[House Report 114-54]
[From the U.S. Government Publishing Office]


114th Congress    }                                     {        Report
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                     {        114-54

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



 
                      MORTGAGE CHOICE ACT OF 2015

                                _______
                                

 April 6, 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

                        [To accompany H.R. 685]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 685) to amend the Truth in Lending Act to 
improve upon the definitions provided for points and fees in 
connection with a mortgage transaction, having considered the 
same, report favorably thereon without amendment and recommend 
that the bill do pass.

                          Purpose and Summary

    H.R. 685, the ``the Mortgage Choice Act of 2015,'' would 
exclude insurance held in escrow and, under certain 
circumstances, fees paid to companies affiliated with the 
creditor from the costs that are considered when calculating 
the ``points and fees'' limitation for purposes of determining 
whether a mortgage can be a ``Qualified Mortgage.'' This bill 
would direct the Bureau of Consumer Financial Protection (CFPB) 
to amend its regulations related to Qualified Mortgages to 
reflect the new exclusions.

                  Background and Need for Legislation

    On January 10, 2013, the CFPB issued its ``Ability-to-Repay 
and Qualified Mortgage'' rule, which implemented sections 1411, 
1412 and 1414 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (P.L. 111-203). The final rule, which went into 
effect January 10, 2014, generally requires creditors to make a 
``reasonable, good faith determination of a consumer's ability 
to repay'' any consumer credit transaction secured by a 
dwelling, but establishes a legal safe harbor from liability 
under this requirement for ``Qualified Mortgages'' that are not 
``higher-priced.'' A mortgage will be considered a ``Qualified 
Mortgage'' (QM) if, among other required features and 
underwriting requirements, it does not have total ``points and 
fees'' exceeding 3 percent of the total loan amount for loan 
amounts greater than or equal to $100,000. The rule stipulates 
which costs, known at or before consummation, are included in 
the ``points and fees'' cap. These costs include the finance 
charge, loan originator compensation, real-estate related fees, 
insurance premiums, and loan-level price adjustment fees.
    The QM rule permits the exclusion of certain real estate-
related fees, including fees for title examination, abstract of 
a title, title insurance, property survey, document 
preparation, notaries, credit reports, appraisals, inspections, 
flood hazard determinations, and non-tax related amounts paid 
into escrow, but only if they are ``reasonable,'' the lender 
receives no direct or indirect compensation in connection with 
the charge, or if the charge is not paid to an affiliate of the 
lender. Consequently, the points-and-fees definition includes 
charges paid to a third party, such as for an appraisal or for 
title insurance, if the third party is affiliated with the 
lender, but not if the third party is unaffiliated. This is 
true even if the affiliate charges less than the non-affiliate, 
a common occurrence. As a result, many loans involving 
affiliated companies, particularly those made to low and 
moderate-income borrowers, would exceed the 3 percent cap, and 
not qualify as QMs, which could deprive consumers of the 
ability to take advantage of the convenience and market 
efficiencies offered by one-stop shopping.
    In written testimony before the Committee on March 18, 
2015, Peggy Bosma-LaMascus, the President and Chief Executive 
Officer of Patriot Federal Credit Union in Chambersburg, 
Pennsylvania, described H.R. 685 as

        a bipartisan bill that would exclude affiliated title 
        charges from the ``points and fees'' definition, and 
        clarify that escrow charges should be excluded from any 
        calculation of ``points and fees.'' These important 
        changes would greatly improve the definition of `points 
        and fees' used to determine whether a loan meets the QM 
        test, and would ensure that those with low and moderate 
        means would continue to be able to obtain their 
        mortgages from their credit union at a reasonable 
        price.

    In a March 23, 2015 joint letter to the Committee, the 
Consumer Mortgage Coalition, the Credit Union National 
Association, the Leading Builders of America, the Mortgage 
Bankers Association, the National Association of Federal Credit 
Unions, the National Association of Home Builders, the National 
Association of Realtors, the Realty Alliance, and the Real 
Estate Services Providers Council expressed their support for 
H.R. 685, stating:

