81R2811 KFF-D

By: Shapleigh S.B. No. 1284

A BILL TO BE ENTITLED

AN ACT

relating to home loans and foreclosures on residential real property.

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

SECTION 1. Section 156.205(b), Finance Code, is amended to read as follows:

(b) A mortgage broker must maintain net assets of at least $25,000 or a surety bond in the amount of at least $100,000 [$50,000]. The term of the surety bond must coincide with the term of the license. The finance commission may adopt rules establishing the terms and conditions of the surety bond and the qualifications of the surety.

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

Sec. 156.216. LOAN STEERING PROHIBITED. (a) In this section, "subprime home loan" has the meaning assigned by Section 343.301.

(b) A mortgage broker may not offer or recommend a subprime home loan if there is a mortgage loan product known to the mortgage broker that is available to the prospective borrower and is projected to cost the prospective borrower less over the projected term of the loan than the subprime home loan.

SECTION 3. Section 341.502(a), Finance Code, is amended to read as follows:

(a) A contract for a loan under Chapter 342, a retail installment transaction under Chapter 348, or a home equity loan or other home loan regulated by the Office of Consumer Credit Commissioner must be:

(1) written in plain language designed to be easily understood by the average consumer; and

(2) printed in an easily readable font and type size.

SECTION 4. Subchapter B, Chapter 343, Finance Code, is amended by adding Section 343.103 to read as follows:

Sec. 343.103. NOTICE REQUIRED BEFORE INTEREST RATE ADJUSTMENT. (a) In this section, "adjustable rate home loan" means a home loan that has an interest rate that is subject to change.

(b) This section applies only to an adjustable rate home loan that has an interest rate that is fixed for a certain period.

(c) At least 120 days before the date of an increase in the interest rate on an adjustable rate home loan to which this section applies, the lender shall provide the borrower with a notice of the rate increase.

SECTION 5. Section 343.104, Finance Code, is amended to read as follows:

Sec. 343.104. FINANCING [RESTRICTIONS ON SINGLE PREMIUM] CREDIT INSURANCE PROHIBITED. (a) A lender may not make a home loan that finances, directly or indirectly, [offer] any individual or group credit life, disability, or unemployment insurance. [on a prepaid single premium basis in conjunction with a home 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 purposes of this section, individual or group credit life, disability, or unemployment insurance premiums calculated and paid on a monthly basis are not considered financed by the lender.

SECTION 6. Chapter 343, Finance Code, is amended by adding Subchapter D to read as follows:

SUBCHAPTER D. SUBPRIME HOME LOANS

Sec. 343.301. DEFINITION. (a) In this subchapter, "subprime home loan" means a home loan in which:

(1) the difference between the annual percentage rate for the home loan at its inception and the yield on United States Treasury securities having comparable periods of maturity to the home loan is three percentage points or more if the loan is a first-lien loan, or is more than five percentage points if the loan is a second-lien loan; or

(2) the difference between the annual percentage rate for the home loan at its inception and the annual yield on conventional mortgages published by the Board of Governors of the Federal Reserve System is 1.75 percentage points or more if the loan is a first-lien loan, or is more than 3.75 percentage points if the loan is a second-lien loan.

(b) For purposes of Subsection (a)(1), the same procedures and calculation methods applicable to loans that are subject to reporting requirements under the Home Mortgage Disclosure Act of 1975 (12 U.S.C. Section 2801 et seq.) shall be used to determine the difference between the annual percentage rate of a subprime home loan and the treasury yield.

Sec. 343.302. APPLICABILITY. This subchapter does not apply to a bridge loan.

Sec. 343.303. PREPAYMENT PENALTIES PROHIBITED. A subprime home loan may not contain a prepayment penalty.

Sec. 343.304. FLIPPING PROHIBITED. A lender may not make a subprime home loan to a borrower who 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. 343.305. NEGATIVE AMORTIZATION PROHIBITED. (a) A subprime home loan may not provide for a payment schedule with regular periodic payments that cause the principal balance to increase.

