[House Report 114-330]
[From the U.S. Government Publishing Office]


114th Congress    }                                    {        Report
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                    {       114-330

======================================================================



 
               PORTFOLIO LENDING AND MORTGAGE ACCESS ACT

                                _______
                                

 November 16, 2015.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 1210]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1210) to amend the Truth in Lending Act to 
provide a safe harbor from certain requirements related to 
qualified mortgages for residential mortgage loans held on an 
originating depository institution's portfolio, and for other 
purposes, having considered the same, report favorably thereon 
without amendment and recommend that the bill do pass.

                          Purpose and Summary

    Introduced by Representative Barr, H.R. 1210, the 
``Portfolio Lending and Mortgage Access Act,'' amends Section 
129C of the Truth in Lending Act (TILA) (15 U.S.C. 1639c) to 
create a legal safe harbor\1\ for creditors that are depository 
institutions for any failure to comply with ability-to-repay 
requirements under TILA with respect to a residential mortgage 
loan if the depository institution has, since originating the 
loan, held it on its balance sheet and all prepayment penalties 
with respect to the loan comply with specified limitations.
---------------------------------------------------------------------------
    \1\The ``safe harbor'' provisions protect lenders against lawsuits 
by borrowers who claim they were extended a mortgage the lender had no 
reason to believe they could repay.
---------------------------------------------------------------------------
    A safe harbor from lawsuit is also created for mortgage 
originators for steering a consumer to a residential mortgage 
loan if:
           the creditor is a depository institution and 
        has informed the mortgage originator that it intends to 
        hold the loan on its balance sheet for the life of the 
        loan, and
           the mortgage originator informs the consumer 
        that the creditor intends to do so.
    Finally, the bill clarifies that it may not be construed as 
preventing a balloon loan from qualifying for the safe harbor 
provided for balloon loans originated and held in portfolio by 
small creditors operating in predominantly rural or underserved 
areas under section 129C(j) of TILA.

                  Background and Need for Legislation

    The Dodd-Frank Wall Street Reform and Consumer Protection 
Act (P.L. 111-203) (Dodd-Frank Act) made significant changes to 
the mortgage lending market place. Section 1411 of the Dodd-
Frank Act amends TILA to require that mortgage lenders 
determine at the time a loan is made that the borrower has a 
reasonable ability to repay it. The ability-to-repay 
requirements are designed to ensure that a lender takes into 
account the borrower's capacity to pay back the mortgage prior 
to consummation of the loan. Section 1412 of the Dodd-Frank Act 
creates a statutory category of mortgages known as ``qualified 
mortgages'' (QM) that are deemed to comply with Section 1411's 
ability-to-repay requirements and are therefore subject to a 
safe harbor from lawsuit, provided that the loans meet certain 
characteristics and underwriting criteria. The CFPB has 
authority to prescribe regulations implementing the Dodd-Frank 
Act's qualified mortgage requirements.
    Under the CFPB's qualified mortgage regulations, there are 
concerns that mortgages have been made ``safer'' by effectively 
making them unavailable to a substantial number of would-be 
homeowners. According to the Federal Reserve Board, 22% of 
those who borrowed to buy a home in 2010--one out of every five 
borrowers--would not have met the 43 percent debt-to-income 
ratio (DTI) underwriting requirements for a Qualified 
Mortgage.\2\
---------------------------------------------------------------------------
    \2\http://www.federalreserve.gov/boarddocs/snloansurvey/201408/
fullreport.pdf.
---------------------------------------------------------------------------
    The CFPB's mortgage rules also include special ``automatic 
QM'' designations for certain types of mortgages. For instance, 
for a period of seven years, any loan that qualifies for 
purchase by Fannie Mae and Freddie Mac (provided they are not 
removed from conservatorship sooner) automatically qualifies 
for QM status even if a borrower's DTI exceeds 43% DTI. Because 
of the exemptions, the roughly 95% of loans originated today 
that are backed or insured by the federal government are not 
affected by QM.\3\ Additionally, the CFPB gave special 
treatment to certain institutions that operate in predominantly 
rural or underserved areas, have less than $2 billion in 
assets, and originate 500 or fewer mortgages per year. The CFPB 
extended QM status to loans made by these small creditors and 
held in their own portfolios, even if the debtor has a DTI in 
excess of 43%. Small creditors in rural or underserved areas 
can also originate mortgage loans with balloon payments, 
despite the QM rule's general prohibition on balloon payment 
loans, and have those loans qualify for safe harbor treatment.
---------------------------------------------------------------------------
    \3\CFPB, ``Ability-to-Repay and Qualified Mortgage Standards Under 
the Truth in Lending Act,'' 78 Federal Register 6569, January 30, 2013.
---------------------------------------------------------------------------
    These special exemptions effectively, but only temporarily, 
minimize the impact of the CFPB's QM rule. In order to ensure 
that community financial institutions are able to continue 
providing mortgage credit to consumers, a commonsense yet 
flexible approach needs to be taken with mortgage lending. 
Allowing residential mortgage loans held in portfolio to 
qualify for a safe harbor equivalent to that of QM will allow 
these institutions to meet the credit demands of consumers, 
while incentivizing such institutions to ensure the borrower 
can meet the monthly obligations of a mortgage. When a 
community financial institution keeps a loan in portfolio--
rather than selling it off--it keeps the risk of a borrower's 
default on its books. Therefore, the lender should benefit from 
the presumption that the borrower has the ability to repay, and 
be protected from liability so long as the loan appears on the 
institution's balance sheet.

