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SF 988

3rd Engrossment - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

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

Current Version - 3rd Engrossment

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A bill for an act
relating to mortgages; prohibiting certain predatory lending practices; prescribing
criminal penalties; providing remedies; amending Minnesota Statutes 2006,
sections 58.02, by adding subdivisions; 58.13, subdivision 1; 58.137, subdivision
2; proposing coding for new law in Minnesota Statutes, chapters 58; 82B; 609.

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

Section 1.

Minnesota Statutes 2006, section 58.02, is amended by adding a subdivision
to read:


new text begin Subd. 27. new text end

new text begin Subprime loan. new text end

new text begin "Subprime loan" means, in the case of an adjustable rate
loan secured by a first lien on a dwelling that can increase in interest rate but not decrease
in interest rate below the fully indexed rate at the time of origination, a loan for which the
annual percentage rate (APR) is greater than two percentage points above the yield on
United States Treasury securities having comparable periods of maturity, as of the 15th
day of the preceding month if the rate is set between the first and the 14th day of the month
and as of the 15th day of the current month if the rate is set on or after the 15th day.
new text end

new text begin For all other loans secured by a first lien on a dwelling, the term means a loan for
which the APR is greater than three percentage points above the yield on United States
Treasury securities having comparable periods of maturity, as of the 15th day of the
preceding month if the rate is set between the first and the 14th day of the month and as of
the 15th day of the current month if the rate is set on or after the 15th day.
new text end

new text begin For loans secured by a subordinate lien on a dwelling, the term means a loan for
which the APR is greater than five percentage points above the yield on United States
Treasury securities having comparable periods of maturity, as of the 15th day of the
preceding month if the rate is set between the first and the 14th day of the month and as of
the 15th day of the current month if the rate is set on or after the 15th day.
new text end

new text begin For purposes of this section, the annual percentage rate has the meaning given in
Code of Federal Regulations, title 12, part 226.
new text end

Sec. 2.

Minnesota Statutes 2006, section 58.02, is amended by adding a subdivision to
read:


new text begin Subd. 28. new text end

new text begin Negative amortization. new text end

new text begin "Negative amortization" occurs when the
borrower's compliance with any repayment option offered pursuant to the terms of the
residential mortgage loan is insufficient to satisfy the interest accruing on the loan,
resulting in an increase in the loan balance. Negative amortization does not occur when a
residential mortgage loan is originated, subsidized, or guaranteed by or through a state,
tribal, or local government, or nonprofit organization, and bears one or more of the
following nonstandard payment terms that substantially benefit the borrower: payments
vary with income; payments of principal and interest are deferred until the maturity date
of the loan or the sale of the residence; principal or interest is forgivable under specified
conditions; or where no interest or an annual interest rate of two percent or less is charged
in connection with the loan.
new text end

Sec. 3.

Minnesota Statutes 2006, section 58.13, subdivision 1, is amended to read:


Subdivision 1.

Generally.

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, 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;

(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; deleted text beginor
deleted text end

(22) violate section 82.49, relating to table fundingdeleted text begin.deleted text endnew text begin; ornew text end

new text begin (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 by the United States Department of Housing and Urban Development,
the Minnesota Home Ownership Center, the Minnesota Mortgage Foreclosure Prevention
Association, AARP, or NeighborWorks America.
new text end

Sec. 4.

Minnesota Statutes 2006, section 58.137, subdivision 2, is amended to read:


Subd. 2.

Prepayment penalties.

(a) A residential mortgage originator making a
residential mortgage loan new text beginthat is a prime loan new text endto a borrower located in this state shall not
charge, receive, or collect any prepayment penalty, fee, premium, or other charge:

(1) for any partial prepayment of the residential mortgage loan; or

(2) for any prepayment of the residential mortgage loan upon the sale of any
residential real property, or the sale of any stock, interest, or lease relating to cooperative
ownership of residential real property, securing the loan; or

(3) for any prepayment of the residential mortgage loan if the prepayment is made
more than 42 months after the date of the note or other agreement for the residential
mortgage loan; or

(4) for any prepayment of the residential mortgage loan if the aggregate amount of
all prepayment penalties, fees, premiums, and other charges exceeds the lesser of (i) an
amount equal to two percent of the unpaid principal balance of the residential mortgage
loan at the time of prepayment, or (ii) an amount equal to 60 days' interest, at the interest
rate in effect on the residential mortgage loan at the time of prepayment, on the unpaid
principal balance of the residential mortgage loan at the time of prepayment.

