1-1     By:  West                                             S.B. No. 1581
 1-2           (In the Senate - Filed March 9, 2001; March 14, 2001, read
 1-3     first time and referred to Committee on Business and Commerce;
 1-4     April 24, 2001, reported adversely, with favorable Committee
 1-5     Substitute by the following vote:  Yeas 5, Nays 0; April 24, 2001,
 1-6     sent to printer.)
 1-7     COMMITTEE SUBSTITUTE FOR S.B. No. 1581                  By:  Carona
 1-8                            A BILL TO BE ENTITLED
 1-9                                   AN ACT
1-10     relating to certain practices in connection with a home loan.
1-11           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-12           SECTION 1.  Subtitle B, Title 4, Finance Code, is amended by
1-13     adding Chapter 343 to read as follows:
1-14                          CHAPTER 343.  HOME LOANS
1-15                      SUBCHAPTER A.  GENERAL PROVISIONS
1-16           Sec. 343.001.  DEFINITIONS.  In this chapter:
1-17                 (1)  "Bridge loan" means temporary or short-term
1-18     financing requiring payment of only interest until the entire
1-19     unpaid balance is due.
1-20                 (2)  "Home loan" means a loan that is:
1-21                       (A)  made to one or more individuals for
1-22     personal, family, or household purposes; and
1-23                       (B)  secured in whole or part by:
1-24                             (i)  a manufactured home, as defined by
1-25     Section 347.002, used or to be used as the borrower's principal
1-26     residence; or
1-27                             (ii)  real property improved by a dwelling
1-28     designed for occupancy by four or fewer families and used or to be
1-29     used as the borrower's principal residence.
1-30                 (3)  "Restructure" means a change in the payment
1-31     schedule or other terms of a home loan as a result of the
1-32     borrower's default.
1-33           Sec. 343.002.  APPLICABILITY.  This chapter does not apply
1-34     to:
1-35                 (1)  a reverse mortgage; or
1-36                 (2)  an open-end account, as defined by Section
1-37     301.002.
1-38           Sec. 343.003.  CONFLICT WITH OTHER PROVISIONS OF TITLE.  If
1-39     this chapter conflicts with another provision of this title, this
1-40     chapter controls.
1-41              (Sections 343.004-343.100 reserved for expansion
1-42         SUBCHAPTER B.  PROVISIONS RELATING TO HOME LOANS IN GENERAL
1-43           Sec. 343.101.  REFINANCING.  (a)  For purposes of this
1-44     section, a low-rate home loan is a home loan that at its inception
1-45     carries an interest rate two percentage points or more below the
1-46     yield on treasury securities having comparable periods of maturity
1-47     to the loan maturity, except that if the loan's interest rate is a
1-48     discounted introductory rate or a rate that automatically steps up
1-49     over time, the fully indexed rate or the fully stepped-up rate, as
1-50     appropriate, shall be used instead of the rate at the loan's
1-51     inception to determine whether the loan is a low-rate loan.
1-52           (b)  A lender may not replace or consolidate a low-rate home
1-53     loan directly made by a government or nonprofit lender before the
1-54     seventh anniversary of the date of the loan unless the new or
1-55     consolidated loan has a lower interest rate and requires payment of
1-56     a lesser amount of points and fees than the original loan or is a
1-57     restructure to avoid foreclosure.
1-58           Sec. 343.102.  MANDATORY ARBITRATION PROHIBITED.  A lender
1-59     may not make a home loan containing a provision requiring mandatory
1-60     arbitration.
1-61           Sec. 343.103.  DISCLOSURE IN CONNECTION WITH CERTAIN HOME
1-62     LOANS.  (a)  For a home loan with an interest rate of 12 percent or
1-63     greater a year, when the lender makes the disclosure required under
1-64     the Real Estate Settlement Procedures Act of 1974 (12 U.S.C.
 2-1     Section 2601 et seq.), as amended, for the good faith estimate, or
 2-2     if that Act does not apply, three business days after the date the
 2-3     application is made, the lender shall also provide to the borrower:
 2-4                 (1)  a statement regarding the value of mortgage
 2-5     counseling before taking out a home loan;
 2-6                 (2)  a list of the nearest available housing counseling
 2-7     agencies approved by the United States Department of Housing and
 2-8     Urban Development;
 2-9                 (3)  a list of other resources where mortgage
2-10     information can be found, including toll-free telephone numbers and
2-11     online resources; and
2-12                 (4)  other disclosures required by the finance
2-13     commission, including an official notice regarding high-cost home
2-14     loans.
2-15           (b)  This section expires September 1, 2003.
