S.Amdt. 3975
What it does: Adds SEC. ____. PROHIBITION ON STATED INCOME AND NEGATIVELY AMORTIZING MORTGAGES wherever appropriate
Sen. Carl Levin (D-MI)What it changes
1 change to S. 3217
Adds SEC. ____. PROHIBITION ON STATED INCOME AND NEGATIVELY AMORTIZING MORTGAGES wherever appropriate
Adds a sectionInserted: SEC. ____. PROHIBITION ON STATED INCOME AND NEGATIVELY AMORTIZING MORTGAGES.
Inserted: (a) Findings.--Congress finds the following:
Inserted: (1) The 2008 financial crisis was caused, in part, by poor quality, high risk mortgages that were included in mortgage-backed securities, and that incurred higher rates of delinquency and loss than traditional mortgages, damaging thousands of financial institutions holding the mortgages. Those poor quality, high risk mortgages included billions of dollars in stated income and negatively amortizing mortgages.
Inserted: (2) Banks that issue stated income mortgages do not verify the borrower's income or assets, or ability to repay the loan, thereby increasing the risk of loan default. Stated income loans also encourage fraud by the borrowers seeking to obtain the funding and by lenders seeking to earn fees from selling the mortgages.
Inserted: (3) Negative amortization of mortgage loans leads to increased monthly loan payments for borrowers, which, in turn, increases the risk of loan default. During the recent financial crisis, negatively amortized loans defaulted in record numbers, damaging financial institutions and other investors holding those assets.
Inserted: (4) Years ago, Federal banking regulators banned negatively amortizing credit card loans as a threat to the safety and soundness of banking institutions.
Inserted: (5) Federal financial regulators and Inspectors General have testified before Congress that stated income and negatively amortizing loans pose a threat to the safety and soundness of United States banks, and to the financial markets where these high risk mortgages are sold and securitized.
Inserted: (b) Prohibition on Stated Income and Negatively Amortizing Mortgages.--Section 129 of the Truth in Lending Act (15 U.S.C. 1639) is amended by adding at the end following:
Inserted: "(n) Prohibition on Stated Income and Negatively Amortizing Mortgages.--
Inserted: "(1) In general.--Any person who sells, transfers, or plans to sell or transfer at least 1,000 mortgages, mortgage-backed securities, or similar financial instruments within a calendar year shall not include or reference in any of such financial instruments any mortgage in which the borrower's income was not verified or in which the loan balance may negatively amortize.
Inserted: "(2) Joint rulemaking.--The Chairman of the Board, the Chairman of the Federal Deposit Insurance Corporation, and the Director of the Bureau of Consumer Financial Protection may issue joint rules to carry out the purposes of this subsection. Rules issued under this paragraph may--
Inserted: "(A) specify what documentation may be used to verify the income of a borrower under paragraph (1), including tax information, asset statements, prior loan repayment information, or any other documentation that the Chairmen and the Director jointly deem necessary and appropriate; and
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Inserted: "(B) define 'negatively amortize', including by making an exception for home equity conversion mortgages, as defined under section 255 of the National Housing Act (commonly referred to as 'reverse mortgages') that are otherwise regulated by a Federal or State agency.
Inserted: "(3) Rule of construction.--As used in this section, the term 'mortgage' shall not be construed to be restricted or limited only to mortgages referred to in section 103(aa).".
Inserted: (c) Effective Date.--The requirements under subsection (n)(1) of section 129 of the Truth in Lending Act (as added by subsection (b)) shall take effect not later than 180 days after the date of the enactment of this Act, whether or not any rulemaking under subsection (n)(2) of such Act has been initiated or completed.
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Original wording
At the appropriate place, insert the following:
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As printed
SA 3975. Mr. LEVIN (for himself and Mr. Kaufman) submitted an amendment intended to be proposed by him 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; which was ordered to lie on the table; as follows:
At the appropriate place, insert the following:
SEC. ____. PROHIBITION ON STATED INCOME AND NEGATIVELY AMORTIZING MORTGAGES.
(a) Findings.--Congress finds the following:
(1) The 2008 financial crisis was caused, in part, by poor quality, high risk mortgages that were included in mortgage-backed securities, and that incurred higher rates of delinquency and loss than traditional mortgages, damaging thousands of financial institutions holding the mortgages. Those poor quality, high risk mortgages included billions of dollars in stated income and negatively amortizing mortgages.
(2) Banks that issue stated income mortgages do not verify the borrower's income or assets, or ability to repay the loan, thereby increasing the risk of loan default. Stated income loans also encourage fraud by the borrowers seeking to obtain the funding and by lenders seeking to earn fees from selling the mortgages.
(3) Negative amortization of mortgage loans leads to increased monthly loan payments for borrowers, which, in turn, increases the risk of loan default. During the recent financial crisis, negatively amortized loans defaulted in record numbers, damaging financial institutions and other investors holding those assets.
(4) Years ago, Federal banking regulators banned negatively amortizing credit card loans as a threat to the safety and soundness of banking institutions.
(5) Federal financial regulators and Inspectors General have testified before Congress that stated income and negatively amortizing loans pose a threat to the safety and soundness of United States banks, and to the financial markets where these high risk mortgages are sold and securitized.
(b) Prohibition on Stated Income and Negatively Amortizing Mortgages.--Section 129 of the Truth in Lending Act (15 U.S.C. 1639) is amended by adding at the end following:
“(n) Prohibition on Stated Income and Negatively Amortizing Mortgages.--
“(1) In general.--Any person who sells, transfers, or plans to sell or transfer at least 1,000 mortgages, mortgage-backed securities, or similar financial instruments within a calendar year shall not include or reference in any of such financial instruments any mortgage in which the borrower's income was not verified or in which the loan balance may negatively amortize.
“(2) Joint rulemaking.--The Chairman of the Board, the Chairman of the Federal Deposit Insurance Corporation, and the Director of the Bureau of Consumer Financial Protection may issue joint rules to carry out the purposes of this subsection. Rules issued under this paragraph may--
“(A) specify what documentation may be used to verify the income of a borrower under paragraph (1), including tax information, asset statements, prior loan repayment information, or any other documentation that the Chairmen and the Director jointly deem necessary and appropriate; and
“(B) define ‘negatively amortize', including by making an exception for home equity conversion mortgages, as defined under section 255 of the National Housing Act (commonly referred to as ‘reverse mortgages') that are otherwise regulated by a Federal or State agency.
“(3) Rule of construction.--As used in this section, the term ‘mortgage' shall not be construed to be restricted or limited only to mortgages referred to in section 103(aa).”.
(c) Effective Date.--The requirements under subsection (n)(1) of section 129 of the Truth in Lending Act (as added by subsection (b)) shall take effect not later than 180 days after the date of the enactment of this Act, whether or not any rulemaking under subsection (n)(2) of such Act has been initiated or completed.
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Senate amendment submitted
May 11, 2010