[House Report 115-432]
[From the U.S. Government Publishing Office]
115th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 115-432
======================================================================
COMMUNITY INSTITUTION MORTGAGE RELIEF ACT OF 2017
_______
November 30, 2017.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 3971]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 3971) to amend the Truth in Lending Act and the
Real Estate Settlement Procedures Act of 1974 to modify the
requirements for community financial institutions with respect
to certain rules relating to mortgage loans, and for other
purposes, having considered the same, report favorably thereon
without amendment and recommend that the bill do pass.
Purpose and Summary
Introduced by Representative Claudia Tenney on October 5,
2017, H.R. 3971, the ``Community Institution Mortgage Relief
Act of 2017'' amends the Truth in Lending Act (TILA) to direct
the Consumer Financial Protection Bureau (CFPB) to exempt from
certain escrow or impound requirements a loan secured by a
first lien on a consumer's principal dwelling if the loan is
held by a creditor with assets of $25 billion or less. The CFPB
must also provide either exemptions to, or adjustments for, the
mortgage loan servicing and escrow account administration
requirements of the Real Estate Settlement Procedures Act of
1974 (RESPA) for servicers of 30,000 or fewer mortgage loans.
Background and Need for Legislation
The goal of H.R. 3971 is to preserve consumer choice in the
mortgage marketplace by exempting smaller community financial
institutions and mortgage servicers from the burdensome
regulatory compliance and scrutiny of expanded escrow and
mortgage servicing requirements which would otherwise deter
those same institutions from operating in the mortgage
marketplace.
Under the implementing regulation of TILA, Regulation Z
requires creditors to establish and maintain escrow accounts
for at least one year after it originates a higher-priced
mortgage loan secured by a first lien on a principal residence.
Title XIV, Section 1461 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (``Dodd-Frank Act'')(Pub. Law No.
111-203) also establishes a minimum 5-year period for which
escrows must be held for higher-priced mortgage loans, creates
a rate threshold to determine whether escrow accounts are
required for loans whose principal amounts exceed the maximum
eligible for purchase by Fannie Mae and Freddie Mac (commonly
referred to as ``jumbo loans''), and adds disclosure
requirements concerning escrow accounts.
The Dodd-Frank Act also imposes certain new requirements
related to mortgage servicing. Section 1463 of the Dodd-Frank
Act prohibits certain acts and practices by servicers of
federally related mortgage loans, including, for example, a
prohibition on obtaining force-placed hazard insurance, unless
certain conditions are met; charging fees for responding to
valid qualified written requests; failing to take timely action
to respond to a borrower's requests; failing to respond within
10 business days to a request from a borrower to provide
information about the owner or assignee of a loan; or failing
to comply with any other obligation found by the CFPB, by
regulation, to be appropriate to carry out the consumer
protection purposes of the Dodd-Frank Act.
On January 10, 2013, the CFPB released a final rule to
expand that timeframe to at least five years, and defined
higher-priced mortgages as loans on principal dwellings whose
annual percentage rate exceeds the average prime offer rate by:
1.5 percent for loans secured by a first
lien that do not exceed the limit in effect;
2.5 percent for loans secured by a first
lien that do exceed the limit in effect; or
3.5 percent for loans secured by a
subordinate lien.
The CFPB's rule provides an exemption from the escrow
requirement to creditors that operate predominantly in counties
that are rural or underserved, which the Bureau will list
annually on its website. Eligible creditors are those that:
(1) Made more than 50 percent of their first-lien
covered transactions in rural or underserved counties
during the preceding calendar year;
(2) Together with all affiliates, extended 500 or
fewer first-lien covered transactions in the preceding
calendar year;
(3) Have total assets that are less than $2 billion,
adjusted annually for inflation; and
(4) Together with all affiliates, do not maintain
escrow accounts for any extensions of consumer credit
that they currently service through at least the second
installment due date. However, creditors must establish
escrow accounts at consummation for any mortgage that
is at that time subject to a forward commitment to be
purchased by an investor that does not itself qualify
for the exemption.
The CFPB's rule also exempts: (1) transactions secured by
shares in a cooperative; (2) transactions to finance the
initial construction of a dwelling; (3) temporary or ``bridge''
loans with a loan term of twelve months or less; and (4)
reverse mortgage transactions.
But the CFPB's expansion of Regulation Z's escrow
requirements and guidance on escrow and mortgage servicing
requirements are overly burdensome for community financial
institutions. These smaller lenders do not engage in widespread
sub-prime lending, if at all, and often hold the liability for
the term of the loan, commonly referred to as holding a loan
``in portfolio.''
When a loan is held in portfolio, an escrow account is
unnecessary because the lender has every incentive to protect
its collateral by ensuring that taxes and insurance premiums
are paid in full. The rule also presents a problem of scale for
community financial institutions, which do not have the
internal human or financial resources to create and maintain
escrow accounts. The burdensome and expensive escrow
requirements promulgated by the CFPB forces small lenders to
make difficult choices: pass the increased costs to consumers
as part of the mortgage process, or exit the mortgage market
altogether. Neither of these options benefit or protect
consumers.
