H. Rept. 115-578 - PORTFOLIO LENDING AND MORTGAGE ACCESS ACT115th Congress (2017-2018)
Committee Report
Hide Overview| Report Type: | House Report |
|---|---|
| Accompanies: | H.R.2226 |
| Committees: |
Report text available as:
- TXT
- PDF (PDF provides a complete and accurate display of this text.) Tip ?
115th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 115-578
======================================================================
PORTFOLIO LENDING AND MORTGAGE ACCESS ACT
_______
February 23, 2018.--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. 2226]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 2226) 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
with an amendment and recommend that the bill as amended do
pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Portfolio Lending and Mortgage Access
Act''.
SEC. 2. MINIMUM STANDARDS FOR RESIDENTIAL MORTGAGE LOANS.
Section 129C(b) of the Truth in Lending Act (15 U.S.C. 1639c(b)) is
amended by adding at the end the following:
``(4) Safe harbor.--
``(A) In general.--A residential mortgage loan shall
be deemed a qualified mortgage loan for purposes of
this subsection if the loan--
``(i) is originated by, and continuously
retained in the portfolio of, a covered
institution;
``(ii) is in compliance with the limitations
with respect to prepayment penalties described
in subsections (c)(1) and (c)(3);
``(iii) is in compliance with the
requirements related to points and fees under
paragraph (2)(A)(vii);
``(iv) does not have negative amortization
terms or interest-only terms; and
``(v) is a loan for which the covered
institution considers, documents, and verifies
the debt, income, and financial resources of
the consumer in accordance with subparagraph
(C).
``(B) Exception for certain transfers.--Subparagraph
(A) shall not apply to a residential mortgage loan if
the legal title to such residential mortgage loan is
sold, assigned, or otherwise transferred to another
person unless the legal title to such residential
mortgage loan is sold, assigned, or otherwise
transferred--
``(i) to another person by reason of the
bankruptcy or failure of the covered
institution that originated such loan;
``(ii) to an insured depository institution
or insured credit union that has less than
$10,000,000,000 in total consolidated assets on
the date of such sale, assignment, or transfer,
if the loan is retained in portfolio by such
insured depository institution or insured
credit union;
``(iii) pursuant to a merger of the covered
institution that originated such loan with
another person or the acquisition of a the
covered institution that originated such loan
by another person or of another person by a
covered institution, if the loan is retained in
portfolio by the person to whom the loan is
sold, assigned, or otherwise transferred; or
``(iv) to a wholly owned subsidiary of the
covered institution that originated such loan
if the loan is considered to be an asset of
such covered institution for regulatory
accounting purposes.
``(C) Consideration and documentation requirements.--
The consideration and documentation requirements
described in subparagraph (A)(v) shall--
``(i) not be construed to require compliance
with, or documentation in accordance with,
appendix Q to part 1026 of title 12, Code of
Federal Regulations, or any successor
regulation; and
``(ii) be construed to permit multiple
methods of documentation.
``(D) Definitions.--In this paragraph--
``(i) the term `covered institution' means an
insured depository institution or an insured
credit union that, together with its
affiliates, has less than $10,000,000,000 in
total consolidated assets on the date on the
origination of a residential mortgage loan;
``(ii) the term `insured credit union' has
the meaning given the term in section 101 of
the Federal Credit Union Act (12 U.S.C. 1752);
``(iii) the term `insured depository
institution' has the meaning given the term in
section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813);
``(iv) the term `interest-only term' means a
term of a residential mortgage loan that allows
one or more of the periodic payments made under
the loan to be applied solely to accrued
interest and not to the principal of the loan;
and
``(v) the term `negative amortization term'
means a term of a residential mortgage loan
under which the payment of periodic payments
will result in an increase in the principal of
the loan.
Purpose and Summary
Introduced by Representative Andy Barr on April 28, 2017,
H.R. 2226, the Portfolio Lending and Mortgage Access Act amends
Section 129C of the Truth in Lending Act (TILA) [15 U.S.C.
