By Olivo H.B. No. 1437
77R3326 DWS-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to certain practices in connection with a home loan.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Subtitle B, Title 4, Finance Code, is amended by
1-5 adding Chapter 343 to read as follows:
1-6 CHAPTER 343. HOME LOANS
1-7 SUBCHAPTER A. GENERAL PROVISIONS
1-8 Sec. 343.001. DEFINITIONS. In this chapter:
1-9 (1) "Affiliate" means a company that controls, is
1-10 controlled by, or is under common control with another company, as
1-11 provided by the Bank Holding Company Act of 1956 (12 U.S.C. Section
1-12 1841 et seq.), as amended.
1-13 (2) "Annual percentage rate" means the annual
1-14 percentage rate for a loan computed as provided by the Truth in
1-15 Lending Act (15 U.S.C. Section 1601 et seq.), as amended, and the
1-16 regulations adopted under that Act.
1-17 (3) "High cost home loan" means a home loan in which:
1-18 (A) the annual percentage rate of the home loan
1-19 after the expiration of the period, if any, during which a special
1-20 introductory rate applies, exceeds by 6.5 percent or more the
1-21 weekly average yield on U.S. Treasury securities adjusted to a
1-22 constant maturity of five years, as made available by the Federal
1-23 Reserve Board, as of the week preceding the week in which the
1-24 interest rate for the loan is established; or
2-1 (B) the total points and fees on the loan exceed
2-2 four percent of the total loan amount.
2-3 (4) "Home loan" means a loan to one or more
2-4 individuals, other than a reverse mortgage, in which:
2-5 (A) the principal amount does not exceed the
2-6 conforming loan size limit for a single-family dwelling established
2-7 by the Federal National Mortgage Association;
2-8 (B) the debt is incurred primarily for personal,
2-9 family, or household purposes; and
2-10 (C) the loan is secured by a mortgage or deed of
2-11 trust on real property on which is located or is to be located one
2-12 or more structures designed principally for occupancy by four or
2-13 fewer families that are or will be occupied by the borrower as the
2-14 borrower's principal residence.
2-15 (5) "Lender" means an entity that originated, or acted
2-16 as an intermediary between originators and borrowers, on more than
2-17 five home loans within the preceding 12-month period.
2-18 (6) "Obligor" means each borrower, cosigner, or
2-19 guarantor obligated to pay a loan.
2-20 Sec. 343.002. POINTS AND FEES. (a) For the purposes of this
2-21 chapter, the following are points and fees:
2-22 (1) items required to be disclosed under 12 C.F.R.
2-23 Sections 226.4(a) and (b), as amended, except interest or
2-24 time-price differential;
2-25 (2) charges for items listed under 12 C.F.R. Section
2-26 226.4(c)(7), as amended, if the lender receives direct or indirect
2-27 compensation in connection with the charge or the charge is paid to
3-1 an affiliate of the lender; and
3-2 (3) compensation paid directly or indirectly to a
3-3 mortgage broker, including a broker that originates a loan in its
3-4 own name in a table-funded transaction.
3-5 (b) Points and fees do not include:
3-6 (1) taxes, filing fees, recording fees, and fees paid
3-7 to a public official for determining the existence of or
3-8 perfecting, releasing, or satisfying a security interest; or
3-9 (2) amounts paid to a person other than a lender, an
3-10 affiliate of a lender, a mortgage broker, or an affiliate of a
3-11 mortgage broker for:
3-12 (A) flood certification fees;
3-13 (B) pest infestation and flood determination
3-14 fees;
3-15 (C) appraisal fees;
3-16 (D) fees for inspections performed before
3-17 closing;
3-18 (E) credit reports;
3-19 (F) surveys;
3-20 (G) attorney's fees, if the borrower has the
3-21 right to select the attorney;
3-22 (H) notary fees;
3-23 (I) escrow charges, if not included under
3-24 Subsection (a)(1);
3-25 (J) title insurance premiums; and
3-26 (K) fire insurance and flood insurance premiums,
3-27 if the conditions in 12 C.F.R. Section 226.4(d)(2), as amended, are
4-1 met.
4-2 Sec. 343.003. TOTAL LOAN AMOUNT. For purposes of this
4-3 chapter, the total loan amount for a loan shall be computed as
4-4 provided by the Federal Reserve Board's Official Staff Commentary
4-5 to 12 C.F.R. Section 226.32, as amended.
