S 1222 ISCommentsClose CommentsPermalink

To stop mortgage transactions which operate to promote fraud, risk, abuse, and under-development, and for other purposes.CommentsClose CommentsPermalink

April 25, 2007

Mr. OBAMA (for himself and Mr. DURBIN) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban AffairsCommentsClose CommentsPermalink

To stop mortgage transactions which operate to promote fraud, risk, abuse, and under-development, and for other purposes.CommentsClose CommentsPermalink

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,CommentsClose CommentsPermalink

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) Short Title- This Act may be cited as the `Stopping Mortgage Transactions which Operate to Promote Fraud, Risk, Abuse, and Underdevelopment Act' or the `STOP FRAUD Act'.CommentsClose CommentsPermalink





(b) Table of Contents- The table of contents for this Act is as follows:CommentsClose CommentsPermalink





Sec. 1. Short title; table of contents.CommentsClose CommentsPermalink





Sec. 2. Mortgage fraud.CommentsClose CommentsPermalink





Sec. 3. Mandatory reporting requirements.CommentsClose CommentsPermalink





Sec. 4. Law enforcement and industry communication.CommentsClose CommentsPermalink





Sec. 5. Debarred or censured mortgage professional database.CommentsClose CommentsPermalink





Sec. 6. Housing counseling.CommentsClose CommentsPermalink





Sec. 7. State appraisal demonstration projects.CommentsClose CommentsPermalink





Sec. 8. Law enforcement grants to State and local law enforcement agencies.CommentsClose CommentsPermalink





Sec. 9. Additional DOJ funding.CommentsClose CommentsPermalink





Sec. 10. Additional rights of borrowers.CommentsClose CommentsPermalink





Sec. 11. Report to Congress.CommentsClose CommentsPermalink

SEC. 2. MORTGAGE FRAUD.

(a) In General- Chapter 63 of title 18, United States Code, is amended by adding at the end the following:CommentsClose CommentsPermalink

`Sec. 1351. Mortgage fraud

`(a) In General- It shall be unlawful for any mortgage professional to knowingly execute, or attempt to execute, a scheme or artifice--CommentsClose CommentsPermalink





`(1) to defraud any natural person, financial institution, or purchaser of consumer credit or an interest in consumer credit in connection with the offer or extension of consumer credit (as such term is defined in subsections (e) and (h) under section 103 of the Truth in Lending Act (15 U.S.C. 1602(e) and (h))), which credit is, is to be, or is portrayed as being secured by an interest--CommentsClose CommentsPermalink





`(A) in real property; orCommentsClose CommentsPermalink





`(B) in personal property used or expected to be used as the principal dwelling (as such term is defined under section 103(v) of the Truth in Lending Act (15 U.S.C. 1602(v))) of the natural person to whom such consumer credit is offered or extended; orCommentsClose CommentsPermalink





`(2) to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property, including without limitation in the form of fees or charges, from a natural person in connection with an extension of consumer credit which is, is to be, or is portrayed as being secured by an interest--CommentsClose CommentsPermalink





`(A) in real property; orCommentsClose CommentsPermalink





`(B) in personal property used or expected to be used as the principal dwelling of such natural person;CommentsClose CommentsPermalink





`(b) Penalties-CommentsClose CommentsPermalink





`(1) CRIMINAL PENALTIES- Any mortgage professional who violates subsection (a) shall be fined not more than $5,000,000, or imprisoned not more than 35 years, or both.CommentsClose CommentsPermalink





`(2) CIVIL PENALTIES- Any mortgage professional who violates subsection (a) shall be liable for an amount equal to the sum of all finance charges and fees paid or payable by the natural person, financial institution, or purchaser who was defrauded unless the mortgage professional demonstrates that such violation is not material.CommentsClose CommentsPermalink





`(c) Private Right of Action by Persons Aggrieved-CommentsClose CommentsPermalink





