates, charges, and repayment terms of the loan.
``(b) Duties of Mortgage Brokers.--Each mortgage broker
shall with respect to each home mortgage loan be deemed to
have a fiduciary relationship with the borrower, and, in
addition to duties imposed by other applicable provisions of
Federal or State law, shall--
``(1) act in the best interest of the borrower and in the
utmost good faith toward the borrower, and refrain from
compromising the rights or interests of the borrower in favor
of the rights or interests of another, including a right or
interest of the mortgage broker; and
``(2) clearly disclose to the borrower, not later than 3
days after receipt of the loan application, all material
information that might reasonably affect the rights,
interests, or ability of the borrower to receive the
borrower's intended benefit from the home mortgage loan,
including total compensation that the broker would receive
from any of the loan options that the broker presents to the
borrower.
``(c) Prohibition on Steering.--
``(1) In general.--In connection with a home mortgage loan,
a mortgage originator may not steer, counsel, or direct a
consumer to a loan with rates, charges, principal amount, or
prepayment terms that are more costly than that for which the
consumer qualifies.
``(2) Duties to consumers.--If unable to suggest, offer, or
recommend to a consumer a home mortgage loan that is not more
expensive than that for which the consumer qualifies, a
mortgage originator shall disclose to the consumer--
``(A) that the creditor does not offer a home mortgage loan
that is not more expensive than that for which the consumer
qualifies, but that other creditors may offer such a loan;
and
``(B) the reasons that the products and services offered by
the mortgage originator are not available to or reasonably
advantageous for the consumer.
``(3) Prohibited conduct.--In connection with a home
mortgage loan, a mortgage originator may not--
``(A) mischaracterize the credit history of a consumer or
the home loans available to a consumer;
``(B) mischaracterize or suborn mischaracterization of the
appraised value of the property securing the extension of
credit; and
``(C) if unable to suggest, offer, or recommend to a
consumer a loan that is not more expensive than that for
which the consumer qualifies, discourage a consumer from
seeking a home mortgage loan from another creditor or with
another mortgage originator.
``(d) Required Documentation.--
``(1) In general.--With respect to any home mortgage loan,
a mortgage originator shall base its determination of the
ability of a consumer to pay on--
``(A) documentation of all sources of income verified by
tax returns, payroll receipts, bank records, or the best and
most appropriate form of documentation available, subject to
such requirements and exceptions as determined appropriate by
the Board; and
``(B) the debt-to-income ratio and the residual income of
the consumer after payment of current expenses and proposed
home loan payments.
``(2) Limitation.--A statement provided by a consumer of
the income and financial resources of the consumer, without
other documentation referred to in paragraph (1), is not
sufficient verification for purposes of assessing the ability
of the consumer to pay.
``(e) Limitations on Yield-Spread Premiums.--
``(1) In general.--Except as provided in paragraph (2), no
person may provide, and no mortgage originator may receive,
directly or indirectly, any compensation for originating a
home mortgage loan that is more costly than that for which
the consumer qualifies, or that is based on, or varies with,
the terms of any home mortgage loan (other than the amount of
loan principal).
``(2) Limited exception for no-cost loans.--Notwithstanding
paragraph (1), in a home mortgage loan, other than a high-
cost mortgage loan, a subprime mortgage loan, or a
nontraditional mortgage loan, a mortgage broker may receive
compensation in the form of an increased rate, but only if--
``(A) the mortgage broker receives no other compensation,
however denominated, directly or indirectly, from the
consumer, creditor, or other mortgage originator;
``(B) the loan does not include discount points,
origination points, or rate reduction points, however
denominated, or any payment reduction fee, however
denominated;
``(C) the loan does not include a prepayment penalty; and
``(D) there are no other closing costs associated with the
loan, except for fees to government officials or amounts to
fund escrow accounts for taxes and insurance.
``(f) Recommended Default.--No creditor shall recommend or
encourage default on an existing loan or other debt prior to
and in connection with the closing or planned closing of a
mortgage loan that refinances all or any portion of such
existing loan or debt.
``(g) Effect of Foreclosure on Preexisting Lease.--
``(1) In general.--Notwithstanding any other provision of
law, in the case of any foreclosure with respect to a home
mortgage loan entered into after the date of enactment of
this Act, any successor in interest in such property pursuant
to the foreclosure shall assume such interest subject to--
``(A) the provision, by the successor in interest, of a
notice to vacate to any bona fide tenant at least 90 days
before the effective date of the notice to vacate; and
``(B) the rights of any bona fide tenant, as of the date of
such notice of foreclosure--
``(i) under any bona fide lease entered into before the
notice of foreclosure to occupy the premises until the end of
the remaining term of the lease; or
``(ii) without a lease or with a lease terminable at will
under State law, subject to the receipt by the tenant of the
90-day notice under subparagraph (A).
``(2) Bona fide lease or tenancy.--For purposes of this
section, a lease or tenancy shall be considered bona fide
only if--
``(A) the mortgagor under the contract is not the tenant;
``(B) the lease or tenancy was the result of an arms-length
transaction; or
``(C) the lease or tenancy requires the receipt of rent
that is not substantially less than fair market rent for the
property.''.

TITLE IV--GOOD FAITH AND FAIR DEALING IN APPRAISALS

SEC. 401. DUTIES OF APPRAISERS.

The Truth in Lending Act (15 U.S.C. 1601 et seq.) is
amended by inserting after section 129B, as added by this
Act, the following new section:

``SEC. 129C. DUTIES OF APPRAISERS.

``(a) Definitions.--In this section, the following
definitions shall apply:
``(1) Appraiser.--The term `appraiser' means a person who--
``(A) is certified or licensed by the State in which the
property to be appraised is located; and
``(B) performs each appraisal in conformity with the
Uniform Standards of Professional Appraisal Practice and
title XI of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, and the regulations prescribed under
such title, as in effect on the date of the appraisal.
``(2) Qualifying bond.--The term `qualifying bond' means a
bond equal to not less than 1 percent of the aggregate value
of all homes appraised by an appraiser of real property in
connection with a home mortgage loan in the calendar year
preceding the date of the transaction, with respect to
which--
``(A) the bond shall inure first to the benefit of the
homeowners who have claims against the appraiser under this
title or any other applicable provision of law, and second to
the benefit of originating creditors that complied with their
duty of good faith and fair dealing in accordance with this
title; and
``(B) any assignee or subsequent transferee or trustee
shall be a beneficiary of the bond, only if the originating
creditor qualified for such treatment.
``(b) Standard of Care.--Each appraiser shall, in addition
to the duties imposed by otherwise applicable provisions of
Federal or State law, with respect to each home mortgage loan
in which the appraiser is involved--
``(1) act with reasonable skill, care, diligence, and in
accordance with the highest standards; and
``(2) act in good faith and with fair dealing in any
transaction, practice, or course of business associated with
the transaction.
``(c) Duties of Appraisers.--
``(1) Objective appraisals.--All appraisals carried out by
an appraiser shall be accurate

[[Page S15240]]

and reasonable. An appraiser shall have no direct or indirect
interest in the property to be appraised, the real estate
transaction prompting such appraisal, or the home loan
involved in such transaction.
``(2) Bond requirement.--No appraiser may charge, seek, or
receive compensation for an appraisal unless the appraisal is
covered by a qualifying bond.
``(3) No target values.--No lender or loan servicer may,
with respect to a home mortgage loan, in any way--
``(A) seek to influence an appraiser or otherwise to
encourage a targeted value in order to facilitate the making
or pricing of the home mortgage loan; or
``(B) select an appraiser on the basis of an expectation
that such appraiser would provide a targeted value in order
to facilitate the making or pricing of the home mortgage
loan.
``(4) Prohibition on certain disclosures.--Neither the
appraisal order nor any other communication in any form by an
appraiser may include the requested loan amount or any
estimate of value for the property to serve as collateral,
either express or implied.
``(d) Appraisal Report.--In any case in which an appraisal
is performed in connection with a home mortgage loan, the
lender or loan servicer shall provide a copy of the appraisal
report to an applicant for a home mortgage loan, whether
credit is granted, denied, or the application was withdrawn.
The first copy of this report shall be provided to the
applicant without charge.
``(e) Remedies.--In addition to other remedies, in any
action for a violation of this section, the following shall
apply:
``(1) Required modification.--If a retrospective appraisal
determines that the appraisal upon which the home loan was
based exceeded the true market value by 10 percent or more,
the holder of the loan shall modify the loan and recast the
loan ab initio to a loan amount that is at the same loan-to-
value which the original loan purported to be. All payments
made prior to the recasting of such loan shall be applied to
the reduced loan amount.
``(2) Agency ability to modify true value tolerance
level.--If a consumer has a right of action or a defense
against the holder of the home loan when the appraisal upon
which the home loan was based exceeds the true market value
of the home by 10 percent or more, the regulatory agency
which oversees appraisers in the jurisdiction in which the
collateral is located has the authority to issue rules which
permit the 10 percent tolerance level established in this
paragraph to deviate by no more than 2 percent where local
conditions warrant.
``(3) Collection from appraiser's qualifying bond.--A
consumer awarded remedies pursuant to this section shall have
the right to collect such remedies from the appraiser's
qualifying bond.
``(f) Civil Liability.--
``(1) In general.--Any appraiser who fails to comply with
any requirement of this section with respect to a borrower
designated in a home mortgage loan contract, is liable to
such borrower in an amount equal to the sum of--
``(A) any actual damages sustained by such borrower as a
result of the failure;
``(B) an amount not less than $5,000; or
``(C) in the case of any successful action to enforce the
foregoing liability, the costs of the action, together with a
reasonable attorney's fee as determined by the court.
``(2) Jurisdiction.--Any action by a borrower for a failure
to comply with the requirements of this section may be
brought in any United States district court, or in any other
court of competent jurisdiction, not later than 3 years from
the date of the occurrence of such violation. This subsection
does not bar a person from asserting a violation of this
section in an action to collect the debt owed on a home
mortgage loan, or foreclose upon the home securing a home
mortgage loan, or to stop a foreclosure upon that home, which
was brought more than 3 years after the date of the
occurrence of the violation as a matter of defense by
recoupment or set-off in such action. An action under this
section does not create an independent basis for removal of
an action to a United States district court.
``(3) State attorney general enforcement.--An action to
enforce a violation of this section may also be brought by
the appropriate State attorney general in any appropriate
United States district court, or any other court of competent
jurisdiction, not later than 3 years after the date on which
the violation occurs. An action under this section does not
create an independent basis for removal of an action to a
United States district court.''.

TITLE V--GOOD FAITH AND FAIR DEALING IN HOME LOAN SERVICING

SEC. 501. DUTIES OF LENDERS AND LOAN SERVICERS.

The Truth in Lending Act (15 U.S.C. 1601 et seq.) is
amended by inserting after section 129C, as added by this
Act, the following new section:

``SEC. 129D. DUTIES OF LENDERS AND LOAN SERVICERS.

