S Amdt 3962 - Home Loan Regulation Modifications - National Key Vote

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Title: Home Loan Regulation Modifications

Vote Smart's Synopsis:

Vote to adopt an amendment to S Amdt 3739 to S 3217 that increases regulations on mortgage loans, including a requirement that the creditor determine that the borrower has a "reasonable ability" to repay the loan, based on "verified and documented" information.


  • Prohibits creditors from issuing mortgage loans unless a determination can be made that the borrower has a "reasonable ability" to repay the loan and all applicable taxes, insurance, and assessments, and specifies that such determination shall consider the following (Sec. 1075):
    • Credit history;
    • Current income;
    • Expected income;
    • Current obligations;
    • Debt-to-income ratio, or the residual income the consumer will have after paying non-mortgage debt and mortgage-related obligations;
    • Employment status; and
    • Other financial resources other than equity in the dwelling or property that secures repayment of the loan.
  • Requires creditors to verify the aforementioned information by reviewing the following (Sec. 1075):
    • W-2 forms;
    • Tax returns;
    • Payroll receipts;
    • Financial institution records; or
    • Other third-party documents that provide "reasonably reliable" evidence of the consumer's income or assets.
  • Specifies that creditors are presumed to be in compliance with the "reasonable ability to repay" requirement if the aforementioned requirements have been met and the creditor has determined the borrower's ability to repay using the maximum rate permitted under the loan during the first 5 years following consummation and the establishment of a payment schedule (Sec. 1075).
  • Specifies that the aforementioned presumption of compliance shall not be applied to a loan for which the any of the following criteria are met (Sec. 1075):
    • The regular periodic payments for the loan may result in an increase of the principle balance or allow the consumer to defer repayment of principal;
    • The terms result in a scheduled payment that is more than twice as large as the average of earlier scheduled payments ("balloon payments"); or
    • The points and fees (15 USC 1602(aa)(4)) exceed 3 percent of the total loan amount, unless, for the purposes of calculating such points and fees, the totals attributable to any premium for mortgage guarantee insurance provided by a Federal or state agency shall exclude any amount of points and fees greater than 1 percent of the total loan amount.
  • Exempts the following from all of the above requirements (Sec. 1074):
    • Temporary loans ("bridge loans") with terms of 12 months or less; and
    • Reverse mortgages.
  • Prohibits compensating a loan originator for any mortgage loan if the compensation varies based on the terms of the loan, other than the amount of the principal (Sec. 1074).