4-6 SUBCHAPTER B. PROHIBITIONS AND REQUIREMENTS
4-7 REGARDING HOME LOANS
4-8 Sec. 343.101. PREPAYMENT PENALTIES. (a) A lender may not
4-9 make a home loan that contains a prepayment penalty that extends
4-10 for a longer period than any initial or introductory interest rate
4-11 of the loan.
4-12 (b) A lender may not make a home loan that contains a
4-13 prepayment penalty payable on refinancing of the home loan if the
4-14 lender on the refinancing is the same as, or an affiliate of, the
4-15 lender on the loan being refinanced.
4-16 Sec. 343.102. RECOMMENDING PAYMENT NOT BE MADE ON PRIOR
4-17 DEBT. A lender may not recommend or encourage that payment not be
4-18 made on an existing debt before and in connection with the closing
4-19 of a home loan that refinances all or part of the existing debt.
4-20 Sec. 343.103. CHARGE FOR PRODUCT OR SERVICE. A lender may
4-21 not charge a fee for a product or service not provided or
4-22 misrepresent the amount charged by or paid to another person for a
4-23 product or service.
4-24 Sec. 343.104. FALSE, MISLEADING, OR DECEPTIVE STATEMENT OR
4-25 REPRESENTATION. A lender, appraiser, or real estate agent may not
4-26 make or cause to be made, directly or indirectly, a false,
4-27 deceptive, or misleading statement or representation in connection
5-1 with a home loan. A statement or representation is deceptive or
5-2 misleading if it has the capacity or tendency to deceive or mislead
5-3 a borrower or potential borrower, considering:
5-4 (1) the overall impression that the statement or
5-5 representation reasonably creates; and
5-6 (2) the particular type of audience to which the
5-7 statement or representation is directed and whether the statement
5-8 or representation may be reasonably comprehended by that audience.
5-9 Sec. 343.105. INFLUENCING APPRAISAL. A lender may not
5-10 directly or indirectly compensate, coerce, or intimidate an
5-11 appraiser for the purpose of influencing the independent judgment
5-12 of the appraiser with respect to the value of real property that is
5-13 to be covered by a home loan or is being offered as security for a
5-14 home loan.
5-15 Sec. 343.106. CREDIT INSURANCE. A lender may not require or
5-16 allow the advance collection of:
5-17 (1) a premium, on a single premium basis, for any
5-18 credit life insurance, credit health and life insurance, or similar
5-19 insurance; or
5-20 (2) a fee for a debt cancellation or suspension
5-21 agreement in connection with a home loan, regardless of whether the
5-22 premium or fee is paid directly by the borrower or financed through
5-23 the loan.
5-24 Sec. 343.107. DOCUMENT WITH BLANKS. A home loan document in
5-25 which blanks are left to be filled in after it is signed by the
5-26 borrower is void.
5-27 Sec. 343.108. TRUTH IN LENDING DISCLOSURES. If the
6-1 discussions between the lender and the borrower on a home loan are
6-2 conducted primarily in a language other than English, before
6-3 closing the lender shall provide an additional copy of all
6-4 information required to be disclosed to the borrower under the
6-5 Truth in Lending Act (15 U.S.C. Section 1601 et seq.), as amended,
6-6 translated into the language in which the discussions were
6-7 conducted.
6-8 SUBCHAPTER C. LIMITATIONS AND PROHIBITIONS FOR HIGH COST
6-9 HOME LOANS
6-10 Sec. 343.201. BALLOON PAYMENT. A lender may not make a high
6-11 cost home loan that provides for a scheduled payment that is more
6-12 than twice as large as the average of the payments previously due,
6-13 unless the amount of the payment is determined by a provision of
6-14 the loan agreement providing for irregular payment amounts because
6-15 of the borrower's irregular income.
6-16 Sec. 343.202. ADVANCE PAYMENTS. A lender may not make a high
6-17 cost home loan that allows more than two periodic payments required
6-18 under the loan to be consolidated and paid in advance from the loan
6-19 proceeds provided to the borrower.
6-20 Sec. 343.203. REFINANCING. (a) A lender may not, in
6-21 connection with the formation or consummation of a high cost home
6-22 loan, directly or indirectly finance any points, fees, or other
6-23 charges required to be paid by the borrower in connection with the
6-24 loan if:
6-25 (1) the loan is refinancing an existing high cost home
6-26 loan; and
6-27 (2) the lender of the new loan or an affiliate of the
7-1 lender is the lender of the loan being refinanced.
