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| [ Introduced ] | [ House Amendment 002 ] |
91_HB3007ham001
LRB9109639JSpkam
1 AMENDMENT TO HOUSE BILL 3007
2 AMENDMENT NO. . Amend House Bill 3007 by replacing
3 the title with the following:
4 "AN ACT to create the Predatory Home Loan Practices
5 Act."; and
6 by replacing everything after the enacting clause with the
7 following:
8 "Section 1. Short title. This Act may be cited as the
9 Predatory Home Loan Practices Act.
10 Section 5. Definitions. As used in this Act:
11 "Affiliate" means any company that controls, is
12 controlled by, or is under common control with another
13 company, as determined under the Federal Bank Holding Company
14 Act of 1956 (12 U.S.C. 1841 et seq.).
15 "Annual percentage rate" means the annual percentage rate
16 for the loan calculated according to the provisions of the
17 federal Truth-in-Lending Act (15 U.S.C. 1601, et seq.) and
18 the regulations promulgated thereunder by the Federal Reserve
19 Board.
20 "High-cost home loan" means a home loan for which the
21 annual percentage rate of the home loan at consummation will
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1 exceed by more than 6 percentage points the weekly average
2 yield on United States Treasury securities adjusted to a
3 constant maturity of one year (as made available by the
4 Federal Reserve Board) as of the week immediately preceding
5 the week in which the interest rate for the loan is
6 established.
7 "Home loan" means a loan, other than an open-end credit
8 plan or a reverse mortgage transaction, in which: (i) the
9 principal amount of the loan does not exceed the conforming
10 loan size limit for a single-family dwelling as established
11 from time to time by the Federal National Mortgage
12 Association, (ii) the borrower is a natural person, (iii) the
13 debt is incurred by the borrower primarily for personal,
14 family, or household purposes, and (iv) the loan is secured
15 by a mortgage or deed of trust on real estate upon which
16 there is located or there is to be located a structure or
17 structures, designed principally for occupancy of from one to
18 4 families, that is or will be occupied by the borrower as
19 the borrower's principal dwelling.
20 "Points and fees" means:
21 (1) all items required to be disclosed under
22 Sections 226.4(a) and 226.4(b) of Title 12 of the Code of
23 Federal Regulations, as amended from time to time, except
24 interest or the time-price differential;
25 (2) all charges for items listed under Section
26 226.4(c)(7) of Title 12 of the Code of Federal
27 Regulations, but only if the lender receives direct or
28 indirect compensation in connection with the charge or
29 the charge is paid to an affiliate of the lender;
30 otherwise, the charges are not included within the
31 meaning of the phrase "points and fees";
32 (3) all compensation paid directly or indirectly to
33 a mortgage broker, including a broker that originates a
34 loan in its own name in a tablefunded transaction, not
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1 otherwise included under item 1 or 2;
2 (4) "Points and fees" does not include (i) taxes,
3 filing fees, recording, and other charges and fees paid
4 or to be paid to public officials for determining the
5 existence of or for perfecting, releasing, or satisfying
6 a security interest and (ii) bona fide and reasonable
7 fees paid to a person other than a lender or an affiliate
8 of the lender or to the mortgage broker or an affiliate
9 of the mortgage broker for any of the following: fees for
10 flood certification; fees for pest infestation and flood
11 determinations; appraisal fees; fees for home inspections
12 performed prior to closing; credit reports; surveys;
13 attorneys' fees (if the borrower has the right to select
14 the attorney from an approved list or otherwise); notary
15 fees; escrow charges, so long as not otherwise included
16 under item (1); title insurance premiums; and fire
17 insurance and flood insurance premiums, provided that the
18 conditions in Section 226.4(d)(2) of Title 12 of the Code
19 of Federal Regulations are met.
20 "Total loan amount" means the same as the term "total
21 loan amount" as used in Section 226.32 of Title 12 of the
22 Code of Federal Regulations, and shall be calculated in
23 accordance with the Federal Reserve Board's Official Staff
24 Commentary to that provision.
25 Section 10. Prohibited acts and practices regarding home
26 loans.
27 (a) No lender may knowingly or intentionally engage in
28 the unfair act or practice of "flipping" a consumer home
29 loan. "Flipping" a loan is the making of a home loan to a
30 borrower that refinances an existing home loan when the new
31 loan does not have reasonable, tangible net benefit to the
32 borrower considering all of the circumstances, including the
33 terms of both the new and refinanced loans, the cost of the
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1 new loan, and the borrower's circumstances. This provision
2 shall apply regardless of whether the loan is a high-cost
3 home loan.
4 (b) When there is a charge in addition to the stated
5 rate of interest payable directly or indirectly by the
6 borrower and imposed directly or indirectly by the lender as
7 consideration for the loan, whether paid by the borrower or
8 the seller to a third party in connection with the closing of
9 the loan, the charge may not exceed 3% of the total loan
10 amount.
