Home > 105th Congressional Bills > H.R. 607 (rh) To amend the Truth in Lending Act to require notice of cancellation rights with respect to private mortgage insurance which is required by a creditor as a condition for entering into a residential mortgage transaction, and for other purposes...H.R. 607 (rh) To amend the Truth in Lending Act to require notice of cancellation rights with respect to private mortgage insurance which is required by a creditor as a condition for entering into a residential mortgage transaction, and for other purposes...
105th CONGRESS
1st Session
H. R. 607
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
April 17, 1997
Received
_______________________________________________________________________
AN ACT
To amend the Real Estate Settlement Procedures Act of 1974 to require
notice of cancellation rights with respect to private mortgage
insurance which is required as a condition of entering into certain
federally related mortgage loans and to provide for cancellation of
such insurance, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Homeowners Insurance Protection
Act''.
SEC. 2. PROVISIONS RELATING TO PRIVATE MORTGAGE INSURANCE.
(a) In General.--Section 6 of the Real Estate Settlement Procedures
Act of 1974 (12 U.S.C. 2605) is amended--
(1) by redesignating subsections (f), (g), (h), (i), and
(j) as subsections (k), (l), (m), (n), and (o), respectively;
and
(2) by inserting after subsection (e) the following new
subsections:
``(f) Disclosures Relating to Private Mortgage Insurance.--
``(1) Disclosure at settlement relating to existence of
pmi.--With regard to any covered mortgage loan, the lender
shall disclose, in writing at or before the settlement of such
covered mortgage loan, whether any private mortgage insurance
will be required to be obtained or maintained with respect to
such mortgage loan, including any lender-paid private mortgage
insurance, and the period during which such insurance will be
required to be in effect.
``(2) Disclosure at settlement relating to terminability of
pmi.--If the lender requires, as a condition for entering into
a covered mortgage loan, the borrower to assume an obligation
to make separately designated payments toward the premiums for
private mortgage insurance with respect to such loan, the
lender shall disclose, in writing at or before the settlement
of such covered mortgage loan any of the following notices
which are applicable with respect to such loan:
``(A) PMI obligations terminable upon request.--In
the case of a loan described in paragraph (3), that--
``(i) the borrower's obligation to make
separately designated payments toward the
premiums for private mortgage insurance may be
able to be terminated while the mortgage is
outstanding (including a cancellation permitted
before the date of automatic termination under
subsection (g)); and
``(ii) the borrower will be notified by the
servicer not less frequently than annually of
an address and a toll-free or collect-call
telephone number which the borrower may use to
contact the servicer to determine--
``(I) whether the borrower's
obligation to make separately
designated payments toward the premium
for private mortgage insurance may be
terminated while the mortgage loan is
outstanding (or before the date of
automatic termination); and
``(II) if such obligation may be
terminated while the loan is
outstanding (or before such date), the
conditions and procedures for such
termination.
``(B) PMI obligations terminable by operation of
law.--That the borrower's obligation to make separately
designated payments toward the premiums for private
mortgage insurance will be terminated by operation of
law under subsection (g).
``(C) Nonterminable pmi obligations.--In the case
of a loan not described in paragraph (3), that the
borrower's obligation to pay any amount to be applied
to any portion of the premiums for private mortgage
insurance will not be terminated at the request of the
borrower.
``(3) Disclosure with annual statements or other
communications.--If--
``(A) private mortgage insurance is required as a
condition for entering into a covered mortgage loan;
and
``(B) the borrower's obligation to make separately
designated payments toward the premiums for such
insurance may be terminated at the borrower's request,
the servicer shall, not less frequently than annually, disclose
to the borrower a clear and conspicuous statement containing
the disclosures set forth in subparagraphs (A) and (B) of
paragraph (2), including the address and telephone number
referred to in such paragraph, based on the servicer's
knowledge at the time such periodic communication is given.
Such disclosure shall be included with any annual statement of
account, escrow statement, or related annual communications
provided to the borrower, while such private mortgage insurance
is in effect.