7-2 (b) A lender may not refinance a home loan with a high cost
7-3 home loan unless the new loan results in a reasonable, tangible net
7-4 benefit to the borrower considering all circumstances, including
7-5 the terms of both loans, the cost of the new loan, and the
7-6 borrower's circumstances.
7-7 Sec. 343.204. ABILITY TO PAY. (a) A lender may not make a
7-8 home loan unless the lender reasonably believes when the loan is
7-9 consummated that one or more of the obligors, considered
7-10 individually or collectively, will be able to make the scheduled
7-11 payments on the obligation, based on consideration of the obligor's
7-12 income and expected income, obligations, employment status, and
7-13 other financial resources, excluding the property securing the
7-14 loan.
7-15 (b) An obligor is presumed to be able to make the scheduled
7-16 payments on the obligation if, when the loan is consummated, the
7-17 obligor's total monthly debt payments, including payments owed
7-18 under the loan, do not exceed 50 percent of the obligor's monthly
7-19 gross income, as determined from the credit application, the
7-20 obligor's financial statement, a credit report, financial
7-21 information provided to the lender by or in behalf of the obligor,
7-22 or any other reasonable information. An obligor is not presumed to
7-23 be unable to make the scheduled payments to pay the obligation
7-24 solely because a computation under this subsection results in an
7-25 amount equal to or greater than 50 percent of the obligor's monthly
7-26 gross income.
7-27 Sec. 343.205. LIMIT ON FINANCING OF FEES. A lender may not,
8-1 in connection with a high cost home loan, finance points and fees
8-2 equivalent to more than the lesser of an amount equal to three
8-3 percent of the loan amount or $600.
8-4 Sec. 343.206. ACCELERATION. A lender may not make a high
8-5 cost home loan that permits the lender to accelerate the
8-6 indebtedness, except because of default or as provided by a
8-7 due-on-sale provision or other provision of the loan documents
8-8 unrelated to the payment schedule.
8-9 Sec. 343.207. MODIFICATION OR DEFERRAL FEES. A lender may
8-10 not charge a borrower to modify, renew, extend, or amend a high
8-11 cost home loan or to defer any payment due on a high cost home
8-12 loan.
8-13 Sec. 343.208. MANDATORY ARBITRATION CLAUSE. A lender may not
8-14 make a high cost home loan containing a mandatory arbitration
8-15 clause that limits the right of the borrower to seek relief through
8-16 the judicial process.
8-17 Sec. 343.209. HOME IMPROVEMENT CONTRACTS. A lender may not
8-18 pay a contractor under a home improvement contract from the
8-19 proceeds of a high cost home loan other than:
8-20 (1) by an instrument payable to the borrower; or
8-21 (2) at the election of the borrower, through a
8-22 third-party escrow agent in accordance with terms established in a
8-23 written agreement signed by the borrower, the lender, and the
8-24 contractor before the disbursement.
8-25 Sec. 343.210. NEGATIVE AMORTIZATION. A lender may not make a
8-26 high cost home loan that contains a payment schedule with regular
8-27 periodic payments that result in an increase in the principal
9-1 balance.
9-2 Sec. 343.211. INCREASED INTEREST RATE. A lender may not make
9-3 a high cost home loan that provides for an increase in the interest
9-4 rate on default.
9-5 SUBCHAPTER D. DISCLOSURE REQUIREMENTS
9-6 Sec. 343.301. DISCLOSURE. (a) A lender may not make a high
9-7 cost home loan unless the lender provides to the borrower, not
9-8 later than the third day before the date of closing, a clear
9-9 written and oral disclosure, with the written information in at
9-10 least 14-point type, of:
9-11 (1) whether the loan provides for a prepayment penalty
9-12 and, if so, the amount, the period over which it extends, and clear
9-13 notice that the prepayment penalty must be paid if a borrower
9-14 refinances with another lender;
9-15 (2) the amount of the borrower's monthly payments;
9-16 (3) whether the loan has a variable rate and, if so,
9-17 how the variable rate might affect future monthly payments,
9-18 including specific notice of what the fully-indexed interest rate
9-19 of the loan would be at the rate of the index on the date of the
9-20 notice;
9-21 (4) loan fees to be paid by the borrower; and
9-22 (5) information regarding any payments to be made to a
9-23 third-party creditor from the loan proceeds.
9-24 (b) The notice under Subsection (a) must also include a
9-25 statement regarding the value of receiving housing counseling
9-26 before taking out a home loan and a list of the nearest available
9-27 housing counseling agencies approved by the United States
10-1 Department of Housing and Urban Development.
