Home Equity Protection Act of 1993 - Amends the Truth in Lending Act to require the creditor of each high cost mortgage to provide certain clearly written, conspicuous disclosures regarding the risks associated with such mortgages.
Prohibits such mortgages from containing: (1) a prepayment penalty for paying all or part of the principal prior to the date on which the balance is due; (2) certain refinancing fees; (3) balloon payments; (4) negative amortization; (5) certain prepared payments; and (6) specified unfair, deceptive, or evasive acts.
Declares that State authority to regulate certain high rate mortgage loans is not preempted by specified Federal statutes.
Includes within the creditor's liability for damages for noncompliance with this Act all finance charges and fees paid by the consumer.
Empowers the appropriate State attorney general to bring an action to enforce this Act. Subjects an assignee of a high cost mortgage to all the claims and defenses that the consumer could assert against the creditor.
[Congressional Bills 103th Congress]
[From the U.S. Government Printing Office]
[H.R. 3153 Introduced in House (IH)]
103d CONGRESS
1st Session
H. R. 3153
To protect home ownership and equity through enhanced disclosure of the
risks associated with certain mortgages, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
September 28, 1993
Mr. Kennedy (for himself, Mr. Gonzalez, Mr. Moakley, Mr. Schumer, Mr.
Frank of Massachusetts, Mr. Kanjorski, Mr. Flake, Ms. Waters, Mr.
Hinchey, Mr. Klein, Mr. Watt, Ms. Roybal-Allard, Mr. Rush, Mr. Wynn,
Ms. Brown of Florida, Mr. Filner, Mr. Hamburg, Ms. Woolsey, Mr. Neal of
Massachusetts, Mr. Meehan, Mr. Coyne, Mr. Lewis of Georgia, Mr. Clay,
Mr. Lantos, and Mr. DeFazio) introduced the following bill; which was
referred to the Committee on Banking, Finance and Urban Affairs
_______________________________________________________________________
A BILL
To protect home ownership and equity through enhanced disclosure of the
risks associated with certain mortgages, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Home Equity Protection Act of
1993''.
SEC. 2. CONSUMER PROTECTIONS FOR HIGH COST MORTGAGES.
(a) Definition.--Section 103 of the Truth in Lending Act (15 U.S.C.
1602) is amended by adding after subsection (z) the following new
subsection:
``(aa) The term `high cost mortgage' means a consumer credit
transaction, other than a residential mortgage transaction, that is
secured by a consumer's principal dwelling and that satisfies at least
1 of the following conditions:
``(1) The annual percentage rate at consummation of the
transaction will exceed by more than 10 percentage points the
rate of interest on obligations of the United States having a
period of maturity of 1 year on the fifteenth day of the month
before such consummation.
``(2) All points and fees payable by the consumer at or
before closing will exceed the greater of--
``(A) 8 percent of the amount financed, minus fees
and points; or
``(B) $400.''.
(b) Material Disclosures.--Section 103(u) of the Truth in Lending
Act (15 U.S.C. 1602(u)) is amended--
(1) by striking ``and the due dates'' and inserting ``, the
due dates''; and
(2) by inserting before the period ``, and the disclosures
for high cost mortgages required by section 129(a))''.
(c) Definition of Creditor Clarified.--Section 103(f) of the Truth
in Lending Act (15 U.S.C. 1602(f)) is amended by adding at the end the
following: ``Any person who originates 2 or more high cost mortgages in
any 12-month period or any person who originates 1 or more high cost
mortgages through a loan broker shall be considered to be a creditor
for purposes of section 129.''.
(d) Disclosures Required and Certain Terms Prohibited.--The Truth
in Lending Act (15 U.S.C. 1601 et seq.) is amended by inserting after
section 128 the following new section:
``SEC. 129. REQUIREMENTS FOR HIGH COST MORTGAGES.
``(a) Disclosures.--In addition to any other disclosures required
under this title, for each high cost mortgage, the creditor shall
provide the following written disclosures in clear language and in
conspicuous type size and format, segregated from other information as
a separate document:
``(1) The following statement: `If you obtain this loan,
the lender will have a mortgage on your home. You could lose
your home, and any money you have put into it, if you do not
meet your obligations under the loan.'.
``(2) The initial annual percentage rate.
``(3) The consumer's gross monthly cash income, as verified
by the creditor, the total initial monthly payment, and the
amount of funds that will remain to meet other obligations of
the consumer.
``(4) In the case of a variable rate loan, a statement that
the annual percentage rate and the interest rate could
increase, and the maximum interest rate and payment.
``(5) In the case of a variable rate loan with an initial
annual percentage rate that is different than the one which
would be applied using the contract index after the initial
period, a statement of the period of time the initial rate will
be in effect, and the rate or rates that will go into effect
after the initial period is over, assuming that current
interest rates prevail.
``(6) A statement that the consumer is not required to
complete the transaction merely because he or she has received
disclosures or signed a loan application.
``(7) A statement as follows: `Under Federal law, this is a
high cost mortgage. You may be able to obtain a less expensive
loan.'.
``(b) Time of Disclosures.--The disclosures required by this
section shall be given no later than 3 business days prior to
consummation of the transaction. A creditor may not change the terms of
the loan after providing the disclosures required by this section.
``(c) No Prepayment Penalty.--
``(1) In general.--A high cost mortgage may not contain
terms under which a consumer must pay a prepayment penalty for
paying all or part of the principal prior to the date on which
such principal is due. If the date of maturity of the high cost
mortgage is accelerated for any reason, the consumer is
entitled to a rebate that complies with paragraph (2). No high
cost mortgage shall provide for a default interest rate that is
higher than the interest rate provided by the note for a
performing loan.