To remedy this regulatory burden, H.R. 3971 amends TILA to
direct the CFPB to exempt from certain escrow or impound
requirements a loan secured by a first lien on a consumer's
principal dwelling if the loan is held by a creditor with
assets of $25 billion or less. The CFPB must also provide
either exemptions to, or adjustments from, the RESPA mortgage
loan servicing and escrow account administration requirements
for servicers of 30,000 or fewer mortgage loans.
This legislation provides necessary regulatory relief for
small institutions while appropriately balancing consumer
protections. This bill is critical to preserve community banks
and credit unions in the mortgage lending business in local
communities and prevent further industry consolidation. It also
ensures that consumers continue to have various credit choices
and allow smaller community institutions to enter the mortgage
market without being deterred by the high cost of regulatory
compliance. The increase in the small servicer exemption
threshold will better delineate small servicers from the large
servicers, and give credit unions and community banks greater
flexibility to ensure that more of their customers can purchase
or refinance their home.
Hearings
The Committee on Financial Services held a hearing
examining matters relating to H.R. 3971 on April 26, 2017 and
April 28, 2017.
Committee Consideration
The Committee on Financial Services met in open session on
October 11, 2017, and October 12, 2017, and ordered H.R. 3971
to be reported favorably to the House without amendment by a
recorded vote of 41 yeas to 19 nays (Record vote no. FC-82), a
quorum being present.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
sole recorded vote was on a motion by Chairman Hensarling to
report the bill favorably to the House without amendment. The
motion was agreed to by a recorded vote of 41 yeas to 19 nays
(Record vote no. FC-82), a quorum being present.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the findings and recommendations of
the Committee based on oversight activities under clause
2(b)(1) of rule X of the Rules of the House of Representatives,
are incorporated in the descriptive portions of this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee states that H.R. 3971
will reduce regulatory burdens while appropriately balancing
consumer protections by creating a legal safe harbor from
escrow requirements for community financial institutions in
certain circumstances and by providing regulatory relief for
servicers that annually service 30,000 or fewer mortgage loans.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, November 30, 2017.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3971, the
Community Institution Mortgage Relief Act of 2017.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Stephen
Rabent.
Sincerely,
Mark P. Hadley
(For Keith Hall).
Enclosure.
H.R. 3971--Community Institution Mortgage Relief Act of 2017
Under current law, most mortgage lenders must establish
escrow accounts to pay property taxes and certain insurance
premiums for properties that secure ``high-priced mortgages''--
those that have interest rates exceeding certain thresholds.
H.R. 3971 would amend the Truth in Lending Act to exempt a
lender from the requirement to hold those escrow funds if that
lender has consolidated assets of $25 billion or less and if it
holds the mortgage on its balance sheet for three years from
the date of origination. H.R. 3971 also would direct the Bureau
of Consumer Financial Protection (CFPB) to exempt mortgage
servicers from certain requirements related to, among other
things, administering escrow accounts if they service 30,000 or
fewer mortgage loans annually.
Using information from CFPB, CBO estimates that enacting
H.R. 3971 would increase direct spending by less than $500,000
for CFPB to update its guidance documents. Because the bill
affects direct spending, pay-as-you-go procedures apply.
Enacting the bill would not affect revenues.
CBO estimates that enacting H.R. 3971 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2028.
H.R. 3971 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Stephen Rabent.
The estimate was approved by H. Samuel Papenfuss, Deputy
Assistant Director for Budget Analysis.
Federal Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995.
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139; or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of H. Res. 5, (115th Congress),
the following statement is made concerning directed
rulemakings: The Committee states that the bill requires one
directed rulemaking.
The rulemaking directs the Bureau of Consumer Financial
Protection to provide exemptions to, or adjustments for, the
provisions of Section 6 of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2605) for a servicer that
annually services 30,000 or fewer mortgage loans. Doing so will
reduce regulatory burdens on community financial institutions
while appropriately balancing consumer protections.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section cites H.R. 3971 as the ``Community Institution
Mortgage Relief Act of 2017''
Section 2. Community financial institution mortgage relief
This section amends Section 129D of the Truth in Lending
Act to create a legal safe harbor from the requirement that a
creditor must establish an escrow or impound account for the
payment of taxes and insurance in connection with the
consummation of a mortgage loan. Under the safe harbor, a
creditor is not in violation of the escrow requirement if the
creditor has consolidated assets of $25 billion or less and
holds the loan on its balance sheet (i.e., in portfolio) for
three years from the date of origination.
