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HF 1742

as introduced - 87th Legislature (2011 - 2012) Posted on 05/20/2011 08:48am

KEY: stricken = removed, old language.
underscored = added, new language.

Bill Text Versions

Engrossments
Introduction Posted on 05/20/2011

Current Version - as introduced

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A bill for an act
relating to residential mortgage loans; regulating special mortgage payoffs;
modifying the independent loan counselor certification requirements; amending
Minnesota Statutes 2010, section 58.13, subdivision 1; proposing coding for new
law in Minnesota Statutes, chapter 58.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2010, section 58.13, subdivision 1, is amended to read:


Subdivision 1.

Generally.

(a) No person acting as a residential mortgage originator
or servicer, including a person required to be licensed under this chapter, and no person
exempt from the licensing requirements of this chapter under section 58.04, except as
otherwise provided in paragraph (b), shall:

(1) fail to maintain a trust account to hold trust funds received in connection with a
residential mortgage loan;

(2) fail to deposit all trust funds into a trust account within three business days of
receipt; commingle trust funds with funds belonging to the licensee or exempt person; or
use trust account funds for any purpose other than that for which they are received;

(3) unreasonably delay the processing of a residential mortgage loan application,
or the closing of a residential mortgage loan. For purposes of this clause, evidence of
unreasonable delay includes but is not limited to those factors identified in section 47.206,
subdivision 7
, clause (d);

(4) fail to disburse funds according to its contractual or statutory obligations;

(5) fail to perform in conformance with its written agreements with borrowers,
investors, other licensees, or exempt persons;

(6) charge a fee for a product or service where the product or service is not actually
provided, or misrepresent the amount charged by or paid to a third party for a product
or service;

(7) fail to comply with sections 345.31 to 345.60, the Minnesota unclaimed property
law;

(8) violate any provision of any other applicable state or federal law regulating
residential mortgage loans including, without limitation, sections 47.20 to 47.208 and
47.58;

(9) make or cause to be made, directly or indirectly, any false, deceptive, or
misleading statement or representation in connection with a residential loan transaction
including, without limitation, a false, deceptive, or misleading statement or representation
regarding the borrower's ability to qualify for any mortgage product;

(10) conduct residential mortgage loan business under any name other than that
under which the license or certificate of exemption was issued;

(11) compensate, whether directly or indirectly, coerce or intimidate an appraiser for
the purpose of influencing the independent judgment of the appraiser with respect to the
value of real estate that is to be covered by a residential mortgage or is being offered as
security according to an application for a residential mortgage loan;

(12) issue any document indicating conditional qualification or conditional approval
for a residential mortgage loan, unless the document also clearly indicates that final
qualification or approval is not guaranteed, and may be subject to additional review;

(13) make or assist in making any residential mortgage loan with the intent that the
loan will not be repaid and that the residential mortgage originator will obtain title to
the property through foreclosure;

(14) provide or offer to provide for a borrower, any brokering or lending services
under an arrangement with a person other than a licensee or exempt person, provided that
a person may rely upon a written representation by the residential mortgage originator that
it is in compliance with the licensing requirements of this chapter;

(15) claim to represent a licensee or exempt person, unless the person is an employee
of the licensee or exempt person or unless the person has entered into a written agency
agreement with the licensee or exempt person;

(16) fail to comply with the record keeping and notification requirements identified
in section 58.14 or fail to abide by the affirmations made on the application for licensure;

(17) represent that the licensee or exempt person is acting as the borrower's agent
after providing the nonagency disclosure required by section 58.15, unless the disclosure
is retracted and the licensee or exempt person complies with all of the requirements of
section 58.16;

(18) make, provide, or arrange for a residential mortgage loan that is of a lower
investment grade if the borrower's credit score or, if the originator does not utilize credit
scoring or if a credit score is unavailable, then comparable underwriting data, indicates
that the borrower may qualify for a residential mortgage loan, available from or through
the originator, that is of a higher investment grade, unless the borrower is informed that
the borrower may qualify for a higher investment grade loan with a lower interest rate
and/or lower discount points, and consents in writing to receipt of the lower investment
grade loan;