                                Hearings

    The Committee on Financial Services' Subcommittee on 
Financial Institutions held a hearing examining matters 
relating to H.R. 1210 on June 11, 2015.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
July 28, 2015 and July 29, 2015, and ordered H.R. 1210 to be 
reported favorably to the House without amendment by a recorded 
vote of 38 yeas to 18 nays (recorded vote no. FC-45), a quorum 
being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. 
There were two record votes in Committee. An amendment offered 
by Representative Waters was not agreed to by a recorded vote 
of 21 ayes to 34 nays (FC-44). The second recorded vote was on 
a motion by Chairman Hensarling to report the bill favorably to 
the House without amendment. The motion was agreed to by a 
recorded vote of 38 yeas to 18 nays (Record vote no. FC-45), a 
quorum being present.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 1210 
will ensure that mortgage loans remain available to 
creditworthy borrowers by providing that loans retained on the 
balance sheet of depository institutions are ``qualified 
mortgages'' subject to a safeharbor from lawsuit, and by 
extending certain other protections to mortgage originators.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 29, 2015.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1210, the 
Portfolio Lending and Mortgage Access Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sarah Puro.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 1210--Portfolio Lending and Mortgage Access Act

    H.R. 1210 would provide additional legal protections to 
creditors that hold mortgages that do not meet the 
characteristics of qualified mortgages, such as:
           Debt to income ratios of the borrower that 
        exceed 43 percent,
           Provisions that allow the total principal to 
        grow each year, known as negative amortization,
           Features that allow the borrower to pay only 
        the interest on a mortgage, and
           Limited documentation from the borrower.
    Enacting H.R. 1210 could affect direct spending; therefore, 
pay-as-you-go procedures apply. However, CBO estimates that the 
net effects on direct spending each year would be 
insignificant. Enacting H.R. 1210 would not affect revenues.
    Qualified mortgages are slightly less likely to default 
than mortgages without such characteristics. Providing 
protection for non-qualified mortgages would expose financial 
institutions that offer those mortgages to the risk of 
additional losses. Such losses to financial institutions, 
however, do not necessarily result in additional bank failures 
and related costs to the Deposit Insurance Fund. Mortgages 
offered legal protections under the bill would likely default 
at a rate of about 2 percent more than the qualified mortgages 
with current legal protection, CBO estimates. As a result, 
under the bill the increased probability of mortgage losses as 
a percent of total bank portfolios would be small, less than 
one-tenth of one percent and the probability of a default 
stemming from the mortgage portfolio of a bank would increase 
by less than one-half of one percent. Those small potential 
losses multiplied by the expected cost of bank failures 
projected in CBO's baseline estimates would result in 
additional costs to the federal government of less than 
$500,000 over the 2016-2025 period.
    In addition, the Consumer Financial Protection Board (CFPB) 
would have to complete a rulemaking process to implement H.R. 
1210. Costs incurred by the CFPB are direct spending; however, 
CBO estimates that the annual costs to the CFPB would be 
insignificant.
    H.R. 1210 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments.
    H.R. 1210 would impose a private-sector mandate by 
eliminating an existing right of action against lenders that 
hold mortgages on their balance sheets and mortgage originators 
who direct consumers to such loans. Under current law, lenders 
of mortgages that meet the standards for qualified mortgages 
are granted legal protection from civil actions based on a 
claim that the lender failed to comply with ability-to-repay 
requirements. Mortgage originators who direct consumers to 
qualified mortgages are also granted such legal protections. By 
broadening the definition of qualified mortgages to include 
mortgages held on a lender's balance sheet, the bill would 
limit the right of borrowers to file claims against holders of 
such loans and against mortgage originators who directed them 
to the loans, as long as the originator provided certain 
disclosures. The cost of the mandate would be the forgone value 
of the awards and settlements in such claims. Based on 
information from the CFPB, CBO expects that the number of such 
claims and the awards in such cases would be small. Therefore, 
CBO estimates that the cost of the mandate would probably fall 
below the annual threshold established in UMRA for private-
sector mandates ($154 million in 2015, adjusted annually for 
inflation).
    The CBO staff contacts for this estimate are Sarah Puro 
(for deposit insurance losses), Susan Willie (for CFPB), and 
Logan Smith (for private-sector mandates). The estimate was 
approved by H. Samuel Papenfuss, Deputy Assistant Director for 
Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 1210 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 1210 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(k) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 1210 contains no directed 
rulemaking.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This Section cites H.R. 1210 as the ``Portfolio Lending and 
Mortgage Access Act''.