``(a) Standard of Care.--
``(1) Agency relationship.--In the case of any home loan
serviced by a loan servicer on behalf of a lender, the loan
servicer shall be deemed an agent of that lender, and shall
be subject to all requirements of agents otherwise applicable
under Federal or State law.
``(2) Fair dealing.--Each lender and loan servicer shall,
in addition to the duties imposed by otherwise applicable
provisions of Federal or State law, with respect to each home
mortgage loan, including any home mortgage loan in default or
in which the homeowner has filed for bankruptcy--
``(A) act with reasonable skill, care, diligence, and in
accordance with the highest standards; and
``(B) act in good faith and with fair dealing in any
transaction, practice, or course of business associated with
the home mortgage loan.
``(b) Rules for Assessment of Fee.--
``(1) In general.--No home mortgage loan contract may
require, nor may any lender or loan servicer assess or
receive, any fees or charges other than interest, late fees
as specifically authorized in this section, or fees assessed
for nonsufficient funds, and charges allowed pursuant to
subsection (i)(1)(B), until the home mortgage loan is the
subject of a foreclosure proceeding and the debt on such loan
has been accelerated.
``(2) Fee limitations.--Any permissible fee or charge
described under paragraph (1) shall be--
``(A) reasonable;
``(B) for services actually rendered; and
``(C) specifically authorized by the terms of the home
mortgage loan contract and State law.
``(3) Assessment and disclosure.--
``(A) In general.--Any permissible fee or charge described
under paragraph (1) shall be--
``(i) assessed not later than 30 days after the date on
which the fee was accrued; and
``(ii) explained clearly and conspicuously in the next
monthly accounting statement provided to the borrower
designated in the home mortgage loan contract.
``(B) Failure to comply.--Failure by a lender or loan
servicer to comply with the requirements set forth under
subparagraph (A) shall result in the waiver of the fee.
``(4) Required statements.--Each month a lender or loan
servicer shall provide to each borrower designated in a home
mortgage loan contract entered into by such lender or loan
servicer a periodic statement that clearly and in plain
english explains--
``(A) the application of the prior month's payment by the
borrower, including the allocation of the payment to
interest, principal, escrow, and fees;
``(B) the status of the escrow account held on behalf of
the borrower, including the payments into and from the escrow
account; and
``(C) the assessment of fees accruing in the previous
month, including the reason that such fee accrued and the
date such fee accrued.
``(c) Maximum Allowable Late Fees Charged After Loan
Closing.--
``(1) In general.--No lender or loan servicer may impose a
charge or fee for late payment of any amount due on a home
mortgage loan--
``(A) unless the home mortgage loan contract specifically
authorizes the charge or fee;
``(B) in an amount in excess of 5 percent of the amount of
the payment past due;
``(C) before the end of the 15-day period after the date
the payment is due, or in the case of a home mortgage loan on
which interest on each installment is paid in advance, before
the end of the 30-day period after the date the payment is
due; or
``(D) more than once with respect to a single late payment.
``(2) Rule of construction.--For purposes of this
subsection, payments on any amount due on a home mortgage
loan shall be applied first to current installments, then to
delinquent payments, and then to delinquency charges.
``(3) Coordination with subsequent late fees.--If a home
loan mortgage payment is otherwise a full payment for the
applicable period and is paid on its due date or within an
applicable grace period, and the only delinquency or
insufficiency of payment is attributable to a late fee or
delinquency charge assessed on an earlier payment, no late
fee or delinquency charge may be imposed on such payment.
``(d) Prompt Crediting of Payments Required.--Each home
loan mortgage payment amount received by a lender or a loan
servicer shall be accepted and credited on the date received.
Such payments shall be credited to interest and principal due
on the home mortgage loan before crediting the payment to
taxes, insurance, or fees.
``(e) Collateral Protection Insurance.--
``(1) In general.--A lender or loan servicer may not charge
any borrower designated in a home mortgage loan contract for
collateral protection insurance, unless--
``(A) the home mortgage loan contract requires the borrower
to maintain insurance on the collateral and clearly
delineates--
``(i) the terms and conditions for imposition of and
payment of the collateral;
``(ii) that such insurance may not protect the interests of
the borrower and may be substantially more expensive than
insurance that the borrower could purchase independently; and
``(iii) that the borrower will be charged for the cost of
the insurance;
``(B) the lender or loan servicer makes every effort to
avoid the necessity of requiring collateral protection
insurance, including at least written notice and telephone
communications with the borrower and the insurance agent of
record regarding the--
``(i) obligation of the borrower to maintain property
insurance; and
``(ii) additional cost to the borrower on a monthly basis
if collateral protection insurance is required;

[[Page S15241]]

``(C) clear notice is received by the borrower at least 15
days in advance of the charge for collateral protection
insurance, including--
``(i) notice that the--

``(I) placement of the insurance is imminent;
``(II) costs of the insurance will be paid by the borrower;
and
``(III) the insurance will not protect the borrower from
loss;

``(ii) notice of the amount of the new monthly payment; and
``(iii) instructions on the steps that the borrower may
take to avoid such charge; and
``(D) charges for such insurance are bona fide and
reasonable.
``(2) Prohibition.--In no event is collateral protection
insurance permitted when a lender or loan servicer is
collecting fees in escrow from the borrower for the payment
of property taxes and insurance, unless the borrower has had
his or her insurance cancelled for some reason other than
non-payment of the premium.
``(3) Notice of charge.--After a charge for the purchase of
collateral protection insurance has been issued by a lender
or loan servicer, notice of the new monthly payment
requirements shall be delivered to the borrower at least 15
days prior to the first increased payment--
``(A) explaining the imposition of the new charges for such
insurance; and
``(B) providing information on what the borrower can do to
obviate the need for such insurance.
``(f) Obligations of Lender or Loan Servicer to Handle
Escrow Funds.--A lender or loan servicer shall make all
payments from the escrow account held for the borrower
designated in a home mortgage loan contract for insurance,
taxes, and other charges with respect to the property secured
by such contract in a timely manner to ensure that no late
penalties are assessed and that no other negative
consequences result, regardless of whether the loan is
delinquent, unless--
``(1) there are not sufficient funds in the account of such
borrower to cover the payments; and
``(2) the lender or loan servicer has a reasonable basis to
believe that recovery of the funds will not be possible.
``(g) Information Exchange and Dispute Requirements.--
``(1) Mandatory response to borrowers' requests.--
``(A) In general.--A lender or loan servicer shall respond
to any request for information about a home mortgage loan or
for resolution of any dispute involving a home mortgage loan
submitted by a borrower designated in a home mortgage loan
contract entered into by such lender or loan servicer.
``(B) Timing or response.--A response required under
subparagraph shall occur--
``(i) without cost to the requesting borrower; and
``(ii) not later than 10 days after the receipt of such
request.
``(C) Scope of obligation.--The scope of the response
requirement set forth in subparagraph (A), includes--
``(i) providing--

``(I) the status of the borrowers account, including
whether the account is current, or if not, the date the
account went into default;
``(II) the current balance due on the home mortgage loan of
the borrower, including the principal due, an explanation of
the escrow balance, and whether there are any escrow
deficiencies or shortages;
``(III) a full payment history of the borrower, which shows
in a clear and easily understandable manner all of the
activity on the home mortgage loan of the borrower since the
origination of the loan, including the escrow account and the
application of payments; and
``(IV) a copy of the original note and security instrument;

``(ii) correcting errors relating to the allocation of
payments made by the borrower, final balances for purposes of
paying off the loan or avoiding foreclosure, and other lender
or loan servicer obligations;
``(iii) providing the identity, address, and other relevant
information about the owner or assignee of the home mortgage
loan; and
``(iv) providing a telephone number on each regular account
statement that gives the borrower access to a live person
with the information and authority to answer questions and
resolve issues.
``(2) No sharing of information.--During the 90-day period
beginning on the date of the receipt of a request from a
borrower under paragraph (1), a lender or loan servicer may
not provide information to any reporting agency regarding any
overdue payment, or other default on the home mortgage loan,
by such borrower to any consumer reporting agency (as such
term is defined in section 603(f) of the Fair Credit
Reporting Act).
``(3) Maintenance of records.--A lender or loan servicer
shall maintain written and electronic records of the handling
of any oral request made by a borrower under this subsection.
``(h) Mandatory Loss Mitigation.--
``(1) In general.--A lender or loan servicer shall not
initiate a foreclosure of a home mortgage loan unless that
lender or loan servicer has made a good faith review of the
financial situation of the borrower designated in such home
mortgage loan contract and has offered, whenever feasible, a
repayment plan, forbearance, loan modification, or other
option to assist the borrower in bringing his or her
delinquent account into arrears. In the event that such
options are not feasible, the lender or loan servicer shall
refer the borrower to a housing counseling agency approved by
the Secretary of Housing and Urban Development under section
106(d) of the Housing and Urban Development Act of 1968 (12
U.S.C. 1701x(d)).
``(2) Reports on loss mitigation activities.--
``(A) In general.--Each servicer shall report to the Board
once every 3 months on the extent and results of its loss
mitigation activities.
``(B) Form and content.--The Board shall prescribe, by
regulation, the form and content of the reports required by
this paragraph which shall include--
``(i) categories of measures that result in modifications
of loan provisions, including payment schedules, loan
principle, and loan interest;
``(ii) forebearance agreements;
``(iii) acceptance of a reduced amount in satisfaction of
the loan;
``(iv) assumption of the loan;
``(v) pre-foreclosure sales; and
``(vi) deeds in lieu of foreclosure, and foreclosures.
``(C) Basis.--Data required by this paragraph shall be
reported on a servicer and lender basis.
``(D) Public availability.--The Board shall make data
received under this paragraph publicly available, and shall
annually report to Congress on servicer loss mitigation
activities.
``(3) Failure to comply.--Failure by a lender or loan
servicer to comply with the requirements under paragraph (1)
shall constitute a defense to any foreclosure.
``(i) Payoff Statements.--
``(1) Prohibition on fees.--
``(A) In general.--No lender or loan servicer (or any third
party acting on behalf of such lender or loan servicer) may
charge a fee for transmitting to any borrower the amount due
to pay off the outstanding balance on the home mortgage loan
of such borrower.
``(B) Exception.--After a lender or loan servicer (or any
third party acting on behalf of such lender or loan servicer)
has provided the information described in subparagraph (A)
without charge on 4 occasions during a calendar year, the
lender or loan servicer (or any third party acting on behalf
of such lender or loan servicer) may thereafter charge a
reasonable fee for providing such information during the
remainder of the calendar year.
``(2) Timing.--The information described in subparagraph
(A) shall be provided to the borrower within a reasonable
period of time but in any event not more than 5 business days
after the receipt of the request by the lender or loan
servicer.
``(j) Civil Liability.--
``(1) In general.--Any lender or loan servicer who fails to
comply with any requirement of this section with respect to a
borrower designated in a home mortgage loan contract, is
liable to such borrower in an amount equal to the sum of--
``(A) any actual damages sustained by such borrower as a
result of the failure;
``(B) an amount not less than $5,000; or
``(C) in the case of any successful action to enforce the
foregoing liability the costs of the action, together with a
reasonable attorney's fee as determined by the court.
``(2) Jurisdiction.--Any action by a borrower for a failure
to comply with the requirements of this section may be
brought in any United States district court, or in any other
court of competent jurisdiction, not later than 3 years from
the date of the occurrence of such violation. This subsection
does not bar a person from asserting a violation of this
section in an action by a lender or loan servicer to collect
the debt owed on a home mortgage loan, or foreclose upon the
home securing a home mortgage loan, or to stop a foreclosure
upon that home, which was brought more than 3 years after the
date of the occurrence of the violation as a matter of
defense by recoupment or set-off in such action. An action
under this section does not create an independent basis for
removal of an action to a United States district court.
``(3) State attorney general enforcement.--An action to
enforce a violation of this section may also be brought by
the appropriate State attorney general in any appropriate
United States district court, or any other court of competent
jurisdiction, not later than 3 years after the date on which
the violation occurs. An action under this section does not
create an independent basis for removal of an action to a
United States district court.
``(k) Definitions.--In this section, the following
definitions shall apply:
``(1) Lender.--The term `lender' has the same meaning as in
section 3500.2 of title 24, Code of Federal Regulations, as
in effect on the date of enactment of this section.
``(2) Loan servicer.--The term `loan servicer' has the same
meaning as the term `servicer' in section 6(i)(2) of the Real
Estate Settlement Procedures Act of 1974 (12 U.S.C.
2605(i)(2)).''.

SEC. 502. REAL ESTATE SETTLEMENT PROCEDURES.

Section 6(b)(3) of the Real Estate Settlement Procedures
Act of 1974 (12 U.S.C. 2605(b)(3)) is amended by adding at
the end the following new subparagraph:
``(H) A statement explaining--

[[Page S15242]]

``(i) whether the account of the borrower is current, or if
the account is not current, an explanation of the reason and
date the account went into default;
``(ii) the current balance due on the loan, including the
principal due, an explanation of the escrow balance, and
whether there are any escrow deficiencies or shortages; and
``(iii) a full payment history of the borrower which shows
in a clear and easily understandable manner, all of the
activity on the home mortgage loan since the origination of
the loan or the prior transfer of servicing, including the
escrow account, and the application of payments.''.

SEC. 503. EFFECTIVE DATE.

This title and the amendments made by this title shall
become effective 90 days after the date of enactment of this
Act, and shall apply to loan servicers and loan servicing
activities on and after that effective date.

TITLE VI--FORECLOSURE PREVENTION COUNSELING

SEC. 601. FORECLOSURE PREVENTION COUNSELING.

