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Order Code RL30885
CRS Report for Congress
Received through the CRS Web
Predatory Lending: Background on the Issue and
Overview of Legislation in the 106th Congress
March 7, 2001
Bruce E. Foote
Analyst in Housing
Domestic Social Policy Division
Congressional Research Service ~ The Library of Congress
Predatory Lending: Background on the Issue and
Overview of Legislation in the 106th Congress
Summary
This report presents an overview of the predatory lending issue, a summary of
present law, a summary of joint HUD and Treasury recommendations to address the
issue, and a side-by-side summary of five bills introduced in the 106th Congress that
addressed the issue. Though no action occurred on these bills, the issue is expected
to continue in the 107th Congress.
The Home Ownership and Equity Protection Act of 1994 (Subtitle B of Title I
of P.L. 103-325) amended the Truth in Lending Act (TILA) to provide new consumer
protections for certain "high cost loans." Basically, the law defines a high cost loan
as a loan secured by the principal residence of the borrower, but which is not used for
the purchase of the residence, and which meets one of the following conditions: (1)
the annual percentage rate on the loan exceeds the rate on comparable Treasury
securities by more than 10 percentage points, or (2) the total points and fees paid by
the borrower at or before loan closing exceed the greater of $465 or 8% of the total
loan amount.
Current law does not prohibit high interest rates and high fees, but the law
requires special disclosures when such rates and fees are present. All five bills would
approach the problem by amending TILA to redefine high cost loans such that the
special disclosures would be triggered at lower interest rates.
The proposed legislation would have amended current law to make existing
prohibitions stronger or create additional prohibitions. For example, under present
law, mortgages with 5-year terms or more may not be written such that a large
payment is due at the loan term (balloon mortgages). All the bills except H.R. 4213
would have prohibited all balloon mortgages. S. 2405 would have prohibited lenders
from charging points and fees on a high cost mortgage which is being used to
refinance a high cost mortgage from the same lender.
S. 2405 would have prohibited high cost mortgages unless the lender has
received certification that the prospective borrower has received counseling from an
approved agency, while H.R. 4250 and S. 2415 would have required the lender to
provide the borrower with a disclosure statement recommending such counseling, as
well as the contact information for certified counseling agencies.
H.R. 3901 would have amended the Home Mortgage Disclosure Act to require
lenders to report information on the interest rates charged on loans. This would
enable regulators to track and identify high interest rate loans and lenders with high
costs. H.R. 4213 would have amended the Real Estate Settlement Procedures Act to
add additional disclosure requirements. H.R. 4250 would have amended the Fair
Credit Reporting Act.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The HUD-Treasury Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Legislation Introduced in the 106th Congress . . . . . . . . . . . . . . . . . . . . . . . 3
Miscellaneous Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
List of Tables
Table 1. Side-by-Side Summary of the Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Predatory Lending: Background on the
Issue and Overview of Legislation in the
106th Congress
Introduction
The market for mortgage loans may be considered as a dual mortgage market.
Borrowers with fair to good credit ratings may be able to obtain loans on the "prime"
mortgage market. They are able to obtain the loans with the lowest interest rates and
costs. Borrowers with blemished credit histories obtain mortgage loans on the
"subprime" mortgage market, and obtain the loans with higher interest rates and loan
fees than are obtainable in the prime market. The problem is that some subprime
lenders have been making loans on terms that are regarded as "predatory." While
existing laws have addressed some of the problems of predatory lending, many issues
remain.
This issue was the subject of legislation introduced in the 106th Congress, and is
one of the issues listed in the oversight plan for the House Committee on Financial
Services for the 107th Congress.
Current Law
In 1993, testimony before the Congress indicated that some communities which
lacked access to traditional lending institutions were being victimized by second
mortgage lenders, home improvement contractors, and finance companies who
peddled high interest rate home equity loans with high loan fees to cash-poor
homeowners. It was suggested that homeowners were offered home improvement
loans and credit consolidation loans. Borrowers, who may not have fully understood
the terms of the loans, and who may not have been offered adequate disclosures of
the loan terms, often had to struggle to meet overwhelming mortgage payments, and
too often they ultimately lost their homes through foreclosure.
Congress decided that legislation was needed to address the issue and protect
such homeowners. The issue was addressed in Subtitle B of Title I of the Riegle
Community Development and Regulatory Improvement Act of 1994 (P.L. 103-325);
the subtitle is cited as the Home Ownership and Equity Protection Act of 1994. This
subtitle amended the Truth in Lending Act (TILA) to provide new consumer
protections for certain "high cost loans."
