81R2411 CLG/AJA-D

By: West S.B. No. 1167

A BILL TO BE ENTITLED

AN ACT

relating to the regulation of certain lending and loan origination practices in connection with home loans.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 156.002, Finance Code, is amended by adding Subdivision (12) to read as follows:

(12) "Subprime home loan" has the meaning assigned by Section 343.201.

SECTION 2. Subchapter C, Chapter 156, Finance Code, is amended by adding Sections 156.216, 156.217, and 156.218 to read as follows:

Sec. 156.216. MORTGAGE BROKER DUTIES. (a) A mortgage broker, in connection with the origination of a mortgage loan, shall:

(1) act in the applicant's interest;

(2) act with reasonable care, skill, and diligence;

(3) act in good faith and engage in fair dealing;

(4) clearly disclose to the applicant, not later than three business days after receipt of the loan application, all material information, as defined by commission rule, that might reasonably affect the rights, interests, or ability of the applicant to receive the applicant's intended benefit from the loan; and

(5) make a reasonable effort to present the applicant with a range of loan products for which the applicant likely qualifies and that are appropriate to the applicant's existing circumstances, based on information known to or obtained in good faith by the broker.

(b) A mortgage broker, at least 72 hours before the date of closing of a mortgage loan originated by the mortgage broker, shall disclose to the borrower the total amount of fees the mortgage broker will receive from any person for loan origination services rendered to the borrower, including:

(1) the dollar amount of the fees; and

(2) the amount of the fees as a stated percentage of the total loan amount.

(c) A mortgage broker shall promptly disclose to an applicant each loan product available to the applicant of which the mortgage broker is aware that is projected to cost the applicant less over the projected term of the loan than a loan product recommended to the applicant by the mortgage broker.

(d) A mortgage broker shall broker subprime home loans with regard to the applicant's ability to repay the loan. An applicant's statement of ability to repay a loan is not conclusive evidence of the applicant's ability to repay the loan for purposes of this subsection. A mortgage broker must evaluate other reliable, objective evidence of affordability and ability to repay. The determination of whether an applicant is reasonably able to repay a loan must include a reasonable verification of all sources of income by tax returns, payroll receipts, or bank records.

(e) A mortgage broker who violates Subsection (a) or (b) is liable to the aggrieved applicant or borrower for:

(1) actual damages caused by the violation;

(2) reasonable attorney's fees; and

(3) court costs.

Sec. 156.217. RESTRICTION ON CHARGE BY MORTGAGE BROKER FOR SUBPRIME HOME LOANS. (a) A mortgage broker may charge or collect a fee for loan origination services in connection with a subprime home loan only if:

(1) the applicant or borrower receives the services; and

(2) the amount of the fee is reasonably related to the value of the services actually rendered.

(b) The amount by which a fee received by the mortgage broker for originating a subprime home loan exceeds the amount disclosed under Section 156.216(b) must be credited to the borrower to pay for loan costs, including closing costs.

Sec. 156.218. PROHIBITED PRACTICE. A mortgage broker may not recommend or make a mortgage loan that contains a provision for a prepayment penalty.

SECTION 3. The heading to Subchapter C, Chapter 343, Finance Code, is amended to read as follows:

SUBCHAPTER C. SUBPRIME AND HIGH-COST HOME LOANS

SECTION 4. Section 343.201, Finance Code, is amended by amending Subdivision (1) and adding Subdivisions (1-a) and (3) to read as follows:

(1) "Average prime offer rate" has the meaning assigned by 12 C.F.R. Section 226.35(a), as amended.

(1-a) "High-cost home loan" means a loan that:

(A) is made to one or more individuals for personal, family, or household purposes;

(B) is secured in whole or part by:

(i) a manufactured home, as defined by Section 347.002, used or to be used as the borrower's principal residence; or

(ii) real property improved by a dwelling designed for occupancy by four or fewer families and used or to be used as the borrower's principal residence;

(C) has a principal amount equal to or less than one-half of the maximum conventional loan amount for first mortgages as established and adjusted by the Federal National Mortgage Association;

(D) is not:

(i) a reverse mortgage; or

(ii) an open-end account, as defined by Section 301.002; and

(E) is a credit transaction described by 12 C.F.R. Section 226.32, as amended, except that the term includes a residential mortgage transaction, as defined by 12 C.F.R. Section 226.2, as amended, if the total loan amount is $20,000 or more and:

(i) the annual percentage rate exceeds the rate indicated in 12 C.F.R. Section 226.32(a)(1)(i), as amended; or

(ii) the total points and fees payable by the consumer at or before loan closing will exceed the amount indicated in 12 C.F.R. Section 226.32(a)(1)(ii), as amended.

