PRINTER'S NO. 1102
No. 967 Session of 2005
INTRODUCED BY PRESTON, BELFANTI, BUXTON, CALTAGIRONE, COHEN,
CRAHALLA, CREIGHTON, DeLUCA, FABRIZIO, FRANKEL, FREEMAN,
GEORGE, GRUCELA, JAMES, JOSEPHS, LEACH, MYERS, READSHAW,
SHANER, SOLOBAY, WALKO AND YOUNGBLOOD, MARCH 15, 2005
REFERRED TO COMMITTEE ON COMMERCE, MARCH 15, 2005
AN ACT
1 Amending the act of December 22, 1989 (P.L.687, No.90), entitled
2 "An act providing for the regulation and licensing of
3 mortgage bankers and mortgage brokers; imposing additional
4 powers and duties on the Department of Banking and the State
5 Real Estate Commission; and providing penalties," further
6 providing for consumer equity protection; providing for home
7 ownership protection; and making a repeal.
8 The General Assembly of the Commonwealth of Pennsylvania
9 hereby enacts as follows:
10 Section 1. Chapter 5 of the act of December 22, 1989
11 (P.L.687, No.90), known as the Mortgage Bankers and Brokers and
12 Consumer Equity Protection Act, is repealed.
13 Section 2. The act is amended by adding a chapter to read:
14 CHAPTER 5-A
15 HOME OWNERSHIP PROTECTION
16 Section 501-A. Scope.
17 This chapter deals with home ownership protection.
18 Section 502-A. Definitions.
19 The following words and phrases when used in this chapter
1 shall have the meanings given to them in this section unless the
2 context clearly indicates otherwise:
3 "Acceleration." A demand for immediate payment of the entire
4 balance of a home loan.
5 "Affiliate." An entity that controls, is controlled by or is
6 under common control with another company as set forth in 12
7 U.S.C. § 1841(k) (relating to definition of affiliate).
8 "Annual percentage rate." The annual percentage rate
9 calculated at closing pursuant to the provisions of 15 U.S.C. §
10 1606 (relating to determination of annual percentage rate) and
11 the regulations promulgated thereunder by the Board of Governors
12 of the Federal Reserve System. For purposes of this act, the
13 annual percentage rate shall be determined as follows:
14 (1) For a variable rate loan with a temporary initial
15 rate that is lower than the rate that will apply after the
16 temporary rate expires, the annual percentage rate shall not
17 include the temporary rate.
18 (2) For a variable rate loan, the annual percentage rate
19 shall be determined by using the index rate and adding the
20 maximum margin permitted during term of the loan.
21 (3) For all other home loans with rates that may later
22 increase, the rate shall be determined based on the maximum
23 interest rate permitted during the term of the loan.
24 "Bona fide discount points." Loan discount points that are
25 knowingly paid by the borrower for the express purpose of
26 reducing and which in fact do result in a bona fide reduction of
27 the annual percentage rate otherwise applicable to the home
28 loan. Discount points are not bona fide discount points if the
29 annual percentage rate otherwise applicable to the home loan
30 exceeds the conventional mortgage rate by more than:
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1 (1) One and one-half percentage points for a home loan
2 secured by a first lien.
3 (2) Three percentage points for a home loan secured by a
4 junior lien.
5 "Borrower." A natural person obligated to repay a home loan,
6 including a coborrower, cosigner or guarantor.
7 "Bridge loan." A loan with a maturity date of less than 18
8 months which requires only payments of interest until such time
9 as the entire balance is due and payable.
10 "Conventional mortgage rate." The most recently published
11 annual yield on conventional mortgages published by the Board of
12 Governors of the Federal Reserve System.
13 "Creditor." A person who provides a home loan or a person
14 who brokers a home loan, including any person who directly or
15 indirectly solicits, places or negotiates home loans for others
16 or who closes home loans which may be in the person's own name
17 with funds provided by others and which loans are thereafter
18 assigned to the person providing the funding of the loans. The
19 term shall not include an attorney who is providing legal
20 services in connection with the closing of a home loan or a
21 licensed title insurance company providing services in the
22 closing of a home loan.
23 "High-cost home loan." A home loan in which either of the
24 following applies:
25 (1) The annual percentage rate exceeds the rates
26 threshold.
27 (2) The total points and fees exceed the total points
28 and fees threshold.
29 "Home loan." A loan, including an open-end loan, other than
30 a reverse mortgage transaction, where the loan is secured by
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1 either of the following:
2 (1) A mortgage or deed of trust on real estate upon
3 which there is located, or there is to be located, a
4 structure:
5 (i) Designed principally for occupancy by one to
6 four families.
7 (ii) That is or will be occupied by a borrower as
8 the borrower's principal residence.