``(2) Rebate computation.--For purposes of this subsection,
any method of computing rebates of a finance charge less
favorable to the consumer than the actuarial method using
simple interest is a prepayment penalty.
``(3) Certain other fees prohibited.--An agreement to
refinance a high cost mortgage by the same creditor or an
affiliate of the creditor may not require the consumer to pay
points, discount fees, or prepaid finance charges on the
portion of the loan refinanced. For the purpose of this
paragraph, the term `affiliate' has the same meaning as it does
in section 2(k) of the Bank Holding Company Act of 1956.
``(d) No Balloon Payments.--A high cost mortgage may not include
terms under which the aggregate amount of the regular periodic payments
would not fully amortize the outstanding principal balance.
``(e) No Negative Amortization.--A high cost mortgage may not
include terms under which the outstanding principal balance will
increase over the course of the loan.
``(f) No Prepaid Payments.--A high cost mortgage may not include
terms under which more than 2 periodic payments required under the loan
are consolidated and paid in advance from the loan proceeds provided to
the consumer.
``(g) Unfair, Deceptive, or Evasive Acts Prohibited.--Creditors of
contracts governed by this section shall not commit, in the making,
servicing, or collecting of a high cost mortgage, any act or practice
which is unfair or deceptive, including any of the following:
``(1) Entering into a home equity loan if there is no
reasonable probability that the homeowner will be able to make
payments according to the terms of the loan.
``(2) Taking advantage of the borrower's infirmities, lack
of education or sophistication, or language skills, necessary
to understand fully the terms of the transaction.
``(3) Refinancing other loans owed by the homeowner which
had not been accelerated by reason of default of the homeowner
prior to the application for the home equity loan, unless the
new loan is at a lower interest rate or has lower monthly
payments.
``(4) Financing a mortgage broker's commission, unless the
borrower entered into a separate written contract with the
broker prior to the date of application for the home equity
loan, which stated the dollar amount of the commission, and
which was provided to the borrower prior to the application.
``(5) Taking action or interfering with any other consumer
protection laws or regulation designed to protect the
homeowner.
``(6) Assisting in the falsification of information on the
application for a home equity loan.
``(7) Disbursing to a home improvement contractor more than
80 percent of funds due under a home improvement contract which
exceeds $10,000, before the completion of the work due under
the home improvement contract, or making any disbursement for a
home improvement contract in a form other than an instrument
jointly payable to the borrower and the contractor.
``(8)(A) Engaging in any other unfair, deceptive, or
unconscionable conduct which creates a likelihood of confusion
or misunderstanding.
``(B) Any attempt to evade the provisions of this section
by any devise, subterfuge, or pretense whatsoever is deemed to
be unfair conduct under this paragraph.
``(h) Right of Rescission.--For the purpose of section 125, any
contract with provisions prohibited by this section is deemed to not
include material disclosures required under this title. Any provision
in a high cost mortgage which violates section 125 shall not be
enforceable.''.
SEC. 3. STATE AUTHORITY TO REGULATE HIGH RATE MORTGAGE LOANS.
The authority of States to establish limitations on the interest,
fees, and other terms of a first mortgage which--
(1) is secured by a first lien on residential real
property; and
(2) is not used to finance the acquisition of that
property;
is not preempted by section 501 of the Depository Institutions
Deregulation and Monetary Control Act of 1980 (12 U.S.C. 1735f-7a) or
the Alternative Mortgage Transaction Parity Act of 1982 (12 U.S.C. 3801
et seq.).
SEC. 4. CIVIL LIABILITY.
(a) Damages.--Section 130(a) of the Truth in Lending Act (15 U.S.C.
1640(a)) is amended--
(1) by striking ``and'' at the end of paragraph (2)(B);
(2) by striking the period at the end of paragraph (3) and
inserting ``; and''; and
(3) by inserting after paragraph (3) the following new
paragraph:
``(4) in case of a failure to comply with any requirement
under section 129, all finance charges and fees.''.
(b) State Attorney General Enforcement.--Section 130(e) of the
Truth in Lending Act (15 U.S.C. 1640(e)) is amended by adding at the
end the following: ``An action to enforce a violation of section 129
may also be brought by the appropriate State attorney general in a
court of competent jurisdiction, within 5 years after the date on which
the violation occurs.''.
(c) Assignee Liability.--Section 131 of the Truth in Lending Act
(15 U.S.C. 1641) is amended by adding at the end the following new
subsection:
``(d) High Cost Mortgages.--
``(1) In general.--In addition to any other liability
imposed under this title, any person who purchases or is
otherwise assigned a high cost mortgage shall be subject to all
claims and defenses with respect to the mortgage that the
consumer could assert against the creditor of the mortgage.
``(2) Damages.--Relief under this subsection shall be
limited to the sum of--
``(A) an offset of all remaining indebtedness; and
``(B) the total amount paid by the consumer in
connection with the transaction.
``(3) Notice.--Any person who sells or otherwise assigns a
high cost mortgage shall include a prominent notice of the
potential liability under this subsection as determined by the
Board.''.
SEC. 5. EFFECTIVE DATE.
This Act shall be effective 60 days after the promulgation of
regulations by the Board of Governors of the Federal Reserve System,
which shall occur not later than 180 days following the date of
enactment of this Act.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Banking, Finance + Urban Affrs.
Sponsor introductory remarks on measure. (CR E2290-2292)
Referred to the Subcommittee on Consumer Credit and Insurance.
Subcommittee Hearings Held.
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