To prohibit certain payments to loan originators and to require verification by lenders of the ability of consumers to repay loans.

SA 3962. Mr. MERKLEY (for himself, Ms. Klobuchar, Mr. Schumer, Ms.
Snowe, Mr. Brown of Massachusetts, Mr. Begich, Mrs. Boxer, Mr. Dodd,
Mr. Kerry, Mr. Franken, and Mr. Levin) submitted an amendment intended
to be proposed to amendment SA 3739 proposed by Mr. Reid (for Mr. Dodd
(for himself and Mrs. Lincoln)) to the bill S. 3217, to promote the
financial stability of the United States by improving accountability
and transparency in the financial system, to end ``too big to fail'',
to protect the American taxpayer by ending bailouts, to protect
consumers from abusive financial services practices, and for other
purposes; as follows:

On page 1430, between lines 7 and 8, insert the following:

SEC. 1074. PROHIBITED PAYMENTS TO MORTGAGE ORIGINATORS.

Section 129 of the Truth in Lending Act (15 U.S.C. 1639) is
amended by inserting after subsection (j) the following:
``(k) Prohibition on Steering Incentives.--
``(1) In general.--For any consumer credit transaction
secured by real property or a dwelling, no loan originator
shall receive from any person and no person shall pay to a
loan originator, directly or indirectly, compensation that
varies based on the terms of the loan (other than the amount
of the principal).
``(2) Restructuring of financing origination fee.--
``(A) In general.--For any consumer credit transaction
secured by real property or a dwelling, a loan originator may
not arrange for a consumer to finance through the rate any
origination fee or cost except bona fide third party
settlement charges not retained by the creditor or loan
originator.
``(B) Exception.--Notwithstanding subparagraph (A), a loan
originator may arrange for a consumer to finance through the
rate an origination fee or cost if--
``(i) the loan originator does not receive any other
compensation, directly or indirectly, from the consumer
except the compensation that is financed through the rate;
``(ii) no person who knows or has reason to know of the
consumer-paid compensation to the loan originator, other than
the consumer, pays any compensation to the loan originator,
directly or indirectly, in connection with the transaction;
and
``(iii) the consumer does not make an upfront payment of
discount points, origination points, or fees, however
denominated (other than bona fide third party settlement
charges).
``(3) Rules of construction.--No provision of this
subsection shall be construed as--
``(A) limiting or affecting the amount of compensation
received by a creditor upon the sale of a consummated loan to
a subsequent purchaser;
``(B) restricting a consumer's ability to finance, at the
option of the consumer, including through principal or rate,
any origination fees or costs permitted under this
subsection, or the loan originator's right to receive such
fees or costs (including compensation) from any person,
subject to paragraph (2)(B), so long as such fees or costs do
not vary based on the terms of the loan (other than the
amount of the principal) or the consumer's decision about
whether to finance such fees or costs; or
``(C) prohibiting incentive payments to a loan originator
based on the number of loans originated within a specified
period of time.
``(4) Loan originator.--For the purposes of this section,
the term `loan originator'--
``(A) means any person who, for direct or indirect
compensation or gain, or in the expectation of direct or
indirect compensation or gain, with respect to credit to be
secured by real property or a dwelling--
``(i) arranges for an extension, renewal, or continuation
of such credit;
``(ii) takes an application for credit or assists a
consumer in applying for such credit; or
``(iii) offers or negotiates terms of such credit;
``(B) does not include any person who is not otherwise
described in subparagraph (A) and who performs purely
administrative or clerical tasks on behalf of a person who is
described in subparagraph (A); and
``(C) does not include a person that only performs real
estate brokerage activities and is licensed or registered in
accordance with applicable State law, unless the person is
compensated by a lender or other loan originator or by any
agent of such lender or other loan originator.''.

SEC. 1075. MINIMUM STANDARDS FOR RESIDENTIAL MORTGAGE LOANS.