Basically, the law defines a high cost loan as a loan secured by the principal
residence of the borrower, but which is not used for the purchase of the residence,
and which meets one of the following conditions: (1) the annual percentage rate on
the loan exceeds the rate on comparable Treasury securities by more than 10
CRS-2
percentage points, or (2) the total points and fees paid by the borrower at or before
loan closing exceed the greater of $465 or 8% of the total loan amount.1
The law does not limit the interest rate and loan fees that lenders may charge.
Limits are placed on the provisions that may be included in high cost loans, and the
loans must meet certain disclosure requirements:
! At least 3 business days before completing the transaction, a borrower must be
given special disclosures. This gives the borrower a 3-day "cooling off period"
before becoming obligated under the loan. This is in addition to the 3-day
cooling-off period during which the borrower may cancel the loan after
completing the transaction. One disclosure must contain the following
statement, "You are not required to complete this transaction merely because
you have received these disclosures or have signed a loan application. 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";
! For loans with terms of less than 5 years the payment schedule must be such
that the loan is completely repaid at the end of the loan term;
! The loan may not have a payment schedule which would cause the loan
balance to increase, and there may not be a penalty for paying off the loan prior
to its maturity date;
! A lender may not engage in the practice of extending mortgage loans without
regard to the borrower's ability to make the scheduled payments; and
! A borrower has the right to rescind the loan if the lender fails to furnish the
required disclosures or if the loan documents include one or more of the
prohibited terms.
The HUD-Treasury Report
In addition to legislation proposed in the 106th Congress, recommendations to
curb predatory lending were detailed in a joint report released last year by the
Department of Housing and Urban Development (HUD) and the Department of the
Treasury.
The National Task Force on Predatory Lending, convened in March 2000, was
chaired by Andrew Cuomo, who was Secretary of HUD, and co-chaired by Lawrence
Summers, who was Secretary of the Treasury. Members of the Task Force included
a wide range of parties interested in and affected by the predatory lending issue.
Between April and May 2000, the Task Force held five forums around the country for
Task Force members, and each forum had a specific theme: Atlanta, GA The Impact
of Predatory Lending on Minorities; Los Angeles, CA - The Elderly and Predatory
Lending; New York, NY - Funding Sources for Predatory Lending; Baltimore, MD -
1
A figure of $400 was enacted but the Federal Reserve adjusts that number annually based
on the annual percentage change reflected in the Consumer Price Index that is in effect on June
1st of a given year, and the adjusted amount will become effective on January 1st of the next
year. For 2001, the adjusted dollar amount is $465.
CRS-3
The Role of Other Key, Non-lender Players; and Chicago, IL - State and Local
Initiatives to Curb Predatory Lending.
In June 2000, the Task Force released a report detailing recommendations for
legislative, regulatory, and other steps that would help curb predatory lending
practices. The report, "Curbing Predatory Home Mortgage Lending," proposes a
four-point plan to address predatory lending practices:
! Improve Consumer Literacy and Disclosures. The report proposes that
lenders be required to recommend that applicants for high-cost loans avail
themselves of home mortgage counseling, that lenders disclose credit scores
to all borrowers upon request, and that lenders give borrowers more timely and
more accurate information on loan costs and terms;
! Prohibit Harmful Sales Practices in the Mortgage Market. The report
recommends the banning of practices such as loan "flipping" and lending to
borrowers without regard to their ability to repay the loan. It is also suggested
that new requirements be imposed on mortgage brokers to document the
appropriateness of a high-cost loan for certain applicants, and that lenders who
report to credit bureaus should be required to provide "full-file" payment
history for their mortgage customers;
! Restrict Abusive Terms and Conditions on High-Cost Loans. The report
recommends that Congress increase the number of borrowers in the subprime
market covered by legislative protections; further restrict balloon payments on
high-cost loans; restrict prepayment penalties and the financing of points and
fees; prohibit mandatory arbitration agreements on high-cost loans; and ban
lump-sum credit life insurance and similar products;
! Improve Market Structure. The report recommends the award of
Community Reinvestment Act (CRA) credit to lenders that promote borrowers
from the subprime to prime mortgage market, and the denial of CRA credit
to lenders for the origination or purchase of loans that violate applicable
lending laws. It is recommended that lenders disclose the incidence of high-
cost loans in pools of mortgage-backed securities and that the incidence of
such loans be disclosed in the offering documents for the securities. The report
recommends that Congress enact legislation which clarifies the authority of
HUD and the Federal Housing Finance Board to issue regulations which
prohibit the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, and the Federal Home Loan Banks from purchasing
loans with predatory features.
