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 an act 1.3 against predatory lending in the home mortgage market; 1.4 making conforming changes; appropriating money; 1.5 amending Minnesota Statutes 2000, sections 47.20, 1.6 subdivision 5; 58.13, subdivision 1; proposing coding 1.7 for new law as Minnesota Statutes, chapter 58A. 1.8 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 1.9 ARTICLE 1 1.10 ACT AGAINST PREDATORY LENDING IN 1.11 THE HOME MORTGAGE MARKET 1.12 Section 1. [58A.01] [DEFINITIONS.] 1.13 Subdivision 1. [APPLICATION.] For purposes of this 1.14 chapter, the terms defined in this section have the meanings 1.15 given. 1.16 Subd. 2. [AFFILIATE.] "Affiliate" means any company that 1.17 controls, is controlled by, or is under common control with 1.18 another company, as set forth in the Bank Holding Company Act of 1.19 1956, United States Code, title 12, sections 1841 et seq., as 1.20 amended from time to time. 1.21 Subd. 3. [AGENCY.] "Agency" means the housing finance 1.22 agency. 1.23 Subd. 4. [ANNUAL PERCENTAGE RATE.] "Annual percentage rate" 1.24 means the annual percentage rate for the loan calculated 1.25 according to the provisions of the federal Truth-In-Lending Act, 1.26 United States Code, title 15, sections 1601 et seq., and the 2.1 regulations adopted under that act by the Federal Reserve Board, 2.2 as that act and those regulations are amended from time to time. 2.3 Subd. 5. [BONA FIDE LOAN DISCOUNT POINTS.] "Bona fide loan 2.4 discount points" means loan discount points knowingly paid by 2.5 the borrower for the purpose of reducing, and which in fact 2.6 result in a bona fide reduction of, the interest rate or 2.7 time-price differential applicable to the loan, provided that 2.8 the amount of the interest rate reduction purchased by the 2.9 discount points is reasonably consistent with established 2.10 industry norms and practices for secondary mortgage market 2.11 transactions. 2.12 Subd. 6. [COMMISSIONER.] "Commissioner" means the 2.13 commissioner of commerce. 2.14 Subd. 7. [HIGH-COST HOME LOAN.] "High-cost home loan" 2.15 means a home loan in which the terms of the loan meet one or 2.16 more of the following thresholds: 2.17 (1) the annual percentage rate of the home loan at 2.18 consummation exceeds by 6.5 or more percentage points the weekly 2.19 average yield on United States Treasury securities adjusted to a 2.20 constant maturity of one year, as made available by the Federal 2.21 Reserve Board, as of the week immediately preceding the week in 2.22 which the interest rate for the loan is established; 2.23 (2) the home loan is a variable rate loan in which the 2.24 annual percentage rate can reasonably be expected to increase 2.25 beyond the threshold established in clause (1); 2.26 (3) potential or scheduled increases in the annual 2.27 percentage rate of the home loan are not directly tied to future 2.28 increases in a widely used federal or private market measurement 2.29 that reflects the cost of borrowing money, such as the interest 2.30 rate yield on United States Treasury securities, the federal 2.31 funds rate, or the prime interest rate; or 2.32 (4) the total points and fees on the loan exceed the 2.33 greater of five percent of the total loan or $800. The 2.34 following discount points are excluded from the calculation of 2.35 the total points and fees: 2.36 (i) up to and including two bona fide loan discount points 3.1 payable by the borrower in connection with the loan transaction, 3.2 but only if the interest rate from which the loan's interest 3.3 rate will be discounted does not exceed by more than one 3.4 percentage point the required net yield for a 90-day standard 3.5 mandatory delivery commitment for a reasonably comparable loan 3.6 from either the Federal National Mortgage Association or the 3.7 Federal Home Loan Mortgage Corporation, whichever is greater; 3.8 and 3.9 (ii) up to and including one bona fide loan discount point 3.10 payable by the borrower in connection with the loan transaction, 3.11 but only if the interest rate from which the loan's interest 3.12 rate will be discounted does not exceed by more than two 3.13 percentage points the required net yield for a 90-day standard 3.14 mandatory delivery commitment for a reasonably comparable loan 3.15 from either the Federal National Mortgage Association or the 3.16 Federal Home Loan Mortgage Corporation, whichever is greater. 