(b) If a residential mortgage originator offers or makes residential mortgage loans
to any borrowers located in this state with prepayment penalties, fees, premiums, or
other charges exceeding the maximum amount under paragraph (a), clause (4), then the
residential mortgage originator shall provide the following disclosure to each prospective
borrower located in this state that requests a residential mortgage loan from the residential
mortgage originator, whether or not the prospective borrower receives a residential
mortgage loan:

THIS IS VERY IMPORTANT

THIS LENDER CHARGES YOU A SUBSTANTIAL PENALTY IF YOU PAY OFF OR
REFINANCE YOUR LOAN BEFORE MATURITY. ASK THE LENDER HOW MUCH
THE PENALTY WILL BE FOR YOUR LOAN.

The residential mortgage originator shall read the disclosure to the prospective
borrower when the prospective borrower requests a residential mortgage loan, and again
within three days before the borrower signs the note or other agreement for the residential
mortgage loan. The residential mortgage originator also shall provide the disclosure to the
prospective borrower in writing so that it is received by the prospective borrower within
five days after the residential mortgage originator receives the prospective borrower's
request for a residential mortgage loan, and again within three days before the prospective
borrower signs the note or other agreement for the residential mortgage loan. The written
disclosure must be stated in at least 16-point capitalized boldface type on a single sheet of
paper that contains only the disclosure, the date on which the disclosure form is sent or
provided, the name, address, and telephone number of the residential mortgage originator,
the name and address of the prospective borrower, and, at the option of the residential
mortgage originator, the prospective borrower's dated and signed acknowledgment
of receipt of the disclosure form. The provisions of the disclosure form, other than
the disclosure in this subdivision, are not required to be in at least 16-point capitalized
boldface type. The prospective borrower shall be permitted to keep a copy of each written
disclosure form. When a prospective borrower asks a residential mortgage originator for
information about a prepayment penalty, the residential mortgage originator shall give the
prospective borrower the requested information, and shall tell the borrower the highest
aggregate amount of the prepayment penalties, fees, premiums, and other charges that the
residential mortgage originator would charge to the prospective borrower for prepayment
of the residential mortgage loan one year after it is funded, based on a hypothetical
unpaid principal balance of $100,000 and also based on the highest interest rate that the
residential mortgage originator would charge to the prospective borrower. A mortgage
originator responding to requests for residential mortgage loans via the Internet may make
the disclosure in a manner acceptable to the commissioner.

new text begin (c) A residential mortgage originator shall not enter into a subprime loan that
contains a provision requiring or permitting the imposition of a penalty, fee, premium,
or other charge in the event the residential mortgage loan is prepaid in whole or in part.
This prohibition does not apply to any loan with a principal amount that, or, in the case of
an open-end credit plan, in which the borrower's initial maximum credit limit, exceeds
the conforming loan size limit for a single-family dwelling as established from time to
time by Fannie Mae.
new text end

Sec. 5.

new text begin [58.18] PRIVATE RIGHT OF ACTION.
new text end

new text begin Subdivision 1. new text end

new text begin Remedies. new text end

new text begin A borrower injured by a violation of the standards, duties,
prohibitions, or requirements of sections 58.13, 58.136, 58.137, and 58.16 shall have a
private right of action and the court shall award:
new text end

new text begin (1) actual, incidental, and consequential damages;
new text end

new text begin (2) statutory damages equal to the amount of all lender fees included in the amount
of the principal of the residential mortgage loan as defined in section 58.137;
new text end

new text begin (3) punitive damages if appropriate, and as provided in sections 549.191 and 549.20;
and
new text end

new text begin (4) court costs and reasonable attorneys' fees.
new text end

new text begin Subd. 2. new text end

new text begin Private attorney general statute. new text end

new text begin A borrower injured by a violation of
the standards, duties, prohibitions, or requirements of sections 58.13, 58.136, 58.137, and
58.16 also may bring an action under section 8.31. A private right of action by a borrower
under this chapter is in the public interest.
new text end

new text begin Subd. 3. new text end

new text begin Remedies cumulative. new text end

new text begin The remedies provided in this section are
cumulative and do not restrict any other right or remedy otherwise available to the
borrower.
new text end

new text begin Subd. 4. new text end

new text begin Exemption. new text end

new text begin This section does not apply to a residential mortgage loan
originated by a federal or state chartered bank, savings bank, or credit union.
new text end