Section 106(d)(6) of the Housing and Urban Development Act
of 1968 (12 U.S.C. 1701x(d)(6)) is amended to read as
follows:
``(6) Foreclosure prevention counseling.--
``(A) Notification at time of settlement of availability of
counseling upon delinquency.--
``(i) In general.--At the time of settlement of any real
estate transaction involving a qualified mortgage, and
together with the final signed loan documents, a lender or
loan servicer shall provide to each eligible homeowner a
plain language statement in conspicuous 16-point type or
larger which shall include the following:

``(I) Counseling statement.--A counseling statement that
reads as follows:

`If you are more than 30 days late on your mortgage payments,
your lender or loan servicer shall notify you of housing
counseling agencies approved by the Secretary of Housing and
Urban Development that may be able to assist you. Before you
miss another mortgage payment, you are strongly encouraged to
contact your lender or loan servicer or 1 of these agencies
for assistance. If you are more than 60 days late on your
mortgage payments, your lender or loan servicer shall send
you a second notification containing this information. In
addition, if you are more than 60 days late on your mortgage
payment, your lender or loan servicer shall notify an
approved housing counseling agency so that such agency can
contact you regarding any assistance it may be able to
provide.
`You can also choose a housing counseling agency from the
list provided with this statement to assist you. By calling 1
of these approved housing counseling agencies and signing an
authorization form, your agency of choice will notify your
lender or loan servicer of your decision.'.

``(II) Counseling agency listing.--A listing of at least 5
national, State and local housing counseling agencies
approved by the Secretary. It is the responsibility of the
lender or loan servicer to ensure that--

``(I) Housing counseling information in notice foreclosure
statement.--A foreclosure notice that includes the following
statement (blank lines to be filled in by the lender or loan
servicer, as appropriate):

`This is an official notice that the mortgage on your home is
in default, and the lender intends to foreclose in ___ days.
The name, address, and phone number of housing counseling
agencies approved by the Secretary of Housing and Urban
Development serving your county are listed at the end of this
notice.
`In addition, your lender or loan servicer shall notify such
an approved housing counseling agency of your default so that
such agency can contact you regarding any assistance it may
be able to provide. You have the right to request that your
lender or loan servicer not share your information with a
housing counseling agency.
`You can also choose an approved housing counseling agency
from the list provided with this notice to assist you. By
calling one of these approved housing counseling agencies and
signing an authorization form, your agency of choice will
notify your lender or loan servicer of your decision.'.

``(II) Counseling agency listing.--A listing of at least 5
State and local housing counseling agencies approved by the
Secretary. It is the responsibility of the lender or loan
servicer to ensure that--

``(aa) if fewer than 5 approved housing counseling agencies
serve the area where the eligible homeowner is located, all
available housing counseling agencies in that area shall be
listed; and
``(bb) the list shall include options of housing counseling
agencies that provide in-person counseling, as well as
telephone counseling.
``(ii) Notice.--Any notice required to be sent pursuant to
this subparagraph shall be sent by first class mail to the
last known address of the eligible homeowner and if
different, to the residence which is the subject of the
mortgage. The notice shall also be sent by registered or
certified mail
``(iii) Timing.--Any notice required to be sent pursuant to
this subparagraph shall be sent at such time as the eligible
homeowner is at least 60 days contractually delinquent in his
or her mortgage payments or is in violation of other
provisions of the mortgage.
``(iv) Inclusion in all foreclosure mailings.--The
foreclosure notice and counseling agency listing required
under subclauses (I) and (II) of clause (i) shall be included
with all foreclosure mailings sent to an eligible homeowner.
``(C) No foreclosure if application for foreclosure
prevention services.--A lender or loan servicer shall not
initiate or continue a foreclosure--
``(i) upon receipt of a written confirmation that an
eligible homeowner has engaged a housing counseling agency
approved by the Secretary for the purposes of receiving
foreclosure prevention services and assistance; and
``(ii) for the 45-day period beginning on the date of
receipt of such written confirmation.
``(D) Duties.--
``(i) Duty of lender or servicer to forward information.--

``(I) In general.--Each lender or loan servicer shall
forward the contact information of each eligible homeowner
who has borrowed amounts from such lender or loan servicer
for a qualified mortgage to a housing counseling agency
approved by the Secretary in the event the mortgage payment
of that homeowner is or becomes more than 60 days late so
that the housing counseling agency can attempt to reach the
homeowner.
``(II) Pre-existing relationship.--In the case that an
eligible homeowner has a pre-existing relationship with a
housing counseling agency approved by the Secretary, or a
preference for one agency over another, the homeowner may
indicate as such--

``(aa) at the time of settlement of the real estate
transaction involving a qualified mortgage issued to that
homeowner;
``(bb) by providing written correspondence to the lender or
loan servicer for such qualified mortgage stating which
housing counseling agency the homeowner would like to work
with in case the homeowner should become delinquent in his or
her mortgage payments; or
``(cc) by signing an authorization form at the office of
such housing counseling agency of choice, which form shall
then be sent to the lender or loan servicer.

``(III) Rules of construction.--In order to carry out the
provisions of this paragraph, lenders and loan servicers may
form relationships with housing counseling agencies approved
by the Secretary to provide services to eligible homeowners.
Notwithstanding the previous sentence, exclusive
relationships between any such parties are strictly
prohibited.

``(ii) Agency representation of homeowner.--When a housing
counseling agency provides a lender or loan servicer with a
signed authorization form to represent an eligible homeowner,
the lender or servicer shall respond to requests from that
agency for information within 3 days, and to any workout
proposals of that agency within 7 days. A lender or loan
servicer may not refuse to work with a housing counselor from
a housing counseling agency approved by the Secretary, if a
signed authorization form an eligible homeowner has been
received by that lender or loan servicer (faxed, scanned, and
other electronically reproduced authorizations of such
authorization form shall also be acceptable).
``(iii) Required disclosures to homeowner.--Each eligible
homeowner shall be informed at the time of settlement of the
real estate transaction involving a qualified mortgage issued
to that homeowner that under this paragraph a housing
counseling agency may provide easier access to assistance in
case the homeowner becomes delinquent on his or her mortgage
payments and that no information that would make it possible
to identify the homeowner will be given to any other entity
for any reason without the prior approval of the homeowner.
``(iv) Required resolutions.--A lender or loan servicer
shall be required to consider all loss mitigation resolutions
for each case of foreclosure initiated by the lender or loan
servicer, including the modification of a qualified mortgage
to a more permanent, affordable interest rate.
``(v) Required disclosures to housing counseling
agencies.--A lender or loan servicer shall disclose to any
housing counseling agency approved by the Secretary and
authorized to represent an eligible homeowner the name of the
originator of the loans as stated in the Pooling and
Servicing

[[Page S15243]]

Agreement, and the name of the pool Trustee.
``(E) Reimbursements for housing counseling services.--
``(i) In general.--A lender or loan servicer of a qualified
mortgage made to an eligible homeowner shall reimburse the
housing counseling agency that is authorized to represent the
homeowner upon the rendering of services by such agency to
the homeowner under this paragraph.
``(ii) Reimbursement.--A lender or loan servicer shall seek
reimbursement for the payment of housing counseling services
as described under clause (i) from the Trust, if any,
designated in the lender or servicer's Pooling and Servicing
Agreement.
``(F) Availability of waiver.--
``(i) In general.--An eligible homeowner may choose not to
receive information regarding State and local housing
counseling agencies approved by the Secretary, or to have
their information shared with State and local housing
counseling agencies, or both, at any time after default. An
eligible homeowner may also submit a signed letter to their
lender or loan servicer at any time after default to waive
their right to receive information regarding State and local
housing counseling agencies.
``(ii) Limitation on waiver.--The waiver described under
clause (i) shall only apply to the receipt of information
regarding housing counseling agencies located in the area
where the homeowner is located or the sharing of the
homeowner's personal information with such agencies. The
waiver described under clause (i) shall not apply to the
right of the homeowner to seek foreclosure prevention
counseling, nor does it relieve the lender or loan servicer
of the requirement to notify the homeowner of the
availability of counseling as described in this section.
``(G) Definitions.--In this paragraph, the following
definitions shall apply:
``(i) Lender.--The term `lender' has the same meaning as in
section 3500.2 of title 24, Code of Federal Regulations.
``(ii) Loan servicer.--The term `loan servicer' has the
same meaning as the term `servicer' as that term is defined
in section 6(i)(2) of the Real Estate Settlement Procedures
Act (12 U.S.C. 2605(i)(2)).''.

TITLE VII--REMEDIES AND ENFORCEMENT

SEC. 701. MATERIAL DISCLOSURES AND VIOLATIONS.

(a) Material Disclosures.--Section 103(u) of the Truth in
Lending Act (15 U.S.C. 1602(u)) is amended by--
(1) striking ``material disclosures'' and inserting
``material disclosures or violations''; and
(2) striking ``and the disclosures required by section
129(a)'' and inserting ``and the provisions of sections 129,
129A, and 129B.''.
(b) Consequences of Failure To Comply.--Section 129(j) of
the Truth in Lending Act (15 U.S.C. 1639(j)) is amended by
striking ``contains a provision prohibited by'' and inserting
``violates a provision of''.

SEC. 702. RIGHT OF RESCISSION.

(a) Time Limit for Exercise of Right.--Section 125(f) of
the Truth in Lending Act (15 U.S.C. 1635(f)) is amended by
striking ``An obligor's right of rescission shall expire
three years after the date of consummation'' and inserting
``An obligor's right of rescission shall extend to 6 years
from the date of consummation''.
(b) Assertion of Right.--Section 130(e) of the Truth in
Lending Act (15 U.S.C. 1640(e)) is amended by inserting after
the second sentence the following new sentence: ``This
subsection shall not bar a person from asserting a right to
rescission under section 125 in an action to collect the debt
or as a defense to a judicial foreclosure or to stop a
nonjudicial foreclosure after the expiration of the time
period set forth in section 125(f), but not exceed 10 years
from the date of the consummation of the transaction.''.

SEC. 703. CIVIL LIABILITY.

(a) In General.--Section 130 of the Truth in Lending Act
(15 U.S.C. 1640) is amended by--
(1) striking ``creditor'' and inserting ``creditor or
mortgage broker'' in each place that term appears;
(2) striking ``Creditor'' and inserting ``Creditor or
Mortgage Broker'' in each place that term appears; and
(3) striking ``creditor's'' and inserting ``creditor's or
mortgage broker's'' in each place that term appears.
(b) Statute of Limitations Extended for Section 129, 129A,
or 129B Violations.--Section 130(e) of the Truth in Lending
Act (15 U.S.C. 1640(e)), as amended by section 702(b), is
further amended--
(1) in the first sentence, by striking ``Any action'' and
inserting ``Except as otherwise provided in this subsection,
any action'';
(2) by inserting after the first sentence the following new
sentence: ``Any action under this section with respect to any
violation of section 129, 129A, or 129B may be brought in any
United States district court, or in any other court of
competent jurisdiction, within 3 years from the date of the
occurrence of the violation.''; and
(3) in the fifth sentence (as so redesignated) by striking
``violation of section 129'' and inserting ``violation of
section 129, 129A, or 129B''.
(c) Enforcement by State Attorneys General.--An action to
enforce a violation of section 129, 129A, or 129B of the
Truth in Lending Act, as amended and added by this Act, may
also be brought by the appropriate State attorney general in
any appropriate United States district court, or any other
court of competent jurisdiction, not later than 3 years after
the date on which the violation occurs. An action under this
subsection does not create an independent basis for removal
of an action to a United States district court.
(d) Other Changes to Civil Liability.--
(1) Amount of award.--Section 130(a)(2) of the Truth in
Lending Act (15 U.S.C. 1640(a)(2)) is amended--
(A) in subparagraph (A)(iii), by--
(i) striking ``$200'' and inserting ``$500'';
(ii) striking ``$2,000'' and inserting ``$5,000''; and
(iii) adding before the semicolon at the end the following:
``, such amount to adjusted annually based on the consumer
price index, to maintain current value.''; and
(B) in subparagraph (B), by striking ``500,000'' and
inserting ``$5,000,000''.
(2) Failure to comply with section 129a.--Section 130(a)(4)
of the Truth in Lending Act (15 U.S.C. 1640(a)(4)) is amended
by inserting ``or 129A'' after ``129''.

SEC. 704. LIABILITY FOR MONETARY DAMAGES.

