PRINTER'S NO. 221
No. 234 Session of 2001
INTRODUCED BY ROEBUCK, BELFANTI, BISHOP, CURRY, FREEMAN,
HENNESSEY, HORSEY, JAMES, MICHLOVIC, PRESTON, ROBINSON,
STEELMAN AND WATERS, JANUARY 25, 2001
REFERRED TO COMMITTEE ON COMMERCE AND ECONOMIC DEVELOPMENT,
JANUARY 25, 2001
AN ACT
1 Prohibiting certain acts and practices by lenders regarding home
2 loans; restricting lenders from making investments backed by
3 home loans; imposing reporting requirements for lenders;
4 requiring the reporting of interest rates; and imposing
5 penalties.
6 The General Assembly of the Commonwealth of Pennsylvania
7 hereby enacts as follows:
8 Section 1. Short title.
9 This act shall be known and may be cited as the Consumer Home
10 Loan Protection Act.
11 Section 2. Definitions.
12 The following words and phrases when used in this act shall
13 have the meanings given to them in this section unless the
14 context clearly indicates otherwise:
15 "Affiliate." A company that controls, is controlled by or is
16 under common control with another company, as set forth in the
17 Bank Holding Company Act of 1956 (70 Stat. 133, 12 U.S.C. § 1841
18 et seq.).
1 "Annual percentage rate." The annual percentage rate for the
2 loan calculated according to the provisions of the Truth-in-
3 Lending Act (Public Law 90-321, 15 U.S.C. § 1601, et seq.), and
4 the regulations promulgated thereunder by the Federal Reserve
5 Board.
6 "Bona fide loan discount points." Loan discount points
7 knowingly paid by a borrower for the purpose of reducing, and
8 which in fact result in a bona fide reduction of, the interest
9 rate or time-price differential applicable to a loan, provided
10 the amount of the interest rate reduction purchased by the
11 discount points is reasonably consistent with established
12 industry norms and practices for secondary mortgage market
13 transactions.
14 "Flipping." The making of a home loan to a borrower that
15 refinances an existing home loan when the new loan does not have
16 a reasonable, tangible net benefit to the borrower considering
17 all of the circumstances, including the terms of both the new
18 and refinanced loans, the cost of the new loan and the
19 borrower's circumstances.
20 "High-cost home loan." A home loan in which the terms of the
21 loan meet one or more of the following thresholds:
22 (1) The annual percentage rate of the home loan at
23 consummation exceeds by five or more percentage points the
24 weekly average yield on United States Treasury securities
25 adjusted to a constant maturity of one year as made available
26 by the Federal Reserve Board, as of the week immediately
27 preceding the week in which the interest rate for the loan is
28 established.
29 (2) The home loan is a variable rate loan in which the
30 annual percentage rate can reasonably be expected to increase
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1 beyond the threshold established in paragraph (1).
2 (3) Potential or scheduled increases in the annual
3 percentage rate of the home loan are not directly tied to
4 future increases in a widely used Federal or private market
5 measurement that reflects the cost of borrowing money, such
6 as the interest rate yield on United States Treasury
7 securities, the Federal funds rate or the prime interest
8 rate.
9 (4) (i) The total points and fees on the loan exceed:
10 (A) three percent of the total loan amount if
11 the total loan amount is $20,000 or more;
12 (B) four percent of the total loan amount if the
13 total loan amount is $20,000 or more and the loan is
14 a purchase money loan guaranteed by the Federal
15 Housing Administration or the Veterans
16 Administration; or
17 (C) the lesser of 5% of the total loan amount or
18 $800 if the total loan amount is less than $20,000.