Several of the Task Force recommendations were included in legislation
introduced in the 106th Congress and described in this report.
Legislation Introduced in the 106th Congress
As noted above, current law does not prohibit high interest rates and high fees,
but the law requires special disclosures when such rates and fees are present. Some
argue that the rates and fees are so high under current law that lenders can charge
rates and fees which are less than those levels and the loans may still be regarded as
predatory. All five bills that were proposed in the 106th Congress would have
approached the problem by amending the Truth in Lending Act (TILA) to redefine
CRS-4
high cost loans such that the special disclosures would be triggered at lower interest
rates. Some consumer groups would welcome the proposed changes but might argue
that what is really needed is a return to usury legislation restricting the rate of
interest that may be charged. It is likely that such an approach would be resisted by
lenders and their representatives.
As introduced in the 106th Congress, the proposed legislation would have
amended current law to make existing prohibitions stronger or create additional
prohibitions. For example, under present law, mortgages with 5-year terms or more
may not be written such that a large payment is due at the loan term (balloon
mortgages). All the bills except H.R. 4213 would have prohibited all balloon
mortgages. S. 2405 would have prohibited lenders from charging points and fees on
a high cost mortgage which is being used to refinance a high cost mortgage from the
same lender.
It has been argued by consumer groups that predatory lenders take advantage
of the financial ignorance of the target market. So, S. 2405 would have prohibited
high cost mortgages unless the lender has received certification that the prospective
borrower had received counseling from an approved agency, while H.R. 4250 and S.
2415 would have required the lender to provide the borrower with a disclosure
statement recommending such counseling, as well as the contact information for
certified counseling agencies.
Consumer groups also argue that borrowers have incomplete legal protection
from predatory lending. Enforcement authority would have been increased under S.
2405 by several means. In addition to existing penalties under current law, predatory
lenders would be subject to penalties contained in the Bank Holding Company Act of
1956. Thus, the company and individual officers could be subject to fines and
incarceration. The bill would have provided that certain violations would be deemed
as unfair and deceptive practices under the Federal Trade Commission Act. High cost
loans would not count towards meeting the lending needs of the community under the
Community Reinvestment Act. This would remove the incentive to make certain
loans.
H.R. 3901 would have amended the Home Mortgage Disclosure Act to require
lenders to report information on the interest rates charged on loans. This would
enable regulators to track and identify high interest rate loans and lenders with high
costs. H.R. 4213 would have amended the Real Estate Settlement Procedures Act to
add additional disclosure requirements. H.R. 4250 would have amended the Fair
Credit Reporting Act.
Other than hearings, no action was taken on any of the bills during the 106th
Congress. A side-by-side summary of the bills is presented in the following table.
CRS-5
Table 1. Side-by-Side Summary of the Bills
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
Home Mortgage Disclosure Act Amendments (HMDA)
Maintaining No provision Lenders would be No provision No provision No provision
information on required to maintain
interest rates information on the
annual percentage rate
of mortgage loans and
home improvement
loans originated by the
institution and to
group the information
according to census
tract, income level,
racial characteristics,
and gender.
Reporting No Provision Regulators would be No provision No provision No provision
requirements prohibited from
exempting lending
institutions from the
reporting requirements
of HMDA. Current
exemptions would
cease to be effective
upon the enactment of
the bill.
