HF 3434

as introduced - 82nd Legislature (2001 - 2002) Posted on 12/15/2009 12:00am

  1.1                          A bill for an act 
  1.2             relating to financial institutions; enacting 
  1.3             restrictions on certain home loans; proposing coding 
  1.4             for new law as Minnesota Statutes, chapter 58A. 
  1.5   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.6      Section 1.  [58A.01] [CITATION.] 
  1.7      Sections 58A.01 to 58A.08 may be cited as the "Responsible 
  1.8   Lending Act of 2002." 
  1.9      Sec. 2.  [58A.02] [DEFINITIONS.] 
  1.10     Subdivision 1.  [SCOPE.] For the purposes of sections 
  1.11  58A.01 to 58A.08, the terms defined in this section have the 
  1.12  meanings given them. 
  1.13     Subd. 2.  [AFFILIATE.] "Affiliate" has the meaning given in 
  1.14  section 302A.011, subdivision 43. 
  1.15     Subd. 3.  [ASSIGNEE.] "Assignee" means a person that 
  1.16  purchases or otherwise voluntarily acquires a loan or an 
  1.17  interest in a loan. 
  1.18     Subd. 4.  [AUTHORIZED INDEPENDENT HOME LOAN COUNSELOR.] 
  1.19  "Authorized independent home loan counselor" means an individual 
  1.20  or organization authorized by the housing finance agency or the 
  1.21  Department of Housing and Urban Development to provide home loan 
  1.22  counseling. 
  1.23     Subd. 5.  [BONA FIDE ERROR.] "Bona fide error" includes a 
  1.24  clerical, calculation, computer malfunction, computer 
  1.25  programming, or printing mistake. 
  2.1      Subd. 6.  [HIGH-COST HOME LOAN.] "High-cost home loan" 
  2.2   means an original purchase, refinance, home equity, or other 
  2.3   loan, including an open-end credit plan, but not including a 
  2.4   reverse mortgage, where the following conditions exist: 
  2.5      (1) the loan is secured by a mortgage or deed on real 
  2.6   estate that is occupied and used as a borrower's primary 
  2.7   residence; 
  2.8      (2) the loan is for less than the dollar threshold for 
  2.9   purchase of loans by Fannie Mae and Freddy Mac; and 
  2.10     (3) the interest rate or points and fees equal or exceed 
  2.11  the thresholds defined in subdivision 13. 
  2.12     Subd. 7.  [INTEREST RATE.] "Interest rate" means: 
  2.13     (1) for a fixed rate loan, the interest rate as of the date 
  2.14  of closing; 
  2.15     (2) for an indexed variable rate loan, the sum of the index 
  2.16  rate as of the date of closing plus the maximum margin permitted 
  2.17  at any time under the loan agreement; and 
  2.18     (3) for all other variable rate loans, the maximum rate 
  2.19  that may be charged during the term of the loan. 
  2.20     Subd. 8.  [LENDER.] "Lender" means any person authorized to 
  2.21  do business under chapter 47, 48, 50, 51A, 52, 53, 56, or 58. 
  2.22     Subd. 9.  [PERSON.] "Person" means an individual, 
  2.23  corporation, business trust, partnership, association, or any 
  2.24  other legal entity. 
  2.25     Subd. 10.  [POINTS AND FEES.] "Points and fees" means: 
  2.26     (1) any charges, fees, compensation, premiums, or any 
  2.27  amounts payable under a point, discount, or other system; 
  2.28     (2) the cost of all premiums financed by the lender, 
  2.29  directly or indirectly, for any credit life, credit disability, 
  2.30  credit unemployment, or credit property insurance, or any other 
  2.31  health or life insurance, or any debt cancellation or debt 
  2.32  forgiveness contract; 
  2.33     (3) the maximum prepayment fees or penalties that may be 
  2.34  charged or collected under the terms of the loan documents; and 
  2.35     (4) all prepayment fees or penalties that are charged to 
  2.36  the borrower under a previous loan if the loan refinances a 
  3.1   previous loan made by the same lender or an affiliate of the 
  3.2   lender. 
  3.3      Subd. 11.  [RESCISSION PERIOD.] "Rescission period" means 
  3.4   the period provided under United States Code, title 15, section 
  3.5   1635(a), in which a borrower has the right to rescind a loan 
  3.6   transaction. 
  3.7      Subd. 12.  [SPECIAL MORTGAGE LOAN.] "Special mortgage loan" 
  3.8   means a home loan that is originated, subsidized, or guaranteed 
  3.9   by or through a federal, state, local, or tribal government or 
  3.10  nonprofit organization and that has one or more characteristics 
  3.11  that include, but are not limited to, the following: 
  3.12     (1) zero interest; 
  3.13     (2) forgivable; or 
  3.14     (3) one or more nonstandard payment terms beneficial to the 
  3.15  borrower, including, but not limited to, payments that are 
  3.16  limited to a percentage of income or payments that vary with 
  3.17  income, that will be lost as a result of the refinancing. 
  3.18     Subd. 13.  [THRESHOLDS.] "Thresholds" means any one of the 
  3.19  following: 
  3.20     (1) for a first lien mortgage loan, an interest rate that 
  3.21  equals or exceeds six percentage points over the weekly average 
  3.22  yield on five-year United States Treasury securities; 
  3.23     (2) for a second subordinate lien mortgage loan or mortgage 
  3.24  loan secured solely by a security interest in a manufactured 
  3.25  home, an interest rate that equals or exceeds eight percentage 
  3.26  points over the weekly average yield on five-year United States 
  3.27  Treasury securities; or 
  3.28     (3) points and fees totaling the greater of five percent of 
  3.29  the loan or $800. 