          It makes two adjustments to the Truth in Lending 
        Act's definition of ``points and fees'' to ensure 
        greater consumer choice in mortgage and settlement 
        services under the CFPB's Ability to Repay/Qualified 
        Mortgage (QM) rule. The House passed an identical bill 
        (H.R. 3211) twice last year on the suspension calendar, 
        first by voice vote and then again as part of a small 
        package of bills.
          The QM rule sets the standard for consumer mortgages 
        by providing significant compliance certainty to loans 
        that do not have risky features and meet strict federal 
        requirements. A key requirement of the rule is that a 
        QM loan's points and fees cannot exceed 3 percent of 
        the loan amount. But under the current QM rule what 
        constitutes a ``fee'' or a ``point'' varies greatly 
        depending on the consumer's choice of a particular 
        lender and title insurance provider. If a consumer 
        chooses a title insurance provider affiliated with the 
        lender, the consumer's title insurance charges count 
        towards the 3 percent cap. But if a consumer chooses an 
        unaffiliated title insurance provider, the title 
        charges do not count towards the 3 percent cap. In 
        addition, escrowed homeowner's insurance premiums may 
        count as ``points and fees'' because of a drafting 
        ambiguity. Including title insurance charges or 
        escrowed homeowner's insurance premiums in the 3 
        percent cap can cause many loans--especially those 
        sought by low- and moderate-income consumers--to fail 
        the QM test. As a result, many otherwise qualified 
        borrowers cannot obtain a QM loan if they use the 
        lender and title insurance provider of their choice.
          By clarifying the QM rule's definition of fees and 
        points, H.R. 685 will enhance competition in the 
        mortgage and title insurance markets and will ensure 
        that consumers have greater access to mortgage credit 
        and will be able to choose the lenders and title 
        providers best suited for their individual needs.

    In a separate support letter dated March 23, 2015, the 
President of the Housing Policy Council described the bill as 
``legislation that will help enhance consumer choices for 
responsible financial products.'' He also noted that the bill's 
adjustments to the Truth in Lending Act ``do not modify the 
consumer protection provisions of the Qualified Mortgage 
definition, but will help ensure that the definition of points 
and fees does not adversely impact the opportunity for first-
time and low and moderate income borrowers to obtain a 
mortgage.''

                                Hearings

    The Committee held no hearings on H.R. 685 in the 114th 
Congress. However, while the Committee did not hold a specific 
legislative hearing on this measure, it held a hearing entitled 
``Preserving Consumer Choice and Financial Independence'' on 
March 18, 2015, at which matters relating to this measure were 
discussed in written testimony.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
March 25, 2015 and March 26, 2015, and ordered H.R. 685 to be 
reported favorably to the House without amendment by a recorded 
vote of 43 yeas to 12 nays (Record vote no. FC-23), 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. The 
sole vote in committee was 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 43 yeas to 12 nays 
(Record vote no. FC-23), 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. 685 
will alter the manner in which ``points and fees'' are 
calculated for purposes of determining whether a mortgage is 
eligible to be a ``Qualified Mortgage,'' thereby ensuring that 
individuals will have greater access to mortgage credit.

   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, April 3, 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. 685, the Mortgage 
Choice Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 685--Mortgage Choice Act of 2015

    The Bureau of Consumer Financial Protection (CFPB) has 
issued rules for mortgages known as qualified mortgages. A 
qualified mortgage has certain characteristics that make the 
loan more affordable; borrowers who are eligible for such loans 
are presumed to be able to repay amounts owed. Under those 
rules certain costs that are incidental to the loan amount and 
are paid by the borrower--for example, title insurance fees, 
guarantee fees, and service charges--are limited to no more 
than 3 percent of the total loan amount. H.R. 685 would exclude 
insurance premiums held in escrow and, under certain 
circumstances, fees paid to companies affiliated with the 
creditor from the costs that would be considered in calculating 
the 3 percent limitation.
    CBO estimates that enacting H.R. 685 would affect direct 
spending; therefore, pay-as-you-go procedures apply. However, 
we expect those effects would be insignificant. Enacting H.R. 
685 would not affect revenues. Implementing the bill would not 
affect discretionary costs because the CFPB is permanently 
authorized to spend amounts transferred from the Federal 
Reserve System.
    H.R. 685 would direct the CFPB to amend its regulations 
related to qualified mortgages to reflect the new exclusions. 
Based on information from the agency, CBO does not expect that 
meeting the new requirement would have a significant effect on 
the agency's workload or operating costs.
    H.R. 685 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    The CBO staff contact for this estimate is Susan Willie. 
The estimate was approved by Theresa Gullo, 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. 685 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. 685 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(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 685 is estimated to require one 
directed rulemaking.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This Section cites H.R. 685 as the ``Mortgage Choice Act of 
2015.''

