SAFE HARBOR AND REBUTTABLE PRESUMPTION.

SEC. 1412. SAFE HARBOR AND REBUTTABLE PRESUMPTION. Section 129C of the Truth in Lending Act is amended by inserting after subsection (a) (as added by section 1411) the following new subsection:“(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—124 STAT. 2146“(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 124 STAT. 2147 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 124 STAT. 2148 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.”.