`(1) IN GENERAL- Any person aggrieved by a violation of this section, or any regulation under this section may, but shall not be required to, file suit in any district court of the United States or any State court having jurisdiction of the parties to such suit--CommentsClose CommentsPermalink





`(A) without respect to the amount in controversy;CommentsClose CommentsPermalink





`(B) without regard to the citizenship of the parties; andCommentsClose CommentsPermalink





`(C) without regard to exhaustion of any administrative remedies.CommentsClose CommentsPermalink





`(2) REMEDIES- Any court in which a civil action has been brought under paragraph (1) may--CommentsClose CommentsPermalink





`(A) award damages and appropriate declaratory and injunctive relief for each violation of this section; andCommentsClose CommentsPermalink





`(B) provide such additional relief as the court deems appropriate, including the award of court costs, investigative costs, and reasonable attorneys' fees incurred by persons aggrieved.CommentsClose CommentsPermalink





`(d) Rule of Construction- Nothing in this section shall be construed to modify, lessen, or otherwise affect any other provision of this title relating to the rights afforded to financial institutions or purchasers of consumer credit or interests in consumer credit.CommentsClose CommentsPermalink





`(e) Definition- As used in this section, the term `mortgage professional' includes real estate appraisers, real estate accountants, real estate attorneys, real estate brokers, mortgage brokers, mortgage underwriters, mortgage processors, mortgage settlement companies, mortgage title companies, mortgage loan originators, and any other provider of professional services engaged in the mortgage process.'.CommentsClose CommentsPermalink





(b) Table of Sections- The table of sections for chapter 63 of title 18, United States Code, is amended by inserting after the item relating to section 1350 the following:CommentsClose CommentsPermalink





`1351. Mortgage fraud.'.CommentsClose CommentsPermalink





(c) Conforming Amendment- Section 3293(2) of title 18, United States Code, is amended by striking `or 1343' and inserting `, 1343, or 1351'.CommentsClose CommentsPermalink

SEC. 3. MANDATORY REPORTING REQUIREMENTS.

(a) Definition of Financial Institution- Section 5312(a)(2)(U) of title 31, United States Code, is amended by--CommentsClose CommentsPermalink





(1) inserting `companies and other legal entities' after `persons';CommentsClose CommentsPermalink





(2) inserting `, transactions,' after `closings'; andCommentsClose CommentsPermalink





(3) inserting after `settlements' the following: `, including the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, mortgage appraisers, real estate accountants, real estate attorneys, real estate brokers, mortgage underwriters, mortgage processors, mortgage settlement and title companies, mortgage brokers, mortgage loan originators, and any other mortgage professional engaged in the mortgage industry'.CommentsClose CommentsPermalink





(b) Regulations-CommentsClose CommentsPermalink





(1) IN GENERAL- Not later than 1 year after the date of enactment of this Act, the Secretary of the Treasury shall issue regulations to implement the amendments made in subsection (a).CommentsClose CommentsPermalink





(2) CONTENT OF REGULATION- A regulation required under paragraph (1) shall--CommentsClose CommentsPermalink





(A) include a requirement that any suspicious activity by an individual or entity described in section 5312(a)(2)(U) of title 31, United States Code, be reported to the Secretary of the Treasury; andCommentsClose CommentsPermalink





(B) ensure compliance by an individual or entity described in such section with the requirement described under subparagraph (A), while simultaneously seeking to avoid any unnecessary duplication of paperwork or other administrative details.CommentsClose CommentsPermalink





(c) Authorization of Appropriations- There are authorized to be appropriated such sums as are necessary to implement the regulations issued under subsection (b).CommentsClose CommentsPermalink

SEC. 4. LAW ENFORCEMENT AND INDUSTRY COMMUNICATION.

