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.09 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.  Assignee does not include a purchaser of a 
  1.18  mortgage-backed security. 
  1.19     Subd. 4.  [AUTHORIZED INDEPENDENT HOME LOAN COUNSELOR.] 
  1.20  "Authorized independent home loan counselor" means an individual 
  1.21  or organization, authorized by either the housing finance agency 
  1.22  or the Department of Housing and Urban Development, or 
  1.23  accredited by the American Homeownership Education and 
  1.24  Counseling Institute to provide home loan counseling. 
  1.25     Subd. 5.  [BONA FIDE ERROR.] "Bona fide error" includes a 
  2.1   clerical, calculation, computer malfunction, computer 
  2.2   programming, or printing mistake. 
  2.3      Subd. 6.  [COMMISSIONER.] "Commissioner" means the 
  2.4   commissioner of commerce. 
  2.5      Subd. 7.  [HIGH-COST HOME LOAN.] "High-cost home loan" 
  2.6   means a purchase, refinance, home equity, or other loan, 
  2.7   including an open-end credit plan, but not including a reverse 
  2.8   mortgage, where the following conditions exist: 
  2.9      (1) the loan is a residential mortgage loan as defined in 
  2.10  section 58.02, subdivision 19; 
  2.11     (2) the real estate that is secured by a mortgage or deed 
  2.12  is used as a borrower's primary residence.  The lender may rely 
  2.13  on a borrower's representation with regard to whether the real 
  2.14  estate is the borrower's primary residence; 
  2.15     (3) the loan is equal to or less than the maximum amount 
  2.16  for loans eligible for sale to Fannie Mae and Freddie Mac; and 
  2.17     (4) the interest rate or points and fees equal or exceed 
  2.18  the thresholds defined in subdivision 14. 
  2.19     Subd. 8.  [INTEREST RATE.] "Interest rate" means: 
  2.20     (1) for a fixed rate loan, the interest rate as of the date 
  2.21  of closing; 
  2.22     (2) for an indexed variable rate loan, the sum of the index 
  2.23  rate as of the date of closing plus the maximum margin permitted 
  2.24  at any time under the loan agreement; and 
  2.25     (3) for all other variable rate loans, the maximum rate 
  2.26  that may be charged during the term of the loan. 
  2.27     Subd. 9.  [LENDER.] "Lender" means any person authorized to 
  2.28  do business under chapter 47, 48, 50, 51A, 52, 53, 56, or 58. 
  2.29     Subd. 10.  [PERSON.] "Person" means an individual, 
  2.30  corporation, business trust, partnership, association, or any 
  2.31  other legal entity. 
  2.32     Subd. 11.  [POINTS AND FEES.] "Points and fees" means: 
  2.33     (1) any charges, points, discount points, fees, 
  2.34  compensation, premiums, or any amounts paid, directly or 
  2.35  indirectly, other than taxes and interest, to the lender or 
  2.36  lenders in connection with a loan secured by a mortgage or deed 
  3.1   on real estate that is used as a borrower's primary residence 
  3.2   and is equal to or less than the maximum amount for loans 
  3.3   eligible for sale to Fannie Mae and Freddie Mac; and 
  3.4      (2) the cost of all premiums financed by the lender, 
  3.5   directly or indirectly, for any credit life, credit disability, 
  3.6   credit unemployment, or credit property insurance, or any other 
  3.7   health or life insurance, or any debt cancellation or debt 
  3.8   forgiveness contract.  
  3.9      Subd. 12.  [RESCISSION PERIOD.] "Rescission period" means 
  3.10  the period provided under United States Code, title 15, section 
  3.11  1635(a), in which a borrower has the right to rescind a loan 
  3.12  transaction. 
  3.13     Subd. 13.  [SPECIAL MORTGAGE LOAN.] "Special mortgage loan" 
  3.14  means a home loan that is originated, subsidized, or guaranteed 
  3.15  by or through a federal, state, local, or tribal government or 
  3.16  nonprofit organization and that has zero interest; is 
  3.17  forgivable; or has one or more payment terms beneficial to the 
  3.18  borrower, including, but not limited to, payments that are 
  3.19  limited to a percentage of income or payments that vary with 
  3.20  income, that will be lost as a result of the refinancing. 