``(4) Disclosures furnished without cost to borrower.--No
fee or other cost may be imposed on any borrower for preparing
and delivering any disclosure to the borrower pursuant to this
subsection.
``(g) Mandatory Termination of PMI Obligations at 75 Percent Loan-
to-Value Ratio.--
``(1) In general.--Notwithstanding any provision of a
covered mortgage loan, any obligation of the borrower to make
separately designated payments toward the premiums for any
private mortgage insurance in effect with respect to such loan
shall terminate, except as provided in paragraph (3), by
operation of law as of the 1st day of the 1st month which
begins after the date on which the principal balance
outstanding on all residential mortgages on the property
securing the loan is equal to or less than 75 percent of the
lesser of--
``(A) if the loan was made for purchase of the
property, the sales price of the property under such
purchase; or
``(B) the appraised value of the property, as
determined by the appraisal conducted in connection
with the making of the loan.
``(2) Disclosure upon termination.--Not later than 45 days
after the date of termination pursuant to paragraph (1) of a
private mortgage insurance requirement for a covered mortgage
loan, the servicer shall notify the borrower under the loan, in
writing, that--
``(A) the private mortgage insurance has terminated
and the borrower no longer has private mortgage
insurance: and
``(B) no further premiums, payments, or other fees
shall be due or payable by the borrower in connection
with the private mortgage insurance.
``(3) Exception for delinquent borrowers.--
``(A) In general.--Paragraph (1) shall not apply
with respect to any covered mortgage loan on which the
payments are not current as of the date that the
obligation to make private mortgage insurance premium
payments in connection with the loan would otherwise
terminate pursuant to paragraph (1).
``(B) Effectiveness once payments are current.--In
the case of any covered mortgage loan to which
subparagraph (A) applies, paragraph (1) shall apply
with respect to such loan as of the 1st day of the 1st
month which begins after the date that such payments
become current.
``(4) Return of payments toward premiums.--
``(A) Return of payments to borrower.--The servicer
for a covered mortgage loan shall promptly return to
the borrower any payments toward the premiums for any
private mortgage insurance for such loan covering any
period occurring after the date of automatic
termination for such loan under this subsection.
``(B) Return of payments to servicer.--The private
mortgage insurer for a covered mortgage loan shall
promptly return to the servicer any payments received
from the servicer toward the premiums for any private
mortgage insurance for such loan covering any period
occurring after the date of automatic termination for
such loan under this subsection.
``(h) Lenders' Conditions for PMI.--
``(1) Conditions for termination of borrower's obligation
to pay pmi.--The conditions for the termination of the
borrower's obligation to make separately designated payments
toward the premium for private mortgage insurance with respect
to a covered mortgage loan, including any changes in such
conditions, shall be reasonably related to the purposes for
which the requirement for private mortgage insurance was
imposed at the time the loan was made.
``(2) Borrower's right to terminate in accordance with
conditions.--In the case of any covered mortgage loan described
in subsection (f)(3), the borrower shall have the right under
this paragraph to terminate the borrower's obligation to make
separately designated payments toward the premiums for such
insurance if the conditions and procedures for such termination
most recently communicated to the borrower (pursuant to a
request by the borrower pursuant to notice under subsection
(f)(3) or otherwise) have been met.
``(i) Effect on Other Agreements.--The provisions of subsections
(f), (g), and (h) shall supersede any conflicting provision contained
in any agreement relating to the servicing of a covered mortgage loan
entered into by the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation, or any private investor or noteholder
(or any successors thereto). A servicer which cancels private mortgage
insurance on a covered mortgage loan in compliance with the provisions
of subsection (g) or (h) or in accordance with investor guidelines in
existence at the time concerning the cancellation of private mortgage
insurance (regardless of whether the cancellation by the servicer was
mandated by such subsections or initiated by the borrower) shall not be
required to repurchase such mortgage loan from the investor or holder
of such mortgage loan solely on the grounds that the private mortgage
insurance was canceled in accordance with the provisions of such
subsections or investor guidelines, as applicable.