3.17 Subd. 8. [HOME LOAN.] "Home loan" means a loan, other than 3.18 a reverse mortgage transaction, including an open-ended credit 3.19 plan, where: 3.20 (1) the principal amount of the loan does not exceed the 3.21 conforming loan size limit for a single-family dwelling as 3.22 established from time to time by the Federal National Mortgage 3.23 Association; 3.24 (2) the borrower is a natural person; 3.25 (3) the debt is incurred by the borrower primarily for 3.26 personal, family, or household purposes; and 3.27 (4) the loan is secured by a mortgage or deed of trust on 3.28 real estate upon which there is located or there is to be 3.29 located a structure or structures designed principally for 3.30 occupancy of from one to four families, which is or will be 3.31 occupied by the borrower as the borrower's principal dwelling. 3.32 Subd. 9. [LENDER.] "Lender" means any entity that 3.33 originated more than five home loans within the past 12-month 3.34 period or acted as an intermediary between originators and 3.35 borrowers on more than five home loans within the past 12-month 3.36 period. 4.1 Subd. 10. [NONBENEFICIAL REFINANCING.] "Nonbeneficial 4.2 refinancing" means the making of a home loan to a borrower that 4.3 refinances an existing home loan when the new home loan does not 4.4 have a reasonable, tangible net benefit to the borrower 4.5 considering all of the circumstances, including the term of both 4.6 the new and refinanced loans, the cost of the new loan, and the 4.7 borrower's circumstances. 4.8 Subd. 11. [OBLIGOR.] "Obligor" means each borrower, 4.9 coborrower, cosigner, or guarantor obligated to repay a loan. 4.10 Subd. 12. [POINTS AND FEES.] (a) "Points and fees" means: 4.11 (1) all items required to be disclosed under Code of 4.12 Federal Regulations, title 12, sections 226.4(a) and 226.4(b), 4.13 as amended from time to time, except interest or the time-price 4.14 differential; 4.15 (2) all charges for items listed under Code of Federal 4.16 Regulations, title 12, section 226.4(c)(7), as amended from time 4.17 to time, but only if the lender receives direct or indirect 4.18 compensation in connection with the charge or the charge is paid 4.19 to an affiliate of the lender; 4.20 (3) all compensation paid directly or indirectly to a 4.21 mortgage broker, including a broker that originates a loan in 4.22 its own name in a table-funded transaction, not otherwise 4.23 included in clause (1) or (2); and 4.24 (4) the cost of all premiums financed by the lender, 4.25 directly or indirectly, for any credit life, credit disability, 4.26 credit unemployment or any other life or health insurance, or 4.27 any payments financed by the lender directly or indirectly for 4.28 any debt cancellation or suspension agreements or contract, 4.29 except that insurance premiums calculated and paid on a monthly 4.30 basis shall not be considered financed by the lender. 4.31 (b) The term does not include: 4.32 (1) taxes, filing fees, recording and other charges, and 4.33 fees paid or to be paid to public officials for determining the 4.34 existence of or for perfecting, releasing, or satisfying a 4.35 preexisting security interest; and 4.36 (2) fees paid to a person other than a lender or an 5.1 affiliate of the lender or to the mortgage broker or an 5.2 affiliate of the mortgage broker for flood certification; pest 5.3 infestation and flood determinations; appraisal; inspections 5.4 performed prior to closing; credit reports; surveys; attorney 5.5 fees, if the borrower has the right to select the attorney; 5.6 notary fees; escrow charges, so long as not otherwise included 5.7 under paragraph (a), clause (1); title insurance premiums; and 5.8 fire insurance and flood insurance premiums, provided that the 5.9 conditions in Code of Federal Regulations, title 12, section 5.10 226.4(d)(2), are met. 5.11 Subd. 13. [SENIOR CITIZEN.] "Senior citizen" means a 5.12 person who is 62 years or older. 5.13 Subd. 14. [TOTAL LOAN AMOUNT.] "Total loan amount" has the 5.14 same meaning as that term is used in Code of Federal 5.15 Regulations, title 12, section 226.32, and calculated in 5.16 accordance with the Federal Reserve Board's official staff 5.17 commentary to that section. 