(b) This section does not prohibit negative amortization as a consequence of a temporary forbearance or restructure sought by the borrower.

SECTION 7. Section 51.002, Property Code, is amended by adding Subsections (d-1) and (d-2) to read as follows:

(d-1) In addition to the notice provided by Subsection (d), a mortgage servicer of the debt shall serve the debtor with a written notice under this subsection. The notice must be affixed to the notice of default provided under Subsection (d). The attorney general shall prescribe the contents of the notice. The notice must:

(1) be written in plain language in English and Spanish;

(2) be entitled "Rights of Homeowners Facing Foreclosure" or the Spanish equivalent of that title, as applicable; and

(3) include:

(A) an explanation of foreclosure, including a description of the various processes of foreclosure of a mortgage lien on residential property as applicable to each type of mortgage lien;

(B) a statement that state law requires that the debtor in default under a residential mortgage lien be given at least 20 days to cure the default;

(C) a description of the handling of payments made after the time for cure has expired;

(D) a statement that the debtor and the public must be given at least 21 days' notice of the foreclosure sale and that a foreclosure sale may occur only on the first Tuesday of a month;

(E) a description of the options available to the debtor in default to prevent the foreclosure;

(F) a description of and contact information for resources available to the debtor to assist in preventing the foreclosure or in filing an action concerning the foreclosure process or the lien being foreclosed, including contact information for a housing counseling agency described by Section 51A.054;

(G) a statement that the debtor may designate a housing counseling agency under Section 51A.054 to discuss options for avoiding foreclosure on behalf of the debtor; and

(H) any additional information that the attorney general determines appropriate.

(d-2) The attorney general shall update the notice prescribed by Subsection (d-1) at least annually and maintain the most current version of the notice on the attorney general's Internet website.

SECTION 8. Chapter 51, Property Code, is amended by adding Section 51.010 to read as follows:

Sec. 51.010. NOTICE REGARDING MAINTENANCE TO CERTAIN MUNICIPALITIES AND COUNTIES. A person who purchases residential real property at a foreclosure sale or obtains a deed in lieu of foreclosure shall, not later than the 10th day after the date the person acquires the property, send a written notice that details the person's plan to maintain the property prior to the sale of the property by that person or a statement that the person intends to reside at the property or lease the property to:

(1) the municipality in which the property or any part of the property is located; or

(2) if the property is not located in a municipality, the county in which the property is located.

SECTION 9. Subtitle B, Title 5, Property Code, is amended by adding Chapter 51A to read as follows:

CHAPTER 51A. PROVISIONS APPLICABLE TO LIENS ON RESIDENTIAL REAL

PROPERTY

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 51A.001. DEFINITIONS. In this chapter, a term defined by Section 51.0001 has the same meaning as in Chapter 51.

Sec. 51A.002. APPLICABILITY OF CHAPTER. This chapter applies only to a sale of residential real property under a power of sale conferred by a deed of trust or other contract lien.

[Sections 51A.003-51A.050 reserved for expansion]

SUBCHAPTER B. CONTACT AND MEETING REQUIREMENTS

Sec. 51A.051. APPLICABILITY OF SUBCHAPTER. This subchapter applies to the sale of residential real property only if the property is used as the debtor's residence.

Sec. 51A.052. EXEMPTION FROM SUBCHAPTER. This subchapter does not apply if the debtor has:

(1) surrendered the property as evidenced by either a letter confirming the surrender or delivery of the keys to the property to the mortgage servicer;

(2) contracted with an organization, person, or other entity whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations to mortgagees or beneficiaries; or

(3) filed for bankruptcy, and the proceedings have not been finalized.

Sec. 51A.053. PREREQUISITES TO NOTICE OF SALE. (a) Before filing a notice of sale under Section 51.002, a mortgage servicer must comply with this subchapter.