For purposes of this section, "investment grade" refers to a system of categorizing
residential mortgage loans in which the loans are: (i) commonly referred to as "prime" or
"subprime"; (ii) commonly designated by an alphabetical character with "A" being the
highest investment grade; and (iii) are distinguished by interest rate or discount points
or both charged to the borrower, which vary according to the degree of perceived risk
of default based on factors such as the borrower's credit, including credit score and
credit patterns, income and employment history, debt ratio, loan-to-value ratio, and prior
bankruptcy or foreclosure;

(19) make, publish, disseminate, circulate, place before the public, or cause to be
made, directly or indirectly, any advertisement or marketing materials of any type, or any
statement or representation relating to the business of residential mortgage loans that is
false, deceptive, or misleading;

(20) advertise loan types or terms that are not available from or through the licensee
or exempt person on the date advertised, or on the date specified in the advertisement.
For purposes of this clause, advertisement includes, but is not limited to, a list of sample
mortgage terms, including interest rates, discount points, and closing costs provided by
licensees or exempt persons to a print or electronic medium that presents the information
to the public;

(21) use or employ phrases, pictures, return addresses, geographic designations, or
other means that create the impression, directly or indirectly, that a licensee or other
person is a governmental agency, or is associated with, sponsored by, or in any manner
connected to, related to, or endorsed by a governmental agency, if that is not the case;

(22) violate section 82.77, relating to table funding;

(23) make, provide, or arrange for a residential mortgage loan all or a portion
of the proceeds of which are used to fully or partially pay off a "special mortgage"
unless the borrower has obtained a written certification from an authorized independent
loan counselor that the borrower has received counseling on the advisability of the
loan transaction. For purposes of this section, "special mortgage" means a residential
mortgage loan originated, subsidized, or guaranteed by or through a state, tribal, or
local government, or nonprofit organization, that bears one or more of the following
nonstandard payment terms which substantially benefit the borrower: (i) payments vary
with income; (ii) payments of principal or interest are not required or can be deferred under
specified conditions; (iii) principal or interest is forgivable under specified conditions;
or (iv) where no interest or an annual interest rate of two percent or less is charged in
connection with the loan. For purposes of this section, "authorized independent loan
counselor" means a nonprofit, third-party individual or organization providing homebuyer
education programs, foreclosure prevention services, mortgage loan counseling, or credit
counseling certified new text beginor licensed new text endby the United States Department of Housing and Urban
Developmentnew text begin (HUD)new text end, the Minnesota Home Ownership Center, the Minnesota Mortgage
Foreclosure Prevention Association, new text beginthe new text endAARPnew text begin program, including an organization
administering the program under an agreement with HUD
new text end, or NeighborWorks Americanew text begin, or
is an authorized counseling agency
new text end;

new text begin For purposes of this section, "authorized counseling agency" means:
new text end

new text begin (i) a political subdivision that provides counseling services, education, or training; or
new text end

new text begin (ii) a nonprofit, third-party individual or organization that provides counseling
services, education, or training, and is:
new text end

new text begin (A) a HUD-approved housing counseling agency as determined by HUD under Code
of Federal Regulations, title 24, part 214;
new text end

new text begin (B) a recipient of funds, scholarships, or fee waivers for counseling services,
education, or training from the agency, HUD, or NeighborWorks America; or Minnesota
Mortgage Prevention Association, including a recipient that is a disadvantaged nonprofit
organization or a representative from the organization; and for purposes of this
subdivision, "disadvantaged nonprofit organization" means a nonprofit organization that:
new text end

new text begin (i) provides services or administers programs related to housing, including but not
limited to matters of homelessness, all phases of home buying and home ownership,
foreclosure prevention, mortgages and reverse mortgages, finances, and credit;
new text end

new text begin (ii) serves disadvantaged, culturally and linguistically specific, unserved, and
underrepresented populations as a primary constituency for the organization's services and
programs, including but not limited to minority populations, refugees, and veterans;
new text end

new text begin (iii) is not a HUD-approved housing counseling agency as determined by the
United States Department of Housing and Urban Development under Code of Federal
Regulations, title 24, part 214;
new text end

new text begin (iv) has not received sufficient financial assistance for housing-related purposes in
a previous fiscal year from a state or federal agency, including but not limited to the
Minnesota Housing Finance Agency;
new text end

new text begin (v) requires financial assistance from a state agency in order to qualify for federal
housing-related funds identified and sought by the organization; and
new text end

new text begin (vi) has an annual operating budget of no more than $3,000,000 as reported in the
organization's most recent financial statements; or
new text end

new text begin (C) certified, accredited, or licensed through a certification or licensing entity
to provide those specific types of counseling services, education, or training identified
in the certification or accreditation; and for purposes of this subdivision, "counseling
services education or training" means programs and services, education, or training for an
individual or group of individuals related to housing, including but not limited to topics on
homelessness, all phases of buying a home, and homeownership, foreclosure prevention,
mortgages and reverse mortgages, finances, and credit;
new text end

