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78R4080 DWS-D
By: Dukes H.B. No. 1205
A BILL TO BE ENTITLED
AN ACT
relating to certain practices in connection with home loans.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 343.104, Finance Code, is amended to
read as follows:
Sec. 343.104. RESTRICTIONS ON SINGLE PREMIUM CREDIT
INSURANCE AND DEBT CANCELLATION OR SUSPENSION AGREEMENT. (a) A
lender may not require or allow the advance collection of a premium
for [offer any individual or group] credit life, disability, [or]
unemployment, or property insurance on a [prepaid] single premium
basis, or require or allow the advance collection of a fee for a
debt cancellation or suspension agreement, in conjunction with a
home loan, regardless of whether the premium or fee is paid directly
or financed as part of the loan. [unless the following notice is
provided to each applicant for the loan by hand delivery or mail to
the applicant not later than the third business day after the date
the applicant's application for a home loan is received:
[INSURANCE NOTICE TO APPLICANT
[You may elect to purchase credit life, disability, or involuntary
unemployment insurance in conjunction with this mortgage loan. If
you elect to purchase this insurance coverage, you may pay for it
either on a monthly premium basis or with a single premium payment
at the time the lender closes this loan. If you choose the single
premium payment, the cost of the premium will be financed at the
interest rate provided for in the mortgage loan.
[This insurance is NOT required as a condition of closing the
mortgage loan and will be included with the loan only at your
request.
[You have the right to cancel this credit insurance once purchased.
If you cancel it within 30 days of the date of your loan, you will
receive either a full refund or a credit against your loan account.
If you cancel this insurance at any other time, you will receive
either a refund or credit against your loan account of any unearned
premium. YOU MUST CANCEL WITHIN 30 DAYS OF THE DATE OF THE LOAN TO
RECEIVE A FULL REFUND OR CREDIT.
[To assist you in making an informed choice, the following
estimates of premiums are being provided along with an example of
the cost of financing. The examples assume that the term of the
insurance product is ____ years and that the interest rate is ______
percent (a rate that has recently been available for the type of
loan you are seeking). PLEASE NOTE THAT THE ACTUAL LOAN TERMS YOU
QUALIFY FOR MAY VARY FROM THIS EXAMPLE. "Total amount paid" is the
amount that would be paid if you financed only the total insurance
premium for a ___ year period and is equal to the amount you would
have paid if you made all scheduled payments. This is NOT the total
of payments on your loan.
[CREDIT LIFE INSURANCE: Estimated premium of $_______
[DISABILITY INSURANCE: Estimated premium of $_______
[INVOLUNTARY UNEMPLOYMENT INSURANCE: Estimated premium of
$________
[TOTAL INSURANCE PREMIUMS: $_______
[TOTAL AMOUNT PAID: $_______ ]
(b) For the purposes of this section, a contract issued by a
government agency or private mortgage insurance company to insure
the lender against loss caused by a mortgagor's default is not
considered credit insurance.
SECTION 2. Subchapter B, Chapter 343, Finance Code, is
amended by adding Sections 343.105-343.107 to read as follows:
Sec. 343.105. RECOMMENDATION OF DEFAULT. A lender may not
recommend or encourage default on an existing loan or other debt
before and in connection with the closing or planned closing of a
home loan that refinances all or part of the existing loan or debt.
Sec. 343.106. INFLUENCING APPRAISAL. A lender may not
directly or indirectly compensate, coerce, or intimidate an
appraiser for the purpose of influencing the independent judgment
of the appraiser with respect to the value of real property that is
to be covered by a home loan or is being offered as security for a
home loan.
Sec. 343.107. DOCUMENT WITH BLANKS. A home loan document
in which blanks are left to be filled in after it is signed by the
borrower is void.
SECTION 3. Section 343.202, Finance Code, is amended to
read as follows:
Sec. 343.202. BALLOON PAYMENT. A high-cost home loan may
not contain a provision for a scheduled payment that is more than
twice as large as the average of earlier scheduled monthly
payments, unless the balloon payment becomes due not less than
seven years [60 months] after the date of the loan. This
prohibition does not apply if the payment schedule is adjusted to
account for the seasonal or otherwise irregular income of the
borrower or if the loan is a bridge loan with a maturity of less than
12 months [in connection with the acquisition or construction of a
dwelling intended to become the borrower's principal dwelling].