2-16           Sec. 343.104.  PENALTIES FOR FAILURE TO PROVIDE DISCLOSURE.
2-17     (a)  A person who knowingly and wilfully violates Section 343.103
2-18     is liable to the aggrieved borrower for:
2-19                 (1)  the actual damages caused by the violation;
2-20                 (2)  punitive damages not to exceed $10,000 in an
2-21     action brought by the aggrieved borrower; and
2-22                 (3)  court costs.
2-23           (b)  This section expires September 1, 2003.
2-24              (Sections 343.105-343.200 reserved for expansion
2-25                     SUBCHAPTER C.  HIGH-COST HOME LOANS
2-26           Sec. 343.201.  DEFINITIONS.  In this subchapter:
2-27                 (1)  "High-cost home loan" means a loan that:
2-28                       (A)  is made to one or more individuals for
2-29     personal, family, or household purposes;
2-30                       (B)  is secured in whole or part by:
2-31                             (i)  a manufactured home, as defined by
2-32     Section 347.002, used or to be used as the borrower's principal
2-33     residence; or
2-34                             (ii)  real property improved by a dwelling
2-35     designed for occupancy by four or fewer families and used or to be
2-36     used as the borrower's principal residence;
2-37                       (C)  has a principal amount equal to or less than
2-38     one-half of the maximum conventional loan amount for first
2-39     mortgages as established and adjusted by the Federal National
2-40     Mortgage Association;
2-41                       (D)  is not:
2-42                             (i)  a reverse mortgage; or
2-43                             (ii)  an open-end account, as defined by
2-44     Section 301.002; and
2-45                       (E)  is a credit transaction described by 12
2-46     C.F.R. Section 226.32, as amended, except that the term includes a
2-47     residential mortgage transaction, as defined by 12 C.F.R.  Section
2-48     226.2, as amended, if the total loan amount is $20,000 or more and:
2-49                             (i)  the annual percentage rate exceeds the
2-50     rate indicated in 12 C.F.R. Section 226.32(a)(1)(i), as amended; or
2-51                             (ii)  the total points and fees payable by
2-52     the consumer at or before loan closing will exceed the amount
2-53     indicated in 12 C.F.R. Section 226.32(a)(1)(ii), as amended.
2-54                 (2)  "Points and fees" has the meaning assigned by 12
2-55     C.F.R. Section 226.32(b), as amended.
2-56           Sec. 343.202.  BALLOON PAYMENT.  A high-cost home loan may
2-57     not contain a provision for a scheduled payment that is more than
2-58     twice as large as the average of earlier scheduled monthly
2-59     payments, unless the balloon payment becomes due not less than 60
2-60     months after the date of the loan.  This prohibition does not apply
2-61     if the payment schedule is adjusted to account for the seasonal or
2-62     otherwise irregular income of the borrower or if the loan is a
2-63     bridge loan in connection with the acquisition or construction of a
2-64     dwelling intended to become the borrower's principal dwelling.
2-65           Sec. 343.203.  NEGATIVE AMORTIZATION.  A high-cost home loan
2-66     may not provide for a payment schedule with regular periodic
2-67     payments that cause the principal balance to increase, except that
2-68     this section does not prohibit negative amortization as a
2-69     consequence of a temporary forbearance, bridge loan, or restructure
 3-1     sought by the borrower.
 3-2           Sec. 343.204.  CONSIDERATION OF OBLIGOR'S PAYMENT ABILITY.
 3-3     (a)  In this section, "obligor" means a person obligated to pay a
 3-4     loan, including a borrower, cosigner, or guarantor.  If more than
 3-5     one person is obligated to pay a loan, the term refers to those
 3-6     persons collectively.
 3-7           (b)  A lender may not engage in a pattern or practice of
 3-8     extending credit to consumers under high-cost home loans based on
 3-9     the consumers' collateral without regard to the obligor's repayment
3-10     ability, including the obligor's current and expected income,
3-11     current obligations, employment status, and other financial
3-12     resources, other than the obligor's equity in the dwelling that
3-13     secures repayment of the loan.
3-14           Sec. 343.205.  PREPAYMENT PENALTIES PROHIBITED.  A lender may
3-15     not make a high-cost home loan containing a provision for a
3-16     prepayment penalty.
3-17           SECTION 2.  (a)  This Act takes effect September 1, 2001,
3-18     and, except as provided by Subsection (b) of this section, applies
3-19     only to a loan closed on or after that date.
3-20           (b)  Section 343.103, Finance Code, as added by this Act,
3-21     applies only to a home loan application received on or after
3-22     September 1, 2001.
3-23                                  * * * * *