Section 2. Definition of points and fees

    This section amends the definition of ``points and fees'' 
in the Truth in Lending Act (P.L. 90-321), as added by the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 
111-203), to exclude insurance held in escrow and, under 
certain circumstances, fees paid to companies affiliated with 
the creditor from the costs that would be considered in 
calculating the 3 percent limitation. This section would also 
amend the exclusion from ``points and fees'' to include 
reasonable charges even though a creditor receives 
compensation, but only if the creditor or its affiliate retains 
the compensation as a result of their participation in an 
affiliated business arrangement. Reasonable charges paid to a 
third party unaffiliated with the creditor must be: (1) a bona 
fide third party charge not retained by the mortgage 
originator, creditor, or an affiliate; or (2) a fee or premium 
for title examination, title insurance, or similar purposes. 
This section also repeals the exception for bona fide third 
party charges not retained by the mortgage originator, 
creditor, or an affiliate from the requirement that total 
points and fees not exceed 3 percent of the total new loan 
amount.

Section 3. Rulemaking

    This section requires the CFPB to issue final regulations 
reflecting the changes within 90 days of enactment.

         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 (existing law 
proposed to be omitted is enclosed in black brackets, 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 1--GENERAL PROVISIONS

           *       *       *       *       *       *       *


Sec. 103. Definitions and rules of construction

  (a) The definitions and rules of construction set forth in 
this section are applicable for the purposes of this title.
  (b) Bureau.--The term ``Bureau'' means the Bureau of Consumer 
Financial Protection.
  (c) The term ``Bureau'' refers to the Bureau of Governors of 
the Federal Reserve System.
  (d) The term ``organization'' means a corporation, government 
or governmental subdivision or agency, trust, estate, 
partnership, cooperative, or association.
  (e) The term ``person'' means a natural person or an 
organization.
  (f) The term ``credit'' means the right granted by a creditor 
to a debtor to defer payment of debt or to incur debt and defer 
its payment.
  (g) The term ``creditor'' refers only to a person who both 
(1) regularly extends, whether in connection with loans, sales 
of property or services, or otherwise, consumer credit which is 
payable by agreement in more than four installments or for 
which the payment of a finance charge is or may be required, 
and (2) is the person to whom the debt arising from the 
consumer credit transaction is initially payable on the face of 
the evidence of indebtedness or, if there is no such evidence 
of indebtedness, by agreement. Notwithstanding the preceding 
sentence, in the case of an open-end credit plan involving a 
credit card, the card issuer and any person who honors the 
credit card and offers a discount which is a finance charge are 
creditors. For the purpose of the requirements imposed under 
chapter 4 and sections 127(a)(5), 127(a)(6), 127(a)(7), 
127(b)(1), 127(b)(2), 127(b)(3), 127(b)(8), and 127(b)(10) of 
chapter 2 of this title, the term ``creditor'' shall also 
include card issuers whether or not the amount due is payable 
by agreement in more than four installments or the payment of a 
finance charge is or may be required, and the Bureau shall, by 
regulation, apply these requirements to such card issuers, to 
the extent appropriate, even though the requirements are by 
their terms applicable only to creditors offering open-end 
credit plans. Any person who originates 2 or more mortgages 
referred to in subsection (aa) in any 12-month period or any 
person who originates 1 or more such mortgages through a 
mortgage broker shall be considered to be a creditor for 
purposes of this title. The term ``creditor'' includes a 
private educational lender (as that term is defined in section 
140) for purposes of this title.
  (h) The term ``credit sale'' refers to any sale in which the 
seller is a creditor. The term includes any contract in the 
form of a bailment or lease if the bailee or lessee contracts 
to pay as compensation for use a sum substantially equivalent 
to or in excess of the aggregate value of the property and 
services involved and it is agreed that the bailee or lessee 
will become, or for no other or a nominal consideration has the 
option to become, the owner of the property upon full 
compliance with his obligations under the contract.
  (i) The adjective ``consumer'', used with reference to a 
credit transaction, characterizes the transaction as one in 
which the party to whom credit is offered or extended is a 
natural person, and the money, property, or services which are 
the subject of the transaction are primarily for personal, 
family, or household purposes.
  (j) The terms ``open end credit plan'' and ``open end 
consumer credit plan'' mean a plan under which the creditor 
reasonably contemplates repeated transactions, which prescribes 
the terms of such transactions, and which provides for a 
finance charge which may be computed from time to time on the 
outstanding unpaid balance. A credit plan or open end consumer 
credit plan which is an open end credit plan or open end 
consumer credit plan within the meaning of the preceding 
sentence is an open end credit plan or open end consumer credit 
plan even if credit information is verified from time to time.
  (k) The term ``adequate notice'', as used in section 133, 
means a printed notice to a cardholder which sets forth the 
pertinent facts clearly and conspicuously so that a person 
against whom it is to operate could reasonably be expected to 
