article: SECTION 1. SHORT TITLE. This Act may be cited as the ``Home Equity Protection Act of 1993''. SEC. 2. CONSUMER PROTECTIONS FOR HIGH COST MORTGAGES. (a) Definition.--Section 103 of the Truth in Lending Act (15 U.S.C. 1602) is amended by adding after subsection (z) the following new subsection: ``(aa) The term `high cost mortgage' means a consumer credit transaction, other than a residential mortgage transaction, that is secured by a consumer's principal dwelling and that satisfies at least 1 of the following conditions: ``(1) The annual percentage rate at consummation of the transaction will exceed by more than 10 percentage points the rate of interest on obligations of the United States having a period of maturity of 1 year on the fifteenth day of the month before such consummation. ``(2) All points and fees payable by the consumer at or before closing will exceed the greater of-- ``(A) 8 percent of the amount financed, minus fees and points; or ``(B) $400.''. (b) Material Disclosures.--Section 103(u) of the Truth in Lending Act (15 U.S.C. 1602(u)) is amended-- (1) by striking ``and the due dates'' and inserting ``, the due dates''; and (2) by inserting before the period ``, and the disclosures for high cost mortgages required by section 129(a))''. (c) Definition of Creditor Clarified.--Section 103(f) of the Truth in Lending Act (15 U.S.C. 1602(f)) is amended by adding at the end the following: ``Any person who originates 2 or more high cost mortgages in any 12-month period or any person who originates 1 or more high cost mortgages through a loan broker shall be considered to be a creditor for purposes of section 129.''. (d) Disclosures Required and Certain Terms Prohibited.--The Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by inserting after section 128 the following new section: ``SEC. 129. REQUIREMENTS FOR HIGH COST MORTGAGES. ``(a) Disclosures.--In addition to any other disclosures required under this title, for each high cost mortgage, the creditor shall provide the following written disclosures in clear language and in conspicuous type size and format, segregated from other information as a separate document: ``(1) 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 meet your obligations under the loan.'. ``(2) The initial annual percentage rate. ``(3) The consumer's gross monthly cash income, as verified by the creditor, the total initial monthly payment, and the amount of funds that will remain to meet other obligations of the consumer. ``(4) In the case of a variable rate loan, a statement that the annual percentage rate and the interest rate could increase, and the maximum interest rate and payment. ``(5) In the case of a variable rate loan with an initial annual percentage rate that is different than the one which would be applied using the contract index after the initial period, a statement of the period of time the initial rate will be in effect, and the rate or rates that will go into effect after the initial period is over, assuming that current interest rates prevail. ``(6) A statement that the consumer is not required to complete the transaction merely because he or she has received disclosures or signed a loan application. ``(7) A statement as follows: `Under Federal law, this is a high cost mortgage. You may be able to obtain a less expensive loan.'. ``(b) Time of Disclosures.--The disclosures required by this section shall be given no later than 3 business days prior to consummation of the transaction. A creditor may not change the terms of the loan after providing the disclosures required by this section. ``(c) No Prepayment Penalty.-- ``(1) In general.--A high cost mortgage may not contain terms under which a consumer must pay a prepayment penalty for paying all or part of the principal prior to the date on which such principal is due. If the date of maturity of the high cost mortgage is accelerated for any reason, the consumer is entitled to a rebate that complies with paragraph (2). No high cost mortgage shall provide for a default interest rate that is higher than the interest rate provided by the note for a performing loan. ``(2) Rebate computation.--For purposes of this subsection, any method of computing rebates of a finance charge less favorable to the consumer than the actuarial method using simple interest is a prepayment penalty. ``(3) Certain other fees prohibited.--An agreement to refinance a high cost mortgage by the same creditor or an affiliate of the creditor may not require the consumer to pay points, discount fees, or prepaid finance charges on the portion of the loan refinanced. For the purpose of this paragraph, the term `affiliate' has the same meaning as it does in section 2(k) of the Bank Holding Company Act of 1956. ``(d) No Balloon Payments.--A high cost mortgage may not include terms under which the aggregate amount of the regular periodic payments would not fully amortize the outstanding principal balance. ``(e) No Negative Amortization.--A high cost mortgage may not include terms under which the outstanding principal balance will increase over the course of the loan. ``(f) No Prepaid Payments.--A high cost mortgage may not include terms under which more than 2 periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the consumer. ``(g) Unfair, Deceptive, or Evasive Acts Prohibited.