5.18 Sec. 2. [58A.02] [PROHIBITED ACTS AND PRACTICES AND LENDER 5.19 REQUIREMENTS REGARDING HOME LOANS.] 5.20 Subdivision 1. [ENCOURAGING DEFAULT.] No lender may 5.21 recommend or encourage default on an existing loan or other debt 5.22 prior to and in connection with the closing or planned closing 5.23 of a home loan that refinances all or any portion of the 5.24 existing loan or debt. 5.25 Subd. 2. [ABILITY TO MAKE SCHEDULED PAYMENTS.] No lender 5.26 may make a home loan unless the lender reasonably believes at 5.27 the time the loan is consummated that one or more of the 5.28 obligors will be able to make the scheduled payments to repay 5.29 the obligation based upon a consideration of their current and 5.30 expected income, current obligations, employment status, and 5.31 other financial resources, other than the borrower's equity in 5.32 the dwelling which secures repayment of the loan. An obligor 5.33 shall be presumed to be able to make the scheduled payments to 5.34 repay the obligation if, at the time the loan is consummated, 5.35 the obligor's total monthly debts, including the amounts owed 5.36 under the loan, do not exceed 50 percent of the obligor's 6.1 monthly gross income as verified by the credit application, the 6.2 obligor's financial statement, a credit report, financial 6.3 information provided to the lender by or on behalf of the 6.4 obligor, or any other reasonable means; provided that no 6.5 presumption of inability to make the scheduled payments to repay 6.6 the obligations shall arise solely from the fact that, at the 6.7 time the loan is consummated, the obligor's total monthly debts 6.8 (including amounts owed under the loan) exceed 50 percent of the 6.9 obligor's monthly gross income. 6.10 Subd. 3. [NOTICE IN LANGUAGES OTHER THAN ENGLISH.] If the 6.11 discussions between the lender and the borrower regarding a home 6.12 loan are conducted primarily in a language other than English, 6.13 the lender shall, before the closing, provide to the borrower an 6.14 additional copy of any notice required under the federal 6.15 Truth-In-Lending Act, United States Code, title 15, sections 6.16 1601 et seq., translated into the language in which the 6.17 discussions were primarily conducted. The lender shall not 6.18 charge a fee for the translated document. 6.19 Subd. 4. [BLANK LINES IN LOAN DOCUMENTS.] No home loan 6.20 document in which blank lines are left to be filled in after the 6.21 contract is signed by any obligor is enforceable against any 6.22 obligor. 6.23 Sec. 3. [58A.03] [LIMITATIONS AND PROHIBITED ACTS AND 6.24 PRACTICES FOR HIGH-COST HOME LOANS.] 6.25 Subdivision 1. [PREPAYMENT PENALTIES.] (a) A high-cost 6.26 home loan may not contain any prepayment penalty after three 6.27 years from the date of closing of the the loan. 6.28 (b) A high-cost home loan may not contain a provision 6.29 providing for a prepayment penalty: 6.30 (1) of more than three percent of the total loan amount in 6.31 the first year of the loan, two percent of the total loan amount 6.32 in the second year, or one percent of the total loan amount in 6.33 the third year; 6.34 (2) which extends for a longer period than any initial or 6.35 introductory rate of the loan, or on a variable rate loan, 6.36 longer than a rate determined by a method other than the margin 7.1 plus the index which will determine the rate for the remaining 7.2 life of the loan; or 7.3 (3) is financed in a new loan if the lender, with respect 7.4 to such new loan, or any affiliate of the lender, is the lender 7.5 with respect to the existing mortgage which is being refinanced. 7.6 Subd. 2. [INCREASED INTEREST RATE.] No high-cost home loan 7.7 may contain a provision that increases the interest rate after 7.8 default. This provision does not apply to interest rate changes 7.9 in a variable rate loan otherwise consistent with the provisions 7.10 of the loan documents, provided that the change in the interest 7.11 rate is not triggered by the event of default or the 7.12 acceleration of the indebtedness. 