Section 131 of the Truth in Lending Act (15 U.S.C. 1641) is
amended by--
(1) by redesignating subsection (f) as subsection (g); and
(2) by inserting after subsection (e) the following new
subsection:
``(f) Liability of Assignees for Monetary Damages for
Violations of Sections 129A and 129B.--
``(1) Subprime or nontraditional loans.--
``(A) Individual actions.--Notwithstanding subsections (a)
and (e), any person who purchases, holds, or is otherwise
assigned a mortgage or similar security interest in
connection with a subprime or nontraditional home mortgage
loan, other than a loan described under section 103(aa),
shall be liable in an individual action for remedies
available under section 130 for violations of sections 129A
and 129B that the consumer could assert against the creditor
or mortgage originator originating that mortgage.
``(B) Class actions.--Notwithstanding subsections (a) and
(e), any person who purchases, holds, or is otherwise
assigned a mortgage or similar security interest in
connection with a subprime or nontraditional home mortgage
loan, other than a loan described under section 103(aa),
shall be liable in a class action for remedies available
under section 130 for violations of section 129A that the
consumer could assert against the creditor or mortgage
originator originating that mortgage, unless such person
demonstrates, by a preponderance of the evidence, that a
reasonable person exercising ordinary and independent due
diligence could not determine that the home mortgage loan was
not in compliance with the requirements of section 129A.
``(2) Other loans.--Notwithstanding subsections (a) and
(e), any person who purchases, holds, or is otherwise
assigned a mortgage or similar security interest in
connection with home mortgage loan other than a loan
described under section 103(aa), a subprime, or a
nontraditional loan, shall be liable only in an individual
action for remedies available under section 130 for
violations of section 129B that the consumer could assert
against the creditor or mortgage originator originating that
mortgage, provided that such liability is limited to the
amount of all remaining indebtedness and the total amount
paid in connection with the transaction plus amounts required
to recover costs, including reasonable attorneys' fees.''.

SEC. 705. REMEDY IN LIEU OF RESCISSION FOR CERTAIN
VIOLATIONS.

Section 131 of the Truth in Lending Act (15 U.S.C. 1641) is
further amended by adding at the end the following new
subsection:
``(h) Remedy in Lieu of Rescission for Certain
Violations.--At the election of a consumer entitled to
rescind for violations of sections 129, 129A, or 129B, any
person (including a creditor) who holds, purchases, or is
otherwise assigned a mortgage or similar security interest in
connection with home mortgage loan--
``(1) may be required to make such adjustments to the
balance of the obligation as are required under section 125;
and
``(2) shall modify or refinance the loan, at no cost to the
consumer, the resulting balance of which shall provide terms
that would have satisfied the requirements of sections 129,
129A, or 129B at the origination of the loan and to pay costs
and reasonable attorneys fees.''.

SEC. 706. PROHIBITION ON MANDATORY ARBITRATION.

Section 131 of the Truth in Lending Act (15 U.S.C. 1641) is
further amended by adding at the end the following new
subsection:
``(i) Rule of Construction.--No provision in a home
mortgage loan shall be construed to bar a consumer from
access to any judicial procedure, forum, or remedy through
any court of competent jurisdiction under any provision of
Federal or State law.''.

SEC. 707. LENDER LIABILITY.

Section 130 of the Truth in Lending Act (15 U.S.C. 1640) is
amended by adding at the end the following new subsection:
``(i) Lender Liability.--
``(1) Transitive liability for subprime loan.--In any case
in which a mortgage broker sells or delivers a high-cost
mortgage, a subprime mortgage, or a nontraditional mortgage,
a creditor shall be liable for the acts, omissions, and
representations made by the mortgage broker in connection
with such home mortgage loan.

[[Page S15244]]

``(2) Transitive liability for other loans.--In the case of
any other home mortgage loan not described under paragraph
(1) in which a mortgage broker has received a yield spread
premium or other compensation from a creditor, the creditor
shall be liable for the acts, omissions, and representations
made by the mortgage broker in connection with such home
mortgage loan.''.

TITLE VIII--OTHER BANKING AGENCY AUTHORITY

SEC. 801. INCLUSION OF ALL BANKING AGENCIES IN THE REGULATORY
AUTHORITY UNDER THE FEDERAL TRADE COMMISSION
ACT WITH RESPECT TO DEPOSITORY INSTITUTIONS.

(a) In General.--Section 18(f) of the Federal Trade
Commission Act (15 U.S.C. 57a(f)(1)) is amended--
(1) in paragraph (1)--
(A) in the first sentence--
(i) by striking ``banks or savings and loan institutions
described in paragraph (3), each agency specified in
paragraph (2) or (3) of this subsection shall establish'' and
inserting ``depository institutions and Federal credit
unions, the Federal banking agencies and the National Credit
Union Administration Board shall each establish''; and
(ii) by striking ``banks or savings and loan institutions
described in paragraph (3), subject to its jurisdiction'' and
inserting ``depository institutions or Federal credit unions
subject to the jurisdiction of such agency or Board'';
(B) in the second sentence, by striking ``The Board of
Governors of the Federal Reserve System (with respect to
banks) and the Federal Home Loan Bank Board (with respect to
savings and loan institutions described in paragraph (3))''
and inserting ``Each Federal banking agency (with respect to
the depository institutions each such agency supervises)'';
(C) in the third sentence--
(i) by striking ``each such Board'' and inserting ``each
such banking agency and the National Credit Union
Administration Board'';
(ii) by striking ``banks or savings and loan institutions
described in paragraph (3)'' each place such term appears and
inserting ``depository institutions subject to the
jurisdiction of such agency'';
(iii) by striking ``(A) any such Board'' and inserting
``(A) any such Federal banking agency or the National Credit
Union Administration Board''; and
(iv) by striking ``with respect to banks, savings and loan
institutions'' and inserting ``with respect to depository
institutions''; and
(D) by adding at the end the following: ``For purposes of
this subsection, the terms `Federal banking agency' and
`depository institution' have the same meaning as in section
3 of the Federal Deposit Insurance Act.'';
(2) in paragraph (3), by inserting ``by the Director of the
Office of Thrift Supervision'' before the period at the end;
(3) in paragraph (4), by inserting ``by the National Credit
Union Administration'' before the period at the end; and
(4) by amending paragraph (5) to read as follows:
``(5) For the purpose of the exercise by the Federal
banking agencies described in paragraphs (2) and (3) and the
National Credit Union Administration Board described in
paragraph (4) of its powers under any Act referred to in
those paragraphs, a violation of any regulation prescribed
under this subsection shall be considered a violation of a
requirement imposed under that Act. In addition to its powers
under any provision of law specifically referred to in
paragraphs (2) through (4), each of the agencies or the Board
referred to in those paragraphs may exercise, for the purpose
of enforcing compliance with any regulation prescribed under
this subsection, any other authority conferred on it by
law.''.
(b) Preemption.--Such section 18(f) is further amended by
striking paragraph (6) and inserting the following:
``(6) Notwithstanding anything in this subsection or any
other provision of law, including the National Bank Act (12
U.S.C. 38 et seq.) and the Home Owners' Loan Act (12 U.S.C.
1461 et seq.), regulations promulgated under this subsection
shall be considered supplemental to State laws governing
unfair and deceptive acts and practices and may not be
construed to preempt any provision of State law that provides
equal or greater protections.''.
(c) Technical Amendment.--Such section 18(f) is further
amended in paragraph (2)(C), by inserting ``than'' after
``(other''.

TITLE IX--MISCELLANEOUS

SEC. 901. AUTHORIZATIONS.

For fiscal years 2008, 2009, 2010, 2011, and 2012, there
are authorized to be appropriated to the Attorney General of
the United States, a total of--
(1) $31,250,000 to support the employment of 30 additional
agents of the Federal Bureau of Investigation and 2
additional dedicated prosecutors at the Department of Justice
to coordinate prosecution of mortgage fraud efforts with the
offices of the United States Attorneys; and
(2) $750,000 to support the operations of interagency task
forces of the Federal Bureau of Investigation in the areas
with the 15 highest concentrations of mortgage fraud.
____

``Homeownership Preservation and Protection Act of 2007''--Key
Provisions

Title I: High Cost Mortgages

Definition of ``High Cost'' Mortgage. The legislation
tightens the definition of a ``high cost mortgage'' for which
certain consumer protections are triggered. The new
definition, which amends the ``Home Ownership Equity
Protection Act,'' (HOEPA) is as follows: first mortgages with
APRs that exceed Treasury securities by eight (8) percentage
points (with a range from 6 to 10 percent); second mortgages
with APRs that exceed Treasury securities by ten (10)
percentage points (with a range of 8 to 12 percent); or
mortgages where total points and fees payable by the borrower
are five percent (5 percent) of the total loan amount, or,
for smaller loans of less than $20,000, the lesser of eight
(8) percentage or $1,000. The bill revises the definition of
points and fees to include yield spread premiums and other
charges. It allows for up to two bona fide discount points
outside of the 5 percent trigger.
The following key protections are triggered for high cost
mortgages
No financing of points and fees. The bill prohibits a
creditor from directly or indirectly financing any portion of
the points, fees or prepayment penalties. These limitations
and prohibitions are designed to discourage lenders from
``flipping'' the mortgage in order to extract additional
excessive fees.
Prohibition on prepayment penalties. The bill prohibits the
lender from imposing prepayment penalties for high cost
loans.
Prohibition of Yield Spread Premiums (YSPs). The bill
prohibits YSPs for placing a borrower in a high cost loan
that is more costly than that for which the borrower
qualifies. Mortgage brokers, who have originated about 70
percent of subprime mortgages, receive higher compensation
through YSPs for steering borrowers to these higher cost
loans. This bill will eliminate the incentive to ``upsell''
these borrowers.
Net Tangible Benefit. The originator must determine that a
high-cost refinance loan provides a net tangible benefit to
the borrower.
Prohibition on balloon payments. The bill prohibits the use
of balloon payments.
Limitation on single premium credit insurance. The bill
would prohibit the upfront payment or financing of credit
life, credit disability or credit unemployment insurance on a
single premium basis. However, borrowers are free to purchase
such insurance with the regular mortgage payment on a
periodic basis, provided that it is a separate transaction
that can be canceled at any time.

Title II--Subprime and Non-Traditional Mortgages

Definition of ``Subprime Mortgage'' and ``Nontraditional
Mortgage'': The legislation creates a new designation in the
law for subprime and nontraditional mortgages.
Subprime mortgages. Mortgages that have interest rates that
are 3 percentage points higher than Treasury securities of
comparable maturities for first mortgages and 5 percentage
points for second mortgages. This definition tracks the
Federal Reserve Board's definition of subprime lending for
the purposes of the Home Mortgage Disclosure Act (HMDA)
reporting. In addition, the legislation includes an
alternative measure that is designed to prevent capturing too
many mortgages when the yield curve is unusually flat.
Nontraditional mortgages. These are mortgages that allow
deferral of the payment of interest or principal. Interest-
only and payment-option ARMs are the current examples of
nontraditional mortgages we see most often.
Requirements for making subprime or nontraditional mortgages
Ability to repay. A mortgage originator must establish that
a borrower has the ability to repay the loan based on the
fully-indexed rate, assuming full amortization. In making
this determination, the originator must consider the
borrower's income, credit history, debt-to-income (DTI)
ratio, employment status, residual income, and other
financial resources.
Require Escrows for Taxes and Insurance. While nearly all
prime mortgages include escrows for taxes and insurance, very
few subprime loans include such escrows. The legislation
would require these escrows for all subprime and
nontraditional loans.
Nearly all prime loans include escrows for taxes and
insurance. Yet, few subprime mortgages include these escrows.
Currently, unscrupulous mortgage originators entice
unsophisticated borrowers into taking out abusive loans with
promises of lower monthly payments, in part by comparing
their current payments, which often include escrows, with
proposed loans that do not include escrows in the monthly
payments and, therefore, appear lower. Then, when insurance
or tax payments are due, the borrowers, who often do not have
the resources to pay the taxes, are forced to seek new loans
to cover the required payments, generating a whole new set of
fees. Lack of escrows, in other words, becomes a tool for
``flipping'' borrowers into yet another, high-cost loan.
Debt-to-Income Ratio. If a borrower's DTI ratio is greater
than 45 percent, a mortgage is assumed to be unaffordable
unless the originator can show, at a minimum, sufficient
residual income to afford the loan.
The ability to repay standard is largely based on guidance
published by the federal regulators in late 2006 and early
2007 and applied to the sub prime and nontraditional mortgage
markets.