  3.21     Subd. 14.  [THRESHOLDS.] "Thresholds" means any one of the 
  3.22  following: 
  3.23     (1) for a first lien mortgage loan, an interest rate that 
  3.24  equals or exceeds six percentage points over the weekly average 
  3.25  yield on five-year United States Treasury securities; 
  3.26     (2) for a subordinate lien mortgage loan, an interest rate 
  3.27  that equals or exceeds eight percentage points over the weekly 
  3.28  average yield on five-year United States Treasury securities; or 
  3.29     (3) points and fees totaling the greater of five percent of 
  3.30  the loan or $800. 
  3.31     Sec. 3.  [58A.03] [PROHIBITED ACTS AND PRACTICES.] 
  3.32     Subdivision 1.  [ABILITY TO PAY.] (a) No lender may make a 
  3.33  high-cost home loan to a borrower where it is presumed that the 
  3.34  borrower is unable to repay the loan.  It is presumed that the 
  3.35  borrower is unable to repay the loan if the borrower's total 
  3.36  monthly debt payments, including amounts owed under the loan, 
  4.1   including principal, interest, taxes, and insurance, exceed 55 
  4.2   percent of the borrower's monthly gross income, as verified at 
  4.3   the time of approval by the lender.  This presumption may be 
  4.4   overcome by a showing that: 
  4.5      (1) the borrower's income is more than 120 percent of the 
  4.6   median family income, as determined and published annually by 
  4.7   the Department of Housing and Urban Development, for the 
  4.8   metropolitan statistical area in which the real estate to be 
  4.9   secured is located; 
  4.10     (2) if the real estate is not located within a metropolitan 
  4.11  statistical area, the borrower's income is more than 120 percent 
  4.12  of the median family income, as determined and published 
  4.13  annually by the Department of Housing and Urban Development, for 
  4.14  the county in which the real estate to be secured is located.  
  4.15     (b) Notwithstanding the presumption described in paragraph 
  4.16  (a), a lender who determines that the extension of credit is 
  4.17  needed to meet a bona fide personal financial emergency shall 
  4.18  benefit from a rebuttable presumption that the creditor made a 
  4.19  loan with due regard to repayment ability. 
  4.20     Subd. 2.  [LOAN FLIPPING.] Neither a lender, nor an 
  4.21  affiliate, nor an assignee may make a high-cost home loan that 
  4.22  refinances an existing home loan made by either the same lender, 
  4.23  or an affiliate, or an assignee to the same borrower within 24 
  4.24  months after consummation of the existing loan unless the 
  4.25  lender, affiliate, or assignee refunds the total of the points 
  4.26  and fees collected from the existing loan.  It is a violation of 
  4.27  this chapter for any lender to act in any manner designed to 
  4.28  evade the provisions of this subdivision. 
  4.29     Subd. 3.  [NEGATIVE AMORTIZATION.] No high-cost home loan 
  4.30  may include payment terms under which the outstanding principal 
  4.31  balance will increase at any time over the course of the loan 
  4.32  because the regular periodic payments do not cover the full 
  4.33  amount of the interest due. 
  4.34     Subd. 4.  [REFINANCING OF SPECIAL MORTGAGES.] No lender may 
  4.35  refinance a special mortgage loan with a high-cost home loan, 
  4.36  unless prior to closing of the new loan or the end of the 
  5.1   rescission period, if applicable, the lender obtains 
  5.2   documentation signed by an authorized independent home loan 
  5.3   counselor or the lender who originally made the special mortgage 
  5.4   loan indicating that the borrower has received home loan 
  5.5   counseling in which the advantages and disadvantages of the 
  5.6   refinancing have been reviewed. 
  5.7      Subd. 5.  [FINANCING OF CREDIT INSURANCE.] No lender may 
  5.8   finance, directly or indirectly, any credit life, credit 
  5.9   disability, or credit involuntary unemployment insurance, or any 
  5.10  other life or health insurance premiums through a high-cost home 
  5.11  loan, or the advance collection of a fee for any debt 
  5.12  cancellation or suspension agreement.  Contract insurance 
  5.13  premiums or debt cancellation or suspension fees calculated and 
  5.14  paid on a monthly basis shall not be considered financed by the 
  5.15  lender. 