1639c] to extend the ``Qualified Mortgage'' safe harbor for
loans held in portfolio by certain depository institutions with
less than $10 billion in assets. The legislation also imposes
additional requirements for safe harbor treatment: loans cannot
have negative amortization, interest-only features, and would
need to comply with limits on prepayment penalties. Finally,
H.R. 2226 requires that the creditor must document and
continually verify a consumer's income, employment, assets, and
credit history.
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 Bureau of
Consumer Financial Protection (CFPB) has the authority to
prescribe regulations to implement 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.\1\
---------------------------------------------------------------------------
\1\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 QM rule does not affect the roughly 95%
of loans originated that the federal government insures or
guarantees, explicitly or implicitly.\2\
---------------------------------------------------------------------------
\2\CFPB, `Ability-to-Repay and Qualified Mortgage Standards Under
the Truth in Lending Act,' 78 Federal Register 6569, January 30, 2013.
---------------------------------------------------------------------------
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.
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 that it originates
in its portfolio--rather than sell the loan--it keeps the risk
of a borrower's default on its balance sheet. Therefore, the
lender should benefit from the presumption that the borrower
has the ability to repay, and receive the legal benefits of the
safe harbor so long as the loan appears on the institution's
balance sheet.
H.R. 2226, introduced by Congressman Barr, and amended by
Congressman Michael Capuano during the Committee's markup on
January 17, 2018, (D-MA), will treat mortgage loans that are
kept on a balance sheet as having met the Qualified Mortgage
requirements and grant them a legal safe harbor from Dodd-
Frank's ability to repay requirements. Doing so will encourage
private sector risk retention, encourage small institutions to
make more mortgage loans, and improve the business environment
for small banks.
Hearings
The Committee on Financial Services held a hearing
examining matters relating to H.R. 2226 on April 26, 2017 and
April 28, 2017.
Committee Consideration
The Committee on Financial Services met in open session on
January 18, 2018 and ordered H.R. 2226 to be reported favorably
by a recorded vote of 55 yeas to 0 nays (Record vote no. FC-
140), a quorum being present. Before the motion to report was
offered, the Committee adopted an amendment offered by Mr.
Barr. Before the motion to report was offered, the Committee
adopted an amendment offered by Mr. Capuano by voice vote.
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 recorded vote was on a motion by Chairman Hensarling to
report the bill favorably to the House with amendment. The
motion was agreed to by a recorded vote of 55 yeas to 0 nays
(Record vote no. FC-140), a quorum being present.
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. 2226
will ensure that mortgage loans remain available to
creditworthy borrowers by providing that loans retained on the
balance sheet are deemed qualified mortgages.
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.
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, February 9, 2018.
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. 2226, 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 Stephen
Rabent.
Sincerely,
Keith Hall,
Director.
Enclosure.
H.R. 2226--Portfolio Lending and Mortgage Access Act
Under current law, a ``qualified mortgage'' has certain
characteristics designed to make it more affordable than some
other types of loans. Eligible borrowers are presumed to be
able to repay amounts owed, and lenders are provided certain
legal protections when issuing such mortgages. H.R. 2226 would
amend the Truth in Lending Act to deem residential mortgages
qualified mortgages if certain criteria are met regarding the
financial institution that originates and retains them, the
terms of the loans, and the interest and fees charged for those
loans.
Using information from the Consumer Financial Protection
Bureau (CFPB), CBO estimates that enacting H.R. 2226 would
increase direct spending by $1 million in 2019 for the agency
to issue rules to implement the changes required under the
bill. Because enacting H.R. 2226 would affect direct spending,
pay-as-you-go procedures apply. Enacting the bill would not
affect revenues.
CBO estimates that enacting H.R. 2226 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2028.
H.R. 2226 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA).
The bill would impose a private-sector mandate by
eliminating an existing right of action against lenders that
hold residential mortgages on their balance sheets and against
mortgage originators that 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 loans 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.
Using 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 ($156 million in 2017, adjusted
annually for inflation).
The CBO staff contacts for this estimate are Stephen Rabent
(for federal costs) and Jon Sperl (for mandates). The estimate
was approved by H. Samuel Papenfuss, Deputy Assistant Director
for Budget Analysis.