If a creditor transfers a loan due to bankruptcy,
acquisition, or by a supervisory act or recommendation from a
state or federal regulator, the creditor is deemed to have
complied with the three year portfolio requirement. This
section also requires the CFPB, by regulation, to provide
exemptions to, or adjustments for, mortgage servicer
requirements under Section 6 of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2605) for servicers that
annually service 30,000 or fewer mortgage loans.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
TRUTH IN LENDING ACT
* * * * * * *
TITLE I--CONSUMER CREDIT COST DISCLOSURE
* * * * * * *
CHAPTER 2--CREDIT TRANSACTIONS
* * * * * * *
Sec. 129D. Escrow or impound accounts relating to certain consumer
credit transactions
(a) In General.--Except as provided in subsection (b), (c),
(d), or (e), a creditor, in connection with the consummation of
a consumer credit transaction secured by a first lien on the
principal dwelling of the consumer, other than a consumer
credit transaction under an open end credit plan or a reverse
mortgage, shall establish, before the consummation of such
transaction, an escrow or impound account for the payment of
taxes and hazard insurance, and, if applicable, flood
insurance, mortgage insurance, ground rents, and any other
required periodic payments or premiums with respect to the
property or the loan terms, as provided in, and in accordance
with, this section.
(b) When Required.--No impound, trust, or other type of
account for the payment of property taxes, insurance premiums,
or other purposes relating to the property may be required as a
condition of a real property sale contract or a loan secured by
a first deed of trust or mortgage on the principal dwelling of
the consumer, other than a consumer credit transaction under an
open end credit plan or a reverse mortgage, except when--
(1) any such impound, trust, or other type of escrow
or impound account for such purposes is required by
Federal or State law;
(2) a loan is made, guaranteed, or insured by a State
or Federal governmental lending or insuring agency;
(3) the transaction is secured by a first mortgage or
lien on the consumer's principal dwelling having an
original principal obligation amount that--
(A) does not exceed the amount of the maximum
limitation on the original principal obligation
of mortgage in effect for a residence of the
applicable size, as of the date such interest
rate set, pursuant to the sixth sentence of
section 305(a)(2) the Federal Home Loan
Mortgage Corporation Act (12 U.S.C.
1454(a)(2)), and the annual percentage rate
will exceed the average prime offer rate as
defined in section 129C by 1.5 or more
percentage points; or
(B) exceeds the amount of the maximum
limitation on the original principal obligation
of mortgage in effect for a residence of the
applicable size, as of the date such interest
rate set, pursuant to the sixth sentence of
section 305(a)(2) the Federal Home Loan
Mortgage Corporation Act (12 U.S.C.
1454(a)(2)), and the annual percentage rate
will exceed the average prime offer rate as
defined in section 129C by 2.5 or more
percentage points; or
(4) so required pursuant to regulation.
(c) Exemptions.--The [Board] Bureau may, by regulation,
exempt from the requirements of subsection (a) a creditor
that--
(1) operates in rural or underserved areas;
(2) together with all affiliates, has total annual
mortgage loan originations that do not exceed a limit
set by the [Board] Bureau;
(3) retains its mortgage loan originations in
portfolio; and
(4) meets any asset size threshold and any other
criteria the [Board] Bureau may establish, consistent
with the purposes of this subtitle.
(d) Duration of Mandatory Escrow or Impound Account.--An
escrow or impound account established pursuant to subsection
(b) shall remain in existence for a minimum period of 5 years,
beginning with the date of the consummation of the loan, unless
and until--
(1) such borrower has sufficient equity in the
dwelling securing the consumer credit transaction so as
to no longer be required to maintain private mortgage
insurance;
(2) such borrower is delinquent;
(3) such borrower otherwise has not complied with the
legal obligation, as established by rule; or
(4) the underlying mortgage establishing the account
is terminated.
(e) Limited Exemptions for Loans Secured by Shares in a
Cooperative or in Which an Association Must Maintain a Master
Insurance Policy.--Escrow accounts need not be established for
loans secured by shares in a cooperative. Insurance premiums
need not be included in escrow accounts for loans secured by
dwellings or units, where the borrower must join an association
as a condition of ownership, and that association has an
obligation to the dwelling or unit owners to maintain a master
policy insuring the dwellings or units.
(f) Clarification on Escrow Accounts for Loans Not Meeting
Statutory Test.--For mortgages not covered by the requirements
of subsection (b), no provision of this section shall be
construed as precluding the establishment of an impound, trust,
or other type of account for the payment of property taxes,
insurance premiums, or other purposes relating to the
property--
(1) on terms mutually agreeable to the parties to the
loan;
(2) at the discretion of the lender or servicer, as
provided by the contract between the lender or servicer
and the borrower; or
(3) pursuant to the requirements for the escrowing of
flood insurance payments for regulated lending
institutions in section 102(d) of the Flood Disaster
Protection Act of 1973.
(g) Administration of Mandatory Escrow or Impound Accounts.--
(1) In general.--Except as may otherwise be provided
for in this title or in regulations prescribed by the
[Board] Bureau, escrow or impound accounts established
pursuant to subsection (b) shall be established in a
federally insured depository institution or credit
union.