19 (ii) The following discount points shall be excluded
20 from the calculation of the total points and fees,
21 whichever is greater:
22 (A) up to and including two bona fide loan
23 discount points payable by the borrower in connection
24 with the loan transaction, but only if the interest
25 rate from which the loan's interest rate will be
26 discounted does not exceed by more than one
27 percentage point the required net yield for a 90-day
28 standard mandatory delivery commitment for a
29 reasonably comparable loan from either the Federal
30 National Mortgage Association or the Federal Home
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1 Loan Mortgage Corporation, whichever is greater; or
2 (B) up to and including one bona fide loan
3 discount point payable by the borrower in connection
4 with the loan transaction, but only if the interest
5 rate from which the loan's interest rate will be
6 discounted does not exceed by more than two
7 percentage points the required net yield for a 90-day
8 standard mandatory delivery commitment for a
9 reasonably comparable loan from either the Federal
10 National Mortgage Association or the Federal Home
11 Loan Mortgage Corporation, whichever is greater.
12 "Home loan." A loan, other than an open-end credit plan or a
13 reverse mortgage transaction, where:
14 (1) The principal amount of the loan does not exceed the
15 conforming loan size limit for a single-family dwelling as
16 established from time to time by the Federal National
17 Mortgage Association.
18 (2) The borrower is a natural person.
19 (3) The debt is incurred by the borrower primarily for
20 personal, family or household purposes.
21 (4) The loan is secured by a mortgage or deed of trust
22 on real estate upon which there is located or there is to be
23 located a structure or structures designed principally for
24 occupancy of from one to four families, which are or will be
25 occupied by the borrower as the borrower's principal
26 dwelling.
27 "Lender." An entity which originated more than five home
28 loans within the past 12-month period or acted as an
29 intermediary between originators and borrowers on more than five
30 home loans within the past 12-month period.
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1 "Obligor." Each borrower, coborrower, cosigner or guarantor
2 obligated to repay a home loan.
3 "Points and fees."
4 (1) This term includes all of the following:
5 (i) All items required to be disclosed under 12 CFR
6 § 226.4(a) and (b), except interest or the time-price
7 differential.
8 (ii) All charges for items listed under 12 C.F.R. §
9 226.4(c)(7), but only if the lender receives direct or
10 indirect compensation in connection with the charge or
11 the charge is paid to an affiliate of the lender,
12 otherwise; the charges shall not be included within the
13 term.
14 (iii) All compensation paid directly or indirectly
15 to a mortgage broker, including a broker that originates
16 a loan in its own name in a table-funded transaction, not
17 otherwise included in subparagraph (i) or (ii).
18 (2) This term does not include:
19 (i) Taxes, filing fees, recording and other charges
20 and fees paid or to be paid to public officials for
21 determining the existence of or for perfecting, releasing
22 or satisfying a security interest; and
23 (ii) fees paid to a person other than a lender or an
24 affiliate of the lender or to the mortgage broker or an
25 affiliate of the mortgage broker for the following: fees
26 for flood certification; fees for pest infestation and
27 flood determinations; appraisal fees; fees for
28 inspections performed prior to closing; credit reports;
29 surveys; attorney fees, if the borrower has the right to
30 select the attorney from an approved list or otherwise;
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1 notary fees; escrow charges, so long as not otherwise
2 included under paragraph (1)(ii); title insurance
3 premiums; and fire insurance and flood insurance
4 premiums, provided that the conditions in 12 CFR §
5 226.4(d)(2) are met.
6 "Total loan amount." This term has the same meaning given it
7 in 12 CFR § 226.32, and the same shall be calculated in
8 accordance with the Federal Reserve Board's Official Staff
9 Commentary thereto.
10 Section 3. Prohibited acts and practices and lender
11 requirements regarding home loans.
12 The following provisions shall apply to home loans:
13 (1) No prepayment fees or penalties shall be contracted
14 by a borrower and lender with respect to a home loan.
15 (2) No home loan may contain a payment schedule with
16 regular periodic payments that result in an increase in the
17 principal balance, a practice known as negative amortization.
18 (3) No lender may knowingly or intentionally engage in
19 the practice of flipping a home loan.
20 (4) No lender may recommend or encourage default on an
21 existing loan or other debt prior to and in connection with
22 the closing or planned closing of a consumer home loan that
23 refinances all or any portion of such existing loan or debt.