9 (2) A security interest in a manufactured home that is
10 or will be occupied by a borrower as the borrower's principal
11 residence.
12 "Manufactured home." A movable or portable structure
13 intended for human occupancy which exceeds either a width of
14 eight feet or a length of 40 feet, constructed to be towed on
15 its own chassis and designed to be installed with or without a
16 permanent foundation.
17 "Open-end loan." A loan in which all of the following apply:
18 (1) A creditor reasonably contemplates repeated
19 transactions.
20 (2) The creditor may impose a finance charge from time
21 to time on the outstanding balance.
22 (3) The amount of credit that may be extended to the
23 borrower during the term of the loan, up to any limit set by
24 the creditor, generally is made available to the extent that
25 any outstanding balance is repaid.
26 "Points and fees."
27 (1) The term includes the following:
28 (i) All items listed in 15 U.S.C. § 1605(a)(1)
29 through (4) (relating to "finance charge" defined),
30 except interest or the time-price differential.
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1 (ii) All charges listed in 15 U.S.C. § 1605(e)(3)
2 (relating to items exempted from computation of finance
3 charge in extensions of credit secured by an interest in
4 real property).
5 (iii) All compensation paid directly or indirectly
6 to a mortgage broker, including a broker that originates
7 a loan in its own name in a table-funded transaction.
8 (iv) The cost of all premiums financed by the
9 creditor, directly or indirectly, for any credit life,
10 credit disability, credit unemployment or credit property
11 insurance, or any other life or health insurance or any
12 payments financed by the creditor directly or indirectly
13 for debt cancellation or suspension of the agreement or
14 contract except that insurance premiums calculated and
15 paid on a monthly basis shall not be considered financed
16 by the creditor.
17 (v) The maximum prepayment fees and penalties that
18 may be charged or collected under the terms of the loan
19 documents.
20 (vi) All prepayment fees or penalties that are
21 charged the borrower if the loan refinances a previous
22 loan made by the same creditor or an affiliate of the
23 creditor.
24 (2) For open-end loans, the points and fees are
25 calculated by adding the total fees charged at closing plus
26 the maximum additional fees which can be charged pursuant to
27 the loan documents during the term of the loan.
28 "Rate." The annual percentage rate for the loan calculated
29 based on the points and fees set forth under this act. The rate
30 shall be calculated at closing.
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1 "Rate threshold." The term includes the following:
2 (1) For a first lien mortgage home loan, a rate equal to
3 six percentage points over the weekly average yield on five-
4 year United States Treasury securities on the 15th day of the
5 month immediately preceding the month in which the loan is
6 made.
7 (2) For a subordinate mortgage lien or a loan secured
8 solely by a security interest in a manufactured home, a rate
9 equal to eight percentage points over the weekly average
10 yield on five-year United States Treasury securities on the
11 15th day of the month immediately preceding the month in
12 which the loan is made.
13 "Total points and fees." The result obtained by subtracting
14 the bona fide discount points paid from the sum of the points
15 and fees.
16 "Total points and fees threshold." The term includes the
17 following:
18 (1) For a home loan in which the total principal loan
19 amount is $20,000 or more, an amount equal to 5% of the total
20 principal loan amount.
21 (2) For a home loan in which the total principal amount
22 is less than $20,000, an amount equal to the lesser of 6% of
23 the total loan amount or $1,000.
24 "Variable rate loan." A home loan where the rate of interest
25 charged may vary during the term of the loan pursuant to a rate
26 that is calculated only by using an index that can change due to
27 circumstances beyond the control of the creditor.
28 Section 503-A. Prohibited practices.
29 (a) Providing certain insurance.--A creditor may not
30 finance, directly or indirectly, credit life, credit disability,
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1 credit employment or credit property insurance or any other life
2 or health insurance or any payments, directly or indirectly, for
3 any debt cancellation or suspension of the agreement or
4 contract:
5 (1) Nothing in this subsection shall prohibit the
6 payment or receipt of insurance premiums or debt cancellation
7 or suspension fees calculated on the unpaid balance of a home
8 loan and paid on a monthly basis.
9 (2) As used in this subsection, "credit property
10 insurance" means property insurance written in connection
11 with credit transactions under which the creditor is the
12 primary beneficiary.
13 (b) Flipping a home loan.--A creditor may not engage in the
14 practice of flipping a home loan:
15 (1) A creditor making a home loan shall be presumed to
16 be engaged in flipping a home loan if either of the following
17 applies:
18 (i) The primary tangible benefit to the borrower is
19 an interest rate lower than the interest rate on debts
20 satisfied or refinanced in connection with the original
21 home loan, and it will take more than five years for the
22 borrower to recoup the costs of points and fees through
23 savings resulting from the lower interest rate.
