HIGH-COST HOME LOANS DEFINED Truth in LendingAct

HIGH-COST HOME LOANS DEFINED- Section 103(aa) of the Truth in LendingAct (15 U.S.C. 1602(aa)(1)) is amended--

(1) by striking all that precedes paragraph (2) and inserting the following:

`(aa) High-Cost Home Loan Defined-

`(1) IN GENERAL- The term `high-cost home loan' means a consumer credit transaction that is secured by the consumer's principal dwelling, other than a reverse mortgage transaction, if any of the following apply with respect to such consumer credit transaction:

`(A) The transaction is secured by a first mortgage on the consumer's principal dwelling and the annual percentage rate on the credit, at consummation of the transaction, will exceed by more than 8 percentage points the yield on Treasury securities having comparable periods of maturity on the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor.

`(B) The transaction is secured by a junior or subordinate mortgage on the consumer's principal dwelling and the annual percentage rate on the credit, at consummation of the transaction, will exceed by more than 10 percentage points the yield on Treasury securities having comparable periods of maturity on the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor.

`(C) The total loan amount exceeds $50,000 and total points and fees payable on the transaction will exceed 5 percent of the total loan amount.

`(D) The total loan amount is $50,000 or less and total points and fees payable on the transaction will exceed 7 percent of the total loan amount.

`(E) For purposes of computing the annual percentage rate for this subsection, introductory rate shall be not taken into account.'; and

(2) in paragraph (2)(B)(i), by striking `that' and inserting `than'.

(b) POINTS AND FEES DEFINED-

(1) IN GENERAL- Section 103(aa) of the Truth in LendingAct (15 U.S.C. 1602(aa)) is amended--

(A) by striking paragraph (3);

(B) by striking paragraph (4) and inserting the following new paragraph:

`(3) POINTS AND FEES DEFINED-

`(A) IN GENERAL- For purposes of subparagraphs (C) and (D) of paragraph (1), the term `points and fees' includes--

`(i) all items included in the finance charge, except interest or the time-price differential;

`(ii) all compensation paid directly to mortgage brokers;

`(iii) all compensation paid indirectly by a creditor to mortgage brokers, provided, however, indirect compensation not in excess of 2 percent of the total loan amount may be excluded if the new loan does not refinance a previous loan that was consummated within the prior 12 months and that was originated by the same creditor;

`(iv) each of the charges listed in section 106(e), except an escrow for future payment of taxes or insurance, unless--

`(I) the charge is bona fide, and reasonable;

`(II) the creditor receives no direct compensation; and

`(III) the charge is paid to a third party that is not under the control of or controlled by the creditor; and

`(v) all prepayment fees or penalties that are incurred by the consumer on the previous loan if the new loan refinances a previous loan currently held by the same creditor or an affiliate of the creditor, unless the loan is held in a fiduciary or servicing capacity only.'.

(2) CALCULATION OF POINTS AND FEES FOR OPEN-END LOANS- Section 103(aa) of the Truth in LendingAct (15 U.S.C. 1602(aa)) is amended--

(A) by redesignating paragraph (5) as paragraph (6); and

(B) by inserting after paragraph (3), as amended by paragraph (1) above, the following new paragraph:

`(4) CALCULATION OF POINTS AND FEES FOR OPEN-END LOANS- In the case of open-end loans, points and fees shall be calculated, for purposes of this section and section 129, by adding the total points and fees known at or before closing, plus the minimum additional fees the consumer would be required to pay to draw down an amount equal to the total credit line.'.

(3) EXCLUSION OF BONA FIDE DISCOUNT POINTS- Section 103(aa) of the Truth in LendingAct (15 U.S.C. 1602(aa)) is amended by inserting after paragraph (4), as amended by paragraph (2) above, the following new paragraph:

`(5) EXCLUSION OF BONA FIDE DISCOUNT POINTS-

`(A) IN GENERAL- Not more than 2 bona fide loan discount points shall be excluded from determining the amounts of points and fees with respect to a high-cost home loan for purposes of subsection (aa), but only if the interest rate from which the loan's interest rate will be discounted does not exceed by more than 3 percentage points the required net yield for a 90-day standard mandatory delivery commitment for a reasonably comparable loan from either the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, whichever is greater.

`(B) DEFINITION- For purposes of paragraph (1), the term `bona fide discount points' means loan discount points which are knowingly paid by the consumer to a creditor for the purpose of reducing, and which in fact result in a bona fide reduction of, the interest rate or time-price differential applicable to the loan.

`(C) EXCEPTION FOR INTEREST RATE REDUCTIONS INCONSISTENT WITH INDUSTRY NORMS- Paragraph (1) shall not apply to discount points used to purchase an interest rate reduction unless the amount of the interest rate reduction purchased is reasonably consistent with established industry norms and practices for secondary mortgage market transactions.'.