11 (c) No lender shall recommend or encourage default on an
12 existing loan or other debt prior to and in connection with
13 the closing or planned closing of a consumer home loan that
14 refinances all or any portion of the existing loan or debt.
15 Section 15. Limitations and prohibited practices for
16 high-cost home loans.
17 (a) A high-cost home loan is subject to the following
18 limitations and prohibited practices:
19 (1) No call provision. No high-cost home loan may
20 contain a provision that permits the lender, in its sole
21 discretion, to accelerate the indebtedness. This
22 provision does not apply when repayment of the loan has
23 been accelerated by default, pursuant to a due-on-sale
24 provision, or pursuant to some other provision of the
25 loan documents unrelated to the payment schedule.
26 (2) No balloon payment. No high-cost home loan may
27 contain a scheduled payment that is more than twice as
28 large as the average of earlier scheduled payments. This
29 provision does not apply when the payment schedule is
30 adjusted to the seasonal or irregular income of the
31 borrower.
32 (3) No negative amortization. No high-cost home
33 loan may contain a payment schedule with regular periodic
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1 payments that cause the principal balance to increase.
2 (4) No increased interest rate. No high-cost home
3 loan may contain a provision that increases the interest
4 rate after default. This provision does not apply to
5 interest rate changes in a variable rate loan otherwise
6 consistent with the provisions of the loan documents,
7 provided the change in the interest rate is not triggered
8 by the event of default or the acceleration of the
9 indebtedness.
10 (5) No advance payments. No high-cost home loan
11 may include terms under which more than 2 periodic
12 payments required under the loan are consolidated and
13 paid in advance from the loan proceeds provided to the
14 borrower.
15 (6) No modification or deferral fees. A lender may
16 not charge a borrower any fees or other charges to
17 modify, renew, extend, or amend a high-cost home loan or
18 to defer any payment due under the terms of a high-cost
19 home loan.
20 (7) No mandatory arbitration clause. No high-cost
21 loan may be subject to a mandatory arbitration clause
22 that limits in any way the right of the borrower to seek
23 relief through the judicial process.
24 (8) No lending without home-ownership counseling. A
25 lender may not make a high-cost home loan without first
26 receiving certification from a counselor approved by the
27 United States Department of Housing and Urban
28 Development, a state housing financing agency, or the
29 National Credit Union Administration that the borrower
30 has received counseling on the advisability of the loan
31 transaction and the appropriate loan for the borrower.
32 (9) No refinancing existing high-cost home loan
33 with new high-cost home loan. A lender may not charge a
34 borrower points, fees, or other charges in connection
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1 with a high-cost home loan if the proceeds of the
2 high-cost home loan are used, in whole or in part, to
3 refinance an existing high-cost home loan unless the
4 annual percentage rate on the new loan is at least 200
5 basis points below the contract rate on the existing
6 high-cost loan.
7 (10) Restrictions on home-improvement contracts.
8 (A) Before a creditor makes partial or full
9 payment to a home improvement contractor, the
10 creditor must receive reasonable assurance, through
11 releases or other certifications from all
12 subcontractors that have worked on the residence up
13 to that point in time, that no claim or mechanics'
14 lien will be placed upon the property for that
15 portion of the work for which the payment is made.
16 (B) The proceeds for a home improvement
17 contract shall be disbursed only to the consumer or
18 to the consumer and home improvement contractor
19 jointly or to a bona fide escrow agent of the
20 creditor. Prior to paying more than 70% of the full
21 price contracted for under the home improvement
22 contract, the creditor shall obtain an inspection
23 from an independent inspector who shall supply a
24 completion certification stating that the home
25 improvements were satisfactorily completed.
26 (C) It shall be a complete defense to payment
27 on a home improvement agreement if payment of more
28 than 70% of the contract price is made by a creditor
29 to a contractor or broker without having fully
30 complied with the requirements of this item (10).
31 (11) Prepayment penalties prohibited. No
32 prepayment fees or prepayment penalties shall be
33 contracted by the borrower and lender with respect to any
34 home loan.
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1 (12) Credit insurance financing prohibited. It
2 shall be unlawful for any lender in a home loan to
3 finance, directly or indirectly, any credit life, credit
4 disability, or credit unemployment insurance, or any
5 other life or health insurance premiums, however,
6 insurance premiums calculated and paid on a monthly basis
7 shall not be considered to be financed by the lender.
8 As used in this Section, the term "borrower" refers to
9 each borrower or co-borrower obligated to repay a loan. A
10 lender may not make a home loan unless the lender reasonably
11 believes at the time the loan is consummated that one or more
12 of the borrowers, when considered individually or
13 collectively, will be able to make the scheduled payments to
14 repay the obligation based upon a consideration of their
15 current and expected income, current obligations, employment
16 status, and other financial resources (other than the
17 borrower's equity in the dwelling which secures repayment of
18 the loan). A borrower shall be presumed to be able to make
19 the scheduled payments to repay the obligation if, at the
20 time the loan is consummated, the borrower's total monthly
21 debts, including amounts owed under the loan, do not exceed
22 45% of the borrower's monthly gross income as verified by the
23 credit application, the borrower's financial statement, a
24 credit report, financial information provided to the lender
25 by or on behalf of the borrower, or any other reasonable
26 means.