(24) make, provide, or arrange for a residential mortgage loan without verifying
the borrower's reasonable ability to pay the scheduled payments of the following, as
applicable: principal; interest; real estate taxes; homeowner's insurance, assessments,
and mortgage insurance premiums. For loans in which the interest rate may vary, the
reasonable ability to pay shall be determined based on a fully indexed rate and a repayment
schedule which achieves full amortization over the life of the loan. For all residential
mortgage loans, the borrower's income and financial resources must be verified by tax
returns, payroll receipts, bank records, or other similarly reliable documents.

Nothing in this section shall be construed to limit a mortgage originator's or exempt
person's ability to rely on criteria other than the borrower's income and financial resources
to establish the borrower's reasonable ability to repay the residential mortgage loan,
including criteria established by the United States Department of Veterans Affairs or the
United States Department of Housing and Urban Development for interest rate reduction
refinancing loans or streamline loans, or criteria authorized or promulgated by the
Federal National Mortgage Association or Federal Home Loan Mortgage Corporation;
however, such other criteria must be verified through reasonably reliable methods and
documentation. The mortgage originator's analysis of the borrower's reasonable ability
to repay may include, but is not limited to, consideration of the following items, if
verified: (1) the borrower's current and expected income; (2) current and expected cash
flow; (3) net worth and other financial resources other than the consumer's equity in the
dwelling that secures the loan; (4) current financial obligations; (5) property taxes and
insurance; (6) assessments on the property; (7) employment status; (8) credit history; (9)
debt-to-income ratio; (10) credit scores; (11) tax returns; (12) pension statements; and
(13) employment payment records, provided that no mortgage originator shall disregard
facts and circumstances that indicate that the financial or other information submitted by
the consumer is inaccurate or incomplete. A statement by the borrower to the residential
mortgage originator or exempt person of the borrower's income and resources or sole
reliance on any single item listed above is not sufficient to establish the existence of the
income or resources when verifying the reasonable ability to pay.

(25) engage in "churning." As used in this section, "churning" means knowingly or
intentionally making, providing, or arranging for a residential mortgage loan when the
new residential mortgage loan does not provide a reasonable, tangible net benefit to the
borrower considering all of the circumstances including the terms of both the new and
refinanced loans, the cost of the new loan, and the borrower's circumstances;

(26) the first time a residential mortgage originator orally informs a borrower of the
anticipated or actual periodic payment amount for a first-lien residential mortgage loan
which does not include an amount for payment of property taxes and hazard insurance,
the residential mortgage originator must inform the borrower that an additional amount
will be due for taxes and insurance and, if known, disclose to the borrower the amount of
the anticipated or actual periodic payments for property taxes and hazard insurance. This
same oral disclosure must be made each time the residential mortgage originator orally
informs the borrower of a different anticipated or actual periodic payment amount change
from the amount previously disclosed. A residential mortgage originator need not make
this disclosure concerning a refinancing loan if the residential mortgage originator knows
that the borrower's existing loan that is anticipated to be refinanced does not have an
escrow account; or

(27) make, provide, or arrange for a residential mortgage loan, other than a reverse
mortgage pursuant to United States Code, title 15, chapter 41, if the borrower's compliance
with any repayment option offered pursuant to the terms of the loan will result in negative
amortization during any six-month period.

(b) Paragraph (a), clauses (24) through (27), do not apply to a state or federally
chartered bank, savings bank, or credit union, an institution chartered by Congress under
the Farm Credit Act, or to a person making, providing, or arranging a residential mortgage
loan originated or purchased by a state agency or a tribal or local unit of government. This
paragraph supersedes any inconsistent provision of this chapter.

Sec. 2.

new text begin [58.20] INFORMATION ON WEB SITE.
new text end

new text begin The department shall provide on its Internet Web site a link and contact information
for each counseling certification entity's list of certified counselors and counseling
agencies with designations for the nonprofit counselors and organizations.
new text end