(2) Administration.--Except as provided in this
section or regulations prescribed under this section,
an escrow or impound account subject to this section
shall be administered in accordance with--
(A) the Real Estate Settlement Procedures Act
of 1974 and regulations prescribed under such
Act;
(B) the Flood Disaster Protection Act of 1973
and regulations prescribed under such Act; and
(C) the law of the State, if applicable,
where the real property securing the consumer
credit transaction is located.
(3) Applicability of payment of interest.--If
prescribed by applicable State or Federal law, each
creditor shall pay interest to the consumer on the
amount held in any impound, trust, or escrow account
that is subject to this section in the manner as
prescribed by that applicable State or Federal law.
(4) Penalty coordination with respa.--Any action or
omission on the part of any person which constitutes a
violation of the Real Estate Settlement Procedures Act
of 1974 or any regulation prescribed under such Act for
which the person has paid any fine, civil money
penalty, or other damages shall not give rise to any
additional fine, civil money penalty, or other damages
under this section, unless the action or omission also
constitutes a direct violation of this section.
(h) Disclosures Relating to Mandatory Escrow or Impound
Account.--In the case of any impound, trust, or escrow account
that is required under subsection (b), the creditor shall
disclose by written notice to the consumer at least 3 business
days before the consummation of the consumer credit transaction
giving rise to such account or in accordance with timeframes
established in prescribed regulations the following
information:
(1) The fact that an escrow or impound account will
be established at consummation of the transaction.
(2) The amount required at closing to initially fund
the escrow or impound account.
(3) The amount, in the initial year after the
consummation of the transaction, of the estimated taxes
and hazard insurance, including flood insurance, if
applicable, and any other required periodic payments or
premiums that reflects, as appropriate, either the
taxable assessed value of the real property securing
the transaction, including the value of any
improvements on the property or to be constructed on
the property (whether or not such construction will be
financed from the proceeds of the transaction) or the
replacement costs of the property.
(4) The estimated monthly amount payable to be
escrowed for taxes, hazard insurance (including flood
insurance, if applicable) and any other required
periodic payments or premiums.
(5) The fact that, if the consumer chooses to
terminate the account in the future, the consumer will
become responsible for the payment of all taxes, hazard
insurance, and flood insurance, if applicable, as well
as any other required periodic payments or premiums on
the property unless a new escrow or impound account is
established.
(6) Such other information as the [Board] Bureau
determines necessary for the protection of the
consumer.
(i) Definitions.--For purposes of this section, the following
definitions shall apply:
(1) Flood insurance.--The term ``flood insurance''
means flood insurance coverage provided under the
national flood insurance program pursuant to the
National Flood Insurance Act of 1968.
(2) Hazard insurance.--The term ``hazard insurance''
shall have the same meaning as provided for ``hazard
insurance'', ``casualty insurance'', ``homeowner's
insurance'', or other similar term under the law of the
State where the real property securing the consumer
credit transaction is located.
(j) Disclosure Notice Required for Consumers Who Waive Escrow
Services.--
(1) In general.--If--
(A) an impound, trust, or other type of
account for the payment of property taxes,
insurance premiums, or other purposes relating
to real property securing a consumer credit
transaction is not established in connection
with the transaction; or
(B) a consumer chooses, and provides written
notice to the creditor or servicer of such
choice, at any time after such an account is
established in connection with any such
transaction and in accordance with any statute,
regulation, or contractual agreement, to close
such account,
the creditor or servicer shall provide a timely and
clearly written disclosure to the consumer that advises
the consumer of the responsibilities of the consumer
and implications for the consumer in the absence of any
such account.
(2) Disclosure requirements.--Any disclosure provided
to a consumer under paragraph (1) shall include the
following:
(A) Information concerning any applicable
fees or costs associated with either the non-
establishment of any such account at the time
of the transaction, or any subsequent closure
of any such account.
(B) A clear and prominent statement that the
consumer is responsible for personally and
directly paying the non-escrowed items, in
addition to paying the mortgage loan payment,
in the absence of any such account, and the
fact that the costs for taxes, insurance, and
related fees can be substantial.
(C) A clear explanation of the consequences
of any failure to pay non-escrowed items,
including the possible requirement for the
forced placement of insurance by the creditor
or servicer and the potentially higher cost
(including any potential commission payments to
the servicer) or reduced coverage for the
consumer in the event of any such creditor-
placed insurance.
(D) Such other information as the [Board]
Bureau determines necessary for the protection
of the consumer.
(k) Safe Harbor for Loans Held by Smaller Creditors.--
(1) In general.--A creditor shall not be in violation
of subsection (a) with respect to a loan if--
(A) the creditor has consolidated assets of
$25,000,000,000 or less; and
(B) the creditor holds the loan on the
balance sheet of the creditor for the 3-year
period beginning on the date of the origination
of the loan.