7.13 Subd. 3. [CALL PROVISION.] No high-cost home loan may 7.14 contain a provision which permits the lender, in its sole 7.15 discretion, to accelerate the indebtedness. This provision does 7.16 not apply when repayment of the loan has been accelerated by 7.17 default, pursuant to a due-on-sale provision or pursuant to some 7.18 other provision of the loan documents unrelated to the payment 7.19 schedule. 7.20 Subd. 4. [COUNSELING.] (a) The agency shall select and 7.21 contract with one or more nonprofit organizations to administer 7.22 counseling as defined in this section. The organization or 7.23 organizations selected must: 7.24 (1) be independent of the lender; 7.25 (2) be knowledgeable about high-cost home loans; and 7.26 (3) have experience in counseling borrowers about the 7.27 advantages and disadvantages of various types of loans, 7.28 including high-cost home loans. 7.29 (b) A lender must keep a certificate on file documenting 7.30 that the borrower, prior to entering into a high-cost home loan, 7.31 received counseling as defined in this section. The certificate 7.32 must be signed by the lender and the counselor and include the 7.33 date of the counseling, the name, address, and telephone number 7.34 of the organization providing the counseling. 7.35 (c) The counseling must, at a minimum, consist of: 7.36 (1) an explanation of the lending process; 8.1 (2) an explanation of the terms and conditions of the 8.2 high-cost home loan; and 8.3 (3) a review of the advantages and disadvantages of the 8.4 high-cost home loan. 8.5 Subd. 5. [MANDATORY ARBITRATION CLAUSE.] No high-cost home 8.6 loan may be subject to a mandatory arbitration clause that 8.7 limits in any way the right of the borrower to seek relief 8.8 through the judicial process. 8.9 Subd. 6. [HOME IMPROVEMENT CONTRACTS.] A lender may not 8.10 pay a contractor under a home improvement contract from the 8.11 proceeds of a high-cost home loan other than: 8.12 (1) by an instrument payable to the borrower or jointly to 8.13 the borrower and the contractor; or 8.14 (2) at the election of the borrower, through a third-party 8.15 escrow agent in accordance with terms established in a written 8.16 agreement signed by the borrower, the lender, and the contractor 8.17 prior to the disbursement. 8.18 Subd. 7. [NONBENEFICIAL REFINANCING.] No lender may 8.19 knowingly or intentionally engage in the practice of 8.20 nonbeneficial refinancing of a high-cost home loan. 8.21 Subd. 8. [FINANCING CREDIT INSURANCE.] No lender may 8.22 finance, directly or indirectly, any credit life, credit 8.23 disability, or credit involuntary unemployment insurance, or any 8.24 other life or health insurance premiums through a high-cost home 8.25 loan, or the advance collection of a fee for any debt 8.26 cancellation or suspension agreement or contract insurance 8.27 premiums or debt cancellation or suspension fees calculated and 8.28 paid on a monthly basis shall not be considered financed by the 8.29 lender. 8.30 Subd. 9. [FINANCING OF POINTS AND FEES.] (a) No lender 8.31 may, in connection with an initial high-cost home loan, finance 8.32 points and fees equivalent to more than three percent of the 8.33 loan amount or $600, whichever is greater. 8.34 (b) When a high-cost home loan is being entered into in 8.35 order to refinance an existing high-cost home loan, the limit of 8.36 three percent on the financing of points and fees shall be 9.1 calculated with reference only to any new money loaned. 9.2 Sec. 4. [58A.04] [ATTEMPTED EVASION OF COVERAGE AND 9.3 UNINTENTIONAL VIOLATIONS.] 9.4 Subdivision 1. [ATTEMPTED EVASIONS.] Section 58A.03 9.5 applies to any person who in bad faith attempts to avoid its 9.6 application by: 9.7 (1) dividing any loan transaction into separate parts for 9.8 the purpose and with the intent of evading the provisions of 9.9 that section; or 9.10 (2) any other similar subterfuge. 