--Creditors of contracts governed by this section shall not commit, in the making, servicing, or collecting of a high cost mortgage, any act or practice which is unfair or deceptive, including any of the following: ``(1) Entering into a home equity loan if there is no reasonable probability that the homeowner will be able to make payments according to the terms of the loan. ``(2) Taking advantage of the borrower's infirmities, lack of education or sophistication, or language skills, necessary to understand fully the terms of the transaction. ``(3) Refinancing other loans owed by the homeowner which had not been accelerated by reason of default of the homeowner prior to the application for the home equity loan, unless the new loan is at a lower interest rate or has lower monthly payments. ``(4) Financing a mortgage broker's commission, unless the borrower entered into a separate written contract with the broker prior to the date of application for the home equity loan, which stated the dollar amount of the commission, and which was provided to the borrower prior to the application. ``(5) Taking action or interfering with any other consumer protection laws or regulation designed to protect the homeowner. ``(6) Assisting in the falsification of information on the application for a home equity loan. ``(7) Disbursing to a home improvement contractor more than 80 percent of funds due under a home improvement contract which exceeds $10,000, before the completion of the work due under the home improvement contract, or making any disbursement for a home improvement contract in a form other than an instrument jointly payable to the borrower and the contractor. ``(8)(A) Engaging in any other unfair, deceptive, or unconscionable conduct which creates a likelihood of confusion or misunderstanding. ``(B) Any attempt to evade the provisions of this section by any devise, subterfuge, or pretense whatsoever is deemed to be unfair conduct under this paragraph. ``(h) Right of Rescission.--For the purpose of section 125, any contract with provisions prohibited by this section is deemed to not include material disclosures required under this title. Any provision in a high cost mortgage which violates section 125 shall not be enforceable.''. SEC. 3. STATE AUTHORITY TO REGULATE HIGH RATE MORTGAGE LOANS. The authority of States to establish limitations on the interest, fees, and other terms of a first mortgage which-- (1) is secured by a first lien on residential real property; and (2) is not used to finance the acquisition of that property; is not preempted by section 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (12 U.S.C. 1735f-7a) or the Alternative Mortgage Transaction Parity Act of 1982 (12 U.S.C. 3801 et seq.). SEC. 4. CIVIL LIABILITY. (a) Damages.--Section 130(a) of the Truth in Lending Act (15 U.S.C. 1640(a)) is amended-- (1) by striking ``and'' at the end of paragraph (2)(B); (2) by striking the period at the end of paragraph (3) and inserting ``; and''; and (3) by inserting after paragraph (3) the following new paragraph: ``(4) in case of a failure to comply with any requirement under section 129, all finance charges and fees.''. (b) State Attorney General Enforcement.--Section 130(e) of the Truth in Lending Act (15 U.S.C. 1640(e)) is amended by adding at the end the following: ``An action to enforce a violation of section 129 may also be brought by the appropriate State attorney general in a court of competent jurisdiction, within 5 years after the date on which the violation occurs.''. (c) Assignee Liability.--Section 131 of the Truth in Lending Act (15 U.S.C. 1641) is amended by adding at the end the following new subsection: ``(d) High Cost Mortgages.-- ``(1) In general.--In addition to any other liability imposed under this title, any person who purchases or is otherwise assigned a high cost mortgage shall be subject to all claims and defenses with respect to the mortgage that the consumer could assert against the creditor of the mortgage. ``(2) Damages.--Relief under this subsection shall be limited to the sum of-- ``(A) an offset of all remaining indebtedness; and ``(B) the total amount paid by the consumer in connection with the transaction. ``(3) Notice.--Any person who sells or otherwise assigns a high cost mortgage shall include a prominent notice of the potential liability under this subsection as determined by the Board.''. SEC. 5. EFFECTIVE DATE. This Act shall be effective 60 days after the promulgation of regulations by the Board of Governors of the Federal Reserve System, which shall occur not later than 180 days following the date of enactment of this Act.
summary: Home Equity Protection Act of 1993 - Amends the Truth in Lending Act to require the creditor of each high cost mortgage to provide certain clearly written, conspicuous disclosures regarding the risks associated with such mortgages. Prohibits such mortgages from containing: (1) a prepayment penalty for paying all or part of the principal prior to the date on which the balance is due; (2) certain refinancing fees; (3) balloon payments; (4) negative amortization; (5) certain prepared payments; and (6) specified unfair, deceptive, or evasive acts. Declares that State authority to regulate certain high rate mortgage loans is not preempted by specified Federal statutes. Includes within the creditor's liability for damages for noncompliance with this Act all finance charges and fees paid by the consumer. Empowers the appropriate State attorney general to bring an action to enforce this Act. Subjects an assignee of a high cost mortgage to all the claims and defenses that the consumer could assert against the creditor.