24 (ii) The new loan refinances an existing home loan
25 that is a special mortgage originated, subsidized or
26 guaranteed by or through a Federal, state, tribal or
27 local government program or a nonprofit organization,
28 which either bears a below-market interest rate at the
29 time the loan is originated or which has nonstandard
30 payment terms beneficial to the borrower, including terms
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1 under which payments vary with income, are limited to a
2 percentage of income or are not required under certain
3 conditions and where, as a result of the refinancing, the
4 borrower will lose a benefit of the special mortgage.
5 (2) As used in this subsection, "flipping a home loan"
6 means the making of a home loan to a borrower that refinances
7 an existing home loan when the new loan does not have
8 reasonable, tangible net benefit to the borrower, considering
9 all of the circumstances, including the terms of both the new
10 and refinanced loans, the cost of the new loan and the
11 borrower's circumstances.
12 (c) Encouragement of default prohibited.--A creditor may not
13 recommend or encourage default on an existing loan or other debt
14 prior to and in connection with the closing or planned closing
15 of a home loan that refinances all or any portion of the
16 existing loan or debt.
17 (d) Certain late payment fees prohibited.--A creditor may
18 not make a home loan that provides for a late payment fee except
19 as follows:
20 (1) The late payment fee shall not be in excess of 5% of
21 the amount of the payment past due.
22 (2) The late payment fee shall only be assessed for a
23 payment past due for 15 days or more.
24 (3) The late payment fee shall not be imposed more than
25 once with respect to a single late payment, and no late
26 payment fee shall be charged with respect to a subsequent
27 payment that would have been full payment but for the
28 previous default or the imposition of the previous late
29 payment fee.
30 (4) No late payment shall be charged unless the creditor
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1 notifies the borrower within 45 days following the date the
2 payment was due that a late payment fee has been imposed for
3 a particular late payment. A late payment fee that the
4 creditor has collected shall be reimbursed if the borrower
5 presents proof of having made a timely payment.
6 (5) A creditor shall treat each payment as posted on the
7 same business day as it was received by the creditor,
8 servicer, creditor's agent or at the address provided to the
9 borrower by the creditor, servicer or the creditor's agent
10 for making payments.
11 (e) Certain acceleration prohibited.--A creditor may not
12 make a home loan that contains a provision which permits the
13 creditor, in its sole discretion, to accelerate the
14 indebtedness, provided that this provision does not prohibit
15 acceleration of a loan in good faith due to a borrower's failure
16 to abide by the material terms of the loan.
17 (f) Prepayment penalty prohibited.--A creditor may not make
18 a home loan that contains a provision that requires a penalty or
19 premium for prepayment of the balance of the indebtedness.
20 (g) Loan not to exceed appraised value.--A creditor may not
21 make a home loan that will result in liens against the home or
22 manufactured home exceeding the appraised value of the home or
23 manufactured home at the time the loan is made plus the value of
24 any improvements to be made with the loan proceeds unless the
25 loan is fully secured by other collateral.
26 (h) Size of payments limited.--No loan, other than a bridge
27 loan, may require a scheduled payment that is more than twice as
28 large as the average of earlier scheduled payments.
29 (i) Balloon payments prohibited.--A creditor may not make a
30 home loan that contains payment terms under which the
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1 outstanding principal balance will increase at any time over the
2 course of the loan because the regular periodic payments do not
3 cover the full amount of interest due.
4 (j) Increase in interest rate prohibited.--A creditor may
5 not make a home loan that contains a provision that increases
6 the interest rate after default, provided that this provision
7 does not apply to interest rate changes in a variable rate loan
8 otherwise consistent with the provisions of the loan documents
9 if the change in the interest rate is not triggered by the event
10 of default or the acceleration of the indebtedness.
11 (k) Certain payment consolidation prohibited.--A creditor
12 may not make a home loan that includes terms under which more
13 than two periodic payments required under the loan are
14 consolidated and paid in advance from the loan proceeds provided
15 to the borrower.
16 (l) Judicial access.--A creditor may not make a home loan
17 that may be subject to a mandatory arbitration clause which
18 limits in any way the right of the borrower to seek relief
19 through the judicial process for any and all claims and defenses
20 the borrower may have against the creditor, broker or other
21 party involved in the loan transaction.
22 (m) Realistic consideration of ability to repay loan.--A
23 creditor may not make a home loan without due regard to
24 repayment ability. A creditor who follows debt-to-income ratios
25 listed at 38 CFR 36.4337(c)(1) (relating to methods) and defined
26 at 38 CFR 36.4337(d) (relating to debt-to-income ratio) and
27 follows the residential income guidelines established in 38 CFR
28 36.4337(e) (relating to residual income guidelines) shall
29 benefit from a rebuttable presumption that the creditor made the
30 loan with due regard to repayment ability.