9.11 Subd. 2. [CORRECTIONS AND UNINTENTIONAL VIOLATIONS.] A 9.12 lender in a high-cost home loan who, when acting in good faith, 9.13 fails to comply with section 58A.03 will not be deemed to have 9.14 violated that section if the lender establishes that either: 9.15 (1) within 30 days of the loan closing and prior to the 9.16 institution of any action under section 58A.03, the borrower is 9.17 notified of the compliance failure, appropriate restitution is 9.18 made, and whatever adjustments are necessary are made to the 9.19 loan to either, at the choice of the borrower: 9.20 (i) make the high-cost home loan satisfy the requirements 9.21 of section 58A.03; or 9.22 (ii) change the terms of the loan in a manner beneficial to 9.23 the borrower so that the loan will no longer be considered a 9.24 high-cost home loan subject to the provisions of that section; 9.25 or 9.26 (2) the compliance failure was not intentional and resulted 9.27 from a bona fide error notwithstanding the maintenance of 9.28 procedures reasonably adapted to avoid such errors, and within 9.29 60 days after the discovery of the compliance failure and prior 9.30 to the institution of any action under section 58A.03 or the 9.31 receipt of written notice of the compliance failure, the 9.32 borrower is notified of the compliance failure, appropriate 9.33 restitution is made, and whatever adjustments are necessary are 9.34 made to the loan to either, at the choice of the borrower: 9.35 (i) make the high-cost home loan satisfy the requirements 9.36 of section 58A.03; or 10.1 (ii) change the terms of the loan in a manner beneficial to 10.2 the borrower so that the loan will no longer be considered a 10.3 high-cost home loan subject to the provisions of section 10.4 58A.03. Examples of a bona fide error include clerical, 10.5 calculation, computer malfunction and programming, and printing 10.6 errors. An error of legal judgment with respect to a person's 10.7 obligations under section 58A.03 is not a bona fide error. 10.8 Sec. 5. [58A.05] [REPORTING REQUIREMENTS FOR LENDERS THAT 10.9 DO NOT REPORT INFORMATION UNDER THE FEDERAL HOME MORTGAGE 10.10 DISCLOSURE ACT (HMDA).] 10.11 (a) Lenders that are exempt from the reporting requirements 10.12 of United States Code, title 12, section 2803, solely because 10.13 the home purchase loans, including refinancings, that the lender 10.14 originated in the preceding calendar year totaled less than ten 10.15 percent of its total origination volume measured in dollars, 10.16 thereby qualifying for an exemption under Paragraph I.D. of 10.17 Appendix A (Form and Instructions for Completion of HMDA 10.18 Loan/Application Register) in Code of Federal Regulations, title 10.19 12, section 203, shall report to the commissioner of commerce 10.20 the same information that other lenders are required to report 10.21 under United States Code, title 12, section 2803(b), to the 10.22 appropriate federal agency. 10.23 (b) Lenders shall submit the information required under 10.24 paragraph (a) in the format established by the United States 10.25 Department of Housing and Urban Development under United States 10.26 Code, title 12, section 2803(h)(5). 10.27 Sec. 6. [58A.06] [REPORTING OF INTEREST RATES.] 10.28 (a) Lenders shall report to the commissioner of commerce 10.29 the average and median interest rates of mortgage loans and home 10.30 improvement loans that they originate, grouped according to the 10.31 categories established under United States Code, title 12, 10.32 section 2803(b)(4): census tract, income level, racial 10.33 characteristics, and gender. 10.34 (b) In calculating the interest rate for variable rate 10.35 loans to fulfill the requirements of paragraph (a), lenders 10.36 shall use the average interest rate on the variable rate loan 11.1 for the 12 months of the reporting period established under 11.2 United States Code, title 12, section 2803(d), which is the 11.3 calendar year. 11.4 (c) Lenders shall submit the information required under 11.5 paragraph (a) in a similar format to how the lender reports 11.6 information to the appropriate federal agency under United 11.7 States Code, title 12, section 2803(h)(5), or to the 11.8 commissioner of commerce under section 58A.05. 11.9 Sec. 7. [58A.07] [ENFORCEMENT.] 11.10 The commissioner shall enforce the provisions of this 11.11 chapter. A violation of this chapter is deemed for all purposes 11.12 to be a violation of section 58.13, subdivision 1. 11.13 Sec. 8. [58A.08] [REMEDIES.] 