|SB 0123||Prohibits certain predatory lending practices with respect to home loans|
|LR Number:||0431S.01I||Fiscal Note:||0431-01|
|Committee:||Financial and Governmental Organization, Veterans' Affairs & Elections|
|Last Action:||01/14/03 - Second Read and Referred S Financial & Governmental||Journal page:||S76|
|Organization, Veterans' Affairs & Elections Committee|
|Effective Date:||August 28, 2003|
SB 123 - This act regulates high-cost home loans and establishes certain lender reporting requirements. The act prohibits specific practices with respect to high-cost home loans, including prepayment penalties, issuing high-cost loans stipulating negative amortization, loan flipping, making misleading statements about a residential home loan transaction, and compensating or intimidating appraisers to influence their judgment with regard to the value of the real estate.
ATTORNEY GENERAL'S POWERS - This act deletes a portion of current law which prohibits the Attorney General from moving forward with a unfair practice charge against a company under the supervision of the Department of Insurance, Director of the Division of Credit Unions or the Division of Finance. Under this act, the Attorney General's office will be able to proceed with charges against those companies.
PROHIBITED PREDATORY LENDING PRACTICES - Under this act, no prepayment penalties are allowed with respect to high cost home loans. Lenders are prohibited from engaging in the practice of negative amortization. Lenders are prohibited from engaging in the practice known as loan flipping. Lenders are prohibited from encouraging default on an existing loan in the connection with the closing of a consumer home loan. Lenders must reasonably believe that borrowers can repay the loan based on current and expected income, debt, and other financial resources other than the borrower's equity in his or her home. A borrower shall be presumed to be able to make payments under the loan if the borrower's total monthly debts do not exceed 50% of the borrower's monthly gross income. Lenders may not charge a fee for an unprovided service or misrepresent the amount charged by a third party service. Lenders may not make misleading statements with respect to a residential loan transaction regarding the borrower's ability to qualify. Lenders may not compensate or intimidate an appraiser regarding the value of real estate. Lenders may not finance certain forms of insurance through the home loan or for debt cancellation. High-cost loans in which blanks are left to be filled in after contracts are signed are unenforceable.
CONTRACT LANGUAGE REQUIREMENTS - This act requires the lender to provide a copy of the loan in a different language if the discussions leading to the loan were in a different language.
PROHIBITED HIGH-COST LOAN CONTRACT TERMS AND PRACTICES - High- cost loans may not contain scheduled payments which are more than twice as large as the average of the earlier scheduled payments. High-cost loans can not contain terms which require more than two periodic payments are consolidated and paid in advance from the loan proceeds. High-cost loans can not contain provisions which increase the interest rate after default. High-cost loans may not contain provisions which allow the lender to increase the indebtedness at his or her discretion. Lenders are prohibited from charging borrowers fees to modify, renew or amend high-cost loans or to defer payments under the terms of the loan. Lenders are prohibited from making high-cost loans without first receiving certification from HUD that the borrower has received loan counseling. High-cost loans may not contain mandatory arbitration clauses. Lenders are prohibited from paying home- improvement contractors from the high-cost loan unless the instrument is both payable to the borrower and contractor, or through a third-party escrow agent.
GOOD FAITH - Lenders who attempt to evade the high-cost loan prohibitions by structuring the loan as an open-ended account transaction or some other transaction are still subject to the act. Lenders acting in good faith who fail to comply with Section 408.719 may evade prosecution if they notify the borrower of the compliance failure and make appropriate restitution.
PENALTIES AND REMEDIES - Lenders who violate this act will be liable to the borrower for actual damages, statutory damages equal to the finance charges in the agreement plus 10% of the amount financed, punitive damages for an intentional or reckless violation of the act, and reasonable attorney fees and costs.
Borrowers may be granted injunctive relief. If the lender intentionally violated this act, the loan is void rendering the lender incapable of collecting on the loan and the borrower may recover any payments under the agreement. The borrower also has the right to rescind the agreement against a party foreclosing on the loan.
UNLAWFUL TRADE PRACTICE - Violations of this act are deemed to be unlawful trade practices and may be prosecuted by the Attorney General's office.
INVESTMENT PROHIBITIONS - Lenders are prohibited from making investments which are backed by loans violating the act.
REPORTING REQUIREMENTS - Lenders which are exempt from federal reporting requirements because of the amount of loans they originated the proceeding year are required to report similar information to the Division of Finance. Lenders must report to the Division of Finance the average and median interest rates of mortgage loans they originate grouped by income levels, gender and racial categories. The reporting requirements become effective January 1, 2005.
The rest of the act is effective January 1, 2004. This act
is similar to HB 181 (2001).