Section 2. Safe harbor for certain loans held on portfolio

    This section provides that depository institution creditors 
shall be subject to a legal safe harbor for mortgage loans 
meeting specified limitations that, since origination, have 
been held on the institution's balance sheet. The section 
further provides that banking regulators must treat such loans 
as qualified mortgages; that the loans may be transferred to 
another depository institution in certain circumstances; and 
that mortgage originators shall be subject to a safe harbor in 
connection with steering consumers toward residential mortgage 
loans in certain circumstances. Finally, this section 
establishes a rule of construction with respect to the 
application of the safe harbor provided under section 129C(j) 
of the Truth in Lending Act to balloon loans.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

                          TRUTH IN LENDING ACT




           *       *       *       *       *       *       *
TITLE I--CONSUMER CREDIT COST DISCLOSURE

           *       *       *       *       *       *       *


CHAPTER 2--CREDIT TRANSACTIONS

           *       *       *       *       *       *       *



Sec. 129C. Minimum standards for residential mortgage loans

  (a) Ability To Repay.--
          (1) In general.--In accordance with regulations 
        prescribed by the Board, no creditor may make a 
        residential mortgage loan unless the creditor makes a 
        reasonable and good faith determination based on 
        verified and documented information that, at the time 
        the loan is consummated, the consumer has a reasonable 
        ability to repay the loan, according to its terms, and 
        all applicable taxes, insurance (including mortgage 
        guarantee insurance), and assessments.
          (2) Multiple loans.--If the creditor knows, or has 
        reason to know, that 1 or more residential mortgage 
        loans secured by the same dwelling will be made to the 
        same consumer, the creditor shall make a reasonable and 
        good faith determination, based on verified and 
        documented information, that the consumer has a 
        reasonable ability to repay the combined payments of 
        all loans on the same dwelling according to the terms 
        of those loans and all applicable taxes, insurance 
        (including mortgage guarantee insurance), and 
        assessments.
          (3) Basis for determination.--A determination under 
        this subsection of a consumer's ability to repay a 
        residential mortgage loan shall include consideration 
        of the consumer's credit history, current income, 
        expected income the consumer is reasonably assured of 
        receiving, current obligations, debt-to-income ratio or 
        the residual income the consumer will have after paying 
        non-mortgage debt and mortgage-related obligations, 
        employment status, and other financial resources other 
        than the consumer's equity in the dwelling or real 
        property that secures repayment of the loan. A creditor 
        shall determine the ability of the consumer to repay 
        using a payment schedule that fully amortizes the loan 
        over the term of the loan.
          (4) Income verification.--A creditor making a 
        residential mortgage loan shall verify amounts of 
        income or assets that such creditor relies on to 
        determine repayment ability, including expected income 
        or assets, by reviewing the consumer's Internal Revenue 
        Service Form W-2, tax returns, payroll receipts, 
        financial institution records, or other third-party 
        documents that provide reasonably reliable evidence of 
        the consumer's income or assets. In order to safeguard 
        against fraudulent reporting, any consideration of a 
        consumer's income history in making a determination 
        under this subsection shall include the verification of 
        such income by the use of--
                  (A) Internal Revenue Service transcripts of 
                tax returns; or
                  (B) a method that quickly and effectively 
                verifies income documentation by a third party 
                subject to rules prescribed by the Board.
          (5) Exemption.--With respect to loans made, 
        guaranteed, or insured by Federal departments or 
        agencies identified in subsection (b)(3)(B)(ii), such 
        departments or agencies may exempt refinancings under a 
        streamlined refinancing from this income verification 
        requirement as long as the following conditions are 
        met:
                  (A) The consumer is not 30 days or more past 
                due on the prior existing residential mortgage 
                loan.
                  (B) The refinancing does not increase the 
                principal balance outstanding on the prior 
                existing residential mortgage loan, except to 
                the extent of fees and charges allowed by the 
                department or agency making, guaranteeing, or 
                insuring the refinancing.
                  (C) Total points and fees (as defined in 
                section 103(aa)(4), other than bona fide third 
                party charges not retained by the mortgage 
                originator, creditor, or an affiliate of the 
                creditor or mortgage originator) payable in 
                connection with the refinancing do not exceed 3 
                percent of the total new loan amount.
                  (D) The interest rate on the refinanced loan 
                is lower than the interest rate of the original 
                loan, unless the borrower is refinancing from 
                an adjustable rate to a fixed-rate loan, under 
                guidelines that the department or agency shall 
                establish for loans they make, guarantee, or 
                issue.
                  (E) The refinancing is subject to a payment 
                schedule that will fully amortize the 
                refinancing in accordance with the regulations 
                prescribed by the department or agency making, 
                guaranteeing, or insuring the refinancing.
                  (F) The terms of the refinancing do not 
                result in a balloon payment, as defined in 
                subsection (b)(2)(A)(ii).
                  (G) Both the residential mortgage loan being 
                refinanced and the refinancing satisfy all 
                requirements of the department or agency 
                making, guaranteeing, or insuring the 
                refinancing.
          (6) Nonstandard loans.--
                  (A) Variable rate loans that defer repayment 
                of any principal or interest.--For purposes of 
                determining, under this subsection, a 
                consumer's ability to repay a variable rate 
                residential mortgage loan that allows or 
                requires the consumer to defer the repayment of 
                any principal or interest, the creditor shall 
                use a fully amortizing repayment schedule.
                  (B) Interest-only loans.--For purposes of 
                determining, under this subsection, a 
                consumer's ability to repay a residential 
                mortgage loan that permits or requires the 
                payment of interest only, the creditor shall 