(a) In General- Not later than 18 months after the date of enactment of this Act, the Attorney General, in consultation with the Secretary of the Treasury, shall establish a system by which mortgage brokers, lenders, title company employees, mortgage appraisers, securities and bond rating agencies, and other authorized mortgage professionals may register and receive updates from Federal law enforcement agencies on--CommentsClose CommentsPermalink





(1) suspicious activity trends in the mortgage industry; andCommentsClose CommentsPermalink





(2) mortgage fraud-related convictions.CommentsClose CommentsPermalink





(b) Authorization of Appropriations- There are authorized to be appropriated such sums as are necessary to establish and maintain the system required under subsection (a).CommentsClose CommentsPermalink

SEC. 5. DEBARRED OR CENSURED MORTGAGE PROFESSIONAL DATABASE.

(a) Establishment-CommentsClose CommentsPermalink





(1) IN GENERAL- Not later than 18 months after the date of enactment of this Act, the Attorney General shall establish a Debarred or Censured Mortgage Professional Database that may be accessed by authorized depository institutions, mortgage lenders, mortgage professionals, securities and bond rating agencies, and consumers to determine the Federal and State bar status of mortgage professionals regulated by any Federal or State agency.CommentsClose CommentsPermalink





(2) PRIVATE CERTIFICATION BOARDS- Any widely accepted private certification board shall have authority to access, maintain, and update the Debarred or Censured Mortgage Professional Database established in paragraph (1) for purposes of adding or removing the information of any mortgage professional contained in such Database.CommentsClose CommentsPermalink





(3) WIDELY ACCEPTED PRIVATE CERTIFICATION BOARD- Not later than 18 months after the date of enactment of this Act, the Attorney General, in consultation with the Secretary of the Treasury, shall--CommentsClose CommentsPermalink





(A) determine the definition of the term `widely accepted private certification board'; andCommentsClose CommentsPermalink





(B) issue procedures and guidance on how officers, agents, and employees of such boards shall conduct the responsibilities described in paragraph (2).CommentsClose CommentsPermalink





(4) PUBLIC AVAILABILITY- The Attorney General shall make the Debarred or Censured Mortgage Professional Database established in paragraph (1) available to the public on the Internet, without fee or other access charge, in a searchable, sortable, and downloadable manner.CommentsClose CommentsPermalink





(b) Immunity From Civil Liability- Any officer, agent, or employee of a widely accepted private certification board, who in good faith follows the procedures and guidance set forth under subsection (a)(3)(B), shall not be liable in any court of any State or the United States to any mortgage professional or other person--CommentsClose CommentsPermalink





(1) for carrying out the responsibilities described in subsection (a)(2); orCommentsClose CommentsPermalink





(2) for nondisclosure to that mortgage professional or other person that such conduct occurred.CommentsClose CommentsPermalink





(c) Whistleblower Protection-CommentsClose CommentsPermalink





(1) IN GENERAL- No officer, agent, or employee of a widely accepted private certification board may be discharged, demoted, threatened, suspended, harassed, or in any other manner discriminated against in the terms and conditions of the employment of such officer, agent, or employee because of any lawful act done by such officer, agent, or employee to provide information, cause information to be provided, or otherwise assist in an investigation regarding any--CommentsClose CommentsPermalink





(A) possible violation of this section, including not following the procedures and guidance set forth under subsection (a)(3)(B); orCommentsClose CommentsPermalink





(B) other misconduct, by any other officer, agent, or employee of the board.CommentsClose CommentsPermalink





(2) CIVIL ACTION- An officer, agent, or employee injured by a violation of paragraph (1) may, in a civil action, obtain appropriate relief.CommentsClose CommentsPermalink





(d) Authorization of Appropriations- There are authorized to be appropriated such sums as are necessary to establish and maintain the database required under subsection (a).CommentsClose CommentsPermalink

SEC. 6. HOUSING COUNSELING.

