sb 0099

SB 99 - AS AMENDED BY THE SENATE

AN ACT relative to high cost mortgage loans.

SPONSORS: Sen. Flanders, Dist 7; Sen. Clegg, Dist 14; Sen. Johnson, Dist 2; Sen. D'Allesandro, Dist 20

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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

AN ACT relative to high cost mortgage loans.

Be it Enacted by the Senate and House of Representatives in General Court convened:

1 New Chapter; Regulation of Mortgage Loans. Amend RSA by inserting after chapter 397-B the following new chapter:

I. "APR" means the annual percentage rate for the loan calculated according to the provisions of the federal Truth-in-Lending Act, 15 USC section 1601 et. Seq. and the regulations promulgated.

II. "Covered loan" means a consumer credit mortgage loan transaction, involving real property located within this state, that is considered a "mortgage" under section 152 of the Home Ownership and Equity Protection Act of 1994 (15 U.S.C. 1602 (aa)), and the regulations adopted pursuant thereto by the Federal Reserve Board, including Section 226.32 of Title 12 of the Code of Federal Regulations, and the Official Staff Commentary to the regulations as each may be amended from time to time.

III. "Lender" means any individual or entity that in any 12-month period originates 4 or more covered loans. The individual or entity to whom the covered loan is initially payable, either on the face of the note or contract, shall be the lender.

IV. "Mortgage broker" means a person (not an employee or exclusive agent of a lender) who for compensation brings an obligor and lender together to obtain a covered loan.

VI. "Political subdivision" means a municipality, including a village district, school district, political subdivision, public corporation or local government entity.

VII. "Servicer" has the same meaning provided in section 2605(i)(2) of the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. 2601 et. seq., as amended from time to time.

VIII. "Prepayment penalty" means any charge or penalty for paying all or part of the principal before the date on which the principal is due.

397-C:2 Disclosure. A lender making a covered home loan shall disclose to the prospective borrower:

I. The following statement: "You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan."

IV. For variable-rate transactions, a statement that the interest rate and monthly payment may increase, and the amount of the single maximum monthly payment, based on the maximum interest rate that may be imposed during the term of the loan.

397-C:3 Exclusions. A covered home loan shall not provide for or include the following:

I. For a loan with a term of less than 7 years, a payment schedule with regular periodic payments that when aggregated do not fully amortize the outstanding principal balance, except that this limitation does not apply to a loan with maturities of less than one year if the purpose of the loan is a bridge loan connected with the acquisition or construction of a dwelling intended to become the borrower's principal dwelling.

II. A payment schedule that consolidates more than 2 periodic payments and pays them in advance from the proceeds.

III. An increase in the interest rate after default or default charges in excess of 5 percent of the amount in default.

IV. A refund calculated by a method less favorable than the actuarial method, as defined by Section 933(d) of the Housing and Community Development Act of 1992, 15 USC 1615(d), for rebates of interest arising from a loan acceleration due to default.

V. A prepayment penalty except as allowed by this section. A covered loan may provide for or include a prepayment penalty, if:

(a) The penalty can be exercised only for the first 3 years following consummation. No prepayment penalty shall exceed 3 percent of the balance prepaid for any payment occurring earlier than one year after consummation of the loan, 2 percent of the balance prepaid for any payment occurring between one and 2 years after consummation of the loan, and one percent of the balance prepaid for any payment occurring between 2 and 3 years after consummation of the loan;

(b) The source of the prepayment funds is not a refinancing by the lender or an affiliate of the lender; and

(c) At consummation, the borrower's total monthly debts, including amounts owed under the covered loan, do not exceed 55 percent of the borrower's monthly gross income, as verified by the borrower's signed financial statement such as Fannie Mae form 1003, a credit report, and payment records for employment income.

VI. A call provision that permits the lender, in its sole discretion, to accelerate the indebtedness. This prohibition shall not apply when repayment of the loan is accelerated by bona fide default, pursuant to due-on-sale clause provision, or pursuant to another provision of the loan agreement unrelated to the payment schedule including, but not limited to, bankruptcy or receivership.

397-C:4 Credit Reporting. Any lender who makes a covered loan shall report both the favorable and unfavorable payment history of the borrower to a nationally recognized consumer credit reporting agency at least annually during such period as the lender holds or services the loan.

I. Pay a contractor under a home improvement contract from the proceeds of the loan, other than:

(a) By an instrument payable to the borrower or jointly to the borrower and the contractor.

