CONSUMER PROTECTIONS FOR CERTAIN MORTGAGES.

SEC. 152. CONSUMER PROTECTIONS FOR CERTAIN MORTGAGES. (a) Mortgage Definition.— Section 103 of the Truth in Lending Act (15 U.S.C. 1602) is amended by adding at the end the following new subsection: “(aa) (1) A mortgage referred to in this subsection means a consumer credit transaction that is secured by the consumer’s principal dwelling, other than a residential mortgage transaction, a reverse mortgage transaction, or a transaction under an open end credit plan, if— “(A) the annual percentage rate at consummation of the transaction will exceed by more than 10 percentage points the yield on Treasury securities having comparable periods of maturity on the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or “(B) the total points and fees payable by the consumer at or before closing will exceed the greater of— “(i) 8 percent of the total loan amount; or “(ii) $400. “(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 Board may by regulation increase or decrease the number of percentage points specified in paragraph (1)(A), if the Board 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) may not result in the number of percentage points referred to in subparagraph (A) being— 108 STAT. 2191 “(i) less that 8 percentage points; or “(ii) greater than 12 percentage points. “(C) In determining whether to increase or decrease the number of percentage points referred to in subparagraph (A), the Board 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), points and fees shall include— “(A) all items included in the finance charge, except interest or the time-price differential; “(B) all compensation paid to mortgage brokers; “(C) each of the charges listed in section 106(e) except an escrow for future payment of taxes), unless— “(i) the charge is reasonable; “(ii) the creditor receives no direct or indirect compensation; and “(iii) the charge is paid to a third party unaffiliated with the creditor; and “(D) such other charges as the Board determines to be appropriate. “(5) 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.”. (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 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 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.”. (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 CERTAIN MORTGAGES. “(a) Disclosures.— “(1) Specific disclosures.— In addition to other disclosures required under this title, for each mortgage referred to in section 103(aa) the creditor shall provide the following disclosures in conspicuous type size: “(A) ‘You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application.’. “(B) ‘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.’. 108 STAT. 2192 “(2) Annual percentage hate.— In addition to the disclosures required under paragraph (1), the creditor shall disclose— “(A) in the case of a credit transaction with a fixed rate of interest, the annual percentage rate and the amount of the regular monthly payment; or “(B) in the case of any other credit transaction, the annual percentage rate of the loan, the amount of the regular monthly payment, a statement that the interest rate and monthly payment may increase, and the amount of the maximum monthly payment, based on the maximum interest rate allowed pursuant to section 1204 of the Competitive Equality Banking Act of 1987. “(b) Time of Disclosures.— “(1) In general.— The disclosures required by this section shall be given not less than 3 business days prior to consummation of the transaction. “(2) New disclosures required.— “(A) In general.— After providing the disclosures required by this section, a creditor may not change the terms of the extension of credit if such changes make the disclosures inaccurate, unless new disclosures are provided that meet the requirements of this section. “(B) Telephone disclosure.— A creditor may provide new disclosures pursuant to subparagraph (A) by telephone, if— “(i) the change is initiated by the consumer; and “(ii) at the consummation of the transaction under which the credit is extended— “(I) the creditor provides to the consumer the new disclosures, in writing; and “(II) the creditor and consumer certify in writing that the new disclosures were provided by telephone, by not later than 3 days prior to the date of consummation of the transaction. “(3) Modifications.— The Board may, if it finds that such action is necessary to permit homeowners to meet bona fide personal financial emergencies, prescribe regulations authorizing the modification or waiver of rights created under this subsection, to the extent and under the circumstances set forth in those regulations. “(c) No Prepayment Penalty.— “(1) In general.— “(A) Limitation on terms.— A mortgage referred to in section 103(aa) may not contain terms under which a consumer must pay a prepayment penalty for paying all or part of the principal before the date on which the principal is due. “(B) Construction.— For purposes of this subsection, any method of computing a refund of unearned scheduled interest is a prepayment penalty if it is less favorable to the consumer than the actuarial method (as that term is defined in section 933(d) of the Housing and Community Development Act of 1992). “(2) Exception.