10-2 Sec. 343.302. NOTICE TO ASSIGNEE. A lender may not sell or
10-3 otherwise assign a home loan without furnishing the following
10-4 statement to the purchaser or assignee: "Notice: This is a home
10-5 loan subject to special rules under Chapter 343, Finance Code.
10-6 Purchasers or assignees of this loan could be liable for all claims
10-7 and defenses with respect to the mortgage that the borrower could
10-8 assert against the creditor."
10-9 SUBCHAPTER E. ATTEMPTED EVASION; UNINTENTIONAL VIOLATIONS
10-10 Sec. 343.401. EVASION OF CHAPTER. A person may not in bad
10-11 faith divide a loan transaction into separate parts or use any
10-12 other subterfuge with the intent of evading the application of
10-13 Subchapter C.
10-14 Sec. 343.402. CORRECTION; UNINTENTIONAL VIOLATION. (a) A
10-15 lender in a high cost home loan who acting in good faith fails to
10-16 comply with Subchapter C does not violate this chapter if the
10-17 lender establishes that:
10-18 (1) not later than the 30th day after the date of the
10-19 loan closing and before the filing of any action under this
10-20 chapter, the borrower is notified of the failure to comply,
10-21 appropriate restitution is made, and necessary adjustments are made
10-22 to the loan so that, at the choice of the borrower:
10-23 (A) the high cost home loan is made to satisfy
10-24 Subchapter C; or
10-25 (B) the terms of the loan are changed in a
10-26 manner beneficial to the borrower so that the loan is no longer a
10-27 high cost home loan; or
11-1 (2) the failure to comply was not intentional and
11-2 resulted from a bona fide error notwithstanding the maintenance of
11-3 procedures reasonably adapted to avoid such an error, and not later
11-4 than the 60th day after the date of discovery of the failure to
11-5 comply and before the filing of any action under this chapter or
11-6 the receipt by the lender of written notice of the failure to
11-7 comply, the borrower is notified of the failure to comply,
11-8 appropriate restitution is made, and necessary adjustments are made
11-9 to the loan so that, at the choice of the borrower:
11-10 (A) the high cost home loan is made to satisfy
11-11 Subchapter C; or
11-12 (B) the terms of the loan are changed in a
11-13 manner beneficial to the borrower so that the loan is no longer a
11-14 high cost home loan.
11-15 (b) For the purposes of this section, bona fide errors
11-16 include clerical, computational, computer malfunction and
11-17 programming, and printing errors. An error of legal judgment with
11-18 respect to a person's obligations under this chapter is not a bona
11-19 fide error.
11-20 SUBCHAPTER F. REPORTING REQUIREMENTS
11-21 Sec. 343.501. HOME MORTGAGE DISCLOSURE. A lender subject to
11-22 this chapter that is exempted from the reporting requirements of 12
11-23 U.S.C. Section 2803, as amended, because the dollar value of the
11-24 home purchase mortgages and refinancings originated by the lender
11-25 in the preceding calendar year totaled less than 10 percent of its
11-26 total loan origination volume shall report to the finance
11-27 commission the information that nonexempt lenders are required to
12-1 report under 12 U.S.C. Section 2803(b) in the format established by
12-2 the United States Department of Housing and Urban Development under
12-3 12 U.S.C. Section 2803(h)(5), as amended.
12-4 Sec. 343.502. ANNUAL PERCENTAGE RATES. (a) A lender
12-5 subject to this chapter shall report to the finance commission the
12-6 average and median annual percentage rates of mortgage loans and
12-7 home improvement loans that the lender originates, grouped
12-8 according to census tract, income level, racial characteristics,
12-9 and gender.
12-10 (b) In computing the annual percentage rate for
12-11 variable-rate loans to fulfill the requirements of Subsection (a),
12-12 the lender shall use the average annual percentage rate on the
12-13 variable-rate loan for the reporting period established under 12
12-14 U.S.C. Section 2803(d), as amended.
12-15 (c) A lender shall submit the information required under
12-16 Subsection (a) in a format similar to that required under 12 U.S.C.
12-17 Section 2803(h)(5), as amended.
12-18 SECTION 2. This Act takes effect September 1, 2001, and
12-19 applies only to a loan closed on or after that date. The reporting
12-20 requirements under Subchapter E begin with the calendar year
12-21 beginning January 1, 2002.