(b) At the election of the borrower, through a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender, and the contractor prior to the disbursement.

II. Charge any points in connection with a covered loan if the proceeds of the covered loan are used to refinance an existing covered loan owned by the lender and the last financing was within one year of the current refinancing; provided, however, this provision shall not prohibit a lender from charging points in connection with any additional proceeds received by the obligor or paid to third parties on the obligor's behalf in connection with the refinancing. For purposes of this subparagraph, "additional proceeds" for a closed end loan is the amount over and above the outstanding principal balance of the existing covered loan; provided, however, in the event the lender refunds all the points on the covered loan being refinanced, the "additional proceeds" shall be the principal balance of the new covered loan.

III. Charge a borrower any fees to modify, renew, extend, or amend a covered loan or defer any payment due under a covered loan, if after the modification, renewal, extension or amendment, the loan is still a covered loan, of if no longer a covered loan, the APR has not been reduced by at least 2 percentage points. For purposes of this subdivision, "fees" does not include interest that is otherwise payable and consistent with the provisions of the loan documents. The provisions of this paragraph do not prohibit a lender from charging, imposing or causing to be paid, directly or indirectly, prepaid finance charges in connection with any additional proceeds received by the borrower in connection with the modification, renewal, extension, or amendment, provided the prepaid finance charges on the additional proceeds do not exceed 5 percent of the additional proceeds. The provisions of this paragraph do not apply if the existing covered loan is 60 or more days delinquent and the modification, renewal, extension, amendment, or deferral is part of a work-out process.

IV. Engage in a pattern or practice of extending credit to a consumer based on the consumer's collateral without regard to the consumer's repayment ability, including the consumer's current and expected income, current obligations, and employment. There is a presumption that a creditor has violated this paragraph if the creditor engages in a pattern of practice of making loans without verifying and documenting consumers' repayment ability.

V. Advertise that refinancing preexisting debt with a covered loan will reduce a borrower's aggregate monthly debt payment without also disclosing that the covered loan may increase both the borrower's aggregate number of monthly debt payments and the aggregate amount paid by the borrower over the term of the covered loan.

VI. Recommend or encourage default or further default by a borrower on an existing loan or other debt, prior to the closing of a covered loan that refinances all or any portion of such existing loan or debt.

I. Any lender that makes a covered loan to a borrower and offers such borrower the option to purchase an individual or group credit life, accident, health, disability or unemployment insurance product on a prepaid single premium basis shall also offer such borrower the option of purchasing such insurance product on a monthly premium basis.

II. If a borrower purchases from a lender an individual or group credit life, accident, health, disability or unemployment insurance product, such borrower shall have the right to cancel such insurance product at any time and receive a refund of any unearned premiums paid. Notice of the right to cancel shall be sent by mail to such borrower by the lender no later than 30 days after consummation. Such notice shall also disclose the type of insurance product purchased, the cost of such product and the procedure for canceling such product.

397-C:7 Default. The lender and any assignee of the lender shall have the obligation, jointly and severally, to refund or credit the borrower for any default charges, prepayment penalties or prepaid finance charges collected in excess of the limits set forth in this chapter.

I. All political subdivisions of this state are prohibited from enacting, issuing, and enforcing ordinances, resolutions, regulations, orders, requests for proposals, or requests for bids pertaining to the financial or lending activities of persons who:

(a) Are subject to the jurisdiction of the banking department, including activities subject to this chapter.

(b) Are subject to the jurisdiction or regulatory supervision of the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration, the Federal Deposit Insurance Corporation, the Federal Trade Commission or the United States Department of Housing and Urban Development.

(d) Originate, purchase, sell, assign, securitize or service property interests or obligations created by financial transactions or loans made, executed, or originated by persons referred to in paragraphs I, II, or III, or assist or facilitate such transactions.

II. The requirements of this section shall apply to all ordinances, resolutions, rules, regulations, orders, requests for proposals, and requests for bids pertaining to financial or lending activities, including any ordinances, resolutions, rules, regulations, orders, requests for proposals, and requests for bids disqualifying persons from doing business with a political subdivision based upon financial or lending activities or imposing reporting requirements or any other obligations upon persons regarding financial or lending activities.

III. Nothing in this chapter shall limit or prevent the right of the New Hampshire housing finance authority to adopt rules and regulations authorized under RSA 204-C.