(2) Exception for certain transfers.--In the case of
a creditor that transfers a loan to another person by
reason of the bankruptcy or failure of the creditor,
the purchase of the creditor, or a supervisory act or
recommendation from a State or Federal regulator, the
creditor shall be deemed to have complied with the
requirement under paragraph (1)(B).
* * * * * * *
----------
REAL ESTATE SETTLEMENT PROCEDURES ACT OF 1974
* * * * * * *
servicing of mortgage loans and administration of escrow accounts
Sec. 6. (a) Disclosure to Applicant Relating to Assignment,
Sale, or Transfer of Loan Servicing.--Each person who makes a
federally related mortgage loan shall disclose to each person
who applies for the loan, at the time of application for the
loan, whether the servicing of the loan may be assigned, sold,
or transferred to any other person at any time while the loan
is outstanding.
(b) Notice by Transferor or Loan Servicing at Time of
Transfer.--
(1) Notice requirement.--Each servicer of any
federally related mortgage loan shall notify the
borrower in writing of any assignment, sale, or
transfer of the servicing of the loan to any other
person.
(2) Time of notice.--
(A) In general.--Except as provided under
subparagraphs (B) and (C), the notice required
under paragraph (1) shall be made to the
borrower not less than 15 days before the
effective date of transfer of the servicing of
the mortgage loan (with respect to which such
notice is made).
(B) Exception for certain proceedings.--The
notice required under paragraph (1) shall be
made to the borrower not more than 30 days
after the effective date of assignment, sale,
or transfer of the servicing of the mortgage
loan (with respect to which such notice is
made) in any case in which the assignment,
sale, or transfer of the servicing of the
mortgage loan is preceded by--
(i) termination of the contract for
servicing the loan for cause;
(ii) commencement of proceedings for
bankruptcy of the servicer; or
(iii) commencement of proceedings by
the Federal Deposit Insurance
Corporation or the Resolution Trust
Corporation for conservatorship or
receivership of the servicer (or an
entity by which the servicer is owned
or controlled).
(C) Exception for notice provided at
closing.--The provisions of subparagraphs (A)
and (B) shall not apply to any assignment,
sale, or transfer of the servicing of any
mortgage loan if the person who makes the loan
provides to the borrower, at settlement (with
respect to the property for which the mortgage
loan is made), written notice under paragraph
(3) of such transfer.
(3) Contents of notice.--The notice required under
paragraph (1) shall include the following information:
(A) The effective date of transfer of the
servicing described in such paragraph.
(B) The name, address, and toll-free or
collect call telephone number of the transferee
servicer.
(C) A toll-free or collect call telephone
number for (i) an individual employed by the
transferor servicer, or (ii) the department of
the transferor servicer, that can be contacted
by the borrower to answer inquiries relating to
the transfer of servicing.
(D) The name and toll-free or collect call
telephone number for (i) an individual employed
by the transferee servicer, or (ii) the
department of the transferee servicer, that can
be contacted by the borrower to answer
inquiries relating to the transfer of
servicing.
(E) The date on which the transferor servicer
who is servicing the mortgage loan before the
assignment, sale, or transfer will cease to
accept payments relating to the loan and the
date on which the transferee servicer will
begin to accept such payments.
(F) Any information concerning the effect the
transfer may have, if any, on the terms of or
the continued availability of mortgage life or
disability insurance or any other type of
optional insurance and what action, if any, the
borrower must take to maintain coverage.
(G) A statement that the assignment, sale, or
transfer of the servicing of the mortgage loan
does not affect any term or condition of the
security instruments other than terms directly
related to the servicing of such loan.
(c) Notice by Transferee of Loan Servicing at Time of
Transfer.--
(1) Notice requirement.--Each transferee servicer to
whom the servicing of any federally related mortgage
loan is assigned, sold, or transferred shall notify the
borrower of any such assignment, sale, or transfer.
(2) Time of notice.--
(A) In general.--Except as provided in
subparagraphs (B) and (C), the notice required
under paragraph (1) shall be made to the
borrower not more than 15 days after the
effective date of transfer of the servicing of
the mortgage loan (with respect to which such
notice is made).
(B) Exception for certain proceedings.--The
notice required under paragraph (1) shall be
made to the borrower not more than 30 days
after the effective date of assignment, sale,
or transfer of the servicing of the mortgage
loan (with respect to which such notice is
made) in any case in which the assignment,
sale, or transfer of the servicing of the
mortgage loan is preceded by--
(i) termination of the contract for
servicing the loan for cause;
(ii) commencement of proceedings for
bankruptcy of the servicer; or
(iii) commencement of proceedings by
the Federal Deposit Insurance
Corporation or the Resolution Trust
Corporation for conservatorship or
receivership of the servicer (or an
entity by which the servicer is owned
or controlled).
