By: West S.B. No. 1581
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) "Bridge loan" means temporary or short-term
1-10 financing requiring payment of only interest until the entire
1-11 unpaid balance is due.
1-12 (2) "Home loan" means a loan that is:
1-13 (A) made to one or more individuals for
1-14 personal, family, or household purposes; and
1-15 (B) secured in whole or part by:
1-16 (i) a manufactured home, as defined by
1-17 Section 347.002, used or to be used as the borrower's principal
1-18 residence; or
1-19 (ii) real property improved by a dwelling
1-20 designed for occupancy by four or fewer families and used or to be
1-21 used as the borrower's principal residence.
1-22 (3) "Restructure" means a change in the payment
1-23 schedule or other terms of a home loan as a result of the
1-24 borrower's default.
1-25 Sec. 343.002. APPLICABILITY. This chapter does not apply
2-1 to:
2-2 (1) a reverse mortgage; or
2-3 (2) an open-end account, as defined by Section
2-4 301.002.
2-5 Sec. 343.003. CONFLICT WITH OTHER PROVISIONS OF TITLE. If
2-6 this chapter conflicts with another provision of this title, this
2-7 chapter controls.
2-8 (Sections 343.004-343.100 reserved for expansion
2-9 SUBCHAPTER B. PROVISIONS RELATING TO HOME LOANS IN GENERAL
2-10 Sec. 343.101. REFINANCING. (a) For purposes of this
2-11 section, a low-rate home loan is a home loan that at its inception
2-12 carries an interest rate two percentage points or more below the
2-13 yield on treasury securities having comparable periods of maturity
2-14 to the loan maturity, except that if the loan's interest rate is a
2-15 discounted introductory rate or a rate that automatically steps up
2-16 over time, the fully indexed rate or the fully stepped-up rate, as
2-17 appropriate, shall be used instead of the rate at the loan's
2-18 inception to determine whether the loan is a low-rate loan.
2-19 (b) A lender may not replace or consolidate a low-rate home
2-20 loan directly made by a government or nonprofit lender before the
2-21 seventh anniversary of the date of the loan unless the new or
2-22 consolidated loan has a lower interest rate and requires payment of
2-23 a lesser amount of points and fees than the original loan or is a
2-24 restructure to avoid foreclosure.
2-25 Sec. 343.102. DISCLOSURE IN CONNECTION WITH CERTAIN HOME
2-26 LOANS. (a) For a home loan with an interest rate of 12 percent or
3-1 greater a year, when the lender makes the disclosure required under
3-2 the Real Estate Settlement Procedures Act of 1974 (12 U.S.C.
3-3 Section 2601 et seq.), as amended, for the good faith estimate, or
3-4 if that Act does not apply, three business days after the date the
3-5 application is made, the lender shall also provide to the borrower:
3-6 (1) a statement regarding the value of mortgage
3-7 counseling before taking out a home loan;
3-8 (2) a list of the nearest available housing counseling
3-9 agencies approved by the United States Department of Housing and
3-10 Urban Development;
3-11 (3) a list of other resources where mortgage
3-12 information can be found, including toll-free telephone numbers and
3-13 online resources; and
3-14 (4) other disclosures required by the finance
3-15 commission, including an official notice regarding high-cost home
3-16 loans.
3-17 (b) This section expires September 1, 2003.
3-18 Sec. 343.103. PENALTIES FOR FAILURE TO PROVIDE DISCLOSURE.
3-19 (a) A person who knowingly and wilfully violates Section 343.102
3-20 is liable to the aggrieved borrower for:
3-21 (1) the actual damages caused by the violation;
3-22 (2) punitive damages not to exceed $10,000 in an
3-23 action brought by the aggrieved borrower; and
3-24 (3) court costs.
3-25 (b) This section expires September 1, 2003.
3-26 Sec. 343.104. RESTRICTIONS ON SINGLE PREMIUM CREDIT
4-1 INSURANCE. A lender may not offer any individual or group credit
4-2 life, disability, or unemployment insurance on a prepaid single
4-3 premium basis in conjunction with a home loan unless the following
4-4 notice is provided to each applicant for the loan by hand delivery
4-5 or mail to the applicant not later than the third business day
4-6 after the date the applicant's application for a home loan is
4-7 received:
4-8 INSURANCE NOTICE TO APPLICANT
4-9 You may elect to purchase credit life,
4-10 disability, or involuntary unemployment insurance in
4-11 conjunction with this mortgage loan. If you elect to
4-12 purchase this insurance coverage, you may pay for it
4-13 either on a monthly premium basis or with a single
4-14 premium payment at the time the lender closes this
4-15 loan. If you choose the single premium payment, the
4-16 cost of the premium will be financed at the interest
4-17 rate provided for in the mortgage loan.
4-18 This insurance is NOT required as a condition of
4-19 closing the mortgage loan and will be included with the
4-20 loan only at your request.
4-21 You have the right to cancel this credit
4-22 insurance once purchased. If you cancel it within 30
4-23 days of the date of your loan, you will receive either
4-24 a full refund or a credit against your loan account.
4-25 If you cancel this insurance at any other time, you
4-26 will receive either a refund or credit against your
5-1 loan account of any unearned premium. YOU MUST CANCEL
5-2 WITHIN 30 DAYS OF THE DATE OF THE LOAN TO RECEIVE A
5-3 FULL REFUND OR CREDIT.