CRS-6
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
Truth in Lending Act Amendments
Definition of Defines a Defines a high cost Defines a covered Defines a covered Defines a covered
high cost c o v e r e d mortgage as a mortgage as a loan mortgage as a loan mortgage as a loan
mortgage mortgage as a mortgage loan secured by the secured by the secured by the
loan secured by secured by the principal residence of principal residence of principal residence
the principal principal residence of the borrower, but the borrower, but of the borrower,
residence of the the borrower, but which is not used for which is not used for but which is not
borrower, but which is not used for the purchase of the the purchase of the used for the
which is not the purchase of the residence, and which residence, and which purchase of the
used for the residence, and which meets one of the meets one of the residence, is not a
purchase of the meets one of the following conditions: following conditions: reverse mortgage,
residence, and following conditions: (1) the annual (1) the transaction is and which meets
which meets one (1) the annual percentage rate on the secured by a first one of the
of the following percentage rate on the loan exceeds the rate mortgage on the f o l l o w i n g
conditions: (1) loan exceeds the on comparable consumer's principal conditions: (1) the
the annual weekly average yield Treasury securities by residence and the transaction is
percentage rate on 1-year Treasury more than 8 annual percentage rate secured by a first
on the loan securities by more percentage points, in on the loan exceeds mortgage on the
exceeds the rate than 5 percentage the case of a the rate on comparable consumer's
on comparable points, (2) the transaction secured by Treasury securities by principal residence
Treasury mortgage is an a first-lien security more than 6 and the annual
securities by adjustable rate loan on interest in the percentage points, (2) percentage rate on
more than 10 which annual property, or 9 the transaction is the loan exceeds
percentage percentage rate is percentage points, in secured by a the rate on
points, or (2) reasonably expected to the case of a subordinate mortgage comparable
the total points increase by more than transaction secured by on the consumer's Treasury securities
and fees paid by 5 percentage points a subordinate-lien principal residence by more than 6
the borrower at above the weekly security in the and the annual percentage points,
or before loan average yield of 1- property, or (2) the percentage rate on the (2) the transaction
closing exceed year Treasury total points and fees loan exceeds the rate is secured by a
the greater of securities, (3) the paid by the borrower on comparable subordinate
$451 or 8% of potential or scheduled at or before loan Treasury securities by mortgage on the
the total loan increases in the annual closing exceed the more than 8 consumer's
amount. It does percentage rate of the greater of $451 or 8% percentage points, or principal residence
CRS-7
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
not refer to such loan are controlled by of the total loan (3) the total points and and the annual
mortgages as the lender and are not amount. fees paid by the percentage rate on
high cost directly tied to borrower would the loan exceeds
mortgages. changes in a publicly exceed the greater of the rate on
available rate not $1000 or 5% of the comparable
controlled by the total loan amount. Treasury securities
lender, or (4) the Provides that by more than 8
points and fees on the introductory rates percentage points,
loan cannot be would not be taken or (3) the total
financed. into account. points and fees
paid by the
borrower would
exceed the greater
of $1000 or 5% of
the total loan
amount. Provides
that introductory
rates would not be
taken into account.
Calculation of No provision Provides that if the No provision No provision In calculating
points and fees interest rate from whether points and
which the loan is to be fees exceed the
discounted does not limits established
exceed by more than 1 above, would
percentage point the provide that points
required yield on and fees include all
comparable loans to compensation paid
be delivered to Fannie directly or
Mae or Freddie Mac, indirectly to a
then up to 2 discount mortgage broker;
points payable by the each of the charges
borrower may be listed in Section
excluded from the 106(e) of the Truth
calculation of total in Lending Act; the
CRS-8
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
points and fees; and cost of premiums
further provides that if financed by the
the interest rate from lender for life,
which the loan is to be credit, health,
discounted does not unemployment,
exceed by more than 2 disability, or health
percentage points the insurance; and any
required yield on prepayment
comparable loans to penalty.
be delivered to Fannie
Mae or Freddie Mac,
then up to 1 discount
point payable by the
borrower may be
excluded from the
calculation of total
points and fees.
Definition of Points and fees Points and fees would No provision Points and fees would Points and fees
points and fees are defined to be defined to include be defined to include would be defined to
include all items all compensation paid all compensation paid mean (1) finance
included in the directly or indirectly to directly or indirectly to charges (other than
finance charge a mortgage broker, a mortgage broker; interest), as defined
except interest, including a broker that each of the charges by the Federal
a l l originates a loan in its listed in Section Reserve, (2) real
compensation own name in a table- 106(e) of the Truth in estate related fees,
p a i d t o funded transaction. Lending Act; the cost as defined by the
mortgage of premiums financed Federal Reserve, if
brokers, and by the lender for life, the lender or an
each of the credit, health, affiliate receives
charges listed in unemployment, direct or indirect
Section 106(e) disability, or health compensation, (3)
of the Truth in insurance; and any the cost of
Lending Act. prepayment penalty. premiums financed
by the lender for
CRS-9
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
life, credit, health,
unemployment,
disability, or health
insurance; (4) and
any prepayment
penalty.
Exclusions No provision Points and fees would No provision No provision Points and fees
from not include taxes, and would not include
definition of other charges for fees paid to public
points and obtaining the security officials in
fees. interest in the reference to the
property, or for fees security interest, or
paid to parties other fees paid for such
than the lender or things as
mortgage broker (or appraisals,
their affiliates) for surveys, property
such things as pest inspections, and
inspections, flood certification,
a p p r a i s a l s , if the fees are not
inspections, notary paid to the lender,
fees, or title, fire or or mortgage
flood insurance broker, or their
premiums. associates.