(b) Compliance with this subchapter constitutes compliance with Section 51.002(d) with respect to a notice of default for the purposes of a sale of real property to which this chapter applies.

Sec. 51A.054. CONTACT WITH DEBTOR. (a) The mortgage servicer shall contact the debtor in person or by telephone to assess the debtor's financial situation and explore loan restructuring options for the debtor to avoid foreclosure.

(b) The assessment of the debtor's financial situation and discussion of loan restructuring options may occur during the initial contact or at a subsequent meeting scheduled in accordance with this section.

(c) If the mortgage servicer makes a good faith attempt to contact the debtor in accordance with Section 51A.055 and is unable to do so, the mortgage servicer may provide notice of default under Section 51.002(d) in accordance with Section 51A.056.

(d) A mortgagee's loss mitigation personnel may participate by telephone during any contact under this section.

(e) A debtor may designate a housing counseling agency certified by the United States Department of Housing and Urban Development, an attorney, or any other person to discuss with the mortgagee or mortgage servicer on the debtor's behalf options for the debtor to avoid foreclosure. Contact with a person under this subsection must satisfy the requirements of this section for an initial contact with a debtor. Any loan modification or workout plan offered at the meeting by the mortgagee is subject to approval by the debtor.

Sec. 51A.055. DUE DILIGENCE. (a) In the absence of contact required by Section 51A.054, the mortgage servicer may file a notice of default under Section 51.002 if the failure to contact the debtor occurred despite the due diligence of the mortgage servicer.

(b) For the purposes of this section, "due diligence" means that the mortgage servicer:

(1) first attempts to contact a debtor by sending a first-class letter to the debtor's last known address;

(2) after the letter required by Subdivision (1) is sent, attempts to contact the debtor by telephone at least three times at different hours and on different days at the primary telephone number on file with the mortgage servicer;

(3) if the debtor does not respond within two weeks after the telephone requirements of Subdivision (2) have been met, sends a certified letter, return receipt requested, to the debtor's last known address; and

(4) provides a means for the debtor to contact the mortgage servicer in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours.

Sec. 51A.056. NOTICE OF DEFAULT; NOTICE OF SALE. Except as provided by this section, a notice of default under Section 51.002 must include a declaration from the mortgage servicer that:

(1) the mortgage servicer has:

(A) contacted the debtor in accordance with Section 51A.054; or

(B) tried with due diligence to contact the debtor in accordance with Section 51A.055; or

(2) the debtor has surrendered the property to the mortgagee or mortgage servicer.

Sec. 51A.057. PROVIDE NOTICE OF DEFAULT TO CERTAIN DESIGNATED HOUSING COUNSELING AGENCIES. If authorized by the debtor, a mortgage servicer shall send a copy of any notice of default under Section 51.002 to a housing counseling agency designated by a debtor under Section 51A.054.

SECTION 10. The changes in law made by this Act to Section 341.502(a), Finance Code, apply only to a contract entered into on or after the effective date of this Act.

SECTION 11. Section 343.104, Finance Code, as amended by this Act, and Subchapter D, Chapter 343, Finance Code, as added 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 on the date the loan was closed, and the former law is continued in effect for that purpose.

SECTION 12. Not later than November 1, 2009, the attorney general shall prescribe the form and content of the notice under Section 51.002(d-1), Property Code, as added by this Act.

SECTION 13. Subchapter B, Chapter 51A, Property Code, as added by this Act, applies only to sale of residential real property where a notice of default or notice of sale under Section 51.002, Property Code, is provided on or after the effective date of this Act. A sale in which both the notice of default and the notice of sale under Section 51.002, Property Code, are provided 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 14. (a) Except as provided by Subsections (b) and (c), this Act takes effect September 1, 2009.

(b) Section 156.205(b), Finance Code, as amended by this Act, takes effect March 1, 2010.

(c) Section 51.002(d-1), Property Code, as added by this Act, takes effect November 1, 2009.