  3.30     Sec. 3.  [58A.03] [PROHIBITED ACTS AND PRACTICES.] 
  3.31     Subdivision 1.  [ABILITY TO PAY.] (a) No lender may make a 
  3.32  high-cost home loan to a borrower where the borrower is unable 
  3.33  to repay the loan. 
  3.34     (b) It is presumed that the borrower is unable to repay the 
  3.35  loan if the borrower's total monthly debt payments, including 
  3.36  amounts owed under the loan, including principal, interest, 
  4.1   taxes, and insurance, exceed 50 percent of the borrower's 
  4.2   monthly gross income, as verified by the lender.  This 
  4.3   presumption may be overcome by a showing that: 
  4.4      (1) the borrower's income is more than 120 percent of the 
  4.5   median family income for the Metropolitan Statistical Area in 
  4.6   which the property to be secured is located; 
  4.7      (2) if the property is not located within the Metropolitan 
  4.8   Statistical Area, the borrower's income is more than 120 percent 
  4.9   of the nonmetropolitan median family income for Minnesota.  
  4.10     (c) Notwithstanding paragraph (b), a creditor who follows 
  4.11  the residual income guidelines established in Code of Federal 
  4.12  Regulations, title 38, section 36.4337(e), and Veterans 
  4.13  Administration Form 26-6393 benefits from a rebuttable 
  4.14  presumption that the creditor made the loan with due regard to 
  4.15  repayment ability. 
  4.16     Subd. 2.  [LOAN FLIPPING.] No lender, affiliate, or 
  4.17  assignee may make a high-cost home loan that refinances an 
  4.18  existing home loan made by the same lender, affiliate, or 
  4.19  assignee to the same borrower within 24 months after 
  4.20  consummation of the existing loan unless the lender, affiliate, 
  4.21  or assignee refunds the total of the points and fees collected 
  4.22  from the existing loan. 
  4.23     Subd. 3.  [NEGATIVE AMORTIZATION.] No high-cost home loan 
  4.24  may include payment terms under which the outstanding principal 
  4.25  balance will increase at any time over the course of the loan 
  4.26  because the regular periodic payments do not cover the full 
  4.27  amount of the interest due. 
  4.28     Subd. 4.  [REFINANCING OF SPECIAL MORTGAGES.] No lender may 
  4.29  refinance a special mortgage loan with a high-cost home loan, 
  4.30  unless prior to closing of the new loan or the end of the 
  4.31  rescission period, if applicable, the lender obtains 
  4.32  documentation signed by an authorized independent home loan 
  4.33  counselor or the lender who originally made the special mortgage 
  4.34  loan indicating that the borrower has received home loan 
  4.35  counseling in which the advantages and disadvantages of the 
  4.36  refinancing have been reviewed. 
  5.1      Sec. 4.  [58A.04] [DISCLOSURES.] 
  5.2      (a) The commissioner shall develop a simple disclosure 
  5.3   notice written in plain language, easily readable and 
  5.4   understandable by a person of average intelligence and 
  5.5   education, that must be provided by the lender to all applicants 
  5.6   for a high-cost loan when the applicant first applies for the 
  5.7   loan and again no less than seven days prior to the beginning of 
  5.8   the rescission period.  The notice must, at a minimum: 
  5.9      (1) explain that the loan is subject to special protections 
  5.10  under this chapter; 
  5.11     (2) explain that the lender will hold the mortgage and that 
  5.12  the borrower will lose the home and any money put into it if the 
  5.13  borrower fails to make timely payments; and 
  5.14     (3) encourages the borrower to seek independent home loan 
  5.15  credit counseling prior to signing the loan documents. 
  5.16     (b) The lender must also provide a list of authorized 
  5.17  independent home loan counselors each time the notice is 
  5.18  provided. 
  5.19     Sec. 5.  [58A.05] [UNINTENTIONAL ERRORS.] 
  5.20     A lender who, acting in good faith, fails to comply with 
  5.21  any of the provisions of this chapter, shall not be deemed to be 
  5.22  in violation if the lender establishes that: 
  5.23     (1) the violation was not intentional and was the result of 
  5.24  a bona fide error; and 
  5.25     (2) within 60 days of discovery of the compliance failure, 
  5.26  the lender has made restitution to the borrower, if applicable, 
  5.27  and has adjusted the loan to bring it into compliance. 
  5.28     Sec. 6.  [58A.06] [ENFORCEMENT.] 
  5.29     The commissioner may bring an enforcement action under 
  5.30  chapter 45 against a lender who has violated this chapter. 
  5.31     Sec. 7.  [58A.07] [CONSUMER REMEDIES; LIABILITIES.] 
  5.32     (a) A court in which any action is brought by a borrower 
  5.33  for relief against a lender, upon a finding of a violation of 
  5.34  this chapter, may enjoin foreclosure, order reformation of the 
  5.35  loan to comply with the provisions of this chapter, award actual 
  5.36  damages, attorney fees and court costs, and provide any other 
  6.1   relief it deems equitable. 
  6.2      (b) Any assignee of a high-cost home loan is subject to all 
  6.3   affirmative claims and any defenses with respect to the loan 
  6.4   that the borrower could assert against the original lender. 
  6.5      Sec. 8.  [58A.08] [SEVERABILITY.] 
  6.6      The provisions of this chapter are severable as provided in 
  6.7   section 645.20. 
  6.8      Sec. 9.  [EFFECTIVE DATE.] 
  6.9      Sections 1 to 8 are effective August 1, 2002.