[[Page S15245]]

The following protections apply to borrowers who take out
subprime or nontraditional mortgages
No Prepayment Penalties. The legislation will prohibit all
prepayment penalties for subprime and nontraditional loans.
Prepayment penalties unfairly trap subprime borrowers in
expensive subprime mortgages. These penalties make it cost-
prohibitive to refinance into better loans, or strip out
equity when the penalty is paid. Studies done by the Center
for Responsible Lending (CRL) show that interest rates on
subprime loans are no lower for loans with prepayment
penalties--the ostensible rationale for these fees--than for
loans without these penalties, even after holding credit
scores, LTVs, and other factors constant. Moreover, the CRL
study shows that the odds of having a loan with a prepayment
penalty increases significantly for borrowers who live in
minority neighborhoods.
No Yield-Spread Premiums (YSPs). The legislation will
prohibit YSPs for subprime and nontraditional loans.
YSPs are payments made by lenders to mortgage brokers,
usually without the borrower's knowledge. In exchange for the
YSP, the lender charges the borrower a higher interest rate
than that for which he could have qualified. The industry
justifies YSPs as a way for the borrower to pay the broker's
fee and other closing costs without paying cash at the
closing table. However, numerous studies have shown that YSPs
result in higher costs for consumers. For example, a study
done by HUD (while Senator Martinez was Secretary) concluded
that half ($7.5 billion) of the $15 billion paid in YSPs at
the time of this study ``is not passed through . . . to
reduce closing costs.''. More recent research by HUD
indicates that fees tend to rise even as interest rates do--
exactly the opposite of what the industry says should
happen--and that this effect is more pronounced for minority
borrowers. Research sponsored by Freddie Mac also came to the
conclusion that borrowers who pay YSPs along with direct fees
pay more for loans, all other things being equal.
Net Tangible Benefit. The originator must determine that a
high-cost refinance loan provides a net tangible benefit to
the borrower.
Remedies
Individual borrowers who get loans in violation of these
provisions will be able to rescind (i.e. ``unwind'') the
loans. Alternatively, at the choice of the borrower, the
creditor or holder of the loan may cure the loan by making
the borrower whole.
Actual damages.
Statutory damages up to $5,000 per loan, regardless of the
number of violations per loan (up from $2,000 per loan in
current law), plus the sum of finance charges and fees.
Makes mortgage brokers liable for violations of TILA
No class actions for assignees who perform due diligence to
ensure they are not buying loans in violation of the law.
As in current law, creditors are subject to class actions
for making loans in violation of the law with damages capped
at the lesser of 1 percent of net worth or $5 million
(current law caps class damages at the lesser of 1 percent of
net worth or $500,000).
A key goal of the legislation is to realign the interests
of the mortgage production system with the interest of the
borrower. In recent years, as many observers have noted, the
incentives in the system have worked against the interests of
borrowers and resulted in larger loans, at higher rates, with
weaker underwriting, and without regard to the ability of the
borrower to repay the loans. As The Economist put it:
Mortgages were written for a fee, sold to investment banks
for a fee, then packaged and floated for another fee. At each
link in the chain, the fees mattered more than the quality of
the loans . . .
To insure that the quality of the loans does matter, a
reasonable amount of responsibility for making good loans
must travel with the mortgage. The legislation allows for
individual actions by borrowers who have been given illegal
loans to make themselves whole. There will be no class
liability for assignees who exercise due diligence to avoid
funding and buying these loans.
Moreover, it is crucial that the burden of curing an
illegal loan rest not with the victims, such as Dorothy King,
the elderly woman who testified before the Senate Committee
on Banking, Housing, and Urban Affairs in February, 2007. The
subprime borrower is often more vulnerable, less
sophisticated, lower income, and less likely to have access
to better lenders. For the subprime borrower, or most any
borrower, their home is their chief asset. If the borrower
faces the loss of her only real asset through a foreclosure,
for instance, as a result of a violation of the law, it is
simply not fair to put the burden on her to find a party that
can make her whole, spending months in the courts while she
faces the loss of her home. The sensible and fair thing to do
is to allow her to go to the only party that can give her
relief--the note holder. The note holder, which is typically
a large institutional entity such as a pension fund,
insurance company, hedge fund or the like, is in a far better
position to recover from another party who may have caused
the problem. In the long run, this process will bring more
discipline to the mortgage marketplace, the very kind
of discipline that has been missing over the past several
years.

Title III--All Mortgages

All home loan borrowers get the following rights and
protections:
All mortgage originators--lenders and brokers--owe a duty
of good faith and fair dealing to borrowers. The duty of good
faith and fair dealing is widespread in state law with regard
to the execution of contracts. It would apply that duty to
the making of a mortgage contract, which is a new, but
reasonable application.
All mortgage originators have to make reasonable efforts to
make an advantageous loan to the borrower, considering that
borrower's circumstances. For example, this requirement would
prohibit a broker or lender from giving an adjustable rate
mortgage with a high likelihood of escalating costs to an
elderly person on a fixed income.
Mortgage brokers owe a fiduciary duty to their customers.
The bill designates mortgage brokers as fiduciaries of
borrowers. This means that brokers represent the borrower in
the transaction.
Today, brokers typically sell their services by telling
borrowers that they will do the shopping for the borrowers.
Indeed, the National Association of Mortgage Brokers (NAMB)
made the claim on their web site (until they were questioned
about it at a Senate Banking Committee hearing) that brokers
serve as ``mentors'' to borrowers to help them through the
complex process of getting a loan. An industry publication,
Inside B & C Lending, described mortgage brokers as being
particularly adept at convincing borrowers that they were
``trusted advisors'' to the borrowers. The bill would simply
make the brokers live up to the role they often claim for
themselves--that of a fiduciary.
Prohibit steering. Mortgage originators are prohibited from
steering borrowers to more costly loans than that for which
the borrower qualifies. This provision is designed to
counteract the widespread problem of prime quality borrowers
being steered into subprime loans. This provision would
require originators to notify borrowers that they qualify for
higher quality loans, even if the originator does not offer
those prime loans.
Over the past several years, there have been estimates that
from 20 to 50 percent of subprime borrowers could have
qualified for prime loans. The Wall Street Journal
(``Subprime Debacle Traps Even Very Credit-Worthy,'' December
3, 2007) reported on a study it commissioned that found in
2006 that 61 percent of subprime loans went to ``people with
credit scores high enough to often qualify for conventional
loans with far better terms.'' HMDA data repeatedly shows
that minorities are given higher cost loans in
disproportionate numbers.
Limitations on Yield-Spread Premiums. Allows YSPs only in
the case of no-cost loans. (YSPs for high-cost, subprime, and
nontraditional mortgages would be prohibited). Where YSPs are
paid, brokers may not receive any other compensation from any
other source and prepayment penalties are prohibited.
As discussed above, mortgage brokers argue that YSPs are a
way for cash-constrained borrowers to cover closing costs,
including the broker fee. However, independent research has
consistently shown that mortgage brokers keep at least half
or more of the YSPs for themselves. For example, HUD research
showed that no more than half of all YSPs went to offset
closing costs. Other research commissioned by Freddie Mac,
showed that borrowers who paid a combination of direct fees
and YSPs paid significantly more in fees than borrowers who
got no-cost loans where a broker's compensation came
completely from the YSP. Research also indicates that there
is a significant racial component to YSPs. Racial minorities
pay even more in fees than similarly situated white
borrowers.
Limit Low- and No-Documentation Loans. The legislation
requires adequate documentation for mortgage loans. However,
it gives the Federal Reserve the authority to make exceptions
as deemed appropriate, presumably for prime loans.
Remedies
Individual borrowers who get loans in violation of these
provisions will be able to rescind (i.e. ``unwind'') the
loans. Alternatively, at the choice of the borrower, the
creditor or holder of the loan may cure the loan by making
the borrower whole.
Actual damages.
Statutory damages up to $5,000 per loan, regardless of the
number of violations per loan (up from $2,000 per loan in
current law).
Makes mortgage brokers liable under TILA for violations of
TILA.
No class liability for assignees.

Title IV--Good Faith and Fair Dealing In Appraisals

Requirements for Appraisers
Appraisers owe a duty of good faith and fair dealing to
borrowers.
No lender may encourage or influence an appraiser to
``hit'' a certain value in connection with making a home
loan. In addition, a lender may not seek to influence an
appraiser's work, nor select an appraiser on the basis of an
expectation that he or she will appraise a property at a high
enough value to facilitate a home loan.
A crucial cause of the current mortgage meltdown has been
inflated appraisals. Many ethical appraisers complain that
lenders will only use appraisers who consistently value
properties at the levels necessary to allow the loan to
close. Appraisers who do not cooperate simply do not get
hired. This is particularly detrimental to the homeowner
because it leads the homeowner to believe he

[[Page S15246]]

or she has equity where little or none may exist.
Appraisers must obtain bonds equal to one percent of the
value of the homes appraised.
Remedies available to borrowers
Lenders must adjust outstanding mortgages where appraisals
exceeded true market value by 10 percent or more.
When an appraisal exceeds market value by 10 percent (plus
or minus 2 percent) or more, a borrower has a cause of action
against the lender. A consumer who is awarded remedies under
this section shall collect from the appraiser's bond.
Actual and statutory damages up to $5,000.

Title V--Good Faith and Fair Dealing in Home Loan Servicing

Requirements for mortgage servicers
Mortgage Servicers owe a duty of good faith and fair
dealing to borrowers. James Montgomery, former Chairman of
Great Western Financial Corporation, and a former director of
Freddie Mac, said recently, ``Servicers make money on
foreclosure,'' (American Banker, December 4, 2007). This
standard would prevent servicers from unfairly profiting from
their servicing responsibilities.
Prompt crediting of payments. Servicers must credit all
payments on the day received. Payments must first be credited
to principal and interest due on the note.
Servicers can employ a scheme called ``pyramiding,'' by
which they hold a payment until it is late, use a portion of
the payment to cover the late fee, thereby causing the
remaining payment to be insufficient. When the next month's
payment is made, it is insufficient to cover the previous
shortfall and the new payment, generating another penalty
fee. The legislation will require both prompt posting of
payments and crediting of payments to principal and interest
before being charged to late fees or other charges.
All fees must be reasonable and for services actually
provided, and only if allowed by the mortgage contract. In
addition, an adequate notice and statement is required.
No force-placing of insurance without clear notice to the
borrower.
Currently, some servicers claim that the borrower does not
have insurance on the property and ``force-places'' such
insurance on the loan. Sometimes, that insurance is purchased
from an affiliate; oftentimes the servicer is given a
significant commission for doing so. Many times, as was the
case with the Fairbanks Capital case settled by the FTC in
2003, the borrowers already had insurance, but were charged
for the additional insurance in any case. As with the
pyramiding problems, these extra charges could often result
in the borrower being put into default.
Prior to initiating foreclosure. a servicer must attempt to
implement loss mitigation.
Even in the dire circumstances existing in the mortgage
market today, and despite the nearly universal calls for
action from regulators, government officials, and consumer
advocates, mortgage servicers have been extremely slow to
offer meaningful alternatives to foreclosure for most
borrowers. In fact, according to Moody's, only 1 percent of
subprime ARM borrowers have received any loan modifications
during the current crisis. Furthermore, a new study shows how
servicers use the foreclosure process to make additional fees
from the troubled borrowers, even borrowers in bankruptcy.
These conclusions are consistent with practices uncovered by
the FTC in its 2003 investigation of mortgage servicing
practices of Fairbanks Capital, one of the largest subprime
mortgage servicers at the time. This provision will insure
that adequate loss mitigation is offered to the borrower
prior to foreclosure.
Require servicers to report their loss mitigation
activities.
In order to see which servicers are meeting their
requirements under this provision, the legislation will
require public reporting of loss mitigation activities. The
lack of responsiveness in the current crisis indicates how
important public accountability is to maximize the number of
homes saved.
Remedies
Actual and statutory damages (up to $5,000).

Title VI--Foreclosure Prevention Counseling

Require that borrowers be notified of availability of
foreclosure prevention counseling both at closing and upon
default.
Require servicers, with the consent of the borrower, to
forward the borrower's name to a HUD-authorized foreclosure
counselor upon default.
It is widely agreed that reluctance by delinquent borrowers
to respond to communications from the lender or servicer
reduces the effectiveness of loss mitigation. The legislation
will help expedite contact with the borrower by having it
come from a 3rd party counselor.
The servicer must reimburse the counselor for its work.
Once a borrower is working with an approved housing
counselor, the servicer may not initiate foreclosure for 45
days to give the parties an opportunity to work out a
mutually agreeable solution.

Title VI--Remedies

Description of remedies are listed in each relevant title.

Title VIII--Give the FDIC and OCC UDAP Rulemaking Authority.

Currently, only the Federal Reserve may issue a regulation
establishing standards for determining unfair or deceptive
acts or practices (UDAP) for banks. The Office of Thrift
Supervision has the authority to do this for thrifts, and has
indicated its intention of issuing such a rule. This
provision would give other banking regulators the same
authority. These regulators have requested this authority,
and have indicated that they are willing to act.