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1 (n) Home improvements.--A creditor may not pay a contractor
2 under a home improvement contract from the proceeds of a home
3 loan unless:
4 (1) The creditor is presented with a signed and dated
5 completion certificate showing that the home improvements
6 have been completed.
7 (2) The instrument is payable jointly to the borrower
8 and the contractor or, at the election of the borrower,
9 through a third-party escrow agent in accordance with terms
10 established in a written agreement signed by the borrower,
11 the creditor and the contractor prior to the disbursement.
12 (o) Payoff information.--A creditor or assignee may not
13 charge a fee for informing or transmitting to any person the
14 balance due to pay off a home loan or to provide a release upon
15 payment. When balance due information is provided by facsimile
16 or if it is provided upon request within 60 days of the
17 fulfillment of a previous request, the creditor or assignee may
18 charge a processing fee not to exceed $10. Payoff balances shall
19 be provided within a reasonable time but in no event more than
20 five business days after the request.
21 Section 504-A. High-cost home loans.
22 (a) Certification required.--A creditor may not make a high-
23 cost home loan without first receiving certification from a
24 counselor approved by the United States Department of Housing
25 and Urban Development or the Pennsylvania Housing Finance Agency
26 that the borrower has received counseling on the advisability of
27 the loan transaction.
28 (b) Points or closing costs.--A creditor making a high-cost
29 loan may not directly or indirectly finance any points or fees.
30 (c) Modification costs.--A creditor making a high-cost home
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1 loan may not charge a borrower any fees or other charges to
2 modify, renew, extend or amend a high-cost home loan.
3 (d) Deferral of payment.--A creditor making a high-cost home
4 loan may not charge a borrower to defer any payment due under
5 the terms of a high-cost home loan.
6 (e) Truth in lending.--No high-cost home loan shall contain
7 any term or be the product of any practice that violates section
8 129 of the Truth in Lending Act (Public Law 90-321, 15 U.S.C. §
9 1638) and the regulations adopted pursuant thereto by the
10 Federal Reserve Board.
11 Section 505-A. Avoidance.
12 A creditor, broker or agent or other person may not, with the
13 intent to avoid the application or provisions of this act,
14 divide a loan transaction into separate parts or perform any
15 other act that will confuse, mislead or misinform the lender.
16 Section 506-A. Enforcement.
17 (a) Unfair practices.--A violation of this chapter shall be
18 deemed a violation of the act of December 17, 1968 (P.L.1224,
19 No.387), known as the Unfair Trade Practices and Consumer
20 Protection Law.
21 (b) Officials.--The Attorney General, the Secretary of
22 Banking and county district attorneys shall have jurisdiction to
23 enforce this act through general regulatory powers and through
24 civil process. The Insurance Commissioner shall have like
25 authority to enforce section 4(a).
26 (c) Civil actions.--A borrower harmed by a violation of this
27 chapter may bring a civil action as provided for under the
28 Unfair Trade Practices and Consumer Protection Law. Civil action
29 and remedies are not exclusive and shall be in addition to any
30 other action or remedies available to the borrower under
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1 applicable law.
2 (d) Defenses.--A creditor shall not be liable in an action
3 brought pursuant to this section if:
4 (1) Within 30 days of the home loan closing and prior to
5 receiving any notice from the borrower of the violation, the
6 creditor has made appropriate restitution to the borrower and
7 appropriate adjustments are made to the loan.
8 (2) The violation was not intentional and resulted from
9 a bona fide error of fact notwithstanding the maintenance of
10 procedures reasonably adopted to avoid such errors, and
11 within 60 days of the loan closing and prior to receiving any
12 notice from the borrower of the violation, the borrower is
13 notified of the violation, appropriate restitution is made to
14 the borrower and appropriate adjustments are made to the
15 loan.
16 (e) Criminal liability.--A person, including officers and
17 directors of the creditor, who knowingly violates this act
18 commits a misdemeanor of the third degree upon a first
19 violation. A second or subsequent violation of this act
20 constitutes a misdemeanor of the first degree.
21 Section 507-A. Assignees of home loans.
22 (a) General rule.--Except as provided in subsection (b),
23 notwithstanding any other provision of law, a person or entity
24 which purchases or is otherwise assigned a home loan shall be
25 subject to all affirmative claims and any defenses with respect
26 to the creditor.
27 (b) Exception.--This subsection shall not apply if the
28 purchaser or assignee proves by a preponderance of the evidence
29 that a reasonable person using reasonable due diligence could
30 not determine that the mortgage was made in violation of this
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1 act.
2 Section 3. Chapter 5-A shall apply to all home loans offered
3 or entered into after the effective date of this act.
4 Section 4. This act shall take effect in 90 days.
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