11.14 Subdivision 1. [ENHANCED PRIVATE REMEDIES.] Any borrower 11.15 who is injured by a violation of any provision found in section 11.16 58A.02, subdivisions 1 to 3, or 58A.03, subdivision 7, may bring 11.17 a civil action to recover all interest, points and fees reserved 11.18 on any loan in violation of those sections, twice the amount of 11.19 any interest paid, costs and disbursements, including costs of 11.20 investigation, reasonable attorney fees, and other equitable 11.21 relief as determined by the court. The borrower may rescind any 11.22 such loan upon such terms the court may deem equitable within 11.23 three years of the date of consummation of the loan. In lieu of 11.24 rescission, the borrower may seek a declaratory judgment 11.25 applying all payments made to principal reduction, declaring the 11.26 lender or its assigns to have forfeited the right to interest, 11.27 and reducing all future payments to reflect such interest 11.28 forfeiture and the payment amounts necessary to retire the debt 11.29 over the remaining term of the loan. A violation of section 11.30 58A.02, subdivisions 1 to 3, or 58A.03, subdivision 7, may be 11.31 raised as a defense to any foreclosure by action or 11.32 advertisement. 11.33 Subd. 2. [OTHER PRIVATE REMEDIES.] Any person injured by a 11.34 violation of any provision found in this chapter, other than 11.35 section 58A.02, subdivisions 1 to 3, or 58A.03, subdivision 7, 11.36 may bring a civil action to recover actual damages, together 12.1 with costs and disbursements, including costs of investigation 12.2 and reasonable attorney fees. 12.3 Notwithstanding any other penalties imposed by this 12.4 section, a lender found to be in violation of this chapter shall 12.5 be liable for an additional civil penalty of $5,000 per 12.6 violation. If the person injured by a violation of this chapter 12.7 is a senior citizen, the lender shall be liable for an 12.8 additional civil penalty of $10,000 per violation. 12.9 Subd. 3. [REMEDIES CUMULATIVE.] The remedies provided 12.10 herein are cumulative and do not limit any other remedies 12.11 available to a borrower or other obligor. 12.12 Subd. 4. [AFFIRMATIVE DEFENSES.] Any person who purchases 12.13 or is otherwise assigned a home loan shall be subject to all 12.14 affirmative claims and defenses with respect to the loan that 12.15 the borrower could assert against the lender or broker of the 12.16 loan. 12.17 Sec. 9. [APPROPRIATION.] 12.18 $....... is appropriated from the general fund to the 12.19 housing finance agency for purposes of Minnesota Statutes, 12.20 section 58A.03, subdivision 4. The appropriation is available 12.21 until spent. 12.22 Sec. 10. [EFFECTIVE DATE.] 12.23 Sections 1 to 4, 7, and 8 are effective August 1, 2001. 12.24 Sections 5 and 6 are effective January 1, 2002. 12.25 ARTICLE 2 12.26 CONFORMING CHANGES 12.27 Section 1. Minnesota Statutes 2000, section 47.20, 12.28 subdivision 5, is amended to read: 12.29 Subd. 5. [PREPAYMENT PENALTY.] (a) Unless the mortgagor 12.30 waives its right to prepay the mortgage loan without penalty, in 12.31 a uniform written disclosure waiver approved by the commissioner 12.32 and signed by the mortgagor, no conventional loan or loan 12.33 authorized in subdivision 1 shall contain a provision requiring 12.34 or permitting the imposition of a penalty in the event the loan 12.35 or advance of credit is prepaid. The prepayment penalty shall 12.36 not exceed the lesser of two percent of the unpaid principal 13.1 balance or 60 days interest on the unpaid principal balance. A 13.2 lender that offers a mortgage loan with a prepayment penalty 13.3 shall also offer a mortgage loan without a prepayment penalty. 13.4 This section does not permit the imposition of a prepayment 13.5 penalty in the event that the property securing the mortgage 13.6 loan is sold or the mortgage loan is prepaid in part. No 13.7 prepayment penalty may be enforced after 42 months from the date 13.8 of the mortgage loan. 13.9 This subdivision is superseded by section 58A.03, 13.10 subdivision 1, with respect to high-cost home loans as defined 13.11 in section 58A.01. 