Defining a Includes in the Would amend current No provision Would amend current No provision
creditor definition of law to include in the law to include in the
creditor any definition of creditor definition of creditor
person who any person who acted any person who acted
originates 2 or as a mortgage broker as a mortgage broker
more mortgages between loan between loan
in any 12-month originators and originators and
period or any borrowers on more borrowers on more
person who than five homes within than five homes within
originates one the past 12 months. the past 12 months,
CRS-10
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
or more and any creditor
mortgages affiliated party would
through a be considered a
mortgage creditor.
broker.
Defining No provision No provision No provision A creditor-affiliated No provision
creditor- party would be defined
affiliated party as (1) any director,
officer, employee,
c o n t r o l l i n g
stockholder, or agent
of a creditor, (2) any
person who has filed
or is required to file a
change of control for
an insured depository
institution, or (3) any
person who conducts
the affairs of or
controls the lending
practices of a creditor.
Required Lenders must No provision This section of current Lenders would have to No provision
disclosures p r o v i d e law would be deleted. provide borrowers
borrowers with with additional
disclosures disclosures which
which state: state that (1) the
"You are not interest rate on the
required to loan is higher than
complete this most people pay and
transaction therefore the chance of
merely because losing the home is
you have greater, (2) a lower
received these interest-rate loan may
CRS-11
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
disclosures or be available and
have signed a borrower has the right
l o a n to seek counseling
application. If services and consult
you obtain this with other lenders to
loan, the lender find a cheaper loan,
will have a and (3) if the loan is
mortgage on being taken to repay
your home. other loans the
You could lose borrower should look
your home, and at the total payment
any money you amount in addition to
have put into it, the monthly payment.
if you do not
meet your
obligations
under the loan."
Prohibiting For a high cost Would amend current No provision. Would amend current A high cost
b a l l o o n mortgage law to strike "having a law to strike "having a mortgage would be
mortgages having a term of term of less than 5 term of less than 5 prohibited from
less than 5 years." years." having terms under
years, the which any
p a y m e n t scheduled payment
schedule must is more than twice
be such that the the average of all
l o a n i s other scheduled
completely payments.
repaid at the
end of the loan
term.
CRS-12
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
Prohibiting No provision Would provide that a No provision Would provide that a Would provide that
lender call high cost mortgage high cost mortgage a high cost
provisions could not include could not include mortgage could not
terms which give the terms which give the include terms
lender the option of lender the option of which give the
prematurely prematurely lender the option of
demanding full demanding full prematurely
repayment of the loan repayment of the loan demanding full
except in cases of except in cases of repayment of the
default or some other bona fide default. loan except in
provision unrelated to cases of default, a
the payment schedule. due-on-sale
provision, or some
other provision
unrelated to the
payment schedule.
No fees for No provision Lenders would be No provision Lenders would be Lenders would be
l o a n prohibited from prohibited from prohibited from
modifications charging borrowers a charging borrowers a charging the
fee for modifying the fee for modifying the borrower any fee
terms or deferring the terms or deferring the for modifying,
payments due on a payments due on a r e n e w i n g ,
high cost mortgage. high cost mortgage extending, or
unless (1) the action amending the terms
would provide a of a high cost
material benefit to the mortgage, or for
borrower and (2) the deferring the
fee does not exceed payments due on
0.5% of the total loan such a mortgage.
amount or, in the case
of a loan of $60,000
or less, the fee does
not exceed $300.
CRS-13
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
Counseling No provision Lenders would be No provision Lenders would be Lenders would be
requirement prohibited from prohibited from prohibited from
originating a high cost originating a high cost originating a high
mortgage prior to mortgage unless the cost mortgage
receiving certification borrower has been unless the lender
from a HUD-certified provided with (1) all has received
housing counseling warnings and certification that
agency that the disclosures regarding the borrower has
borrower has received the risks of the received counseling
counseling on the mortgage, (2) a on the advisability
advisability of the separate written of the transaction
transaction. s t a t e m e n t from a counselor
recommending that the approved by HUD,
borrower take a state housing
advantage of home finance agency, or
ownership and credit other appropriate
counseling prior to regulatory agency.
agreeing to the terms
of the mortgage, and
(3) a written statement
containing the names,
addresses and
telephone numbers of
certified or approved
counseling agencies.
No mandatory No provision A high cost mortgage No provision A high cost mortgage A high cost
arbitration would not be would not be mortgage would
permitted to include permitted to include not be permitted to
terms under which a terms requiring include terms under
mandatory arbitration arbitration or other which a mandatory
clause limits the right nonjudicial procedures arbitration clause
of the borrower to as the method of limits the right of
seek relief through the resolving disputes. the borrower to
courts. This provision would seek relief through
CRS-14
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
not, however, preclude the courts.
borrowers from using
arbitration or other
nonjudicial methods
for settling disputes.