SECTION 4. Section 343.203, Finance Code, is amended to
read as follows:
Sec. 343.203. NEGATIVE AMORTIZATION. A high-cost home loan
may not provide for a payment schedule with regular periodic
payments that cause the principal balance to increase because the
payments do not cover the full amount of interest due, except that
this section does not apply if the payment schedule is adjusted to
account for the seasonal or otherwise irregular income of the
borrower [prohibit negative amortization as a consequence of a
temporary forbearance, bridge loan, or restructure sought by the
borrower].
SECTION 5. Section 343.205, Finance Code, is amended to
read as follows:
Sec. 343.205. (a) A lender may not make a high-cost home
loan containing a provision for a prepayment penalty that exceeds:
(1) three percent of the original principal amount of
the loan, if prepayment occurs before the first anniversary of the
loan closing;
(2) two percent of the original principal amount of
the loan, if prepayment occurs on or after the first anniversary and
before the second anniversary of the loan closing; or
(3) one percent of the original principal amount of
the loan, if prepayment occurs on or after the second anniversary
and before the third anniversary of the loan closing.
(b) A lender may not make a high-cost home loan containing a
provision for a prepayment penalty applicable to a prepayment
occurring on or after the third anniversary of the loan closing.
SECTION 6. Subchapter C, Chapter 343, Finance Code, is
amended by adding Sections 343.206-343.212 to read as follows:
Sec. 343.206. INCREASED INTEREST RATE PROHIBITED. (a) A
lender may not include in a high-cost home loan a provision that
increases the interest rate after default.
(b) This section does not apply to an interest rate change
in a variable rate loan otherwise consistent with the loan
documents, if the change is not triggered by the event of default or
the acceleration of the indebtedness.
Sec. 343.207. ADVANCE PAYMENTS PROHIBITED. A lender may
not include in a high-cost home loan terms under which more than two
periodic payments required under the loan are consolidated and paid
in advance from the loan proceeds provided to the borrower.
Sec. 343.208. CALL PROVISION PROHIBITED. (a) A lender may
not include in a high-cost home loan a provision that permits the
lender, in the lender's sole discretion, to accelerate the
indebtedness.
(b) This section does not prohibit acceleration of a loan in
good faith due to the borrower's failure to abide by the material
terms of the loan.
Sec. 343.209. HOME-IMPROVEMENT CONTRACTS. A lender may not
pay a contractor under a home-improvement contract from the
proceeds of a high-cost home loan, unless the instrument is payable
to the borrower or jointly to the borrower and the contractor, or,
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 before
disbursement.
Sec. 343.210. FLIPPING. A lender may not make a high-cost
home loan to a borrower that refinances an existing home loan if the
new loan does not have reasonable, tangible net benefit to the
borrower considering all of the circumstances, including the terms
of both the new and refinanced loans, the cost of the new loan, and
the borrower's circumstances.
Sec. 343.211. MODIFICATION OR DEFERRAL FEES PROHIBITED. A
lender may not charge a borrower to modify, renew, extend, or amend
a high-cost home loan or to defer any payment due under the terms of
a high-cost home loan unless the borrower is in default on the loan.
Sec. 343.212. LENDING WITHOUT COUNSELING PROHIBITED. A
lender may not make a high-cost home loan without first receiving
certification from a counselor approved by the United States
Department of Housing and Urban Development, the Texas Department
of Housing and Community Affairs, or a regulatory agency that has
jurisdiction over the lender, that the borrower has received
counseling on the advisability of the loan transaction.
SECTION 7. The change in law made by this Act applies only
to a loan closed on or after the effective date of this Act. A loan
closed before the effective date of this Act is governed by the law
in effect when the loan was closed, and the former law is continued
in effect for that purpose.
SECTION 8. This Act takes effect September 1, 2003.