have noticed it and understood its meaning. Such notice may be 
given to a cardholder by printing the notice on any credit 
card, or on each periodic statement of account, issued to the 
cardholder, or by any other means reasonably assuring the 
receipt thereof by the cardholder.
  (l) The term ``credit card'' means any card, plate, coupon 
book or other credit device existing for the purpose of 
obtaining money, property, labor, or services on credit.
  (m) The term ``accepted credit card'' means any credit card 
which the cardholder has requested and received or has signed 
or has used, or authorized another to use, for the purpose of 
obtaining money, property, labor, or services on credit.
  (n) The term ``cardholder'' means any person to whom a credit 
card is issued or any person who has agreed with the card 
issuer to pay obligations arising from the issuance of a credit 
card to another person.
  (o) The term ``card issuer'' means any person who issues a 
credit card, or the agent of such person with respect to such 
card.
  (p) The term ``unauthorized use'', as used in section 133, 
means a use of a credit card by a person other than the 
cardholder who does not have actual, implied, or apparent 
authority for such use and from which the cardholder receives 
no benefit.
  (q) The term ``discount'' as used in section 167 means a 
reduction made from the regular price. The term ``discount'' as 
used in section 167 shall not mean a surcharge.
  (r) The term ``surcharge'' as used in section 103 and section 
167 means any means of increasing the regular price to a 
cardholder which is not imposed upon customers paying by cash, 
check, or similar means.
  (s) The term ``State'' refers to any State, the Commonwealth 
of Puerto Rico, the District of Columbia, and any territory or 
possession of the United States.
  (t) The term ``agricultural purposes'' includes the 
production, harvest, exhibition, marketing, transportation, 
processing, or manufacture of agricultural products by a 
natural person who cultivates, plants, propagates, or nurtures 
those agricultural products, including but not limited to the 
acquisition of farmland, real property with a farm residence, 
and personal property and services used primarily in farming.
  (u) The term ``agricultural products'' includes agricultural, 
horticultural, viticultural, and dairy products, livestock, 
wildlife, poultry, bees, forest products, fish and shellfish, 
and any products thereof, including processed and manufactured 
products, and any and all products raised or produced on farms 
and any processed or manufactured products thereof.
  (v) The term ``material disclosures'' means the disclosure, 
as required by this title, of the annual percentage rate, the 
method of determining the finance charge and the balance upon 
which a finance charge will be imposed, the amount of the 
finance charge, the amount to be financed, the total of 
payments, the number and amount of payments, the due dates or 
periods of payments scheduled to repay the indebtedness, and 
the disclosures required by section 129(a).
  (w) The term ``dwelling'' means a residential structure or 
mobile home which contains one to four family housing units, or 
individual units of condominiums or cooperatives.
  (x) The term ``residential mortgage transaction'' means a 
transaction in which a mortgage, deed of trust, purchase money 
security interest arising under an installment sales contract, 
or equivalent consensual security interest is created or 
retained against the consumer's dwelling to finance the 
acquisition or initial construction of such dwelling.
  (y) As used in this section and section 167, the term 
``regular price'' means the tag or posted price charged for the 
property or service if a single price is tagged or posted, or 
the price charged for the property or service when payment is 
made by use of an open-end credit plan or a credit card if 
either (1) no price is tagged or posted, or (2) two prices are 
tagged or posted, one of which is charged when payment is made 
by use of an open-end credit plan or a credit card and the 
other when payment is made by use of cash, check, or similar 
means. For purposes of this definition, payment by check, 
draft, or other negotiable instrument which may result in the 
debiting of an open-end credit plan or a credit cardholder's 
open-end account shall not be considered payment made by use of 
the plan or the account.
  (z) Any reference to any requirement imposed under this title 
or any provision thereof includes reference to the regulations 
of the Bureau under this title or the provision thereof in 
question.
  (aa) The disclosure of an amount or percentage which is 
greater than the amount or percentage required to be disclosed 
under this title does not in itself constitute a violation of 
this title.
  (bb) High-cost Mortgage.--
          (1) Definition.--
                  (A) In general.--The term ``high-cost 
                mortgage'', and a mortgage referred to in this 
                subsection, means a consumer credit transaction 
                that is secured by the consumer's principal 
                dwelling, other than a reverse mortgage 
                transaction, if--
                          (i) in the case of a credit 
                        transaction secured--
                                  (I) by a first mortgage on 
                                the consumer's principal 
                                dwelling, the annual percentage 
                                rate at consummation of the 
                                transaction will exceed by more 
                                than 6.5 percentage points (8.5 
                                percentage points, if the 
                                dwelling is personal property 
                                and the transaction is for less 