  5.16     Subd. 6.  [PAYOFF BALANCE REQUIREMENTS.] No lender may 
  5.17  charge a fee for informing or transmitting to any borrower the 
  5.18  balance due to pay off a home loan or to provide a mortgage 
  5.19  release upon repayment.  A lender shall provide a payoff balance 
  5.20  amount as soon as possible but in no case later than 17 days 
  5.21  after a request from the borrower or the borrower's 
  5.22  representative is made. 
  5.23     Sec. 4.  [58A.04] [DISCLOSURES.] 
  5.24     (a) The commissioner shall develop a simple disclosure 
  5.25  notice written in plain language, easily readable and 
  5.26  understandable by a person of average intelligence and 
  5.27  education, that must be provided by the lender to all applicants 
  5.28  for a high-cost loan upon oral, written, or personal application 
  5.29  for the loan and again no less than seven days prior to the 
  5.30  beginning of the rescission period.  The notice must, at a 
  5.31  minimum: 
  5.32     (1) explain that the loan is subject to special protections 
  5.33  under this chapter; 
  5.34     (2) explain that the lender will hold the mortgage and that 
  5.35  the borrower will lose the home and any money put into it if the 
  5.36  borrower fails to make timely payments; 
  6.1      (3) inform the applicant that loans may be subject to 
  6.2   substantial prepayment fees or penalties and encourage the 
  6.3   applicant to determine what those fees or penalties are before 
  6.4   signing the loan documents; and 
  6.5      (4) encourage the borrower to seek independent home loan 
  6.6   credit counseling prior to signing the loan documents. 
  6.7      (b) The lender must also provide a list of authorized 
  6.8   independent home loan counselors each time the notice is 
  6.9   provided. 
  6.10     Sec. 5.  [58A.05] [UNINTENTIONAL ERRORS.] 
  6.11     A lender who, acting in good faith, fails to comply with 
  6.12  any of the provisions of this chapter, shall not be deemed to be 
  6.13  in violation if the lender establishes that: 
  6.14     (1) the violation was not intentional and was the result of 
  6.15  a bona fide error; and 
  6.16     (2) within 60 days of discovery of the compliance failure, 
  6.17  the lender has made restitution to the borrower, if applicable, 
  6.18  and has adjusted the loan to bring it into compliance. 
  6.19     Sec. 6.  [58A.06] [ENFORCEMENT.] 
  6.20     The commissioner may bring an enforcement action under 
  6.21  chapter 45 against a lender who has violated this chapter. 
  6.22     Sec. 7.  [58A.07] [CONSUMER REMEDIES; LIABILITIES.] 
  6.23     (a) A court in which any action is brought by a borrower 
  6.24  for relief against a lender, upon a finding of a violation of 
  6.25  this chapter, may enjoin foreclosure, order reformation of the 
  6.26  loan to comply with the provisions of this chapter, award actual 
  6.27  damages, attorney fees, and court costs, and provide any other 
  6.28  relief it deems equitable. 
  6.29     (b) The court shall, upon a finding of a violation of this 
  6.30  chapter, award statutory damages to the borrower in the amount 
  6.31  of $10,000. 
  6.32     (c) Any assignee of a high-cost home loan is subject to all 
  6.33  affirmative claims and any defenses with respect to the loan 
  6.34  that the borrower could assert against the original lender. 
  6.35     (d) No class action against an assignee may be brought or 
  6.36  maintained under, or as a result of, alleged violations of this 
  7.1   chapter. 
  7.2      Sec. 8.  [58A.08] [EXEMPTIONS.] 
  7.3      This chapter does not apply to loans made, purchased, or 
  7.4   sponsored by a mortgage revenue bond program or other loan 
  7.5   program sponsored by the federal or state government or a local 
  7.6   unit of government or by a charitable organization registered 
  7.7   with the attorney general under section 309.52. 
  7.8      Sec. 9.  [58A.09] [SEVERABILITY.] 
  7.9      The provisions of this chapter are severable as provided in 
  7.10  section 645.20. 
  7.11     Sec. 10.  [EFFECTIVE DATE.] 
  7.12     Sections 1 to 9 are effective 30 days after the day of 
  7.13  final enactment and apply to loans closed on or after that date.