                use the payment amount required to amortize the 
                loan by its final maturity.
                  (C) Calculation for negative amortization.--
                In making any determination under this 
                subsection, a creditor shall also take into 
                consideration any balance increase that may 
                accrue from any negative amortization 
                provision.
                  (D) Calculation process.--For purposes of 
                making any determination under this subsection, 
                a creditor shall calculate the monthly payment 
                amount for principal and interest on any 
                residential mortgage loan by assuming--
                          (i) the loan proceeds are fully 
                        disbursed on the date of the 
                        consummation of the loan;
                          (ii) the loan is to be repaid in 
                        substantially equal monthly amortizing 
                        payments for principal and interest 
                        over the entire term of the loan with 
                        no balloon payment, unless the loan 
                        contract requires more rapid repayment 
                        (including balloon payment), in which 
                        case the calculation shall be made (I) 
                        in accordance with regulations 
                        prescribed by the Board, with respect 
                        to any loan which has an annual 
                        percentage rate that does not exceed 
                        the average prime offer rate for a 
                        comparable transaction, as of the date 
                        the interest rate is set, by 1.5 or 
                        more percentage points for a first lien 
                        residential mortgage loan; and by 3.5 
                        or more percentage points for a 
                        subordinate lien residential mortgage 
                        loan; or (II) using the contract's 
                        repayment schedule, with respect to a 
                        loan which has an annual percentage 
                        rate, as of the date the interest rate 
                        is set, that is at least 1.5 percentage 
                        points above the average prime offer 
                        rate for a first lien residential 
                        mortgage loan; and 3.5 percentage 
                        points above the average prime offer 
                        rate for a subordinate lien residential 
                        mortgage loan; and
                          (iii) the interest rate over the 
                        entire term of the loan is a fixed rate 
                        equal to the fully indexed rate at the 
                        time of the loan closing, without 
                        considering the introductory rate.
                  (E) Refinance of hybrid loans with current 
                lender.--In considering any application for 
                refinancing an existing hybrid loan by the 
                creditor into a standard loan to be made by the 
                same creditor in any case in which there would 
                be a reduction in monthly payment and the 
                mortgagor has not been delinquent on any 
                payment on the existing hybrid loan, the 
                creditor may--
                          (i) consider the mortgagor's good 
                        standing on the existing mortgage;
                          (ii) consider if the extension of new 
                        credit would prevent a likely default 
                        should the original mortgage reset and 
                        give such concerns a higher priority as 
                        an acceptable underwriting practice; 
                        and
                          (iii) offer rate discounts and other 
                        favorable terms to such mortgagor that 
                        would be available to new customers 
                        with high credit ratings based on such 
                        underwriting practice.
          (7) Fully-indexed rate defined.--For purposes of this 
        subsection, the term ``fully indexed rate'' means the 
        index rate prevailing on a residential mortgage loan at 
        the time the loan is made plus the margin that will 
        apply after the expiration of any introductory interest 
        rates.
          (8) Reverse mortgages and bridge loans.--This 
        subsection shall not apply with respect to any reverse 
        mortgage or temporary or bridge loan with a term of 12 
        months or less, including to any loan to purchase a new 
        dwelling where the consumer plans to sell a different 
        dwelling within 12 months.
          (9) Seasonal income.--If documented income, including 
        income from a small business, is a repayment source for 
        a residential mortgage loan, a creditor may consider 
        the seasonality and irregularity of such income in the 
        underwriting of and scheduling of payments for such 
        credit.
  (b) Presumption of Ability To Repay.--
          (1) In general.--Any creditor with respect to any 
        residential mortgage loan, and any assignee of such 
        loan subject to liability under this title, may presume 
        that the loan has met the requirements of subsection 
        (a), if the loan is a qualified mortgage.
          (2) Definitions.--For purposes of this subsection, 
        the following definitions shall apply:
                  (A) Qualified mortgage.--The term ``qualified 
                mortgage'' means any residential mortgage 
                loan--
                          (i) for which the regular periodic 
                        payments for the loan may not--
                                  (I) result in an increase of 
                                the principal balance; or
                                  (II) except as provided in 
                                subparagraph (E), allow the 
                                consumer to defer repayment of 
                                principal;
                          (ii) except as provided in 
                        subparagraph (E), the terms of which do 
                        not result in a balloon payment, where 
                        a ``balloon payment'' is a scheduled 
                        payment that is more than twice as 
                        large as the average of earlier 
                        scheduled payments;
                          (iii) for which the income and 
                        financial resources relied upon to 
                        qualify the obligors on the loan are 
                        verified and documented;
                          (iv) in the case of a fixed rate 
                        loan, for which the underwriting 
                        process is based on a payment schedule 
                        that fully amortizes the loan over the 
                        loan term and takes into account all 
                        applicable taxes, insurance, and 
                        assessments;
                          (v) in the case of an adjustable rate 
                        loan, for which the underwriting is 
                        based on the maximum rate permitted 
                        under the loan during the first 5 