Section 106 of the Housing and Urban Development Act of 1968 (12 U.S.C. 1701x), is amended by adding at the end the following:CommentsClose CommentsPermalink





`(g) Counseling for Mortgage Fraud-CommentsClose CommentsPermalink





`(1) IN GENERAL- The Secretary is authorized to provide, or contract with public or private organizations to provide, information, advice, counseling, and technical assistance to tenants, homeowners, and other consumers with respect--CommentsClose CommentsPermalink





`(A) to mortgage fraud, as such activity is described in section 1351 of title 18, United States Code; andCommentsClose CommentsPermalink





`(B) to any other activities or practices that the Secretary determines are likely to increase the risk of foreclosure by such individuals.CommentsClose CommentsPermalink





`(2) PREFERENCES- In distributing any funds authorized under paragraph (5), the Secretary shall give preference to--CommentsClose CommentsPermalink





`(A) organizations in those States with the highest rates of mortgage fraud, as such rates are determined by--CommentsClose CommentsPermalink





`(i) the Director of the Federal Bureau of Investigation; andCommentsClose CommentsPermalink





`(ii) mortgage industry statistics;CommentsClose CommentsPermalink





`(B) those nonprofit organizations--CommentsClose CommentsPermalink





`(i) approved by the Secretary under subsection (d); andCommentsClose CommentsPermalink





`(ii) that--CommentsClose CommentsPermalink





`(I) are experienced in the provision of prepurchase and foreclosure-prevention counseling; andCommentsClose CommentsPermalink





`(II) have a demonstrated record of success in the provision of such counseling services; andCommentsClose CommentsPermalink





`(C) organizations that provide--CommentsClose CommentsPermalink





`(i) in-person prepurchase and foreclosure-prevention counseling; andCommentsClose CommentsPermalink





`(ii) a brief assessment and review of the financial mortgage documents of a tenant, homeowner, or other consumer.CommentsClose CommentsPermalink





`(3) DUTIES OF THE SECRETARY- The Secretary shall--CommentsClose CommentsPermalink





`(A) monitor, record, track, and evaluate the performance of each public or private organization that is a recipient of a grant under subsection (a); andCommentsClose CommentsPermalink





`(B) make each evaluation under subparagraph (A) available to the public on the Internet, without fee or other access charge, in a searchable, sortable, and downloadable manner.CommentsClose CommentsPermalink





`(4) REPORT-CommentsClose CommentsPermalink





`(A) IN GENERAL- Each public or private organization that is a recipient of a grant under subsection (a) shall report to the Secretary, on a quarterly basis, on any instances or occurrences of fraud or deceptive practices by mortgage professionals uncovered in the course of providing the prepurchase and foreclosure-prevention counseling required under this section.CommentsClose CommentsPermalink





`(B) USE BY THE SECRETARY- Based upon the reports submitted under subparagraph (A), the Secretary shall--CommentsClose CommentsPermalink





`(i) identify and evaluate trends in the use and frequency of fraud or deceptive practices in the mortgage industry;CommentsClose CommentsPermalink





`(ii) identify new fraudulent schemes or deceptive practices, and forward to the appropriate Federal law enforcement agency information relating to such new schemes and practices; andCommentsClose CommentsPermalink





`(iii) establish, as needed, new requirements to train officers, agents, or employees of any public or private organization that is a recipient of a grant under subsection (a) to identify such schemes and practices, including by providing educational material to such officers, agents, or employees on such schemes and practices.CommentsClose CommentsPermalink





`(5) AUTHORIZATION OF APPROPRIATIONS- There are authorized to be appropriated $25,000,000, to implement the provisions of this subsection.'.CommentsClose CommentsPermalink

SEC. 7. STATE APPRAISAL DEMONSTRATION PROJECTS.