13.12 (b) A precomputed conventional loan or precomputed loan 13.13 authorized in subdivision 1 shall provide for a refund of the 13.14 precomputed finance charge according to the actuarial method if 13.15 the loan is paid in full by cash, renewal or refinancing, or a 13.16 new loan, one month or more before the final installment due 13.17 date. The actuarial method for the purpose of this section is 13.18 the amount of interest attributable to each fully unexpired 13.19 monthly installment period of the loan contract following the 13.20 date of prepayment in full, calculated as if the loan was made 13.21 on an interest-bearing basis at the rate of interest provided 13.22 for in the note based on the assumption that all payments were 13.23 made according to schedule. A precomputed loan for the purpose 13.24 of this section means a loan for which the debt is expressed as 13.25 a sum comprised of the principal amount and the amount of 13.26 interest for the entire term of the loan computed actuarially in 13.27 advance on the assumption that all scheduled payments will be 13.28 made when due, and does not include a loan for which interest is 13.29 computed from time to time by application of a rate to the 13.30 unpaid principal balance, interest-bearing loans, or 13.31 simple-interest loans. For the purpose of calculating a refund 13.32 for precomputed loans under this section, any portion of the 13.33 finance charge for extending the first payment period beyond one 13.34 month may be ignored. Nothing in this section shall be 13.35 considered a limitation on discount points or other finance 13.36 charges charged or collected in advance, and nothing in this 14.1 section shall require a refund of the charges in the event of 14.2 prepayment. Nothing in this section shall be considered to 14.3 supersede section 47.204. 14.4 Sec. 2. Minnesota Statutes 2000, section 58.13, 14.5 subdivision 1, is amended to read: 14.6 Subdivision 1. [GENERALLY.] No person acting as a 14.7 residential mortgage originator or servicer, including a person 14.8 required to be licensed under this chapter, and no person exempt 14.9 from the licensing requirements of this chapter under section 14.10 58.04, shall: 14.11 (1) fail to maintain a trust account to hold trust funds 14.12 received in connection with a residential mortgage loan; 14.13 (2) fail to deposit all trust funds into a trust account 14.14 within three business days of receipt; commingle trust funds 14.15 with funds belonging to the licensee or exempt person; or use 14.16 trust account funds for any purpose other than that for which 14.17 they are received; 14.18 (3) unreasonably delay the processing of a residential 14.19 mortgage loan application, or the closing of a residential 14.20 mortgage loan. For purposes of this clause, evidence of 14.21 unreasonable delay includes but is not limited to those factors 14.22 identified in section 47.206, subdivision 7, clause (d); 14.23 (4) fail to disburse funds according to its contractual or 14.24 statutory obligations; 14.25 (5) fail to perform in conformance with its written 14.26 agreements with borrowers, investors, other licensees, or exempt 14.27 persons; 14.28 (6) charge a fee for a product or service where the product 14.29 or service is not actually provided, or misrepresent the amount 14.30 charged by or paid to a third party for a product or service; 14.31 (7) fail to comply with sections 345.31 to 345.60, the 14.32 Minnesota unclaimed property law; 14.33 (8) violate any provision of any other applicable state or 14.34 federal law regulating residential mortgage loans including, 14.35 without limitation, sections 47.20 to 47.208 and 58A.01 to 14.36 58A.07; 15.1 (9) make or cause to be made, directly or indirectly, any 15.2 false, deceptive, or misleading statement or representation in 15.3 connection with a residential loan transaction including, 15.4 without limitation, a false, deceptive, or misleading statement 15.5 or representation regarding the borrower's ability to qualify 15.6 for any mortgage product; 15.7 (10) conduct residential mortgage loan business under any 15.8 name other than that under which the license or certificate of 15.9 exemption was issued; 15.10 (11) compensate, whether directly or indirectly, coerce or 15.11 intimidate an appraiser for the purpose of influencing the 15.12 independent judgment of the appraiser with respect to the value 15.13 of real estate that is to be covered by a residential mortgage 15.14 or is being offered as security according to an application for 15.15 a residential mortgage loan; 15.16 (12) issue any document indicating conditional 15.17 