                        years, and a payment schedule that 
                        fully amortizes the loan over the loan 
                        term and takes into account all 
                        applicable taxes, insurance, and 
                        assessments;
                          (vi) that complies with any 
                        guidelines or regulations established 
                        by the Board relating to ratios of 
                        total monthly debt to monthly income or 
                        alternative measures of ability to pay 
                        regular expenses after payment of total 
                        monthly debt, taking into account the 
                        income levels of the borrower and such 
                        other factors as the Board may 
                        determine relevant and consistent with 
                        the purposes described in paragraph 
                        (3)(B)(i);
                          (vii) for which the total points and 
                        fees (as defined in subparagraph (C)) 
                        payable in connection with the loan do 
                        not exceed 3 percent of the total loan 
                        amount;
                          (viii) for which the term of the loan 
                        does not exceed 30 years, except as 
                        such term may be extended under 
                        paragraph (3), such as in high-cost 
                        areas; and
                          (ix) in the case of a reverse 
                        mortgage (except for the purposes of 
                        subsection (a) of section 129C, to the 
                        extent that such mortgages are exempt 
                        altogether from those requirements), a 
                        reverse mortgage which meets the 
                        standards for a qualified mortgage, as 
                        set by the Board in rules that are 
                        consistent with the purposes of this 
                        subsection.
                  (B) Average prime offer rate.--The term 
                ``average prime offer rate'' means the average 
                prime offer rate for a comparable transaction 
                as of the date on which the interest rate for 
                the transaction is set, as published by the 
                Board.
                  (C) Points and fees.--
                          (i) In general.--For purposes of 
                        subparagraph (A), the term ``points and 
                        fees'' means points and fees as defined 
                        by section 103(aa)(4) (other than bona 
                        fide third party charges not retained 
                        by the mortgage originator, creditor, 
                        or an affiliate of the creditor or 
                        mortgage originator).
                          (ii) Computation.--For purposes of 
                        computing the total points and fees 
                        under this subparagraph, the total 
                        points and fees shall exclude either of 
                        the amounts described in the following 
                        subclauses, but not both:
                                  (I) Up to and including 2 
                                bona fide discount points 
                                payable by the consumer in 
                                connection with the mortgage, 
                                but only if the interest rate 
                                from which the mortgage's 
                                interest rate will be 
                                discounted does not exceed by 
                                more than 1 percentage point 
                                the average prime offer rate.
                                  (II) Unless 2 bona fide 
                                discount points have been 
                                excluded under subclause (I), 
                                up to and including 1 bona fide 
                                discount point payable by the 
                                consumer in connection with the 
                                mortgage, but only if the 
                                interest rate from which the 
                                mortgage's interest rate will 
                                be discounted does not exceed 
                                by more than 2 percentage 
                                points the average prime offer 
                                rate.
                          (iii) Bona fide discount points 
                        defined.--For purposes of clause (ii), 
                        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.
                          (iv) Interest rate reduction.--
                        Subclauses (I) and (II) of clause (ii) 
                        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.
                  (D) Smaller loans.--The Board shall prescribe 
                rules adjusting the criteria under subparagraph 
                (A)(vii) in order to permit lenders that extend 
                smaller loans to meet the requirements of the 
                presumption of compliance under paragraph (1). 
                In prescribing such rules, the Board shall 
                consider the potential impact of such rules on 
                rural areas and other areas where home values 
                are lower.
                  (E) Balloon loans.--The Board may, by 
                regulation, provide that the term ``qualified 
                mortgage'' includes a balloon loan--
                          (i) that meets all of the criteria 
                        for a qualified mortgage under 
                        subparagraph (A) (except clauses 
                        (i)(II), (ii), (iv), and (v) of such 
                        subparagraph);
                          (ii) for which the creditor makes a 
                        determination that the consumer is able 
                        to make all scheduled payments, except 
                        the balloon payment, out of income or 
                        assets other than the collateral;
                          (iii) for which the underwriting is 
                        based on a payment schedule that fully 
                        amortizes the loan over a period of not 
                        more than 30 years and takes into 
                        account all applicable taxes, 
                        insurance, and assessments; and
                          (iv) that is extended by a creditor 
                        that--
                                  (I) operates predominantly in 
                                rural or underserved areas;
                                  (II) together with all 
                                affiliates, has total annual 
                                residential mortgage loan 
                                originations that do not exceed 
                                a limit set by the Board;
                                  (III) retains the balloon 
                                loans in portfolio; and
                                  (IV) meets any asset size 
                                threshold and any other 
                                criteria as the Board may 