Other Provisions

The Federal Reserve Board will be responsible for writing
regulations to implement this Act.
The Act takes effect 6 months after date of enactment.
The legislation provides protections for renters in
foreclosed homes.
The legislation authorizes additional appropriations to the
FBI to fight mortgage fraud.
______

By Mr. COLEMAN (for himself and Mr. Leahy):
S. 2455. A bill to provide $1,000,000,000 in emergency Community
Development Block Grant funding for necessary expenses related to the
impact of foreclosures on communities; to the Committee on Banking,
Housing, and Urban Affairs.
Mr. COLEMAN. Mr. President, I ask unanimous consent that the text of
the bill be printed in the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:

S. 2455

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

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Community Foreclosure
Assistance Act of 2007''.

SEC. 2. ADDITIONAL EMERGENCY CDBG FUNDING.

(a) Appropriation.--There are authorized to be
appropriated, and shall be appropriated, $1,000,000,000, to
remain available until expended, for assistance to States,
metropolitan cities, and urban counties (as those terms are
defined in section 102 of the Housing and Community
Development Act of 1974 (42 U.S.C. 5302)) in carrying out the
community development block grant program under title I of
the Housing and Community Development Act of 1974 (42 U.S.C.
5301 et seq.)--
(1) for necessary expenses related to the impact of housing
foreclosures, and other related economic and community
development activities; and
(2) to provide foreclosure-based rental assistance for
individual renters in the form of relocation assistance.
(b) Limitation.--
(1) In general.--Except for counseling services none of the
amounts appropriated under subsection (a) may be provided,
directly or indirectly, to an individual homeowner for
foreclosure prevention purposes, including for refinancing
assistance, loans, or any other form of financial assistance.
Such funds may be provided directly to a certified housing
counseling service, which shall be considered as a
subrecipient of such grant amounts.
(2) Definition.--For purposes of paragraph (1), the term
``certified housing counseling service'' means a housing
counseling agency approved by the Secretary of Housing and
Urban Development pursuant to section 106(d) of the Housing
and Urban Development Act of 1968 (12 U.S.C. 1701x(d)).

SEC. 3. INCREASED PUBLIC SERVICES REQUIREMENT CAP.

For purposes of this Act, paragraph (8) of section 105(a)
of the Housing and Community Development Act of 1974 (42
U.S.C. 5305(a)) shall apply to the use of all funds
appropriated or otherwise made available under this Act by
substituting--
(1) ``25 per centum'' for ``15 per centum'' each place that
term appears; and
(2) ``25 percent'' for ``15 percent'' each place that term
appears.

SEC. 4. LOW AND MODERATE INCOME REQUIREMENT.

At least 50 percent of the funds appropriated or otherwise
made available under this Act shall benefit primarily persons
of low- and moderate-income.

SEC. 5. PLANS AND REPORTS.

(a) Comprehensive Plan.--None of the funds appropriated or
otherwise made available under this Act shall be used by any
State, metropolitan city, or urban county until such time as
that State, metropolitan city, or urban county submits to the
Secretary of Housing and Urban Development, for approval by
the Secretary, a comprehensive plan detailing the proposed
use of all such funds.
(b) Report on Use of Funds.--During the period of time that
funds are being expended under this Act, each State,
metropolitan city, or urban county receiving funds under this
Act shall submit, on a quarterly basis, a report to the
Secretary of Housing and Urban Development describing and
accounting for the use of all such funds expended during the
applicable period.

SEC. 6. WAIVERS.

(a) General Waiver.--In administering funds appropriated or
otherwise made available under this Act, the Secretary of
Housing and Urban Development shall waive, or specify
alternative requirements for, any provision of any statute or
regulation that

[[Page S15247]]

the Secretary administers in connection with the obligation
by the Secretary or the use by the recipient of such funds
(except for requirements related to fair housing,
nondiscrimination, labor standards, and the environment),
upon a request by a State, metropolitan city, or urban county
that such waiver is required to facilitate the use of such
funds, and a finding by the Secretary that such waiver would
not be inconsistent with the overall purpose of the statute.
(b) Low and Moderate Income Requirement Waiver.--The
Secretary of Housing and Urban Development may waive, upon
the request of a State, metropolitan city, or urban county,
the 50 percent requirement described under section 4. Such
waiver shall, in the discretion of the Secretary, only be
granted if a compelling need is demonstrated.
(c) Public Services Cap.--The Secretary of Housing and
Urban Development may waive, upon the request of a State,
metropolitan city, or urban county, the public service
requirement cap described under section 3. Such waiver shall,
in the discretion of the Secretary, only be granted if a
compelling need is demonstrated.
(d) Other Waiver Provisions.--
(1) Publication in the federal register.--The Secretary of
Housing and Urban Development shall publish in the Federal
Register any waiver of any statute or regulation authorized
under this section not later than 5 days before the effective
date of such waiver.
(2) Review of waiver.--Each waiver granted under this
section by the Secretary of Housing and Urban Development
shall be reconsidered, and if still necessary reauthorized by
the Secretary, not later than 2-years after the date on which
such waiver was first published in the Federal Register
pursuant to paragraph (1).
(3) Notification of committees.--The Secretary of Housing
and Urban Development shall notify the Committee on
Appropriations of the Senate and the Committee on
Appropriations of the House of Representatives of any waiver
granted or denied under this section not later than 5 days
before such waiver is granted or denied.

SEC. 7. NONCOMPLIANCE WITH COMMUNITY DEVELOPMENT
REQUIREMENTS.

For purposes of this Act, the provisions of section 111 of
the Housing and Community Development Act of 1974 (42 U.S.C.
5311)(relating to noncompliance) shall apply to the use of
all funds appropriated or otherwise made available under this
Act.

SEC. 8. GAO AUDIT.

The Comptroller General of the United States shall--
(1) conduct an audit of the expenditure of all funds
appropriated under this Act in accordance with generally
accepted government auditing standards; and
(2) submit a report detailing such audit to the Committee
on Banking, Housing, and Urban Affairs of the Senate and the
Committee on Financial Services of the House of
Representatives.

SEC. 9. REPORTS.

The Secretary of Housing and Urban Development shall
report, on a quarterly basis, to the Committee on
Appropriations of the Senate and the Committee on
Appropriations of the House of Representatives on--
(1) the use of funds appropriated or otherwise made
available under this Act, including--
(A) the number of households receiving counseling and
rental assistance;
(B) the outcomes of such assistance activities;
(C) the names of those certified housing counseling service
providing counseling assistance pursuant to this Act; and
(D) such other information as the Secretary may deem
appropriate; and
(2) all steps taken by the Secretary to prevent fraud and
abuse of such funds.
______

By Mr. REID (for Mrs. Clinton (for herself and Mr. Roberts)):
S. 2456. A bill to amend the Public Health Service Act to improve and
secure an adequate supply of influenza vaccine; to the Committee on
Health, Education, Labor, and Pensions.
Mrs. CLINTON. Mr. President, today I join my colleague, Senator Pat
Roberts, in introducing the Influenza Vaccine Security Act. Senator
Roberts and I first introduced this legislation during the 109th
Congress, in response to seasonal flu vaccine shortages, as well as the
growing awareness of the need for pandemic flu preparedness. Some of
these provisions were incorporated into law, but the overall need to
address problems in education, tracking, and distribution related to
seasonal influenza vaccine have not changed.
About 36,000 Americans die from the flu every year, and 200,000 more
are hospitalized due to complications from the flu. These complications
and deaths are largely preventable with a simple flu shot. Yet the
process of getting a flu shot is not always simple. Since 2000, our
Nation has experienced multiple shortages of flu vaccine prior to
Thanksgiving, when demand is highest. What we have also experienced--
and what received less attention--is the fact that at the end of the
flu season, we often have surpluses. The millions of doses that were in
such high demand earlier in the season go unused. We need to bring some
stability into the vaccine market, to ensure that we have vaccine at
periods of high demand, and also sustain demand beyond the limited
early-season period.
The Influenza Vaccine Security Act will help create a stable flu
vaccine market for manufacturers by increasing coordination between the
public and private sectors so that we can set targets and procedures
for dealing with both shortages and surpluses before they hit. It will
also create a buyback provision so that we can direct late-season
surplus vaccine to public health and bioterrorism prevention efforts,
instead of having it go to waste. The legislation will increase demand
for vaccine by improving education and outreach to populations with
historically low rates of influenza vaccination.
Of course, vaccines do us no good if they can't get to the people who
need them, and in past shortages, we had problems matching existing
stocks of vaccine to the high priority populations, like senior
citizens, who needed vaccines right away. The Influenza Vaccine
Security Act also sets up a tracking system so the CDC and state and
local health departments can share the information they need to ensure
that high priority populations will have access to vaccines. This
tracking system is critical and will provide fundamental infrastructure
necessary not only to deal with our annual flu season, but avian or
other pandemic outbreaks.
This legislation is supported by Trust for America's Health, the
American Lung Association, the American Public Health Association, the
National Association of County and City Health Officials, the American
Academy of Pediatrics, the American Academy of Physician Assistants,
the American College of Occupational and Environmental Medicine, the
Association of American Medical Colleges, the Association for
Professionals in Infection Control and Epidemiology, the Allergy &
Asthma Network, Mothers of Asthmatics, the Asthma and Allergy
Foundation of America, the Center for Biosecurity at the University of
Pittsburgh Medical Center, the Center for Infectious Disease Research &
Policy, the Immunization Coalition of Washington, DC, and the Service
Employees International Union.
Mr. President, I ask unanimous consent to have letters of support
printed in the Record.
There being no objection, the material was ordered to be placed in
the Record, as follows:
December 11, 2007.
Hon. Hillary Clinton,
U.S. Senate,
Washington, DC.
Hon. Pat Roberts,
U.S. Senate,
Washington, DC.
Dear Senators Clinton and Roberts: The undersigned
organizations join in thanking you for your leadership in
protecting our nation's health. By introducing the Influenza
Vaccine Security Act of 2007, you address one of the most
critical issues confronting the public's health in the United
States--the challenge of ensuring an adequate and timely
influenza vaccine supply. According to the Centers for
Disease Control and Prevention (CDC), the seasonal flu claims
as many as 36,000 lives each year and results in more than
200,000 hospitalizations. These numbers could skyrocket in
the case of an influenza pandemic.
The introduction of the Influenza Vaccine Security Act is
an important step toward improving the U.S. response to
outbreaks of seasonal flu. Among its provisions, the
legislation provides incentives to manufacturers to enter the
U.S. flu vaccine market and expand production capacity,
increases funding for vaccine research and development, and
increases flu surveillance and outreach, coordination, and
education. Also, public health officials must have the
flexibility to provide the medication where outbreaks are
most severe. Your bill provides the Secretary of Health and
Human Services with the ability to prioritize vaccine
distribution to high-risk populations and to ensure
geographic equity.
In addition to preparation for seasonal flu, the
legislation takes important steps to prevent and respond to a
severe flu pandemic. We applaud the emphasis on outreach, as
the efficient, widespread distribution of seasonal flu
vaccines would allow healthcare providers to conduct
exercises to prepare for the event of a severe flu pandemic.
In addition, the provision allowing unused vaccines to be
redeployed to state and local health departments for mass
vaccination exercises will also be useful in preparation for
an influenza pandemic. Finally, allowing the Secretary to
purchase antiviral medications and N-95 respirator masks and
encouraging stockpiling

[[Page S15248]]

of pediatric countermeasures will be critical to treating and
minimizing the effects of a pandemic influenza outbreak.
Prevention is the key to protecting and saving American
lives from seasonal flu outbreaks. Again, we want to commend
your leadership and thank you for introducing this very
important public health bill.
Sincerely,
American Academy of Pediatrics; American Academy of
Physician Assistants; American College of Occupational
and Environmental Medicine; Association of American
Medical Colleges; Association for Professionals in
Infection Control and Epidemiology; Allergy & Asthma
Network Mothers of Asthmatics; Asthma and Allergy
Foundation of America; Center for Biosecurity,
University of Pittsburgh Medical Center; Center for
Infectious Disease Research & Policy; Immunization
Coalition of Washington, DC; Service Employees
International Union; Trust for America's Health.
______