(C) Exception for notice provided at
closing.--The provisions of subparagraphs (A)
and (B) shall not apply to any assignment,
sale, or transfer of the servicing of any
mortgage loan if the person who makes the loan
provides to the borrower, at settlement (with
respect to the property for which the mortgage
loan is made), written notice under paragraph
(3) of such transfer.
(3) Contents of notice.--Any notice required under
paragraph (1) shall include the information described
in subsection (b)(3).
(d) Treatment of Loan Payments During Transfer Period.--
During the 60-day period beginning on the effective date of
transfer of the servicing of any federally related mortgage
loan, a late fee may not be imposed on the borrower with
respect to any payment on such loan and no such payment may be
treated as late for any other purposes, if the payment is
received by the transferor servicer (rather than the transferee
servicer who should properly receive payment) before the due
date applicable to such payment.
(e) Duty of Loan Servicer To Respond to Borrower Inquiries.--
(1) Notice of receipt of inquiry.--
(A) In general.--If any servicer of a
federally related mortgage loan receives a
qualified written request from the borrower (or
an agent of the borrower) for information
relating to the servicing of such loan, the
servicer shall provide a written response
acknowledging receipt of the correspondence
within 5 days (excluding legal public holidays,
Saturdays, and Sundays) unless the action
requested is taken within such period.
(B) Qualified written request.--For purposes
of this subsection, a qualified written request
shall be a written correspondence, other than
notice on a payment coupon or other payment
medium supplied by the servicer, that--
(i) includes, or otherwise enables
the servicer to identify, the name and
account of the borrower; and
(ii) includes a statement of the
reasons for the belief of the borrower,
to the extent applicable, that the
account is in error or provides
sufficient detail to the servicer
regarding other information sought by
the borrower.
(2) Action with respect to inquiry.--Not later than
30 days (excluding legal public holidays, Saturdays,
and Sundays) after the receipt from any borrower of any
qualified written request under paragraph (1) and, if
applicable, before taking any action with respect to
the inquiry of the borrower, the servicer shall--
(A) make appropriate corrections in the
account of the borrower, including the
crediting of any late charges or penalties, and
transmit to the borrower a written notification
of such correction (which shall include the
name and telephone number of a representative
of the servicer who can provide assistance to
the borrower);
(B) after conducting an investigation,
provide the borrower with a written explanation
or clarification that includes--
(i) to the extent applicable, a
statement of the reasons for which the
servicer believes the account of the
borrower is correct as determined by
the servicer; and
(ii) the name and telephone number of
an individual employed by, or the
office or department of, the servicer
who can provide assistance to the
borrower; or
(C) after conducting an investigation,
provide the borrower with a written explanation
or clarification that includes--
(i) information requested by the
borrower or an explanation of why the
information requested is unavailable or
cannot be obtained by the servicer; and
(ii) the name and telephone number of
an individual employed by, or the
office or department of, the servicer
who can provide assistance to the
borrower.
(3) Protection of credit rating.--During the 60-day
period beginning on the date of the servicer's receipt
from any borrower of a qualified written request
relating to a dispute regarding the borrower's
payments, a servicer may not provide information
regarding any overdue payment, owed by such borrower
and relating to such period or qualified written
request, to any consumer reporting agency (as such term
is defined under section 603 of the Fair Credit
Reporting Act).
(4) Limited extension of response time.--The 30-day
period described in paragraph (2) may be extended for
not more than 15 days if, before the end of such 30-day
period, the servicer notifies the borrower of the
extension and the reasons for the delay in responding.
(f) Damages and Costs.--Whoever fails to comply with any
provision of this section shall be liable to the borrower for
each such failure in the following amounts:
(1) Individuals.--In the case of any action by an
individual, an amount equal to the sum of--
(A) any actual damages to the borrower as a
result of the failure; and
(B) any additional damages, as the court may
allow, in the case of a pattern or practice of
noncompliance with the requirements of this
section, in an amount not to exceed $2,000.
(2) Class actions.--In the case of a class action, an
amount equal to the sum of--
(A) any actual damages to each of the
borrowers in the class as a result of the
failure; and
(B) any additional damages, as the court may
allow, in the case of a pattern or practice of
noncompliance with the requirements of this
section, in an amount not greater than $2,000
for each member of the class, except that the
total amount of damages under this subparagraph
in any class action may not exceed the lesser
of--
(i) $1,000,000; or
(ii) 1 percent of the net worth of
the servicer.
(3) Costs.--In addition to the amounts under
paragraph (1) or (2), in the case of any successful
action under this section, the costs of the action,
together with any attorneys fees incurred in connection
with such action as the court may determine to be
reasonable under the circumstances.
(4) Nonliability.--A transferor or transferee
servicer shall not be liable under this subsection for
any failure to comply with any requirement under this
section if, within 60 days after discovering an error
(whether pursuant to a final written examination report
or the servicer's own procedures) and before the
commencement of an action under this subsection and the
receipt of written notice of the error from the
borrower, the servicer notifies the person concerned of
the error and makes whatever adjustments are necessary
in the appropriate account to ensure that the person
will not be required to pay an amount in excess of any
amount that the person otherwise would have paid.