                                establish, consistent with the 
                                purposes of this subtitle.
          (3) Regulations.--
                  (A) In general.--The Board shall prescribe 
                regulations to carry out the purposes of this 
                subsection.
                  (B) Revision of safe harbor criteria.--
                          (i) In general.--The Board may 
                        prescribe regulations that revise, add 
                        to, or subtract from the criteria that 
                        define a qualified mortgage upon a 
                        finding that such regulations are 
                        necessary or proper to ensure that 
                        responsible, affordable mortgage credit 
                        remains available to consumers in a 
                        manner consistent with the purposes of 
                        this section, necessary and appropriate 
                        to effectuate the purposes of this 
                        section and section 129B, to prevent 
                        circumvention or evasion thereof, or to 
                        facilitate compliance with such 
                        sections.
                          (ii) Loan definition.--The following 
                        agencies shall, in consultation with 
                        the Board, prescribe rules defining the 
                        types of loans they insure, guarantee, 
                        or administer, as the case may be, that 
                        are qualified mortgages for purposes of 
                        paragraph (2)(A), and such rules may 
                        revise, add to, or subtract from the 
                        criteria used to define a qualified 
                        mortgage under paragraph (2)(A), upon a 
                        finding that such rules are consistent 
                        with the purposes of this section and 
                        section 129B, to prevent circumvention 
                        or evasion thereof, or to facilitate 
                        compliance with such sections:
                                  (I) The Department of Housing 
                                and Urban Development, with 
                                regard to mortgages insured 
                                under the National Housing Act 
                                (12 U.S.C. 1707 et seq.).
                                  (II) The Department of 
                                Veterans Affairs, with regard 
                                to a loan made or guaranteed by 
                                the Secretary of Veterans 
                                Affairs.
                                  (III) The Department of 
                                Agriculture, with regard loans 
                                guaranteed by the Secretary of 
                                Agriculture pursuant to 42 
                                U.S.C. 1472(h).
                                  (IV) The Rural Housing 
                                Service, with regard to loans 
                                insured by the Rural Housing 
                                Service.
  (c) Prohibition on Certain Prepayment Penalties.--
          (1) Prohibited on certain loans.--
                  (A) In general.--A residential mortgage loan 
                that is not a ``qualified mortgage'', as 
                defined under subsection (b)(2), may not 
                contain terms under which a consumer must pay a 
                prepayment penalty for paying all or part of 
                the principal after the loan is consummated.
                  (B) Exclusions.--For purposes of this 
                subsection, a ``qualified mortgage'' may not 
                include a residential mortgage loan that--
                          (i) has an adjustable rate; or
                          (ii) has an annual percentage rate 
                        that exceeds the average prime offer 
                        rate for a comparable transaction, as 
                        of the date the interest rate is set--
                                  (I) by 1.5 or more percentage 
                                points, in the case of a first 
                                lien residential mortgage loan 
                                having a original principal 
                                obligation amount that is equal 
                                to or less than the amount of 
                                the maximum limitation on the 
                                original principal obligation 
                                of mortgage in effect for a 
                                residence of the applicable 
                                size, as of the date of such 
                                interest rate set, pursuant to 
                                the 6th sentence of section 
                                305(a)(2) the Federal Home Loan 
                                Mortgage Corporation Act (12 
                                U.S.C. 1454(a)(2));
                                  (II) by 2.5 or more 
                                percentage points, in the case 
                                of a first lien residential 
                                mortgage loan having a original 
                                principal obligation amount 
                                that is more than the amount of 
                                the maximum limitation on the 
                                original principal obligation 
                                of mortgage in effect for a 
                                residence of the applicable 
                                size, as of the date of such 
                                interest rate set, pursuant to 
                                the 6th sentence of section 
                                305(a)(2) the Federal Home Loan 
                                Mortgage Corporation Act (12 
                                U.S.C. 1454(a)(2)); and
                                  (III) by 3.5 or more 
                                percentage points, in the case 
                                of a subordinate lien 
                                residential mortgage loan.
          (2) Publication of average prime offer rate and apr 
        thresholds.--The Board--
                  (A) shall publish, and update at least 
                weekly, average prime offer rates;
                  (B) may publish multiple rates based on 
                varying types of mortgage transactions; and
                  (C) shall adjust the thresholds established 
                under subclause (I), (II), and (III) of 
                paragraph (1)(B)(ii) as necessary to reflect 
                significant changes in market conditions and to 
                effectuate the purposes of the Mortgage Reform 
                and Anti-Predatory Lending Act.
          (3) Phased-out penalties on qualified mortgages.--A 
        qualified mortgage (as defined in subsection (b)(2)) 
        may not contain terms under which a consumer must pay a 
        prepayment penalty for paying all or part of the 
        principal after the loan is consummated in excess of 
        the following limitations:
                  (A) During the 1-year period beginning on the 
                date the loan is consummated, the prepayment 