5-4 To assist you in making an informed choice, the
5-5 following estimates of premiums are being provided
5-6 along with an example of the cost of financing. The
5-7 examples assume that the term of the insurance product
5-8 is ____ years and that the interest rate is ______
5-9 percent (a rate that has recently been available for
5-10 the type of loan you are seeking). PLEASE NOTE THAT
5-11 THE ACTUAL LOAN TERMS YOU QUALIFY FOR MAY VARY FROM
5-12 THIS EXAMPLE. "Total amount paid" is the amount that
5-13 would be paid if you financed only the total insurance
5-14 premium for a ___ year period and is equal to the
5-15 amount you would have paid if you made all scheduled
5-16 payments. This is NOT the total of payments on your
5-17 loan.
5-18 CREDIT LIFE INSURANCE: Estimated premium of $_______
5-19 DISABILITY INSURANCE: Estimated premium of $_______
5-20 INVOLUNTARY UNEMPLOYMENT INSURANCE: Estimated premium
5-21 of $________
5-22 TOTAL INSURANCE PREMIUMS: $_______
5-23 TOTAL AMOUNT PAID: $_______
5-24 (Sections 343.105-343.200 reserved for expansion
5-25 SUBCHAPTER C. HIGH-COST HOME LOANS
5-26 Sec. 343.201. DEFINITIONS. In this subchapter:
6-1 (1) "High-cost home loan" means a loan that:
6-2 (A) is made to one or more individuals for
6-3 personal, family, or household purposes;
6-4 (B) is secured in whole or part by:
6-5 (i) a manufactured home, as defined by
6-6 Section 347.002, used or to be used as the borrower's principal
6-7 residence; or
6-8 (ii) real property improved by a dwelling
6-9 designed for occupancy by four or fewer families and used or to be
6-10 used as the borrower's principal residence;
6-11 (C) has a principal amount equal to or less than
6-12 one-half of the maximum conventional loan amount for first
6-13 mortgages as established and adjusted by the Federal National
6-14 Mortgage Association;
6-15 (D) is not:
6-16 (i) a reverse mortgage; or
6-17 (ii) an open-end account, as defined by
6-18 Section 301.002; and
6-19 (E) is a credit transaction described by 12
6-20 C.F.R. Section 226.32, as amended, except that the term includes a
6-21 residential mortgage transaction, as defined by 12 C.F.R. Section
6-22 226.2, as amended, if the total loan amount is $20,000 or more and:
6-23 (i) the annual percentage rate exceeds the
6-24 rate indicated in 12 C.F.R. Section 226.32(a)(1)(i), as amended; or
6-25 (ii) the total points and fees payable by
6-26 the consumer at or before loan closing will exceed the amount
7-1 indicated in 12 C.F.R. Section 226.32(a)(1)(ii), as amended.
7-2 (2) "Points and fees" has the meaning assigned by 12
7-3 C.F.R. Section 226.32(b), as amended.
7-4 Sec. 343.202. BALLOON PAYMENT. A high-cost home loan may
7-5 not contain a provision for a scheduled payment that is more than
7-6 twice as large as the average of earlier scheduled monthly
7-7 payments, unless the balloon payment becomes due not less than 60
7-8 months after the date of the loan. This prohibition does not apply
7-9 if the payment schedule is adjusted to account for the seasonal or
7-10 otherwise irregular income of the borrower or if the loan is a
7-11 bridge loan in connection with the acquisition or construction of a
7-12 dwelling intended to become the borrower's principal dwelling.
7-13 Sec. 343.203. NEGATIVE AMORTIZATION. A high-cost home loan
7-14 may not provide for a payment schedule with regular periodic
7-15 payments that cause the principal balance to increase, except that
7-16 this section does not prohibit negative amortization as a
7-17 consequence of a temporary forbearance, bridge loan, or restructure
7-18 sought by the borrower.
7-19 Sec. 343.204. CONSIDERATION OF OBLIGOR'S PAYMENT ABILITY.
7-20 (a) In this section, "obligor" means a person obligated to pay a
7-21 loan, including a borrower, cosigner, or guarantor. If more than
7-22 one person is obligated to pay a loan, the term refers to those
7-23 persons collectively.
7-24 (b) A lender may not engage in a pattern or practice of
7-25 extending credit to consumers under high-cost home loans based on
7-26 the consumers' collateral without regard to the obligor's repayment
8-1 ability, including the obligor's current and expected income,
8-2 current obligations, employment status, and other financial
8-3 resources, other than the obligor's equity in the dwelling that
8-4 secures repayment of the loan.
8-5 Sec. 343.205. PREPAYMENT PENALTIES PROHIBITED. A lender may
8-6 not make a high-cost home loan containing a provision for a
8-7 prepayment penalty.
8-8 SECTION 2. (a) This Act takes effect September 1, 2001,
8-9 and, except as provided by Subsection (b) of this section, applies
8-10 only to a loan closed on or after that date.
8-11 (b) Section 343.102, Finance Code, as added by this Act,
8-12 applies only to a home loan application received on or after
8-13 September 1, 2001. Section 343.104, Finance Code, as added by this
8-14 Act, applies only to a loan closed on or after the later of January
8-15 1, 2002, or the date the Texas Department of Insurance approves a
8-16 product allowing lenders to offer individual or group credit life
8-17 or credit disability insurance complying with that section and
8-18 certifies to the Finance Commission of Texas that this coverage is
8-19 available.