24 (5) No lender may make a home loan unless the lender
25 reasonably believes at the time the loan is consummated that
26 one or more of the obligors, when considered individually or
27 collectively, will be able to make the scheduled payments to
28 repay the obligation based upon a consideration of their
29 current and expected income, current obligations, employment
30 status and other financial resources, other than the
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1 borrower's equity in the dwelling which secures repayment of
2 the loans.
3 (6) No lender may compensate, whether directly or
4 indirectly, coerce or intimidate an appraiser for the purpose
5 of influencing the independent judgment of the appraiser with
6 respect to the value of real estate that is to be covered by
7 a residential mortgage or is being offered as security
8 according to an application for a residential mortgage loan.
9 (7) No lender may finance, directly or indirectly, any
10 credit life, credit disability or credit unemployment
11 insurance, or any other life or health insurance premiums
12 through a home loan. Insurance premiums calculated and paid
13 on a monthly basis shall not be considered financed by the
14 lender.
15 (8) No home loan contract in which blanks are left to be
16 filled in after the contract is signed shall be enforceable
17 under the law.
18 (9) If the discussions between a lender and a borrower
19 on a home loan are conducted primarily in a language other
20 than English, the lender shall, before closing, provide an
21 additional copy of the notice translated into the language in
22 which the discussions were conducted.
23 Section 4. Limitations, prohibited acts and practices for high-
24 cost home loans.
25 The following provisions shall apply to high-cost home loans:
26 (1) No high-cost home loan may contain a scheduled
27 payment that is more than twice as large as the average of
28 earlier scheduled payments. This paragraph shall not apply
29 when a payment schedule is adjusted to the seasonal or
30 irregular income of the borrower.
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1 (2) No high-cost home loan may include terms under which
2 more than two periodic payments required under the loan are
3 consolidated and paid in advance from the loan proceeds
4 provided to the borrower.
5 (3) No high-cost home loan may contain a provision that
6 increases the interest rate after default. This paragraph
7 shall not apply to interest rate changes in a variable rate
8 loan otherwise consistent with the provisions of the loan
9 documents, provided the change in the interest rate is not
10 triggered by the event of default or the acceleration of the
11 indebtedness.
12 (4) No high-cost home loan may contain a provision which
13 permits the lender, in its sole discretion, to increase the
14 indebtedness. This paragraph shall not apply when repayment
15 of the loan has been accelerated by default, pursuant to a
16 due-on-sale provision, or pursuant to some other provision of
17 the loan documents unrelated to the payment schedule.
18 (5) No lender may charge a borrower any fees or other
19 charges to modify, renew, extend or amend a high-cost home
20 loan or to defer any payment due under the terms of a high-
21 cost home loan.
22 (6) No lender may make a high-cost home loan without
23 first receiving certification from a counselor approved by
24 the Department of Housing and Urban Development that the
25 borrower has received counseling on the advisability of the
26 loan transaction and the appropriate loan for the borrower.
27 (7) No high-cost home loan may be subject to a mandatory
28 arbitration clause that limits in any way the right of the
29 borrower to seek relief through the judicial process.
30 (8) No lender may pay a contractor under a home-
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1 improvement contract from the proceeds of a high-cost home
2 loan other than:
3 (i) by an instrument payable to the borrower or
4 jointly to the borrower and the contractor; or
5 (ii) at the election of the borrower, through a
6 third-party escrow agent in accordance with terms
7 established in a written agreement signed by the
8 borrower, the lender and the contractor prior to the
9 disbursement.
10 Section 5. Attempted evasion of coverage and unintentional
11 violations.
12 (a) General rule.--Section 4 shall apply to any person who
13 in bad faith attempts to avoid its application by:
14 (1) structuring a loan transaction as an open-end credit
15 plan for the purpose and with the intent of evading this act
16 when the loan would have been a high-cost home loan if the
17 loan had been structured as a closed-end loan;
18 (2) dividing any loan transaction into separate parts
19 for the purpose and with the intent of evading this act; or
20 (3) any other such subterfuge.