                penalty shall not exceed an amount equal to 3 
                percent of the outstanding balance on the loan.
                  (B) During the 1-year period beginning after 
                the period described in subparagraph (A), the 
                prepayment penalty shall not exceed an amount 
                equal to 2 percent of the outstanding balance 
                on the loan.
                  (C) During the 1-year period beginning after 
                the 1-year period described in subparagraph 
                (B), the prepayment penalty shall not exceed an 
                amount equal to 1 percent of the outstanding 
                balance on the loan.
                  (D) After the end of the 3-year period 
                beginning on the date the loan is consummated, 
                no prepayment penalty may be imposed on a 
                qualified mortgage.
          (4) Option for no prepayment penalty required.--A 
        creditor may not offer a consumer a residential 
        mortgage loan product that has a prepayment penalty for 
        paying all or part of the principal after the loan is 
        consummated as a term of the loan without offering the 
        consumer a residential mortgage loan product that does 
        not have a prepayment penalty as a term of the loan.
  (d) Single Premium Credit Insurance Prohibited.--No creditor 
may finance, directly or indirectly, in connection with any 
residential mortgage loan or with any extension of credit under 
an open end consumer credit plan secured by the principal 
dwelling of the consumer, 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--
          (1) 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; and
          (2) this subsection shall not apply to credit 
        unemployment insurance for which the unemployment 
        insurance premiums are reasonable, the creditor 
        receives no direct or indirect compensation in 
        connection with the unemployment insurance premiums, 
        and the unemployment insurance premiums are paid 
        pursuant to another insurance contract and not paid to 
        an affiliate of the creditor.
  (e) Arbitration.--
          (1) In general.--No residential mortgage loan and no 
        extension of credit under an open end consumer credit 
        plan secured by the principal dwelling of the consumer 
        may include terms which require arbitration or any 
        other nonjudicial procedure as the method for resolving 
        any controversy or settling any claims arising out of 
        the transaction.
          (2) Post-controversy agreements.--Subject to 
        paragraph (3), paragraph (1) shall not be construed as 
        limiting the right of the consumer and the creditor or 
        any assignee to agree to arbitration or any other 
        nonjudicial procedure as the method for resolving any 
        controversy at any time after a dispute or claim under 
        the transaction arises.
          (3) No waiver of statutory cause of action.--No 
        provision of any residential mortgage loan or of any 
        extension of credit under an open end consumer credit 
        plan secured by the principal dwelling of the consumer, 
        and no other agreement between the consumer and the 
        creditor relating to the residential mortgage loan or 
        extension of credit referred to in paragraph (1), shall 
        be applied or interpreted so as to bar a consumer from 
        bringing an action in an appropriate district court of 
        the United States, or any other court of competent 
        jurisdiction, pursuant to section 130 or any other 
        provision of law, for damages or other relief in 
        connection with any alleged violation of this section, 
        any other provision of this title, or any other Federal 
        law.
  (f) Mortgages With Negative Amortization.--No creditor may 
extend credit to a borrower in connection with a consumer 
credit transaction under an open or closed end consumer credit 
plan secured by a dwelling or residential real property that 
includes a dwelling, other than a reverse mortgage, that 
provides or permits a payment plan that may, at any time over 
the term of the extension of credit, result in negative 
amortization unless, before such transaction is consummated--
          (1) the creditor provides the consumer with a 
        statement that--
                  (A) the pending transaction will or may, as 
                the case may be, result in negative 
                amortization;
                  (B) describes negative amortization in such 
                manner as the Board shall prescribe;
                  (C) negative amortization increases the 
                outstanding principal balance of the account; 
                and
                  (D) negative amortization reduces the 
                consumer's equity in the dwelling or real 
                property; and
          (2) in the case of a first-time borrower with respect 
        to a residential mortgage loan that is not a qualified 
        mortgage, the first-time borrower provides the creditor 
        with sufficient documentation to demonstrate that the 
        consumer received homeownership counseling from 
        organizations or counselors certified by the Secretary 
        of Housing and Urban Development as competent to 
        provide such counseling.
  (g) Protection Against Loss of Anti-deficiency Protection.--
          (1) Definition.--For purposes of this subsection, the 
        term ``anti-deficiency law'' means the law of any State 
        which provides that, in the event of foreclosure on the 
        residential property of a consumer securing a mortgage, 
        the consumer is not liable, in accordance with the 
        terms and limitations of such State law, for any 
        deficiency between the sale price obtained on such 
        property through foreclosure and the outstanding 
        balance of the mortgage.
          (2) Notice at time of consummation.--In the case of 
        any residential mortgage loan that is, or upon 
        consummation will be, subject to protection under an 
        anti-deficiency law, the creditor or mortgage 
        originator shall provide a written notice to the 
        consumer describing the protection provided by the 
        anti-deficiency law and the significance for the 
        consumer of the loss of such protection before such 
        loan is consummated.
          (3) Notice before refinancing that would cause loss 
        of protection.--In the case of any residential mortgage 
        loan that is subject to protection under an anti-
        deficiency law, if a creditor or mortgage originator 
        provides an application to a consumer, or receives an 
        application from a consumer, for any type of 
        refinancing for such loan that would cause the loan to 
        lose the protection of such anti-deficiency law, the 
        creditor or mortgage originator shall provide a written 
        notice to the consumer describing the protection 
        provided by the anti-deficiency law and the 
        significance for the consumer of the loss of such 
        protection before any agreement for any such 
        refinancing is consummated.
  (h) Policy Regarding Acceptance of Partial Payment.--In the 
case of any residential mortgage loan, a creditor shall 
disclose prior to settlement or, in the case of a person 
becoming a creditor with respect to an existing residential 