                                than $50,000) the average prime 
                                offer rate, as defined in 
                                section 129C(b)(2)(B), for a 
                                comparable transaction; or
                                  (II) by a subordinate or 
                                junior mortgage on the 
                                consumer's principal dwelling, 
                                the annual percentage rate at 
                                consummation of the transaction 
                                will exceed by more than 8.5 
                                percentage points the average 
                                prime offer rate, as defined in 
                                section 129C(b)(2)(B), for a 
                                comparable transaction;
                          (ii) the total points and fees 
                        payable in connection with the 
                        transaction, other than bona fide third 
                        party charges not retained by the 
                        mortgage originator, creditor, or an 
                        affiliate of the creditor or mortgage 
                        originator, exceed--
                                  (I) in the case of a 
                                transaction for $20,000 or 
                                more, 5 percent of the total 
                                transaction amount; or
                                  (II) in the case of a 
                                transaction for less than 
                                $20,000, the lesser of 8 
                                percent of the total 
                                transaction amount or $1,000 
                                (or such other dollar amount as 
                                the Bureau shall prescribe by 
                                regulation); or
                          (iii) the credit transaction 
                        documents permit the creditor to charge 
                        or collect prepayment fees or penalties 
                        more than 36 months after the 
                        transaction closing or such fees or 
                        penalties exceed, in the aggregate, 
                        more than 2 percent of the amount 
                        prepaid.
                  (B) Introductory rates taken into account.--
                For purposes of subparagraph (A)(i), the annual 
                percentage rate of interest shall be determined 
                based on the following interest rate:
                          (i) In the case of a fixed-rate 
                        transaction in which the annual 
                        percentage rate 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 transaction 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 
                        during the loan agreement.
                          (iii) In the case of any other 
                        transaction in which the rate may vary 
                        at any time during the term of the loan 
                        for any reason, the interest charged on 
                        the transaction at the maximum rate 
                        that may be charged during the term of 
                        the loan.
                  (C) Mortgage insurance.--For the purposes of 
                computing the total points and fees under 
                paragraph (4), the total points and fees shall 
                exclude--
                          (i) any premium provided by an agency 
                        of the Federal Government or an agency 
                        of a State;
                          (ii) any amount that is not in excess 
                        of the amount payable under policies in 
                        effect at the time of origination under 
                        section 203(c)(2)(A) of the National 
                        Housing Act (12 U.S.C. 1709(c)(2)(A)), 
                        provided that the premium, charge, or 
                        fee is required to be refundable on a 
                        pro-rated basis and the refund is 
                        automatically issued upon notification 
                        of the satisfaction of the underlying 
                        mortgage loan; and
                          (iii) any premium paid by the 
                        consumer after closing.
  (2)(A) After the 2-year period beginning on the effective 
date of the regulations promulgated under section 155 of the 
Riegle Community Development and Regulatory Improvement Act of 
1994, and no more frequently than biennially after the first 
increase or decrease under this subparagraph, the Bureau may by 
regulation increase or decrease the number of percentage points 
specified in paragraph (1)(A), if the Bureau determines that 
the increase or decrease is--
          (i) consistent with the consumer protections against 
        abusive lending provided by the amendments made by 
        subtitle B of title I of the Riegle Community 
        Development and Regulatory Improvement Act of 1994; and
          (ii) warranted by the need for credit.
          (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) In determining whether to increase or decrease the number 
of percentage points referred to in subparagraph (A), the 
Bureau shall consult with representatives of consumers, 
including low-income consumers, and lenders.
  (3) The amount specified in paragraph (1)(B)(ii) shall be 
adjusted annually on January 1 by the annual percentage change 
in the Consumer Price Index, as reported on June 1 of the year 
preceding such adjustment.
  (4) For purposes of [paragraph (1)(B)] paragraph (1)(A) and 