(g) Administration of Escrow Accounts.--If the terms of any
federally related mortgage loan require the borrower to make
payments to the servicer of the loan for deposit into an escrow
account for the purpose of assuring payment of taxes, insurance
premiums, and other charges with respect to the property, the
servicer shall make payments from the escrow account for such
taxes, insurance premiums, and other charges in a timely manner
as such payments become due. Any balance in any such account
that is within the servicer's control at the time the loan is
paid off shall be promptly returned to the borrower within 20
business days or credited to a similar account for a new
mortgage loan to the borrower with the same lender.
(h) Preemption of Conflicting State Laws.--Notwithstanding
any provision of any law or regulation of any State, a person
who makes a federally related mortgage loan or a servicer shall
be considered to have complied with the provisions of any such
State law or regulation requiring notice to a borrower at the
time of application for a loan or transfer of the servicing of
a loan if such person or servicer complies with the
requirements under this section regarding timing, content, and
procedures for notification of the borrower.
(i) Definitions.--For purposes of this section:
(1) Effective date of transfer.--The term ``effective
date of transfer'' means the date on which the mortgage
payment of a borrower is first due to the transferee
servicer of a mortgage loan pursuant to the assignment,
sale, or transfer of the servicing of the mortgage
loan.
(2) Servicer.--The term ``servicer'' means the person
responsible for servicing of a loan (including the
person who makes or holds a loan if such person also
services the loan). The term does not include--
(A) the Federal Deposit Insurance Corporation
or the Resolution Trust Corporation, in
connection with assets acquired, assigned,
sold, or transferred pursuant to section 13(c)
of the Federal Deposit Insurance Act or as
receiver or conservator of an insured
depository institution; and
(B) the Government National Mortgage
Association, the Federal National Mortgage
Association, the Federal Home Loan Mortgage
Corporation, the Resolution Trust Corporation,
or the Federal Deposit Insurance Corporation,
in any case in which the assignment, sale, or
transfer of the servicing of the mortgage loan
is preceded by--
(i) termination of the contract for
servicing the loan for cause;
(ii) commencement of proceedings for
bankruptcy of the servicer; or
(iii) commencement of proceedings by
the Federal Deposit Insurance
Corporation or the Resolution Trust
Corporation for conservatorship or
receivership of the servicer (or an
entity by which the servicer is owned
or controlled).
(3) Servicing.--The term ``servicing'' means
receiving any scheduled periodic payments from a
borrower pursuant to the terms of any loan, including
amounts for escrow accounts described in section 10,
and making the payments of principal and interest and
such other payments with respect to the amounts
received from the borrower as may be required pursuant
to the terms of the loan.
(j) Transition.--
(1) Originator liability.--A person who makes a
federally related mortgage loan shall not be liable to
a borrower because of a failure of such person to
comply with subsection (a) with respect to an
application for a loan made by the borrower before the
regulations referred to in paragraph (3) take effect.
(2) Servicer liability.--A servicer of a federally
related mortgage loan shall not be liable to a borrower
because of a failure of the servicer to perform any
duty under subsection (b), (c), (d), or (e) that arises
before the regulations referred to in paragraph (3)
take effect.
(3) Regulations and effective date.--The Bureau shall
establish any requirements necessary to carry out this
section. Such regulations shall include the model
disclosure statement required under subsection (a)(2).
(k) Servicer Prohibitions.--
(1) In general.--A servicer of a federally related
mortgage shall not--
(A) obtain force-placed hazard insurance
unless there is a reasonable basis to believe
the borrower has failed to comply with the loan
contract's requirements to maintain property
insurance;
(B) charge fees for responding to valid
qualified written requests (as defined in
regulations which the Bureau of Consumer
Financial Protection shall prescribe) under
this section;
(C) fail to take timely action to respond to
a borrower's requests to correct errors
relating to allocation of payments, final
balances for purposes of paying off the loan,
or avoiding foreclosure, or other standard
servicer's duties;
(D) fail to respond within 10 business days
to a request from a borrower to provide the
identity, address, and other relevant contact
information about the owner or assignee of the
loan; or
(E) fail to comply with any other obligation
found by the Bureau of Consumer Financial
Protection, by regulation, to be appropriate to
carry out the consumer protection purposes of
this Act.
(2) Force-placed insurance defined.--For purposes of
this subsection and subsections (l) and (m), the term
``force-placed insurance'' means hazard insurance
coverage obtained by a servicer of a federally related
mortgage when the borrower has failed to maintain or
renew hazard insurance on such property as required of
the borrower under the terms of the mortgage.
(l) Requirements for Force-placed Insurance.--A servicer of a
federally related mortgage shall not be construed as having a
reasonable basis for obtaining force-placed insurance unless
the requirements of this subsection have been met.