(a) In General- Not later than 18 months after the date of enactment of this Act, the Secretary of Housing and Urban Development shall provide grants to State appraisal agencies to improve the monitoring and enforcement of housing appraisal regulations in that State.CommentsClose CommentsPermalink





(b) Application- Each State appraisal agency seeking a grant under this section shall submit an application to the Secretary of Housing and Urban Development at such time, in such manner, and containing such information as the Secretary may require.CommentsClose CommentsPermalink





(c) Preference for States With Higher Incidents of Mortgage Fraud- In distributing any grant amounts authorized under this section, the Secretary of Housing and Urban Development shall give preference to those States with the highest rates of mortgage fraud, as such rates are determined by--CommentsClose CommentsPermalink





(1) the Director of the Federal Bureau of Investigation; andCommentsClose CommentsPermalink





(2) mortgage industry statistics.CommentsClose CommentsPermalink





(d) Authorization of Appropriations- There are authorized to be appropriated $10,000,000, to implement the provisions of this section.CommentsClose CommentsPermalink

SEC. 8. LAW ENFORCEMENT GRANTS TO STATE AND LOCAL LAW ENFORCEMENT AGENCIES.

(a) In General- Not later than 18 months after the date of enactment of this Act, the Attorney General shall provide grants to assist State and local law enforcement agencies in--CommentsClose CommentsPermalink





(1) establishing and improving mortgage fraud task forces; andCommentsClose CommentsPermalink





(2) improving communications regarding mortgage fraud cases between such agencies and other Federal, State and local law enforcement agencies.CommentsClose CommentsPermalink





(b) Application- Each State or local law enforcement agency seeking a grant under this section shall submit an application to the Attorney General at such time, in such manner, and containing such information as the Attorney General may require.CommentsClose CommentsPermalink





(c) Authorization of Appropriations- There are authorized to be appropriated $40,000,000, to implement the provisions of this section.CommentsClose CommentsPermalink

SEC. 9. ADDITIONAL DOJ FUNDING.

In addition to any other amounts otherwise authorized to be appropriated under this Act, there are authorized to be appropriated to the Attorney General $5,000,000, to increase mortgage fraud investigation efforts undertaken by the Department of Justice.CommentsClose CommentsPermalink

SEC. 10. ADDITIONAL RIGHTS OF BORROWERS.

(a) Borrowers Rights in Foreclosure Proceedings-CommentsClose CommentsPermalink





(1) IN GENERAL- Any creditor making a subprime mortgage related loan who has the legal right to foreclosure shall use the judicial foreclosure procedures, or if no such judicial proceeding exists the appropriate administrative proceeding, of the State where the property securing the loan is located if--CommentsClose CommentsPermalink





(A) the creditor is a party to a home loan contract described in paragraph (3); andCommentsClose CommentsPermalink





(B) the property to be secured is the principal residence (as determined by the Secretary of Housing and Urban Development) of the borrower.CommentsClose CommentsPermalink





(2) AFFIRMATIVE DEFENSE- In any foreclosure proceeding described in paragraph (1), the borrower may assert as an affirmative defense against any party to such contract, or any successor or assignee of such party--CommentsClose CommentsPermalink





(A) that such contract was the result of fraud or deceptive practices and as result of such fraud and deception that the terms of such contract are void; andCommentsClose CommentsPermalink





(B) any other claim or defense to acceleration and foreclosure, including any claim or defense based on a violation of this Act, though no such claim or defense shall be deemed a compulsory counterclaim.CommentsClose CommentsPermalink





(3) HOME LOAN CONTRACT- A home loan contract described in paragraph (1) is a contract that--CommentsClose CommentsPermalink





(A) does not include a fully-disclosed statement by the lender that the lending institution or the authorized representative or agent of such institution has evaluated and affirmed the ability of the individual to repay the loan based upon, at minimum, the maximum monthly payments that could be due during the first 7 years of the loan term, which shall be calculated with reference to the maximum interest rate allowable under the loan being offered based on a fully amortizing repayment schedule, taking into account negative amortization and escrows for taxes and insurance;CommentsClose CommentsPermalink





(B) does not contain a statement, the format of which shall be determined by the Secretary of Housing and Urban Development, with a plain language summary providing the borrower with a calculation of--CommentsClose CommentsPermalink