American Public Health Association,

Washington, DC, December 3, 2007.
Hon. Hillary Clinton,
U.S. Senate,
Washington, DC.
Hon. Pat Roberts,
U.S. Senate,
Washington, DC.
Dear Senators Clinton and Roberts: On behalf of the
American Public Health Association (APHA), the oldest and
most diverse organization of public health professionals in
the world, dedicated to protecting all Americans, their
families and communities from preventable, serious health
threats and assuring community-based health promotion and
disease prevention activities and prevention health services
are universally accessible in the United States, I write to
thank you for your attention to and leadership on the
important public health issue of influenza. The Influenza
Vaccine Security Act is an important step to ensuring that
the country has an adequate supply of vaccine for seasonal
flu and addresses important issues related to pandemic
influenza.
We are pleased your legislation contains provisions to
increase the production of seasonal influenza vaccine that
will improve public health, as well as a provision expanding
the current influenza surveillance system. Improved
surveillance is not only important for seasonal influenza,
but is vital to an early, rapid response to an influenza
pandemic. APHA applauds the inclusion of a provision
directing the Secretary of Health and Human Services to
increase the supply of antiviral medications and N-95
respirator masks to ensure sufficient supply for responders
and children. In addition, we support the creation of a
tracking system for vaccine distribution, with a focus on
ensuring that vaccine is distributed to high priority
populations. Finally, your legislation would increase
outreach and education and improve its coordination,
especially the focus on increasing vaccination rates among
providers and medically underserved communities. We believe
this is a critical step in eliminating disparities in this
area.
Thank you again for your leadership on this important
public health issue. We look forward to working with you as
the Influenza Vaccine Security Act moves through the
legislative process. If you have any questions or need
additional information, please contact me or have your staff
contact Don Hoppert or Michealle Carpenter.
Sincerely,
Georges C. Benjamin,
Executive Director.
____

American Lung Association,

New York, NY, December 4, 2007.
Hon. Hillary Rodham Clinton,
U.S. Senate,
Washington, DC.
Dear Senator Clinton: The American Lung Association
strongly supports your Influenza Vaccine Security Act of
2007. Thank you for recognizing the importance of prevention
in saving lives from annual flu outbreaks. Once enacted into
law, this legislation will confront a pressing public health
issue in the United States--establishing a continuous and
adequate supply of influenza vaccine. It will also allow the
United States to take initiative in improving its response to
outbreaks, such as accelerating participation in the global
influenza pandemic prevention effort.
According to the Centers for Disease Control and Prevention
(CDC), the seasonal flu takes the lives of 36,000 people
every year. Such alarming numbers can have an effect on the
public health of the United States, as well as impact health
care costs. The American Lung Association is confronting this
issue through our national Faces of Influenza public
awareness campaign, which urges Americans to get their annual
influenza vaccination. The Lung Association also provides a
free, online Flu Clinic Locator, making it easier for the
American public to find flu shot clinics in their local area.
The Influenza Vaccine Security Act of 2007 addresses many
issues associated with influenza prevention and treatment.
This legislation offers vaccine manufacturers important
incentives to enter the U.S. flu vaccine market, expand their
production capacity, increase surveillance and outreach
efforts and coordination, and boost funding for ongoing
research and development of vaccines. This legislation also
provides the U.S. Secretary of Health and Human Services the
authority to prioritize the distribution of vaccines,
particularly among at-risk groups.
Your legislation also recognizes the importance of ensuring
that unused vaccines be redeployed to state and local health
departments. These provisions will be critical in responding
to domestic outbreaks and preparing for an influenza
pandemic.
The American Lung Association commends your efforts
regarding this high-priority concern and looks forward to
working with you to see the Influenza Vaccine Security Act of
2007 enacted into law.
Sincerely,
Bernadette A. Toomey,
President and CEO.
____

National Association of County & City Health Officials,
Washington, DC, December 11, 2007.
Hon. Hillary Rodham Clinton,
Senate Office Building,
Washington, DC.
Hon. Pat Roberts,
Senate Office Building,
Washington, DC.
Dear Senators Clinton and Roberts: I am writing today on
behalf of the National Association of County and City Health
Officials (NACCHO) to endorse the Influenza Vaccine Security
Act of 2007.
This bill would begin to address uncertainty in influenza
vaccine supply. NACCHO believes that federal vaccine policy
must explicitly recognize, support, and strengthen the unique
roles of governmental public health agencies in monitoring
vaccine availability at the local level, assuring that
immunizations are received by the most vulnerable and high-
risk populations, and intervening to correct maldistribution,
particularly during shortages and supply disruptions.
Tracking influenza vaccine supplies would assist local health
departments to learn which end-users may have excess vaccine
that they are willing to donate or sell so that it can be
reallocated voluntarily to nursing homes, health departments,
visiting nurses, or any other entity that serves a high-risk
population. During the 2004-2005 flu season, NACCHO and local
health departments learned many lessons about what
information is needed when vaccine shortages occur. We
appreciate the inclusion of a tracking system in your bill
that has potential to collect data at the local level and
provide estimates of supply on a county by county basis. The
funding authorized in your bill will provide a good start on
a national system of tracking influenza vaccine supply, which
will help prevent illness and death when supply shortages or
disruptions occur.
We also appreciate the inclusion in your bill of
demonstration grants to enhance the infrastructure of public
health departments and health care providers in order to
improve their ability to report and track influenza vaccine
supply. The ability of local health departments to serve
their communities will also be strengthened by the influenza
vaccine education and outreach grants included in the
Influenza Vaccine Security Act of 2007.
The shortages and maldistribution of influenza vaccine is a
critical issue that our nation will undoubtedly face again in
the future. This legislation would provide important tools to
help ensure that individuals that need influenza vaccine are
protected in the future. Thank you for your past support of
local public health. The nation's local health departments
look forward to continuing to work with you to safeguard the
public's health.
Sincerely,
Patrick M. Libbey,
Executive Director.
______

By Mr. BINGAMAN (for himself, Mrs. Dole, Mr. Durbin, Mrs.
Feinstein, Ms. Stabenow, Mr. Salazar, Mr. Kerry, Mr. Brown,
Mrs. McCaskill, Mr. Schumer, Mrs. Boxer, Mr. Levin, Mr. Bayh,
Mr. Burr, Mr. Martinez, Mrs. Clinton, Mr. Pryor, Mr. Leahy,
Mrs. Lincoln, Mrs. Hutchison, Mr. Chambliss, Mr. Rockefeller,
Mr. Isakson, and Mr. Bond):
S. 2460. A bill to extend by one year the moratorium on
implementation of a rule relating to the Federal-State financial
partnership under Medicaid and the State Children's Health Insurance
Program and on finalization of a rule regarding graduate medical
education under Medicaid and to include a moratorium on the
finalization of the outpatient Medicaid rule making similar changes; to
the Committee on Finance.
Mr. BINGAMAN. Mr. President, I rise today with my colleagues Senators
Dole, Durbin, Feinstein, Stabenow, Salazar, Kerry, Brown, McCaskill,
Schumer, Boxer, Levin, Bayh, Burr, Martinez, Clinton, Pryor, Leahy,
Lincoln, Hutchison, Chambliss, Rockefeller, and Isakson to introduce
legislation vitally important to the ability of our States to continue
to fund their Medicaid programs and ensure access to health care
services for low-income constituents. The legislation would extend the
existing 1 year moratorium for an additional year on a

[[Page S15249]]

CMS rule limiting Medicaid payments to public and teaching hospitals as
well as the ability of States to fund critical healthcare programs for
rural residents such as through Sole Community Hospital programs.
On January 18, 2007, the Centers for Medicare and Medicaid Services,
CMS, published a proposed rule entitled ``Medicaid Program; Cost Limit
for Providers Operated by Units of Government and Provisions to Ensure
the Integrity of Federal- State-Financial Partnership'' that would make
sweeping changes to public and other safety net provider payment and
financing arrangements with State Medicaid programs. The proposed rule
would: impose a cost limit on Medicaid payments to public and other
safety net providers; impose a new Federal definition of public
provider status; and, greatly restrict the sources of non-Federal share
funding through intergovernmental transfers, IGTs, and certified public
expenditures, CPEs.
National advocates report that over 400 comment letters were
submitted to CMS on the proposed rule, none of which expressed support
for the rule and the overall majority of which called for its
withdrawal. In addition, a budget neutral reserve fund to block this
regulation was introduced by me and approved by the Senate this year.
CMS subsequently issued an additional regulation that would force
billions of dollars in additional Medicaid payment reductions to
teaching hospitals, many of whom are public hospitals, hampering the
ability of those providers to provide essential services including the
education of the next generation of medical professionals despite a
shortage of medical professionals. The proposed regulations would cut
at least $5 billion in Medicaid funding for safety net hospitals
nationwide over 5 years--weakening their effectiveness for all of us
and jeopardizing the health of millions of vulnerable children and
families.
In response to these rules, 66 Senators and 283 Members of the House
have gone on record in opposition to the rules since they were released
earlier this year. This includes a majority of the Finance Committee
including Senators: Roberts, Snowe, Smith, Rockefeller, Kerry,
Bingaman, Salazar, Stabenow, Wyden, Lincoln, Schumer, and Cantwell.
Furthermore, Congress showed its strong opposition to the rules by
including a one-year moratorium in the recent supplemental
appropriations bill, P.L. 110-28. The moratorium prohibits
implementation of the rules for one year from the date of enactment of
the supplemental. The supplemental was negotiated extensively by
Congress and the White House and a deal was reached on May 23. On May
25--the day the President signed the supplemental, and the moratorium,
into law--the administration put the final rule on display and
published it in the Federal Register on May 29. The most damaging
components of the proposed rule remain in the final rule, including
Medicaid cuts limiting public and other safety net providers to cost.
Since then, CMS has issued a third rule of major concern to public
and teaching hospitals. On September 28, 2007, CMS released a new
proposed rule governing the calculation of the Medicaid outpatient
upper payment limit, UPL. Many believe this action was in violation of
the current moratorium enacted by Congress. For example, the outpatient
regulation would exclude GME costs from the calculation of the Medicaid
Outpatient UPL for all hospitals and would also eliminate many
ancillary services from the UPL calculation for all-inclusive rate
providers.
Major Medicaid reforms require a congressional role. By rushing to
publish a final regulation, CMS has disregarded congressional
opposition and attempted to usurp Congress's role. In addition, the
status quo is now the administration's new policy, not what existed
when Congress was in the process of enacting the moratorium. CMS's
action requires states to prepare for implementation of the regulation
and expend administrative resources to do so--all of this before
Congress has the opportunity to address the key policy issues contained
in the regulation.
I urge my colleagues to join me in supporting this important
legislation.
Mr. President, I ask unanimous consent that the text of the bill and
letters of support be printed in the Record.
There being no objection, the material was ordered to printed in the
Record, as follows:

S. 2460

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

SECTION 1. EXTENSION OF MORATORIUM ON IMPLEMENTATION OF RULE
RELATING TO THE FEDERAL-STATE FINANCIAL
PARTNERSHIP UNDER MEDICAID AND SCHIP AND ON
FINALIZATION OF A RULE RELATING TO THE
TREATMENT OF GRADUATE MEDICAL EDUCATION UNDER
MEDICAID; MORATORIUM ON THE FINALIZATION OF THE
OUTPATIENT MEDICAID RULE MAKING SIMILAR CHANGE.