qualification or conditional approval for a residential mortgage 15.18 loan, unless the document also clearly indicates that final 15.19 qualification or approval is not guaranteed, and may be subject 15.20 to additional review; 15.21 (13) make or assist in making any residential mortgage loan 15.22 with the intent that the loan will not be repaid and that the 15.23 residential mortgage originator will obtain title to the 15.24 property through foreclosure; 15.25 (14) provide or offer to provide for a borrower, any 15.26 brokering or lending services under an arrangement with a person 15.27 other than a licensee or exempt person, provided that a person 15.28 may rely upon a written representation by the residential 15.29 mortgage originator that it is in compliance with the licensing 15.30 requirements of this chapter; 15.31 (15) claim to represent a licensee or exempt person, unless 15.32 the person is an employee of the licensee or exempt person or 15.33 unless the person has entered into a written agency agreement 15.34 with the licensee or exempt person; 15.35 (16) fail to comply with the recordkeeping and notification 15.36 requirements identified in section 58.14 or fail to abide by the 16.1 affirmations made on the application for licensure; 16.2 (17) represent that the licensee or exempt person is acting 16.3 as the borrower's agent after providing the nonagency disclosure 16.4 required by section 58.15, unless the disclosure is retracted 16.5 and the licensee or exempt person complies with all of the 16.6 requirements of section 58.16; 16.7 (18) make, provide, or arrange for a residential mortgage 16.8 loan that is of a lower investment grade if the borrower's 16.9 credit score or, if the originator does not utilize credit 16.10 scoring or if a credit score is unavailable, then comparable 16.11 underwriting data, indicates that the borrower may qualify for a 16.12 residential mortgage loan, available from or through the 16.13 originator, that is of a higher investment grade, unless the 16.14 borrower is informed that the borrower may qualify for a higher 16.15 investment grade loan with a lower interest rate and/or lower 16.16 discount points, and consents in writing to receipt of the lower 16.17 investment grade loan. 16.18 For purposes of this section, "investment grade" refers to 16.19 a system of categorizing residential mortgage loans in which the 16.20 loans are: (i) commonly referred to as "prime" or "subprime"; 16.21 (ii) commonly designated by an alphabetical character with "A" 16.22 being the highest investment grade; and (iii) are distinguished 16.23 by interest rate or discount points or both charged to the 16.24 borrower, which vary according to the degree of perceived risk 16.25 of default based on factors such as the borrower's credit, 16.26 including credit score and credit patterns, income and 16.27 employment history, debt ratio, loan-to-value ratio, and prior 16.28 bankruptcy or foreclosure; 16.29 (19) make, publish, disseminate, circulate, place before 16.30 the public, or cause to be made, directly or indirectly, any 16.31 advertisement or marketing materials of any type, or any 16.32 statement or representation relating to the business of 16.33 residential mortgage loans that is false, deceptive, or 16.34 misleading; 16.35 (20) advertise loan types or terms that are not available 16.36 from or through the licensee or exempt person on the date 17.1 advertised, or on the date specified in the advertisement. For 17.2 purposes of this clause, advertisement includes, but is not 17.3 limited to, a list of sample mortgage terms, including interest 17.4 rates, discount points, and closing costs provided by licensees 17.5 or exempt persons to a print or electronic medium that presents 17.6 the information to the public; and 17.7 (21) use or employ phrases, pictures, return addresses, 17.8 geographic designations, or other means that create the 17.9 impression, directly or indirectly, that a licensee or other 17.10 person is a governmental agency, or is associated with, 17.11 sponsored by, or in any manner connected to, related to, or 17.12 endorsed by a governmental agency, if that is not the case. 17.13 Sec. 3. [EFFECTIVE DATE.] 17.14 Sections 1 and 2 are effective August 1, 2001.