Sec. 6.

new text begin [82B.24] PRIVATE RIGHT OF ACTION.
new text end

new text begin Subdivision 1. new text end

new text begin Remedies. new text end

new text begin Any person injured by a violation of the standards, duties,
prohibitions, or requirements of section 82B.20 or 82B.22 shall have a private right of
action and the court shall award:
new text end

new text begin (1) actual, incidental, and consequential damages;
new text end

new text begin (2) statutory damages of no less than $1,000 nor more than $2,000;
new text end

new text begin (3) punitive damages if appropriate, and as provided in sections 549.191 and 549.20;
and
new text end

new text begin (4) court costs and reasonable attorneys fees.
new text end

new text begin Subd. 2. new text end

new text begin Private attorney general statute. new text end

new text begin A person injured by a violation of the
standards, duties, prohibitions, or requirements of section 82B.20 or 82B.22 also may
bring an action under section 8.31. A private right of action by a borrower under this
chapter is in the public interest.
new text end

new text begin Subd. 3. new text end

new text begin Remedies cumulative. new text end

new text begin The remedies provided in this section are
cumulative and do not restrict any other right or remedy otherwise available to the
borrower.
new text end

Sec. 7.

new text begin [609.822] RESIDENTIAL MORTGAGE FRAUD.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) As used in this section, the following terms have
the meanings given.
new text end

new text begin (b) "Mortgage lending process" means the process through which a person seeks or
obtains a residential mortgage loan including, but not limited to, solicitation, application,
or origination, negotiation of terms, third-party provider services, underwriting, signing
and closing, and funding of the loan. Documents involved in the mortgage lending
process include, but are not limited to, uniform residential loan applications or other
loan applications; appraisal reports; HUD-1 settlement statements; supporting personal
documentation for loan applications such as W-2 forms, verifications of income and
employment, bank statements, tax returns, and payroll stubs; and any required disclosures.
new text end

new text begin (c) "Residential mortgage loan" has the meaning given in section 58.02, subdivision
18.
new text end

new text begin Subd. 2. new text end

new text begin Residential mortgage fraud prohibited. new text end

new text begin Whoever does any of the
following commits residential mortgage fraud and may be sentenced as provided in
subdivision 3:
new text end

new text begin (1) knowingly makes or causes to be made any deliberate and material misstatement,
misrepresentation, or omission during the mortgage lending process with the intention
that it be relied on by a mortgage lender, borrower, or any other party to the mortgage
lending process;
new text end

new text begin (2) knowingly uses or facilitates the use of any deliberate and material misstatement,
misrepresentation, or omission, knowing the same to contain a material misstatement,
misrepresentation, or omission, during the mortgage lending process with the intention
that it be relied on by a mortgage lender, borrower, or any other party to the mortgage
lending process; or
new text end

new text begin (3) conspires to violate clause (1) or (2).
new text end

new text begin An offense of residential mortgage fraud must not be predicated solely upon
information lawfully disclosed under federal disclosure laws, regulations, and
interpretations related to the mortgage lending process.
new text end

new text begin Subd. 3. new text end

new text begin Sentence. new text end

new text begin Whoever violates this section shall be sentenced as provided
in section 609.52, subdivision 3, based on the aggregate economic loss suffered by any
person as a result of the violation. However, the maximum sentence of imprisonment for
the offense may not exceed two years. A person convicted of a violation of this section
shall be ordered to pay restitution to persons aggrieved by the violation. Restitution shall
be ordered in addition to a fine or imprisonment but not in lieu of a fine or imprisonment.
new text end

new text begin Subd. 4. new text end

new text begin Vulnerable victim. new text end

new text begin If the person who violates subdivision 2 knew or had
reason to know that the victim was vulnerable due to age, infirmity, or reduced physical
or mental capacity, the court may order an aggravated departure under the sentencing
guidelines.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective August 1, 2007, and applies to crimes
committed on or after that date.
new text end