(a) Findings.--Congress makes the following findings:
(1) A proposed rule was published on January 18, 2007, on
pages 2236 through 2248 of volume 72, Federal Register, and a
rule purporting to finalize that rule was published on May
29, 2007, on pages 29748 through 29836 of volume 72, Federal
Register (relating to parts 433, 447, and 457 of title 42,
Code of Federal Regulations). This rule would significantly
change the Federal-State financial partnership under the
Medicaid and the State Children's Health Insurance Programs
by--
(A) imposing a cost limit on payments made under such
programs to governmentally operated providers;
(B) limiting the permissible sources of the non-Federal
shares required under such programs and the types of entities
permitted to contribute to such shares; and
(C) imposing new requirements on participating providers
and States under such programs.
(2) A proposed rule was published on May 23, 2007, on pages
28930 through 28936 of volume 72, Federal Register (relating
to parts 438 and 447 of title 42, Code of Federal
Regulations) that would significantly change the scope of
permissible payments under Medicaid by removing the ability
for States to make payments related to graduate medical
education.
(3) Permitting these rules to take effect would drastically
alter the Federal-State financial partnership in Medicaid and
the State Children's Health Insurance Programs, undermine the
discretion traditionally accorded States, and have a negative
impact on States, providers, and beneficiaries in the
following manner:
(A) Implementation of the rule regarding the Federal-State
financial partnership would force billions of dollars of
payment reductions, thus hampering the ability of impacted
providers to provide essential services including allowing
those providers to be ready and available for emergency
situations and to provide care to the increasing numbers of
uninsured.
(B) Implementation of the rule regarding graduate medical
education would force billions of dollars in payment
reductions to teaching hospitals, thus hampering the ability
of those providers to provide essential services including
the education of the next generation of medical professionals
despite a shortage of medical professionals.
(4) By including a one-year moratorium in the U.S. Troop
Readiness, Veterans' Care, Katrina Recovery, and Iraq
Accountability Appropriations Act of 2007, Congress intended
to forestall administrative action to allow itself time to
assess the proposals and consider alternatives that would not
negatively impact States, providers, and beneficiaries.
(5) After Congressional approval of the moratorium
contained in the U.S. Troop Readiness, Veterans' Care,
Katrina Recovery, and Iraq Accountability Appropriations Act
of 2007, the Centers for Medicare & Medicaid Services on May
25, 2007, submitted for publication its final rule, which was
not significantly different from the January proposed
regulation.
(6) The publication of a final rule in May regarding the
Federal-State financial partnership was not anticipated by
Congress and accelerates the negative impact on States,
providers, and beneficiaries, thus undermining the intent of
the moratorium passed by Congress.
(7) The publication of a proposed rule in May regarding
graduate medical education was not anticipated by Congress
and undermines the intent of the moratorium passed by
Congress.
(8) A proposed rule was published on September 28, 2007, on
pages 55158 through 55166 of volume 72, Federal Register
(relating to parts 440 and 447 of title 42, Code of Federal
Regulations) that would significantly change the scope of
permissible payments under Medicaid by redefining outpatient
hospital services and dictating methodologies for calculation
of the outpatient services upper payment limit.
(9) Congress did not anticipate continued changes after the
moratorium to reduce state flexibility to make adequate
Medicaid payments.
(10) Expansion and extension of the moratorium is necessary
to effectuate Congressional intent.
(b) Extension of Prohibition.--Section 7002(a)(1) of the
U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and
Iraq Accountability Appropriations Act of 2007 (Public Law
110-28) is amended--
(1) by striking ``1 year'' and inserting ``2 years'',

[[Page S15250]]

(2) by inserting ``or (D)'' after ``described in
subparagraph (A)'' in subparagraph (B);
(3) by striking ``or'' at the end of subparagraph (B);
(4) by striking the period at the end of subparagraph (C)
and inserting ``; or''; and
(5) by inserting at the end the following:
``(D) finalize or otherwise implement provisions contained
in the proposed rule published on September 28, 2007, on
pages 55158 through 55166 of volume 72, Federal Register
(relating to parts 440 and 447 of title 42, Code of Federal
Regulations).''.
____

U.S. Senate,

Washington, DC, March 16, 2007.
Hon. Michael O. Leavitt,
Secretary, U.S. Department of Health and Human Services,
Washington, DC.
Dear Secretary Leavitt: We are writing to express our
strong opposition to the Medicaid changes contained in the
Proposed Rule CMS-2258-P, which was issued on January 18,
2007, As you know, bipartisan objections to the changes
called for in this proposed rule have been raised by Congress
and our nation's Governors since 2005. We urge you to
withdraw this rule immediately.
The Medicaid program is the foundation of our health care
safety net. As our nation's largest insurer, it provides
access to meaningful and affordable health care for more than
50 million people. It also keeps hospitals, doctors, nursing
homes, and clinics operating in our communities. Without this
critical source of funding, many providers would not be able
to afford to offer high-quality health care, especially in
rural areas.
Since its enactment in 1965, Medicaid has been a federal-
state partnership. The federal government has worked together
with the states to ensure health care coverage and access for
the most vulnerable Americans--children, pregnant women, the
elderly and the disabled. This shared responsibility has been
paramount, with states implementing the program within broad
federal guidelines.
The new proposed rule would usurp state flexibility and
fundamentally alter the nature of state funding for the
Medicaid program. We are particularly concerned with three
aspects of the proposed rule: (1) the new definition of a
``unit of government;'' (2) the restrictions placed on
states' ability to fund their share of Medicaid expenditures;
and (3) the ``cost'' limit imposed on Medicaid provider
payments. We are also alarmed by CMS' refusal to provide any
state-specific data on the impact of this proposed rule,
which we believe could be much greater than a $5 billion
reduction in federal Medicaid spending.
The new definition of a ``unit of government'' contained in
the proposed rule is at odds with the definition adopted by
Congress in Title XIX (Section 1903(w)(7)(G)), as described
in House Report 102-310. The proposed rule adopts a federal
definition in which only those governmental entities with
taxing authority would be deemed governmental enough to
contribute to the non-federal share of Medicaid expenditures.
This is not what Congress intended. The statutory definition
of a ``unit of government'' respects the fundamental right of
states to establish subdivisions to suit their needs and best
carry out governmental functions. In the case of Medicaid,
federal law grants states the authority and flexibility to
provide health care through the most efficient and effective
methods possible. In most states, this means that state
university hospitals, public nursing homes, school-based
health centers, and other providers become an essential part
of the governmental health care infrastructure. We believe
the narrow definition of ``unit of government'' proposed by
this new rule would lead to substantial cuts for
public providers and limit access to the vital health care
services that millions of Americans depend upon.
Similarly, CMS is also singling out public providers by
restricting the type of public funds that can be used to
finance the state share of Medicaid expenditures. Under the
proposed rule, only funding derived from state and local
taxes would be allowed to fund the state share. By your
agency's own admission, inappropriate federal matching
arrangements have been largely eliminated over the last three
years through CMS' oversight activities. Given these
activities, it is unclear why the new restriction on public
funds is necessary or how it will further the overall efforts
of CMS to reduce Medicaid fraud and abuse.
Furthermore, this aspect of the proposed rule also seems to
contradict federal law. Section 1902(a)(2) of the Social
Security Act allows states to rely on ``local sources'' for
up to 60 percent of the non-federal share of program
expenditures. Current law does not limit the types of local
sources that may be used to only those sources derived from
tax revenue. Such a policy shift would hamper states
abilities to fund their Medicaid programs, and we question
CMS' authority to pursue such a far-reaching policy change.
Finally, we are concerned about the cost limit imposed on
public providers by this proposed rule. Under current
regulations, states are permitted to provide Medicaid
reimbursement to hospitals and other providers up to the
amount that would be payable using Medicare payment policies.
The proposed rule would reduce that limit to Medicaid costs
for governmental providers only, with no concurrent change
for private providers. Public providers, who
disproportionately serve the uninsured, should not be subject
to a more restrictive cost limit than private providers. Such
a reimbursement policy would have an adverse impact on
system-wide health care needs, such as trauma care, school-
based health care and medical education.
We understand and respect the efforts of CMS to ensure that
the Medicaid program is operating on a fiscally sound and
responsible basis; however, we believe the proposed rule has
gone far beyond what is necessary to secure fiscal integrity.
Instead, the proposed rule would undermine both the federal-
state partnership and the shared goal of ensuring health care
coverage and access, which are the hallmarks of the Medicaid
program.
While we are willing to work with you and CMS to strengthen
Medicaid, fundamental changes in Medicaid's financing and
payment mechanisms as envisioned in this rule can only be
adopted by Congress. For this reason, we request that you
withdraw the regulation.
We thank you for your prompt consideration of and attention
to this request. We also ask that our comments be placed in
the public record of the rulemaking.
Sincerely,
Senators John D. Rockefeller, IV, Gordon H. Smith, Jeff
Bingaman, Richard Durbin, John Kerry, Barack Obama,
Hillary Rodham Clinton, Barbara Boxer, Edward M.
Kennedy, Susan Collins, Johnny Isakson, Elizabeth Dole,
Kay Bailey Hutchison, Thad Cochran, Pete Domenici,
Richard Shelby.
Senators Ken Salazar, Dianne Feinstein, Bill Nelson, Jim
Webb, Debbie Stabenow, Robert Menendez, Evan Bayh,
Olympia Snowe, Saxby Chambliss, Richard Burr, Wayne
Allard, Christopher Bond, Pat Roberts, John Warner.
Senators Ron Wyden, Carl Levin, Joseph Lieberman, Sherrod
Brown, Charles Schumer, Harry Reid, Joseph Biden,
Bernard Sanders, Blanche Lincoln, Mark Pryor, Frank
Lautenberg, Russell Feingold, Maria Cantwell, Tom
Harkin.
Senators Daniel Akaka, Barbara Mikulski, Christopher
Dodd, Patrick Leahy, Patty Murray, Arlen Specter,
Daniel Inouye, Amy Klobuchar, Benjamin Cardin, Claire
McCaskill, Jon Tester, Herb Kohl, Robert Casey, Jr.,
Mary Landrieu, Norm Coleman, Sheldon Whitehouse.
______

By Mr. AKAKA (for himself, Mr. Dodd, and Mr. Obama):
S. 2462. A bill to provide that before the Secretary of Defense may
furlough any employee of the Department of Defense on the basis of a
lack of funds, the Secretary shall suspend any nonessential service
contract entered into by the Department of Defense, and for other
purposes; to the Committee on Armed Services.
Mr. AKAKA. Mr. President, for the last few weeks, the administration
has increased its rhetoric about a looming budget shortfall at the
Department of Defense unless Congress passes an emergency spending
bill. Most recently, the President threatened to lay off hundreds of
thousands of Federal workers at DoD to make up for any shortfalls. This
is simply unacceptable.
The Pentagon said as late as last week that the Department has
sufficient funds in order to keep our fighting men and women in Iraq
and Afghanistan supplied through late February to mid-March of next
year. Nonetheless, the administration continues to threaten to layoff
workers to make up for a non-existent gap in funding. The Department of
Defense should not use Federal employees as pawns because the White
House is playing politics with the budget.
As Chairman of the Governmental Affairs Oversight of Government
Management and Federal Workforce Subcommittee and the Armed Services
Readiness Subcommittee, I have made oversight Government contracting a
priority. In several hearings, I have heard officials and
whistleblowers testify about the systemic waste, fraud and abuse, in
many contracts. If the administration wants to save money, it should
start increasing oversight over contracts and drop those that are not
performing.
Rather than increasing their efforts to eliminate waste, fraud, and
abuse in contracting that costs us billions every year, this
administration would rather lay off patriotic civilian Federal
employees who have dedicated their careers to the Federal Government.
The Federal Government is already facing looming crisis in retirements
and is working hard to recruit new workers to fill vacancies. Using
Federal workers to make a political statement is wrong. It sends a
negative message to prospective employees and hurts recruitment efforts
in the long run.
Instead of looking to cut the Federal workforce to save money, the
President should be holding contractors accountable to reduce costs and
ensure

[[Page S15251]]

that our fighting men and women in Iraq and Afghanistan have the
supplies they need.
Today, I am introducing a bill that would send a clear message to the
administration that Federal workers are not bargaining chips.
The idea behind this legislation is simple, rather than laying off
Federal workers to close a budget shortfall, the Pentagon should
suspend contracts for non-essential services. Many service contractors
work side-by-side with Federal workers. There is no reason that Federal
workers should get a pink slip for Christmas while the Pentagon
continues to spend millions on contractors.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:

S. 2462

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

SECTION 1. LIMITATION ON FURLOUGHS OF EMPLOYEES OF THE
DEPARTMENT OF DEFENSE.

(a) Definitions.--In this Act:
(1) Employee.--The term ``employee''--
(A) has the meaning given under section 7511(a)(1) of title
5, United States Code; and
(B) includes a member of the Senior Executive Service.
(2) Furlough.--The term ``furlough''--
(A) has the meaning given under section 7511(a)(5) of title
5, United States Code; and
(B) with respect to a member of the Senior Executive
Service, has the meaning given under section 3595a(a) of
title 5, United States Code.
(b) Limitation on Furloughs.--Before the Secretary of
Defense may furlough employees of the Department of Defense
on the basis of a lack of funds, the Secretary shall suspend
all nonessential service contracts entered into by the
Department of Defense as are necessary to make up for the
lack of funds.
(c) Transfer of Funds.--The Secretary of Defense shall
transfer an amount equal to payments not required to be made
by the United States by reason of the suspension of contracts
under subsection (b) from the applicable appropriations
accounts used for making such payments into the applicable
appropriations accounts for the salaries and expenses of
employees.
(d) Use of Transferred Funds.--Amounts transferred into
appropriations accounts under subsection (c) may be used for
authorized purposes of those accounts to prevent the furlough
of employees on the basis of a lack of funds.
(e) Effective Date.--This Act shall apply with respect to
fiscal year 2008.

____________________