(1) Written notices to borrower.--A servicer may not
impose any charge on any borrower for force-placed
insurance with respect to any property securing a
federally related mortgage unless--
(A) the servicer has sent, by first-class
mail, a written notice to the borrower
containing--
(i) a reminder of the borrower's
obligation to maintain hazard insurance
on the property securing the federally
related mortgage;
(ii) a statement that the servicer
does not have evidence of insurance
coverage of such property;
(iii) a clear and conspicuous
statement of the procedures by which
the borrower may demonstrate that the
borrower already has insurance
coverage; and
(iv) a statement that the servicer
may obtain such coverage at the
borrower's expense if the borrower does
not provide such demonstration of the
borrower's existing coverage in a
timely manner;
(B) the servicer has sent, by first-class
mail, a second written notice, at least 30 days
after the mailing of the notice under
subparagraph (A) that contains all the
information described in each clause of such
subparagraph; and
(C) the servicer has not received from the
borrower any demonstration of hazard insurance
coverage for the property securing the mortgage
by the end of the 15-day period beginning on
the date the notice under subparagraph (B) was
sent by the servicer.
(2) Sufficiency of demonstration.--A servicer of a
federally related mortgage shall accept any reasonable
form of written confirmation from a borrower of
existing insurance coverage, which shall include the
existing insurance policy number along with the
identity of, and contact information for, the insurance
company or agent, or as otherwise required by the
Bureau of Consumer Financial Protection.
(3) Termination of force-placed insurance.--Within 15
days of the receipt by a servicer of confirmation of a
borrower's existing insurance coverage, the servicer
shall--
(A) terminate the force-placed insurance; and
(B) refund to the consumer all force-placed
insurance premiums paid by the borrower during
any period during which the borrower's
insurance coverage and the force-placed
insurance coverage were each in effect, and any
related fees charged to the consumer's account
with respect to the force-placed insurance
during such period.
(4) Clarification with respect to flood disaster
protection act.--No provision of this section shall be
construed as prohibiting a servicer from providing
simultaneous or concurrent notice of a lack of flood
insurance pursuant to section 102(e) of the Flood
Disaster Protection Act of 1973.
(m) Limitations on Force-placed Insurance Charges.--All
charges, apart from charges subject to State regulation as the
business of insurance, related to force-placed insurance
imposed on the borrower by or through the servicer shall be
bona fide and reasonable.
(n) Small Servicer Exemption.--The Bureau shall, by
regulation, provide exemptions to, or adjustments for, the
provisions of this section for a servicer that annually
services 30,000 or fewer mortgage loans, in order to reduce
regulatory burdens while appropriately balancing consumer
protections.
* * * * * * *
MINORITY VIEWS
H.R. 3971, the ``Community Institution Mortgage Relief
Act,'' would amend the Truth in Lending Act (TILA) and the Real
Estate Settlement Procedures Act (RESPA) to adjust the size of
two exemptions that the Consumer Financial Protection Bureau
(Consumer Bureau) has already provided for smaller-sized
institutions on escrow accounts for higher-priced mortgage
loans and servicing requirements for small mortgage servicers.
Under H.R. 3971, escrow accounts would no longer be
required for riskier, high-priced loans at institutions with
less than $25 billion in assets, a dramatic increase from the
current $2 billion asset threshold. The bill would also raise
the ``small servicer exemption'' for increased notification
requirements to consumers from servicers with 5,000 mortgage
loans to those with 30,000 mortgage loans.
High-priced mortgage loans are essentially loans with
higher interest rates that reflect riskier or subprime
borrowers. H.R. 3971 would enable larger servicers, whose
incentives are neither aligned with owners of the loans nor the
borrowers, to potentially revive some of the abusive practices
involved with predatory lending that contributed to the 2007-
2009 financial crisis. Relatedly, escrow accounts are an
important consumer protection mechanism that ensure that
homeowners have funds for recurring homeownership-related
expenses, such as property taxes and insurance. As such, these
accounts are a crucial tool for some homeowners to reduce their
risk of mortgage defaults by guaranteeing that the funds are
available every month.
Furthermore, the Consumer Bureau has servicing rules that
were designed to address the fact that large servicers, and
especially servicers that serviced loans they did not own for
an extended period of time, often do not adequately communicate
with customers, or appropriately track paperwork. During the
2007-2009 financial crisis, this problem contributed to
millions of unnecessary foreclosures and several billion dollar
settlements for abusive and fraudulent business practices. The
increase in the exemption under the bill would allow too many
larger bank servicers to avoid important consumer safeguards.
For all of the reasons discussed above, we oppose H.R.
3971.
Maxine Waters.
Emanuel Cleaver.
Keith Ellison.
Joyce Beatty.
Nydia M. Velazquez.
Stephen F. Lynch.
Wm. Lacy Clay.
Bill Foster.
Denny Heck.
Daniel T. Kildee.
Al Green (TX).
Juan Vargas.
[all]