— Notwithstanding paragraph (1), a mortgage referred to in section 103(aa) may contain a prepayment penalty (including terms calculating a refund by a method that is not prohibited under section 933(b) of the Housing 108 STAT. 2193and Community Development Act of 1992 for the transaction in question) if— “(A) at the time the mortgage is consummated— “(i) the consumer is not liable for an amount of monthly indebtedness payments (including the amount of credit extended or to be extended under the transaction) that is greater than 50 percent of the monthly gross income of the consumer; and “(ii) the income and expenses of the consumer are verified by a financial statement signed by the consumer, by a credit report, and in the case of employment income, by payment records or by verification from the employer of the consumer (which verification may be in the form of a copy of a pay stub or other payment record supplied by the consumer); “(B) the penalty applies only to a prepayment made with amounts obtained by the consumer by means other than a refinancing by the creditor under the mortgage, or an affiliate of that creditor; “(C) the penalty does not apply after the end of the 5-year period beginning on the date on which the mortgage is consummated; and “(D) the penalty is not prohibited under other applicable law. “(d) Limitations After Default.— A mortgage referred to in section 103(aa) may not provide for an interest rate applicable after default that is higher than the interest rate that applies before default. If the date of maturity of a mortgage referred to in subsection 103(aa) is accelerated due to default and the consumer is entitled to a rebate of interest, that rebate shall he computed by any method that is not less favorable than the actuarial method (as that term is defined in section 933(d) of the Housing and Community Development Act of 1992). “(e) No Balloon Payments.— A mortgage referred to in section 103(aa) having a term of less than 5 years may not include terms under which the aggregate amount of the regular periodic payments would not fully amortize the outstanding principal balance. “(f) No Negative Amortization.— A mortgage referred to in section 103(aa) may not include terms under which the outstanding principal balance will increase at any time over the course of the loan because the regular periodic payments do not cover the full amount of interest due. “(g) No Prepaid Payments.— A mortgage referred to in section 103(aa) 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. “(h) Prohibition on Extending Credit Without Regard to Payment Ability of Consumer.— A creditor shall not engage in a pattern or practice of extending credit to consumers under mortgages referred to in section 103(aa) based on the consumers’ collateral without regard to the consumers’ repayment ability, including the consumers’ current and expected income, current obligations, and employment. “(i) Requirements for Payments Under Home Improvement CONTRACTS.— A creditor shall not make a payment to a contractor under a home improvement contract from amounts extended as credit under a mortgage referred to in section 103(aa), other than— 108 STAT. 2194 “(1) in the form of an instrument that is payable to the consumer or jointly to the consumer and the contractor; or “(2) at the election of the consumer, by a third party escrow agent in accordance with terms established in a written agreement signed by the consumer, the creditor, and the contractor before the date of payment. “(j) Consequence of Failure To Comply.— Any mortgage that contains a provision prohibited by this section shall be deemed a failure to deliver the material disclosures required under this title, for the purpose of section 125. “(k) Definition.— For purposes of this section, the term ‘affiliate’ has the same meaning as in section 2(k) of the Bank Holding Company Act of 1956. “(l) Discretionary Regulatory Authority of Board.— “(1) Exemptions.— The Board may, by regulation or order, exempt specific mortgage products or categories of mortgages from any or all of the prohibitions specified in subsections (c) through (i), if the Board finds that the exemption— “(A) is in the interest of the borrowing public; and “(B) will apply only to products that maintain and strengthen home ownership and equity protection. “(2) Prohibitions.— The Board, by regulation or order, shall prohibit acts or practices in connection with— “(A) mortgage loans that the Board finds to be unfair, deceptive, or designed to evade the provisions of this section; and “(B) refinancing of mortgage loans that the Board finds to be associated with abusive lending practices, or that are otherwise not in the interest of the borrower.”. (e) Conforming Amendments.— (1) Table of sections.— The table of sections at the beginning of chapter 2 of the Truth in Lending Act is amended by striking the item relating to section 129 and inserting the following: “129. Requirements for certain mortgages”. (2) Truth in lending act.— The Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended— (A) in the second sentence of section 105(a), by striking “These” and inserting “Except in the case of a mortgage referred to in section 103(aa), these”; (B) in section 111(a)(2), by inserting before the period the following: “, and such State-required disclosure may not be made in lieu of the disclosures applicable to certain mortgages under section 129”; and (C) in section 111(b)— (i) by striking “This” and inserting “Except as provided in section 129, this”; and (ii) by adding at the end the following: “The provisions of section 129 do not annul, alter, or affect the applicability of the laws of any State or exempt any person subject to the provisions of section 129 from complying with the laws of any State, with respect to the requirements for mortgages referred to in section 103(aa), except to the extent that those State laws are inconsistent with any provisions of section 129, and then only to the extent of the inconsistency.”.