Federal Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995.
The Committee has determined that the bill does not impose
a Federal intergovernmental mandate on State, local, or tribal
governments.
The Committee has determined that the bill 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 ($156
million in 2017, adjusted annually for inflation).
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
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139; or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of H. Res. 5, (115th Congress),
the following statement is made concerning directed
rulemakings: The Committee estimates that the bill requires no
directed rulemakings within the meaning of such section.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section cites H.R. 2226 as the ``Portfolio Lending and
Mortgage Access Act.''
Section 2. Minimum standards for residential mortgage loans
This section provides that a residential mortgage loan
shall be deemed a qualified mortgage loan, if the loan is
originated by and continuously retained on the portfolio of an
insured depository institution or insured credit union that has
less than $10,000,000,000 in total consolidated assets. The
section also imposes additional requirements for safe harbor
treatment: loans cannot have negative amortization, interest-
only features, and would need to comply with limits on
prepayment penalties. In addition the creditor must consider,
document, and verify a consumer's income, employment, assets,
and credit history. This section also provides that the loans
may be transferred to another depository institution in certain
circumstances.
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):
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 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.
(4) Safe harbor.--
(A) In general.--A residential mortgage loan
shall be deemed a qualified mortgage loan for
purposes of this subsection if the loan--
(i) is originated by, and
continuously retained in the portfolio
of, a covered institution;
(ii) is in compliance with the
limitations with respect to prepayment
penalties described in subsections
(c)(1) and (c)(3);
(iii) is in compliance with the
requirements related to points and fees
under paragraph (2)(A)(vii);
(iv) does not have negative
amortization terms or interest-only
terms; and
(v) is a loan for which the covered
institution considers, documents, and
verifies the debt, income, and
financial resources of the consumer in
accordance with subparagraph (C).
(B) Exception for certain transfers.--
Subparagraph (A) shall not apply to a
residential mortgage loan if the legal title to
such residential mortgage loan is sold,
assigned, or otherwise transferred to another
person unless the legal title to such
residential mortgage loan is sold, assigned, or
otherwise transferred--
(i) to another person by reason of
the bankruptcy or failure of the
covered institution that originated
such loan;
(ii) to an insured depository
institution or insured credit union
that has less than $10,000,000,000 in
total consolidated assets on the date
of such sale, assignment, or transfer,
if the loan is retained in portfolio by
such insured depository institution or
insured credit union;
(iii) pursuant to a merger of the
covered institution that originated
such loan with another person or the
acquisition of a the covered
institution that originated such loan
by another person or of another person
by a covered institution, if the loan
is retained in portfolio by the person
to whom the loan is sold, assigned, or
otherwise transferred; or
(iv) to a wholly owned subsidiary of
the covered institution that originated
such loan if the loan is considered to
be an asset of such covered institution
for regulatory accounting purposes.
(C) Consideration and documentation
requirements.--The consideration and
documentation requirements described in
subparagraph (A)(v) shall--
(i) not be construed to require
compliance with, or documentation in
accordance with, appendix Q to part
1026 of title 12, Code of Federal
Regulations, or any successor
regulation; and
(ii) be construed to permit multiple
methods of documentation.
(D) Definitions.--In this paragraph--
(i) the term ``covered institution''
means an insured depository institution
or an insured credit union that,
together with its affiliates, has less
than $10,000,000,000 in total
consolidated assets on the date on the
origination of a residential mortgage
loan;
(ii) the term ``insured credit
union'' has the meaning given the term
in section 101 of the Federal Credit
Union Act (12 U.S.C. 1752);
(iii) the term ``insured depository
institution'' has the meaning given the
term in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813);
(iv) the term ``interest-only term''
means a term of a residential mortgage
loan that allows one or more of the
periodic payments made under the loan
to be applied solely to accrued
interest and not to the principal of
the loan; and
(v) the term ``negative amortization
term'' means a term of a residential
mortgage loan under which the payment
of periodic payments will result in an
increase in the principal of the loan.
(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.
* * * * * * *
[all]