79R5668 DWS-F

By:  Shapleigh                                                    S.B. No. 617



A BILL TO BE ENTITLED

AN ACT

relating to certain lending practices in connection with a home 
loan.       
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:                        
	SECTION 1.  Subchapter A, Chapter 343, Finance Code, is 
amended by adding Sections 343.004 and 343.005 to read as follows:
	Sec. 343.004.  PROHIBITED SUBTERFUGE.  A person may not 
intentionally attempt to avoid the application of this chapter by 
dividing a loan transaction into separate parts for that purpose, 
by structuring a loan transaction as an open-end credit plan for 
that purpose, or by any other subterfuge.
	Sec. 343.005.  DECEPTIVE TRADE PRACTICE.  A violation of 
this chapter is a deceptive trade practice under Subchapter E, 
Chapter 17, Business & Commerce Code.
	SECTION 2.  Subchapter B, Chapter 343, Finance Code, is 
amended by adding Sections 343.105 and 343.106 to read as follows:
	Sec. 343.105.  FALSE, MISLEADING, OR DECEPTIVE STATEMENT OR 
REPRESENTATION.  A lender may not make or cause to be made, directly 
or indirectly, a false, deceptive, or misleading statement or 
representation in connection with a home loan.  A statement or 
representation is deceptive or misleading if it has the capacity or 
tendency to deceive or mislead a borrower or potential borrower, 
considering:
		(1)  the overall impression that the statement or 
representation reasonably creates; and
		(2)  the particular type of audience to which the 
statement or representation is directed and whether the statement 
or representation may be reasonably comprehended by that audience.
	Sec. 343.106.  ACCELERATION PROHIBITED.  A lender may not 
include in a home loan a provision that permits the lender, in the 
lender's sole discretion, to accelerate the indebtedness.
	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 15 
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 in connection with the acquisition or 
construction of a dwelling intended to become the borrower's 
principal dwelling.
	SECTION 4.  Subchapter C, Chapter 343, Finance Code, is 
amended by adding Section 343.207 to read as follows:
	Sec. 343.207.  GOOD FAITH VIOLATION.  (a)  A lender of a 
high-cost home loan who acts in good faith but does not comply with 
this subchapter does not violate this subchapter if the lender 
establishes that, before the deadline provided by Subsection (b) or 
(c), the lender notifies the borrower of the failure to comply, 
makes appropriate restitution, and adjusts the terms of the loan, 
at the borrower's option, to make the loan:
		(1)  comply with this subchapter; or                                   
		(2)  no longer be a high-cost home loan.                               
	(b)  Except as provided by Subsection (c), the lender must 
take the action required by Subsection (a) not later than the 30th 
day after the date the loan is closed and before institution of an 
action relating to the failure to comply.
	(c)  If the failure to comply is not intentional and results 
from a bona fide error, notwithstanding the maintenance by the 
lender of procedures reasonably designed to avoid such an error, 
the lender must take the action required by Subsection (a) not later 
than the 90th day after the date of the discovery of the failure to 
comply and before the institution of an action relating to the 
failure to comply or receipt by the lender of written notice of the 
failure to comply.
	(d)  For the purposes of this section, a bona fide error:               
		(1)  includes a clerical or computational error, 
computer hardware or programming malfunction, or printing error; 
and
		(2)  does not include an error of legal judgment with 
respect to a lender's obligations under this subchapter.
	SECTION 5.  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 is closed, and the former law is continued 
in effect for that purpose.
	SECTION 6.  This Act takes effect September 1, 2005.