(c) HOME LOAN DEFINED- Section 103 of the Truth in LendingAct (15 U.S.C. 1602) is amended by adding at the end the following subsection:

`(cc) the term `home loan' means any consumer credit transaction that is secured by a dwelling that is, or upon the consummation of the transaction is intended to be, occupied by the consumer as his principal dwelling.'.

(d) TECHNICAL AND CONFORMING AMENDMENT-

(1) Paragraph (2) of section 103(aa) of the Truth in LendingAct (15 U.S.C. 1602(aa)(2)) is amended by striking `specified in paragraph (1)(A)' and inserting `specified in subparagraph (A) or (B) of paragraph (1)'.

(2) Subchapter I of chapter 41 of title 15 of the United States Code is amended by striking `a mortgage referred to in this subsection' and `a mortgage

referred to in section 129(aa)' each place such term appears and inserting `a high-cost home loan' in lieu thereof.

(3) The title of section 129 of the Truth in LendingAct (15 U.S.C. 1639) is amended by striking `Requirements for Certain Mortgages' and inserting `Requirements for High-Cost Home Loans'.

SEC. 103. AMENDMENTS TO REQUIREMENTS FOR HIGH-COST HOME LOANS.

(a) PREPAYMENT PENALTIES- Subsection (c) of section 129 of the Truth in LendingAct (15 U.S.C. 1639(c)) is amended to read as follows:

`(c) [Repealed]'.

(b) BALLOON PAYMENTS- Subsection (e) of section 129 of the Truth in LendingAct (15 U.S.C. 1639(e)) is amended--

(1) by striking `PAYMENTS- A mortgage referred to in section 103(aa) of this title' and inserting `PAYMENTS-

`(1) IN GENERAL- A high-cost home loan';

(2) by striking `having a term of less than 5 years'; and

(3) by adding at the end the following new paragraphs:

`(2) EXCEPTION-

`(A) IN GENERAL- Paragraph (1) shall not apply--

`(i) when the payment schedule is adjusted to account for the seasonal or irregular income of the consumer;

`(ii) if the purpose of the loan is a bridge loan; or

`(iii) if the unamortized amount is the result of the creditor's deferral of the consumer's delinquent payments and fees relating to delinquent payments.

`(B) BRIDGE LOAN DEFINED- For purposes of this subsection, the term `bridge loan' means a loan that--

`(i) has a period to maturity of 12 months or less; and

`(ii) is made in connection with the acquisition or construction of a dwelling.

`(3) NOTICE REQUIRED- A creditor that offers a high-cost home loan having a balloon payment term that, in accordance with paragraph (2), is not subject to paragraph (1) shall clearly disclose to the consumer that--

`(A) the loan contains such a term;

`(B) the balloon payment amount that will be owed by the consumer on the loan maturity date will be equal to the initial principal loan amount, plus interest and costs that may be due, minus any principal payments that may have been made over the term of the loan; and

`(C) balloon payments are permissible under the circumstances described in paragraph (2).'.

(c) NEGATIVE AMORTIZATION- Subsection (f) of section 129 of the Truth in LendingAct (15 U.S.C. 1639(f)) is amended--

(1) by striking `AMORTIZATION- A mortgage referred to in section 103(aa) of this title' and inserting `AMORTIZATION-

`(1) IN GENERAL- A high-cost home loan'; and

(2) by adding at the end the following new paragraph:

`(2) EXCEPTION FOR PERIOD OF FORBEARANCE- Paragraph (1) shall not apply with respect to negative amortization resulting from periods of temporary forbearance allowed by the creditor.'.

(d) FINANCING OF POINTS OR FEES- Section 129 of the Truth in LendingAct (15 U.S.C. 1639) is amended by adding at the end the following new subsection:

`(m) RESTRICTIONS ON FINANCING OF POINTS OR FEES- No creditor may directly or indirectly finance, in connection with any high-cost home loan, any of the following:

`(1) Any prepayment fee or penalty payable by the consumer in a refinancing transaction if the creditor or an affiliate of the creditor is the holder of the note being refinanced in other than a fiduciary or servicing capacity.

`(2) Any points or fees in excess of 3 percent of the total loan amount.'.

(e) PROHIBITION ON EVASIONS- Section 129 of the Truth in LendingAct (15 U.S.C. 1639) is amended by inserting after subsection (n) (as added by section 104(a) of this Act ) the following new subsection:

`(o) PROHIBITION ON EVASIONS- A creditor may not take any action in connection with a high-cost home loan with the intent of evading provisions of this title.'.