No mortgage
provision or
agreement between the
parties would be
interpreted as
preventing a borrower
from bringing court
action to seek
damages or other
relief.
Prohibiting No provision The mortgage No provision In general, would No provision
evasions requirements of TILA prohibit lenders from
would apply to parties taking any action,
who (1) seek to evade such as (1) reciprocal
coverage by arrangements with
structuring the other lenders or
transaction as an division of the
open-end credit plan transaction into
when the loan would separate parts, with
have been a high cost the intent to evade
mortgage if structured coverage under TILA,
as a closed-end loan, (2) structuring or
(2) divide the restructuring a
transaction into consumer credit
separate parts with the transaction as another
intent of evading loan form such as a
coverage under TILA, business loan with the
or (3) engage in any intent to evade
other subterfuge to coverage under TILA
evade coverage. or (3) any action
CRS-15
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
which Federal Reserve
Board regulations
define as constituting
bad faith efforts to
evade or circumvent
TILA requirements.
The Federal Reserve
Board would be
directed to prescribe
such regulations.
Due diligence No provision No provision No provision No provision Would direct
parties who
purchase interests
in high cost
mortgages to
exercise due
diligence in
determining
whether the
requirements of
TILA have been
met.
Prohibition on No provision Lenders would be Lenders would be Lenders would be For all mortgages,
encouraging prohibited from prohibited from prohibited from would amend
default encouraging default on encouraging default on encouraging default on current law to
existing debt on existing debt on high existing debt on high prohibit lenders
conventional cost mortgages. cost mortgages. from encouraging
mortgages. default on existing
debt prior to or in
connection with a
loan that refinances
CRS-16
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
that existing debt
and would prohibit
the loans from
including terms
under which the
interest rate that
applies after
default is higher
than the rate that
applies before
default.
Liability for Failure to Would provide that No provision No provision No provision
damage comply with the the maximum
Act's provisions damages could be the
regarding greater of (1) the
c e r t a i n amount determined
mortgages may under current law or
result in the (2) the principal and
lender being the finance charge on
liable for the mortgage.
damages for the
sum of all
finance charges
and fees paid by
the borrower.
Prepayment A high cost No provision Would delete items (1) Would provide that Would amend
penalties mortgage may and (2) under current prepayment penalties current law to
c o n t a i n law, and amend the may not exceed 3% of p r o h i b i t
prepayment law to permit the loan amount and prepayment
penalties if (1) prepayment penalties that no prepayment penalties on all
the borrower's as long as (1) the penalties are permitted mortgages which
monthly debt penalty does not if the loan is repaid finance the
payments exceed 3% of the loan after a 2-year period. purchase or
(including the amount when Within that 2-year construction of the
CRS-17
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
mortgage) is not prepayment occurs period, no penalties borrower's
greater than during the first year of would be permitted if residence.
50% of the the loan, (2) the the borrower financed
borrower's penalty does not points and fees that
gross income exceed 2% of the loan total 3% or more of
a n d t h e amount when the mortgage amount.
borrower's prepayment occurs
income and during the second year
expenses have of the loan, or (3) the
been verified, penalty does not
( 2 ) t h e exceed 1% of the loan
mortgage is not amount when
being prepaid prepayment occurs
with funds during the third year
obtained by of the loan. Would
refinancing the prohibit penalties on
loan from the loans prepaid after the
same lender or third year.
one of its
affiliates (3) the
penalty does not
apply after 5
years, and (4)
the penalty is
not prohibited
under other law.
CRS-18
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
Prohibiting A high cost No provision Would amend current No provision Identical to current
a d v a n c e mortgage may law to provide that no law.
payments not include required payments
terms under may be paid in
which more advance from the loan
than two proceeds.
r e q u i r e d
payments are
paid in advance
from the loan
proceeds.
Limiting No provision No provision Would amend current No provision No provision
refinancing law to provide that a
mortgage which is less
than 1 year old may
not be refinanced with
a high cost mortgage
unless all points and
fees are based solely
on the new
transaction, or the
annual percentage rate
is 2 or more
percentage points
lower than the rate on
the existing loan.
Reporting to No provision No provision Would require No provision No provision
credit bureaus quarterly reports of
both favorable and
unfavorable payment
history regarding
borrowers with high
cost mortgages.
CRS-19
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
No profiting No provision No provision Lenders would be No provision No provision
f r o m prohibited from
foreclosures profiting from the
foreclosure sale of
property secured by
high cost mortgages.