mortgage loan, at the time such person becomes a creditor--
          (1) the creditor's policy regarding the acceptance of 
        partial payments; and
          (2) if partial payments are accepted, how such 
        payments will be applied to such mortgage and if such 
        payments will be placed in escrow.
  (i) Timeshare Plans.--This section and any regulations 
promulgated under this section do not apply to an extension of 
credit relating to a plan described in section 101(53D) of 
title 11, United States Code.
  (j) Safe Harbor for Certain Loans Held on Portfolio.--
          (1) Safe harbor for creditors that are depository 
        institutions.--
                  (A) In general.--A creditor that is a 
                depository institution shall not be subject to 
                suit for failure to comply with subsection (a), 
                (c)(1), or (f)(2) of this section or section 
                129H with respect to a residential mortgage 
                loan, and the banking regulators shall treat 
                such loan as a qualified mortgage, if--
                          (i) the creditor has, since the 
                        origination of the loan, held the loan 
                        on the balance sheet of the creditor; 
                        and
                          (ii) all prepayment penalties with 
                        respect to the loan comply with the 
                        limitations described under subsection 
                        (c)(3).
                  (B) Exception for certain transfers.--In the 
                case of a depository institution that transfers 
                a loan originated by that institution to 
                another depository institution by reason of the 
                bankruptcy or failure of the originating 
                depository institution or the purchase of the 
                originating depository institution, the 
                depository institution transferring such loan 
                shall be deemed to have complied with the 
                requirement under subparagraph (A)(i).
          (2) Safe harbor for mortgage originators.--A mortgage 
        originator shall not be subject to suit for a violation 
        of section 129B(c)(3)(B) for steering a consumer to a 
        residential mortgage loan if--
                  (A) the creditor of such loan is a depository 
                institution and has informed the mortgage 
                originator that the creditor intends to hold 
                the loan on the balance sheet of the creditor 
                for the life of the loan; and
                  (B) the mortgage originator informs the 
                consumer that the creditor intends to hold the 
                loan on the balance sheet of the creditor for 
                the life of the loan.
          (3) Definitions.--For purposes of this subsection:
                  (A) Banking regulators.--The term ``banking 
                regulators'' means the Federal banking 
                agencies, the Bureau, and the National Credit 
                Union Administration.
                  (B) Depository institution.--The term 
                ``depository institution'' has the meaning 
                given that term under section 19(b)(1) of the 
                Federal Reserve Act (12 U.S.C. 505(b)(1)).
                  (C) Federal banking agencies.--The term 
                ``Federal banking agencies'' has the meaning 
                given that term under section 3 of the Federal 
                Deposit Insurance Act.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    In the run up to the financial crisis, underwriting 
standards for mortgages were all but abandoned by lenders of 
many stripes--leading to the failure of large lenders from 
CountryWide, Washington Mutual, and Wachovia, to hundreds of 
community banks and even to insurers such as AIG and AMBAC. 
When the economy was on the brink of collapse, the financial 
industry was bailed out--yet more than 11 million individuals 
were displaced from their homes as foreclosures swept the 
nation.
    Many Dodd-Frank reforms ensure that the financial industry 
will never again be allowed to take the kinds of risks that 
drove us to national crisis, but the Consumer Financial 
Protection Bureau (CFPB) and its Ability to Repay and Anti-
Steering rules are designed specifically to protect families 
from financial crisis.
    Under the old system, predatory lenders were willing to 
make loans on terms a family could not afford because even if 
they couldn't repay, the mortgage was secured by the value of 
the house, and lenders could still pad profits with hefty 
upfront fees. Worse, some lenders would pay their brokers 
incentives to steer families into more expensive loans, even 
when the family qualified for lower rates and a standard 
mortage product. As dangerous as this was for a family looking 
to purchase a home, it was even worse for a family who needed 
to borrow money against a home in which they had spent years 
building equity. In the end, predatory mortgage terms sapped 
the life savings of many families who used refinancing to pay 
for unexpected medical bills or the costs associated with 
extended employment.
    The Dodd-Frank Act instructed the CFPB to fix the mortgage 
market for families by requiring that mortgage products meet an 
Ability to Repay standard, and that lenders no longer steer 
families into exotic products in exchange for salary bonuses. 
Rather than relying on increasing home values instead of sound 
underwriting, or giving out mortgages that push families past 
their financial limits through high-fees and exotic terms, 
lenders must verify financial products are safe for families by 
limiting up-front fees, verifying incomes, and eliminating 
risky 2/28s, Alt-As and negatively amortizing products.
    H.R. 1210 would eliminate all of these important reforms, 
allowing banks of all sizes--from small lenders to the largest 
global banks--to steer families into the same risky mortgage 
products, using the same predatory practices that destroyed 
billions of dollars of savings and investments of hardworking 
Americans during the financial crisis. The families who were 
ensnared in subprime loans from still-existing portfolio 
lenders who were sued for lending practices during the crisis 
can attest that keeping a loan on portfolio may be sufficient 
protection for a bank, but it will not keep a borrower from 
ruin.
    Democrats will continue to work with our colleagues to 
provide targeted reforms for community banks. In Committee, the 
minority offered as an alternative to H.R. 1210 legislation 
that would provide targeted relief to community banks and 
credit unions, with appropriate guardrails to ensure continued 
consumer protection (the alternative is identical to section 
101 in H.R. 2642, regulatory relief legislation supported by 
all Democrats on the Financial Services Committee and Senate 
Banking Committee). That amendment was rejected on a party-line 
vote.
    H.R. 1210 effectively repeals foundational consumer 
protections for mortgages, putting our constituents at risk. 
For these reasons, the Minority opposes H.R. 1210.
                                   Maxine Waters.
                                   Gwen Moore.
                                   Carolyn B. Maloney.
                                   Joyce Beatty.
                                   Gregory W. Meeks.
                                   Wm. Lacy Clay.

                                  [all]