section 129C, points and fees shall include--
          (A) all items included in the finance charge, except 
        interest or the time-price differential;
          (B) all compensation paid directly or indirectly by a 
        consumer or creditor to a mortgage originator from any 
        source, including a mortgage originator that is also 
        the creditor in a table-funded transaction;
          (C) each of the charges listed in section 106(e) 
        (except an escrow for future payment of taxes and 
        insurance), unless--
                  (i) the charge is reasonable;
                  (ii) the creditor receives no direct or 
                indirect compensation, except as retained by a 
                creditor or its affiliate as a result of their 
                participation in an affiliated business 
                arrangement (as defined in section 2(7) of the 
                Real Estate Settlement Procedures Act of 1974 
                (12 U.S.C. 2602(7)); and
                  [(iii) the charge is paid to a third party 
                unaffiliated with the creditor; and]
                  (iii) the charge is--
                          (I) a bona fide third-party charge 
                        not retained by the mortgage 
                        originator, creditor, or an affiliate 
                        of the creditor or mortgage originator; 
                        or
                          (II) a charge set forth in section 
                        106(e)(1);
          (D) premiums or other charges payable at or before 
        closing 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] and 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 
        credit transaction;
          (F) all prepayment fees or penalties that are 
        incurred by the consumer if the loan refinances a 
        previous loan made or currently held by the same 
        creditor or an affiliate of the creditor; and
          (G) such other charges as the Bureau determines to be 
        appropriate.
          (5) Calculation of points and fees for open-end 
        consumer credit plans.--In the case of open-end 
        consumer credit plans, 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 credit transaction, plus the minimum 
        additional fees the consumer would be required to pay 
        to draw down an amount equal to the total credit line.
  (6) This subsection shall not be construed to limit the rate 
of interest or the finance charge that a person may charge a 
consumer for any extension of credit.
  (cc) The term ``reverse mortgage transaction'' means a 
nonrecourse transaction in which a mortgage, deed of trust, or 
equivalent consensual security interest is created against the 
consumer's principal dwelling--
          (1) securing one or more advances; and
          (2) with respect to which the payment of any 
        principal, interest, and shared appreciation or equity 
        is due and payable (other than in the case of default) 
        only after--
                  (A) the transfer of the dwelling;
                  (B) the consumer ceases to occupy the 
                dwelling as a principal dwelling; or
                  (C) the death of the consumer.
  (cc) Definitions Relating to Mortgage Origination and 
Residential Mortgage Loans.--
          (1) Commission.--Unless otherwise specified, the term 
        ``Commission'' means the Federal Trade Commission.
          (2) Mortgage originator.--The term ``mortgage 
        originator''--
                  (A) means any person who, for direct or 
                indirect compensation or gain, or in the 
                expectation of direct or indirect compensation 
                or gain--
                          (i) takes a residential mortgage loan 
                        application;
                          (ii) assists a consumer in obtaining 
                        or applying to obtain a residential 
                        mortgage loan; or
                          (iii) offers or negotiates terms of a 
                        residential mortgage loan;
                  (B) includes any person who represents to the 
                public, through advertising or other means of 
                communicating or providing information 
                (including the use of business cards, 
                stationery, brochures, signs, rate lists, or 
                other promotional items), that such person can 
                or will provide any of the services or perform 
                any of the activities described in subparagraph 
                (A);
                  (C) does not include any person who is (i) 
                not otherwise described in subparagraph (A) or 
                (B) and who performs purely administrative or 
                clerical tasks on behalf of a person who is 
                described in any such subparagraph, or (ii) an 
                employee of a retailer of manufactured homes 
                who is not described in clause (i) or (iii) of 
                subparagraph (A) and who does not advise a 
                consumer on loan terms (including rates, fees, 
                and other costs);
                  (D) does not include a person or entity that 
                only performs real estate brokerage activities 
                and is licensed or registered in accordance 
                with applicable State law, unless such person 
                or entity is compensated by a lender, a 
                mortgage broker, or other mortgage originator 
                or by any agent of such lender, mortgage 
                broker, or other mortgage originator;
                  (E) does not include, with respect to a 
                residential mortgage loan, a person, estate, or 