(a) In General.--No rule, order, or guidance issued by the
Bureau under this title shall be construed as requiring a
depository institution to apply mortgage underwriting
standards that do not meet the minimum underwriting standards
required by the appropriate prudential regulator of the
depository institution.
(b) Ability to Repay.--
(1) TILA amendment.--Section 129 of the Truth in Lending
Act (15 U.S.C. 1639), as amended by section 1074 of this Act,
is further amended by inserting after subsection (k) the
following:
``(l) Ability to Repay.--
``(1) In general.--No creditor may make a loan secured by
real property or a dwelling unless the creditor, based on
verified and documented information, determines that, at the
time the loan is consummated, the consumer has a reasonable
ability to repay the loan, according to its terms, and all
applicable taxes, insurance, and assessments.
``(2) Multiple loans.--If the creditor knows, or has reason
to know, that 1 or more loans secured by the same real
property or dwelling will be made to the same consumer,

[[Page S3559]]

the creditor shall, based on verified and documented
information, determine that the consumer has a reasonable
ability to repay the combined payments of all loans on the
same real property or dwelling according to the terms of
those loans and all applicable taxes, insurance, and
assessments.
``(3) Basis for determination.--A determination under this
subsection of a consumer's ability to repay a loan described
in paragraph (1) shall include consideration of the
consumer's credit history, current income, expected income
the consumer is reasonably assured of receiving, 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 the consumer's equity in the
dwelling or real property that secures repayment of the loan.
``(4) Income verification.--A creditor shall verify amounts
of income or assets that such creditor relies on to determine
repayment ability, including expected income or assets, by
reviewing the consumer's Internal Revenue Service Form W-2,
tax returns, payroll receipts, financial institution records,
or other third-party documents that provide reasonably
reliable evidence of the consumer's income or assets. In
order to safeguard against fraudulent reporting, any
consideration of a consumer's income history in making a
determination under this subsection shall include the
verification of such income by the use of--
``(A) Internal Revenue Service transcripts of tax returns;
or
``(B) a method that quickly and effectively verifies income
documentation by a third party subject to rules prescribed by
the Board.
``(5) Presumption of ability to repay.--Any creditor with
respect to any consumer loan secured by real property or a
dwelling is presumed to have complied with this subsection
with respect to such loan if the creditor--
``(A) verifies the consumer's ability to repay as provided
in paragraphs (1), (2), (3), and (4); and
``(B) determines the consumer's ability to repay using the
maximum rate permitted under the loan during the first 5
years following consummation and a payment schedule that
fully amortizes the loan and taking into account current
obligations and all applicable taxes, insurance, and
assessments.
``(6) Exceptions to presumption.--Notwithstanding paragraph
(5), no presumption of compliance shall be applied to a
loan--
``(A) for which the regular periodic payments for the loan
may--
``(i) result in an increase of the principal balance; or
``(ii) allow the consumer to defer repayment of principal.
``(B) the terms of which result in a balloon payment, where
a `balloon payment' is a scheduled payment that is more than
twice as large as the average of earlier scheduled payments;
or
``(C) for which the total points and fees payable in
connection with the loan exceed 3 percent of the total loan
amount, where `points and fees' means points and fees as
defined by section 103(aa)(4) of the Truth in Lending Act (15
U.S.C. 1602(aa)(4)), except that, for the purposes of
computing the total points and fees under this subparagraph,
the total points and fees attributable to any premium for
mortgage guarantee insurance provided by an agency of the
Federal Government or an agency of a State shall exclude any
amount of the points and fees for such insurance greater than
1 percent of the total loan amount.
``(7) Exemption.--
``(A) The Board may revise, add to, or subtract from the
criteria under paragraphs (5) and (6) and subparagraphs (B)
and (C) of this paragraph upon a finding that such
regulations are necessary or appropriate to effectuate the
purposes of this title, to prevent circumvention or evasion
thereof, or to facilitate compliance with this subsection.
``(B) Bridge loans.--This subsection does not apply to a
temporary or `bridge' loan with a term of 12 months or less,
including to any loan to purchase a new dwelling where the
consumer plans to sell a current dwelling within 12 months.
``(C) Reverse mortgages.--This subsection does not apply
with respect to any reverse mortgage.
``(8) Seasonal income.--If documented income, including
income from a small business, is a repayment source for an
extension of credit secured by residential real estate or a
dwelling, a creditor may consider the seasonality and
irregularity of such income in the underwriting of and
scheduling of payments for such credit.''.
(2) Conforming amendment.--Section 129 of the Truth in
Lending Act (15 U.S.C. 1639), as amended by this Act, is
amended--
(A) by redesignating subsections (k), (l), and (m) as
subsections (m), (n), and (o), respectively; and
(B) in subsection (o), as so redesignated, by striking
``(l)(2)'' and inserting ``(n)(2)''.
On page 1430, line 8, ``SEC. 1074'' and insert ``SEC.
1076''.
On page 1441, line 1, ``SEC. 1075'' and insert ``SEC.
1077''.
On page 1442, line 10, ``SEC. 1076'' and insert ``SEC.
1078''.
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