``(j) Limitations on Liability.--If the servicer for a covered
mortgage loan has complied with the requirements under subsections (f)
and (g) to provide disclosures, the servicer shall not be considered to
have violated any provision of subsection (f), (g), or (h) and shall
not be liable for any such violation--
``(1) due to any failure on the part of the servicer to
provide disclosures required under such subsections resulting
from the failure of any mortgage insurer, any mortgage holder,
or any other party to timely provide accurate information to
the servicer necessary to permit the disclosures; or
``(2) due to any failure on the part of any private
mortgage insurer, any mortgage holder, or any other party to
comply with the provisions of such subsections.
Each private mortgage insurer and each mortgage holder for a covered
mortgage loan shall provide accurate and timely information to the
servicer for such loan necessary to permit the disclosures required by
subsections (f) and (g). In the event of a dispute regarding liability
for a violation of subsection (f), (g), or (h), and upon request by the
borrower, a servicer shall provide the borrower with information
stating the identity of the insurer or mortgage holder.''.
(b) Definitions.--Subsection (n) of section 6 of the Real Estate
Settlement Procedures Act of 1974 (as redesignated by subsection
(a)(1)) is amended--
(1) by redesignating paragraphs (1), (2), and (3) as
paragraphs (2), (5), and (6), respectively;
(2) by inserting before paragraph (2) (as redesignated by
paragraph (1) of this subsection) the following new paragraph:
``(1) Covered mortgage loan.--The term `covered mortgage
loan' means a federally related mortgage loan under which the
property securing the loan is used by the borrower as the
borrower's principal residence.''; and
(3) by inserting after paragraph (2) (as so redesignated)
the following new paragraphs:
``(3) Mortgage insurance.--The term `mortgage insurance'
means insurance, including any mortgage guaranty insurance,
against the nonpayment of, or default on, a mortgage or loan
involved in a residential mortgage transaction, the premiums
for which are paid by the borrower.
``(4) Private mortgage insurance.--The term `private
mortgage insurance' means mortgage insurance other than
mortgage insurance made available under the National Housing
Act, title 38 of the United States Code, or title V of the
National Housing Act of 1949.''.
SEC. 3. SCOPE OF APPLICABILITY.
(a) Notice at or Before Settlement.--Paragraphs (1) and (2) of
section 6(f) of the Real Estate Settlement Procedures Act of 1974 (as
added by section 2(a) of this Act) shall apply only with respect to
covered mortgage loans made after the end of the 1-year period
beginning on the date of the enactment of this Act.
(b) Notice of PMI Obligation Terminability.--Paragraphs (3) and (4)
of section 6(f) of the Real Estate Settlement Procedures Act of 1974
(as added by section 2(a) of this Act) shall apply beginning upon the
end of the 1-year period that begins on the date of the enactment of
this Act and with respect to any covered mortgage loan without regard
to the date on which such loan was made.
(c) Termination of PMI Obligation by Operation of Law.--Subsections
(g) and (h) of section 6 of the Real Estate Settlement Procedures Act
of 1974 (as added by section 2(a) of this Act) shall apply only with
respect to covered mortgage loans made after the end of the 1-year
period beginning on the date of the enactment of this Act.
SEC. 4. CONFORMING AMENDMENTS.
(a) Section 6.--Section 6(m) of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2605) (as redesignated by section
2(a)(1) of this Act) is amended--
(1) by inserting ``(not including subsection (f))'' before
``regarding timing''; and
(2) by adding at the end the following new sentence: ``The
preceding sentence shall not apply to any State law or
regulation relating to notice or disclosure to a borrower
regarding obtaining, maintaining, or terminating private
mortgage insurance and such State laws and regulations shall be
subject to the provisions of section 18.''.
(b) Section 10.--Section 10(b) of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2609(b)) is amended by striking
``section 6(i)'' and inserting ``section 6(n)''.
(c) Section 12.--Section 12 of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2610) is amended by striking
``section 6(i)'' and inserting ``section 6(n)''.
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