For other versions of this document, see http://wikileaks.org/wiki/CRS-RL30885 ------------------------------------------------------------------------------ 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. ------------------------------------------------------------------------------ For other versions of this document, see http://wikileaks.org/wiki/CRS-RL30885