27 (b) The provisions of this Section apply to any person
28 who attempts to avoid the application of this Section by (i)
29 the structuring of a loan transaction as an open-end credit
30 plan when the loan would have been a high-cost home loan if
31 the loan had been structured as a closed-end loan, (ii)
32 dividing any loan transaction into separate parts for the
33 purpose and with the intent of evading the provisions of this
34 Section, or (iii) any other subterfuge.
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1 (c) Unfair and deceptive acts or practices. Except as
2 provided in subsection (d) of this Section, the making of a
3 home loan that violates any provisions of Sections 10 and 15
4 of this Act is hereby declared usurious in violation of the
5 provisions of this Act and unlawful as an unfair or deceptive
6 act or practice in or affecting commerce. The provisions of
7 this Section apply to any person who in bad faith attempts to
8 avoid the application of this Section by (i) the structuring
9 of a loan transaction as an open-end credit plan for the
10 purpose and with the intent of evading the provisions of this
11 Section when the loan would have been a high-cost home loan
12 if the loan had been structured as a closed-end loan, (ii)
13 dividing any loan transaction into separate parts for the
14 purpose and with the intent of evading the provisions of this
15 Section, or (iii) any other subterfuge. The Attorney General,
16 the Office of Banks and Real Estate, or any party to a
17 high-cost home loan may enforce the provisions of this
18 Section. Any person seeking damages or penalties under the
19 provisions of this Section may recover damages under either
20 this Act or other State law, but not both.
21 (d) Corrections and unintentional violations. A lender
22 in a high-cost home loan who, when acting in good faith,
23 fails to comply with subsection (a) of this Section, shall
24 not be deemed to have violated this Section if the lender
25 establishes that either: (1) Within 30 days after the loan
26 closing and prior to the institution of any action under this
27 Section, the borrower is notified of the compliance failure,
28 appropriate restitution is made, and whatever adjustments are
29 necessary are made to the loan to either, at the choice of
30 the borrower, (i) make the high-cost home loan satisfy the
31 requirements of subsection (a) of this Section or (ii) change
32 the terms of the loan in a manner beneficial to the borrower
33 so that the loan will no longer be considered a high-cost
34 home loan subject to the provisions of this Section; or (2)
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1 the compliance failure was not intentional and resulted from
2 a bona fide error notwithstanding the maintenance of
3 procedures reasonably adapted to avoid errors and within 60
4 days after the discovery of the compliance failure and prior
5 to the institution of any action under this Section or the
6 receipt of written notice of the compliance failure, the
7 borrower is notified of the compliance failure, appropriate
8 restitution is made, and whatever adjustments are necessary
9 are made to the loan to either, at the choice of the
10 borrower, (i) make the high-cost home loan satisfy the
11 requirements of subsection (a) of this Section or (ii) change
12 the terms of the loan in a manner beneficial to the borrower
13 so that the loan will no longer be considered a high-cost
14 home loan subject to the provisions of this Section.
15 (e) Assignee liability. Any subsequent holder who
16 purchases or is otherwise assigned a mortgage referred to in
17 this Section shall be subject to all claims and defenses with
18 respect to that mortgage that the consumer could assert
19 against the original creditor of the mortgage.
20 Section 20. Damages. If any person, corporation, or
21 other lender knowingly violates either directly or indirectly
22 any of the provisions described in this Act, the borrower
23 may, recover by means of an action or defense, an amount
24 equal to twice the total of all interest, discount, and
25 charges determined by the loan contract or paid by the
26 borrower, whichever is greater, plus such reasonable
27 attorneys fees and court costs as may be assessed by a court
28 against the lender. Recovery by means of a defense may be had
29 at any time after the loan is transacted. Recovery by means
30 of an action may be had at any time within 2 years after the
31 date on which the total loan amount due under the terms of
32 the loan contract is fully paid. The remedies provided in
33 this Act are not intended to be the exclusive remedies
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1 available to a borrower nor must the borrower exhaust any
2 administrative remedies provided under this Act or any other
3 applicable law.
4 Section 25. Enforcement. When the Office of Banks and
5 Real Estate determines that a violation of this Act has
6 occurred, after due process, it shall withdraw the license of
7 the violator.
8 Section 30. Severability. If any portion of this Act is
9 determined to be invalid for any reason by a final
10 nonappealable order of any court of this State or of a
11 federal court of competent jurisdiction, then it shall be
12 severed from this Act. All other provisions of this Act
13 shall remain in full force and effect.
14 Section 35. Applicability. This Act applies to all loans
15 made or entered into after the effective date of this Act.".