21 (b) Corrections and unintentional violations.--A lender in a
22 high-cost home loan who, when acting in good faith, fails to
23 comply with section 4 shall not be deemed to have violated this
24 section if the lender establishes that either of the following
25 apply:
26 (1) Within 30 days of the loan closing and prior to the
27 institution of any action under this section, the lender
28 notified the borrower of the compliance failure, made
29 appropriate restitution, gave the borrower the option to
30 adjust the loan by:
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1 (i) making the high-cost home loan satisfy the
2 requirements of this section; or
3 (ii) changing the terms of the loan in a manner
4 beneficial to the borrower so that the loan would no
5 longer be considered a high-cost home loan subject to
6 this act; and
7 adjusted the loan accordingly.
8 (2) The compliance failure was not intentional and
9 resulted from a bona fide error notwithstanding the
10 maintenance of procedures reasonably adapted to avoid such
11 errors and within 60 days after the discovery of the
12 compliance failure and prior to the institution of any action
13 under this act or the receipt of written notice of the
14 compliance failure, the lender notified the borrower of the
15 compliance failure, made appropriate restitution and gave the
16 borrower the option to adjust the loan by:
17 (i) making the high-cost home loan satisfy the
18 requirements of this section; or
19 (ii) changing the terms of the loan in a manner
20 beneficial to the borrower so that the loan would no
21 longer be considered a high-cost home loan subject to
22 this act; and
23 adjusted the loan accordingly. Examples of a bona fide error
24 include clerical, calculation, computer malfunction and
25 programming and printing errors. An error of legal judgment
26 with respect to a person's obligations under this section is
27 not a bona fide error.
28 Section 6. Investments.
29 No lender shall make investments that are backed by home
30 loans that violate section 3 or 4.
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1 Section 7. Reporting requirements for lenders.
2 (a) General rule.--A lender that is exempt from the
3 reporting requirements of section 304 of the Home Mortgage
4 Disclosure Act of 1975 (Public Law 94-200, 12 U.S.C. § 2803)
5 solely because the home purchase loans, including refinancings,
6 that the lender originated in the preceding calendar year
7 totaled less than 10% of the lender's total loan origination
8 volume measured in dollars, thereby qualifying for an exemption
9 under Paragraph I.D. of Appendix A to 12 CFR Pt. 203, shall be
10 required to report to the Secretary of Banking the same
11 information that other lenders are required to report under
12 section 304(b) of the Home Mortgage Disclosure Act of 1975 to
13 the appropriate Federal agency.
14 (b) Format.--Lenders shall submit the information required
15 under subsection (a) in the format established by the Department
16 of Housing and Urban Development pursuant to section 304(h)(5)
17 of the Home Mortgage Disclosure Act of 1975.
18 Section 8. Reporting of interest rates.
19 (a) Duty of lenders to report.--Lenders shall report to the
20 Secretary of Banking the average and median interest rates of
21 mortgage loans and home improvement loans that they originate
22 grouped according to the categories established under section
23 304(b)(4) of the Home Mortgage Disclosure Act of 1975 (Public
24 Law 94-200, 12 U.S.C. 2803(b)(4)): census tract, income level,
25 racial characteristics and gender.
26 (b) Calculation of interest rate.--In calculating the
27 interest rate for variable-rate loans to fulfill the
28 requirements of subsection (a), lenders shall use the average
29 interest rate on the variable-rate loan for the 12 months of the
30 reporting period established under section 304(d) of the Home
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1 Mortgage Disclosure Act of 1975 which is the calendar year.
2 (c) Format of report.--Lenders shall submit the information
3 required under subsection (a) in a similar format to how the
4 lender reports information to the appropriate Federal agency
5 under section 304(h)(5) of the Home Mortgage Disclosure Act of
6 1975 or to the Secretary of Banking under section 7.
7 Section 9. Penalties.
8 A lender that is found in violation of this act shall be
9 subject to forfeiture of all principal and interest on all loans
10 made in violation of this act.
11 Section 10. Effective date.
12 This act shall take effect as follows:
13 (1) Sections 1, 2, 3, 4, 5, 6 and 9 shall take effect in
14 90 days.
15 (2) Sections 7 and 8 shall take effect in one year.
16 (3) This section shall take effect immediately.
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