(3) "Subprime home loan" means a loan that:

(A) is made to one or more individuals for personal, family, or household purposes;

(B) is secured in whole or part by a lien on:

(i) a manufactured home, as defined by Section 347.002, used or to be used as the borrower's principal residence; or

(ii) real property improved by a dwelling designed for occupancy by four or fewer families and used or to be used as the borrower's principal residence; and

(C) has an annual percentage rate that exceeds the average prime offer rate for a comparable transaction published by the Federal Reserve Board by:

(i) at least 1.5 percentage points for a first-lien loan; or

(ii) at least 3.5 percentage points for a second-lien loan.

SECTION 5. Sections 343.203 and 343.205, Finance Code, are amended to read as follows:

Sec. 343.203. NEGATIVE AMORTIZATION. A high-cost or subprime home loan may not provide for a payment schedule with regular periodic payments that cause the principal balance to increase, except that this section does not prohibit negative amortization as a consequence of a temporary forbearance, bridge loan, or restructure sought by the borrower.

Sec. 343.205. PREPAYMENT PENALTIES PROHIBITED. A lender may not make a high-cost or subprime home loan containing a provision for a prepayment penalty.

SECTION 6. Subchapter C, Chapter 343, Finance Code, is amended by adding Sections 343.207, 343.208, 343.209, 343.210, and 343.211 to read as follows:

Sec. 343.207. NET BENEFIT REQUIRED FOR SUBPRIME HOME LOANS. A lender may not make a subprime home loan to a borrower that refinances an existing home loan if the new loan does not have a reasonable, tangible net benefit to the borrower considering all of the circumstances, including the terms of both the new and refinanced loans and the borrower's stated loan objectives, repayment ability, current and expected income, and current obligations.

Sec. 343.208. RESTRICTION ON INTRODUCTORY RATE OF SUBPRIME HOME LOAN. A lender may not make a subprime home loan that has an initial or introductory interest rate with a term of less than six months.

Sec. 343.209. DETERMINATION OF BORROWER'S ABILITY TO REPAY SUBPRIME HOME LOAN. A lender shall make a subprime home loan with regard to the borrower's ability to repay the loan. A borrower's statement of ability to repay a loan is not conclusive evidence of the borrower's ability to repay the loan for purposes of this section. A lender must evaluate other reliable, objective evidence of affordability and ability to repay. The determination of whether a borrower is reasonably able to repay a loan must include a reasonable verification of all sources of income by tax returns, payroll receipts, or bank records.

Sec. 343.210. DISCLOSURE OF PROPERTY TAXES AND PROPERTY INSURANCE FOR SUBPRIME HOME LOANS REQUIRED. With respect to a subprime home loan, the first time a lender informs a borrower about the estimated or actual periodic loan payment amount, the lender shall:

(1) inform the borrower that an additional amount will be due for property taxes and property insurance; and

(2) disclose to the borrower as soon as practicable the estimated amount of the initial periodic payment for property taxes and property insurance.

Sec. 343.211. CERTAIN PROVISIONS IN SUBPRIME HOME LOAN AGREEMENT VOID. A provision of a subprime home loan agreement that violates Section 343.205 or 343.208 is void.

SECTION 7. Chapter 51, Property Code, is amended by adding Section 51.010 to read as follows:

Sec. 51.010. VIOLATION OF SUBPRIME UNDERWRITING STANDARDS AS DEFENSE AGAINST FORECLOSURE; COUNTERCLAIM; INJUNCTION. (a) This section applies only to the foreclosure of a lien on an interest in real property that secures a "subprime home loan," as defined by Section 343.201, Finance Code.

(b) A debtor against whom a mortgagee files an action to foreclose the mortgagee's lien on the debtor's interest in real property may assert against the mortgagee, as a defense to the mortgagee's right to payment of the debt secured by the lien or as a counterclaim, that the mortgagee or a person who assigned the security interest held by the mortgagee violated Section 343.203, 343.205, 343.207, or 343.208, Finance Code, with respect to the loan secured by the lien.

(c) A debtor who receives a notice of default or notice of sale under Section 51.002 from a mortgagee with respect to a loan secured by a lien on the debtor's interest in real property may file an action against the mortgagee at any time before the property is sold at a foreclosure sale under Section 51.002, asserting that the mortgagee is not entitled to payment of the debt secured by the lien because of the violation of Section 343.203, 343.205, 343.207, or 343.208, Finance Code, with respect to the loan secured by the lien by the mortgagee or a person who assigned the security interest held by the mortgagee. A debtor who files an action under this section may seek any other relief provided by law for the alleged violation. The court in which the action is filed shall enjoin the sale of the property under Section 51.002 pending a final judgment in the action.

SECTION 8. The changes in law made by this Act to Subchapter C, Chapter 343, Finance Code, as amended by this Act, apply 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 9. Section 51.010, Property Code, as added 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 immediately before the effective date of this Act, and that law is continued in effect for that purpose.

SECTION 10. This Act takes effect January 1, 2010.