Providing No provision No provision Would require that No provision No provision
p a y o f f lenders holding high
information cost mortgages
provide borrowers
payoff information
within 3 business days
of receiving such a
request.
Assessing Lenders are No provision No provision Would amend current Would prohibit
ability to pay prohibited from law to require that the high cost
making high lender determine that mortgages unless
cost mortgages one or more of the the lender has
without regard borrowers will be able verified that, after
t o t h e to make the scheduled obtaining the loan,
borrower's payments without the borrower's
ability to repay regard to the equity in total monthly debt
the obligation. the property. would not exceed
50% of the
borrower's
monthly gross
income.
CRS-20
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
Delivering Any mortgage No provision No provision A high cost mortgage No provision
disclosures which contains which contains a
a provision provision prohibited
prohibited by by this section or does
this section of not contain a provision
the Act will be required by the
deemed to have section, or a lender
failed to deliver who fails to comply
the required with this section by
disclosures. act or omission will be
treated as a failure to
deliver the required
disclosures.
Prohibiting No provision No provision No provision Would prohibit high Would prohibit all
single premium cost mortgages from mortgages under
insurance. being written which which any credit
require the advance life, credit
payment of a single disability, credit
premium for insurance unemployment, or
on the life, health, other life or health
employment, or insurance is
property of the financed in the loan
borrower regardless of except for
whether the insurance insurance paid
would be paid by the monthly by the
borrower or added to borrower which
the mortgage. may be canceled at
any time at the
option of the
borrower.
CRS-21
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
Limits on No provision No provision No provision Subject to current law, Lenders would be
financing points and fees that prohibited from
points and fees may be financed on a originating high
high cost mortgage cost mortgages that
would be limited to the directly or
greater of $600 or 3% indirectly finance
of the loan amount. (1) any prepayment
Lenders would be penalties if the
prohibited from mortgage is being
financing any prepaid with funds
prepayment penalties obtained by
if the mortgage is refinancing a high
being prepaid with rate loan from the
funds obtained by same lender or one
refinancing a high rate of its affiliates, (2)
loan from the same any points and
lender or one of its fees, or (3) any
a f f i l i a t e s . other charges
Additionally, lenders payable to third
would be prohibited parties.
from financing any
point, fees or other
charges if the new
mortgage is being
obtained to refinance a
high rate loan from the
same lender or one of
its affiliates.
CRS-22
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
Right of Provides that, No provision No provision Would provide that a No provision
rescission on any credit borrower's waiver of
transaction the right of rescission
which is would not be effective
secured by the if (1) the waiver was
principal required by the lender
residence of the as a condition of the
borrower, the loan, (2) the lender
borrower has advised or encouraged
the right to the borrower to waive
rescind the the right of rescission,
contract within or (3) the lender had a
3 business days. discussion with the
borrower about the
waiver during a period
to be determined by
the Federal Reserve
Board.
Individual Provides that No provision No provision Would amend the law No provision
damages for a violation to provide that
of TILA damages for an
involving a individual may be up
transaction to $10,000.
secured by a
dwelling or real
property an
individual may
be awarded
damages of not
less than $200
or greater than
$2,000.
CRS-23
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
Class action Provides that in No provision No provision Would amend the law No provision
damages a class action to provide that
involving damages would be the
violations of greater of (1) $10,000
TILA damages times the number of
may be the individuals in the class
lesser of or (2) 2% of the net
$500,000 or 1% worth of the lender.
of the net worth
of the lender.
Preemption of No provision No provision Would provide that No provision No provision
state law the provisions enacted
under this bill could
not be preempted by
any state law.
Statute of Provides that a No provision No provision Amends the law to No provision
limitations borrower may provide that a
bring a court borrower may bring a
action for court action within 3
violations of years of the violation.
TILA within 1
year of the
violation.