(i) the maximum monthly required minimum payment the borrower could face under the terms of the loan for each of the first 10 years of the loan in order to keep the loan in good standing, or if the borrower is receiving more than 1 loan, the same information for each loan separately and for the total of all of the loans together; andCommentsClose CommentsPermalink





(ii) how much it would cost the borrower to pay off the loan at the end of each of the first 10 years if the borrower makes the minimum required payments to keep the loan in good standing;CommentsClose CommentsPermalink





(C) was underwritten based only on the stated income of the individual, without third-party verification of all sources of income and assets of the individual, including by an examination of the individual's tax returns, payroll receipts, bank records, or other reliable documentation; orCommentsClose CommentsPermalink





(D) includes loan prepayment penalties that are applicable for prepayments made beyond 2 years after the loan origination date, beyond the initial interest rate adjustment period stated in such contract, or whichever is less.CommentsClose CommentsPermalink





(b) Coordination With Other Law- No provision of this section shall be construed as annulling, altering, affecting, or superseding any Federal law, or the laws of any State, relating to foreclosure proceedings in connection with home loans, except to the extent that those laws are inconsistent with the provisions of this section, and then only to the extent of the inconsistency.CommentsClose CommentsPermalink





(c) Applicability- This section shall apply to all home loan contracts entered into on, or after the date that is 90 days after the date of the enactment of this Act and to all controversies arising after such date.CommentsClose CommentsPermalink





(d) Definitions- As used in this section:CommentsClose CommentsPermalink





(1) HOME LOAN- The term `home loan' means a loan secured by a mortgage or lien on residential property.CommentsClose CommentsPermalink





(2) RESIDENTIAL PROPERTY- The term `residential property' means a 1-4 family, owner-occupied residence, including a 1-family unit in a condominium project, a membership interest and occupancy agreement in a cooperative housing project, and a manufactured home and the lot on which the home is situated.CommentsClose CommentsPermalink





(3) SUBPRIME MORTGAGE RELATED LOAN-CommentsClose CommentsPermalink





(A) IN GENERAL- The term `subprime mortgage related loan' means with respect to a home loan, that the borrower under the loan, or the loan terms, exhibit characteristics that indicate that the loan is subject to a significantly higher risk of default than federally related mortgage loans made to borrowers at prime lending rates.CommentsClose CommentsPermalink





(B) REGULATIONS- The Secretary of Housing and Urban Development shall prescribe regulations to carry out this paragraph, which shall specify characteristics referred to in subparagraph (A) that indicate a higher risk of default and shall establish criteria based on such characteristics for determining whether a home loan is a subprime loan. Such characteristics shall include--CommentsClose CommentsPermalink





(i) higher loan fees or penalties;CommentsClose CommentsPermalink





(ii) higher interest rates;CommentsClose CommentsPermalink





(iii) higher debt-to-income ratios;CommentsClose CommentsPermalink





(iv) a history of loan delinquency;CommentsClose CommentsPermalink





(v) higher loan-to-value ratios;CommentsClose CommentsPermalink





(vi) lower credit scores or other credit ratings;CommentsClose CommentsPermalink





(vii) more recent declaration of bankruptcy;CommentsClose CommentsPermalink





(viii) lack of a credit history;CommentsClose CommentsPermalink





(ix) no-documentation or low-documentation loan underwriting; andCommentsClose CommentsPermalink





(x) any other factors that the Secretary considers appropriate.CommentsClose CommentsPermalink

SEC. 11. REPORT TO CONGRESS.

Not later than 120 days after the date of enactment of this Act, the Comptroller General of the United States shall survey, evaluate, and report to Congress on State mortgage lending practices and regulations related to--CommentsClose CommentsPermalink





(1) mortgage fraud and deception;CommentsClose CommentsPermalink





(2) predatory lending practices relating to mortgages; andCommentsClose CommentsPermalink





(3) foreclosure prevention and homeownership preservation programs offered by each State.CommentsClose CommentsPermalink