                trust that provides mortgage financing for the 
                sale of 3 properties in any 12-month period to 
                purchasers of such properties, each of which is 
                owned by such person, estate, or trust and 
                serves as security for the loan, provided that 
                such loan--
                          (i) is not made by a person, estate, 
                        or trust that has constructed, or acted 
                        as a contractor for the construction 
                        of, a residence on the property in the 
                        ordinary course of business of such 
                        person, estate, or trust;
                          (ii) is fully amortizing;
                          (iii) is with respect to a sale for 
                        which the seller determines in good 
                        faith and documents that the buyer has 
                        a reasonable ability to repay the loan;
                          (iv) has a fixed rate or an 
                        adjustable rate that is adjustable 
                        after 5 or more years, subject to 
                        reasonable annual and lifetime 
                        limitations on interest rate increases; 
                        and
                          (v) meets any other criteria the 
                        Bureau may prescribe;
                  (F) does not include the creditor (except the 
                creditor in a table-funded transaction) under 
                paragraph (1), (2), or (4) of section 129B(c); 
                and
                  (G) does not include a servicer or servicer 
                employees, agents and contractors, including 
                but not limited to those who offer or negotiate 
                terms of a residential mortgage loan for 
                purposes of renegotiating, modifying, replacing 
                and subordinating principal of existing 
                mortgages where borrowers are behind in their 
                payments, in default or have a reasonable 
                likelihood of being in default or falling 
                behind.
          (3) Nationwide mortgage licensing system and 
        registry.--The term ``Nationwide Mortgage Licensing 
        System and Registry'' has the same meaning as in the 
        Secure and Fair Enforcement for Mortgage Licensing Act 
        of 2008.
          (4) Other definitions relating to mortgage 
        originator.--For purposes of this subsection, a person 
        ``assists a consumer in obtaining or applying to obtain 
        a residential mortgage loan'' by, among other things, 
        advising on residential mortgage loan terms (including 
        rates, fees, and other costs), preparing residential 
        mortgage loan packages, or collecting information on 
        behalf of the consumer with regard to a residential 
        mortgage loan.
          (5) Residential mortgage loan.--The term 
        ``residential mortgage loan'' means any consumer credit 
        transaction that is secured by a mortgage, deed of 
        trust, or other equivalent consensual security interest 
        on a dwelling or on residential real property that 
        includes a dwelling, other than a consumer credit 
        transaction under an open end credit plan or, for 
        purposes of sections 129B and 129C and section 128(a) 
        (16), (17), (18), and (19), and sections 128(f) and 
        130(k), and any regulations promulgated thereunder, an 
        extension of credit relating to a plan described in 
        section 101(53D) of title 11, United States Code.
          (6) Secretary.--The term ``Secretary'', when used in 
        connection with any transaction or person involved with 
        a residential mortgage loan, means the Secretary of 
        Housing and Urban Development.
          (7) Servicer.--The term ``servicer'' has the same 
        meaning as in section 6(i)(2) of the Real Estate 
        Settlement Procedures Act of 1974 (12 U.S.C. 
        2605(i)(2)).
  (dd) Bona Fide Discount Points and Prepayment Penalties.--For 
the purposes of determining the amount of points and fees for 
purposes of subsection (aa), either the amounts described in 
paragraph (1) or (2) of the following paragraphs, but not both, 
shall be excluded:
          (1) 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--
                  (A) the average prime offer rate, as defined 
                in section 129C; or
                  (B) if secured by a personal property loan, 
                the average rate on a loan in connection with 
                which insurance is provided under title I of 
                the National Housing Act (12 U.S.C. 1702 et 
                seq.).
          (2) Unless 2 bona fide discount points have been 
        excluded under paragraph (1), 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--
                  (A) the average prime offer rate, as defined 
                in section 129C; or
                  (B) if secured by a personal property loan, 
                the average rate on a loan in connection with 
                which insurance is provided under title I of 
                the National Housing Act (12 U.S.C. 1702 et 
                seq.).
          (3) For purposes of paragraph (1), 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.
          (4) Paragraphs (1) and (2) 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.

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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] 103(bb)(4)) 
                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)] 103(bb)(4).
                          (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.

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