(f) NO ENCOURAGEMENT OF DEFAULT ON PRIOR EXISTING LOAN- Section 129 of the Truth in LendingAct (15 U.S.C. 1639) is amended by inserting after subsection (o) (as added by subsection (e) of this section) the following new subsection:

`(p) NO ENCOURAGEMENT OF DEFAULT- No creditor shall recommend or encourage default on an existing loan or other debt prior to and in connection with the closing or planned closing of a high-cost home loan that refinances all or any portion of such existing loan or debt.'.

(g) ABILITY TO REPAY- Subsection (h) of section 129 of the Truth in LendingAct (15 U.S.C. 1639(h)) is amended to read as follows:

`(1) IN GENERAL- A creditor may not extend credit to a consumer under a high-cost home loan unless a reasonable creditor would believe at the time the loan is closed that the consumer or consumers that are residing or will reside in the dwelling subject to the loan will be able to make the scheduled payments associated with the loan, based upon a consideration of the consumers' current and expected income, current obligations, employment status, and other financial resources, other than equity in the dwelling.

`(2) PRESUMPTION OF ABILITY- For purposes of this subsection, there shall be a rebuttable presumption that a consumer is able to make the scheduled payments to repay the obligation if, at the time the extension of credit is approved, the consumer's total monthly debts due on outstanding obligations, including amounts under the high-cost home loan, do not exceed 50 percent of his or her monthly gross income as verified by: (a) the consumer's credit application and a credit report; and (b) tax returns, payroll receipts, or other third-party income verification.'.

(h) LIMITATIONS ON REFINANCING- Section 129 of the Truth in LendingAct (15 U.S.C. 1639) is amended by inserting after subsection (p) (as added by subsection (f) of this section) the following new subsection:

`(q) LIMITATIONS ON REFINANCING-

`(1) IN GENERAL- No creditor shall knowingly or intentionally engage in the unfair act or practice of loan flipping.

`(2) FLIPPING DEFINED- For purposes of this subsection, the term `loan flipping' means the making of a high-cost home loan to a consumer which refinances an existing home loan that was consummated within the prior 36 months when the new high-cost home loan does not have a reasonable tangible net benefit to the consumer, considering all of the material circumstances known to the creditor, including but not limited to, the terms of both the new and the refinanced loans or credit, the cost of the new loan or credit, and the consumer's known economic and non-economic circumstances, the consumer's stated purpose of and desire for the loan, and the benefits the consumer states that he or she will receive from the refinancing.

`(3) SAFE HARBORS- A high-cost home loan shall be presumed to provide a reasonable tangible net benefit to the consumer if any of the following factors applies to the new loan:

`(A) The interest rate on the new fixed-rate high-cost home loan is lower than the interest rate on the fixed-rate refinanced loan and it will take 4 years or less for the consumer to recoup the costs of the points and fees, and other closing costs that are required to be paid by the consumer on the new high-cost home loan through savings resulting from the lower interest rate.

`(B) The creditor makes a good-faith determination that the consumer's monthly payment of principal and interest required to be paid on the new high-cost home loan is a minimum of 15 percent less than the consolidated total of all minimum monthly payments on the obligations being financed, and it will take 4 years or less for the consumer to recoup the costs of the points and fees and other closing costs that are required to be paid by the consumer on the new high-cost home loan through savings resulting from the total reduction in payments.

`(C) The consumer provides written confirmation to the creditor from an independent housing or credit counselor approved by the United States Department of Housing and Urban Development, or by any State housing authority, which states that the consumer has received counseling regarding the advisability of refinancing the existing loan with the high-cost home loan being offered to the consumer by the creditor.

`(D) The refinancing is necessary under, or in response to, any order or judgment of a court of competent jurisdiction, or to avoid a filed foreclosure action.

`(4) RULE OF CONSTRUCTION- No negative inference may be drawn from the absence of any factor or circumstance described in any subparagraph of paragraph (2) with regard to any high-cost home loan so as to create a presumption of a violation of this subsection with regard to such high-cost home loan by reason of such absence.

`(5) LIMITATION- Notwithstanding section 130 or any other provision of law, any suit instituted by a consumer who alleges that a creditor violated this section shall be brought only in an individual action, and the presiding judge may, in the judge's discretion, allow reasonable attorneys' fees to be taxed as a part of the court costs and payable by the losing party, upon a finding by the court that:

`(A) The party charged with the violation has willfully engaged in the act or practice, and there was an unwarranted refusal by such party to fully resolve the matter which constitutes the basis of such suit; or

`(B) The party instituting the action knew, or should have known, that the action was frivolous and malicious.

`(6) REGULATIONS- The Board may, by regulation or order, add to, delete, or modify the factors listed in paragraph (3) of this subsection.'.

(i) NO CALL PROVISION- Section 129 of the Truth in LendingAct (15 U.S.C.