G e n e r a l No provision Would amend TILA to Would amend
prohibitions on provide the following current law to
all home limitations and apply the following
purchase prohibitions to prohibitions and
mortgage loans conventional limitations to all
o r a l l mortgages which mortgage loans
mortgages qualify for sale to which finance the
which qualify Fannie Mae: (1) purchase or
for sale to lenders would be construction of the
Fannie Mae prohibited from borrower's
CRS-24
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
charging fees for early residence: (1)
payoff of mortgages, would prohibit
(2) mortgages may not prepayment
have a payment penalties for
schedule which would paying all or part
cause the loan balance of the principal
to increase, (3) a before the due date
lender may not engage (2) would prohibit
in the practice of lenders from
extending mortgages encouraging
without regard to the default on existing
borrower's ability to debt prior to or in
make the scheduled connection with a
payments, (4) lenders loan that refinances
would be prohibited that existing debt
from refinancing and would prohibit
conventional the loans from
mortgages when there including terms
is no tangible financial under which the
benefit to the interest rate that
borrower, (5) lenders applies after
would be prohibited default is higher
from encouraging than the rate that
default on existing applies before
debt on conventional default, (3) would
mortgages, (6) lenders prohibit mortgages
would be prohibited under which any
from trying to credit life, credit
influence the real disability, credit
estate appraiser unemployment, or
evaluating the other life or health
conventional insurance is
mortgage, (7) lenders financed in the loan
would be prohibited except for
from financing credit, insurance paid
health, or life monthly by the
CRS-25
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
insurance in borrower which
conventional may be cancelled at
mortgages, and (8) if a any time at the
conventional mortgage option of the
is negotiated in a borrower, and (4)
language other than would prohibit
English, then the lenders from
borrower must be refinancing existing
provided with mortgages unless
disclosures that are the new loan would
written in that be of tangible net
language. benefit to the
borrower when
considering the
terms of both
loans, the cost of
the new loan, and
the ability of the
borrower to repay
the new loan.
Fair Credit Reporting Act Amendments
Reporting to No provision No provision No provision Would provide that No provision
credit bureaus lenders involved in
high cost mortgages
report the payment
history of borrowers
to nationwide credit
reporting agencies at
least quarterly or more
frequently as required
by regulation or by the
guidelines of
participants in the
secondary mortgage
market.
CRS-26
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
Real Estate Settlement Procedures Act Amendments
Form for Directs the No provision Would amend the law No provision No provision
statement of regulators to to read "Such form
settlement prescribe a shall conspicuously
costs standard form and clearly itemize all
f o r t h e charges imposed
statement of directly upon the
settlement costs borrower and all
and provides charges imposed
that "such form directly upon the seller
s h a l l (whether paid outside
conspicuously of closing or
and clearly otherwise) in
itemize all connection with the
c h a r g e s settlement. This
imposed upon subsection shall not be
the borrower construed to require
and all charges that the standard form
imposed upon shall itemize fees
the seller in earned by any
connection with settlement service
the settlement provided in connection
..." with the transaction to
the extent such fees
are paid by the lender
and reflect the present
value of interest
yielded by the
federally related
mortgage loan."
CRS-27
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
Booklet for Directs HUD to No provision Would amend the law No provision No provision
consumers prepare and to require that the
distribute a booklet include an
booklet to help explanation of the fact
borrowers that a mortgage broker
understand the may be compensated
nature and cost for its services by
of payments from the
real estate borrower, by
settlement payments from the
services. lender, or by some
combination of both.
Good faith Directs lenders No provision Would amend present No provision No provision
estimate of to include a law to direct lenders to
settlement good faith include a good faith
costs estimate of the estimate of the amount
amount of of settlement charges
settlement "likely to be imposed
charges "a directly upon the
borrower is borrower."
likely to incur."
Disclosures in No provision No provision Would amend the law No provision No provision
good faith to require that the
estimate good faith estimate
include 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
CRS-28
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
meet your obligations
under the loan."
Miscellaneous Amendments
Additional No provision No provision No provision No provision Would provide
enforcement that, in addition to
authority existing penalties,
violations of the
Truth in Lending
Act covering high
cost mortgages
would be subject to
penalties contained
in the Bank
Holding Company
Act of 1956.
Unfair and No provision No provision No provision No provision Would provide that
deceptive a creditor would be
practices deemed to have
engaged in an
unfair or deceptive
act or practice
under the Federal
Trade Commission
Act if it
intentionally: (1)
structures a high
cost mortgage as
an open end credit
plan, (2) provides
misleading
information to a
consumer or
otherwise engages
in fraudulent
CRS-29
H.R. 4250/S. 2415
H.R. 4213, the Predatory Lending S. 2405, the
H.R. 3901, the Anti- Consumer Mortgage Consumer Predatory
Predatory Lending Protection Act of Protection Act of Lending
Provision Current law Act of 2000 2000 2000 Deterrence Act
behavior, or (3)
engages in any
subterfuge intended
to misrepresent the
terms of the
agreement.
M e e t i n g No provision No provision No provision No provision Would provide that
community high cost loans
needs may not be counted
t o w a r d s
determining
whether an
institution is
meeting its
Community
Reinvestment Act
requirement to
serve the lending
needs of its
community.
Violations would
be enforced by the
Federal Trade
Commission.
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For other versions of this document, see http://wikileaks.org/wiki/CRS-RL30885