House File 422 - Introduced
HOUSE FILE
BY VAN ENGELENHOVEN
Passed House, Date Passed Senate, Date
Vote: Ayes Nays Vote: Ayes Nays
Approved
A BILL FOR
1 An Act creating the Iowa high=cost mortgage Act.
2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
3 TLSB 1808YH 81
4 eg/gg/14
PAG LIN
1 1 Section 1. Section 535.2, subsection 2, paragraph a,
1 2 unnumbered paragraph 1, Code 2005, is amended to read as
1 3 follows:
1 4 The Except as limited in chapter 535D for high=cost
1 5 mortgages, the following persons may agree in writing to pay
1 6 any rate of interest, and a person so agreeing in writing
1 7 shall not plead or interpose the claim or defense of usury in
1 8 any action or proceeding, and the person agreeing to receive
1 9 the interest is not subject to any penalty or forfeiture for
1 10 agreeing to receive or for receiving the interest:
1 11 Sec. 2. Section 535.2, subsection 2, paragraph b,
1 12 subparagraph (6), Code 2005, is amended to read as follows:
1 13 (6) With respect to any transaction referred to in
1 14 paragraph "a" of this subsection with the exception of a high=
1 15 cost mortgage transaction under chapter 535D, this subsection
1 16 supersedes any interest=rate or finance=charge limitations
1 17 contained in the Code, including but not limited to this
1 18 chapter and chapters 321, 322, 524, 533, 534, 536A, and 537.
1 19 Sec. 3. Section 535B.7, subsection 1, paragraph a, Code
1 20 2005, is amended to read as follows:
1 21 a. The licensee has violated a provision of this chapter
1 22 or a rule adopted under this chapter or any other state or
1 23 federal law applicable to the conduct of its business
1 24 including but not limited to chapters 535, and 535A, and 535D.
1 25 Sec. 4. NEW SECTION. 535D.1 TITLE.
1 26 This chapter shall be known and may be cited as the "Iowa
1 27 High=Cost Mortgage Act".
1 28 Sec. 5. NEW SECTION. 535D.2 DEFINITIONS.
1 29 As used in this chapter, unless the context otherwise
1 30 requires:
1 31 1. "Accelerate" means a demand for immediate repayment of
1 32 the entire balance of a residential mortgage loan.
1 33 2. "Borrower" means a person that seeks a high=cost
1 34 mortgage or is obligated under a high=cost mortgage.
1 35 3. "High=cost mortgage" means a borrower credit
2 1 transaction made by or originated through a mortgage banker or
2 2 mortgage broker licensed under chapter 535B that is secured by
2 3 the borrower's principal dwelling, if any of the following
2 4 apply with respect to such borrower credit transaction:
2 5 a. The transaction is secured by a first mortgage on the
2 6 borrower's principal dwelling and the annual percentage rate
2 7 on the credit, at closing, will exceed by more than eight
2 8 percentage points the yield on treasury securities having
2 9 comparable periods of maturity to the loan maturity on the
2 10 fifteenth day of the month immediately preceding the month in
2 11 which the application for the extension of credit is received
2 12 by the lender.
2 13 b. The transaction is secured by a junior or subordinate
2 14 mortgage on the borrower's principal dwelling and the annual
2 15 percentage rate on the credit, at closing, will exceed by more
2 16 than ten percentage points the yield on treasury securities
2 17 having comparable periods of maturity to the loan maturity on
2 18 the fifteenth day of the month immediately preceding the month
2 19 in which the application for the extension of credit is
2 20 received by the lender.
2 21 c. The total points and fees payable at or before the loan
2 22 closing will exceed the greater of eight percent of the total
2 23 loan amount or four hundred dollars. The four hundred dollar
2 24 figure shall be adjusted annually on January 1 by the annual
2 25 percentage change in the consumer price index that was
2 26 reported on the preceding June 1.
2 27 4. "Lender" means a person that offers or extends a high=
2 28 cost mortgage and is required to have a license pursuant to
2 29 chapter 535B.
2 30 Sec. 6. NEW SECTION. 535D.3 PREPAYMENT PENALTY.
2 31 A prepayment penalty on a high=cost mortgage is prohibited
2 32 under section 535.9.
2 33 Sec. 7. NEW SECTION. 535D.4 INCREASED INTEREST RATE
2 34 AFTER DEFAULT == PROHIBITED.
2 35 A high=cost mortgage shall not impose an interest rate
3 1 after default that is higher than the interest rate that
3 2 applies before the default. However, a high=cost mortgage
3 3 that is subject to a variable rate of interest, based on an
3 4 index or rate of interest which is publicly available and is
3 5 not under the control of the lender, may have an increase in
3 6 the interest rate due to a change in the index for a variable
3 7 rate mortgage.
3 8 Sec. 8. NEW SECTION. 535D.5 BALLOON PAYMENTS PROHIBITED.
3 9 1. A high=cost mortgage having a term of less than five
3 10 years shall not include terms under which the aggregate amount
3 11 of the regular periodic payments will not fully amortize the
3 12 outstanding principal.
3 13 2. A high=cost mortgage shall not require a scheduled
3 14 payment that is more than twice the amount of the average of
3 15 earlier scheduled payments.
3 16 3. This section does not apply when the payment schedule
3 17 is adjusted to account for the seasonal or irregular income of
3 18 the borrower or if the purpose of the loan is a bridge loan
3 19 made in connection with the acquisition or construction of a
3 20 dwelling intended to become the borrower's principal dwelling.
3 21 Sec. 9. NEW SECTION. 535D.6 NEGATIVE AMORTIZATION
3 22 PROHIBITED.
3 23 A high=cost mortgage shall not include terms for the
3 24 outstanding principal balance to increase at any time over the
3 25 course of the loan because the regular periodic payments do
3 26 not cover the full amount of the interest due.
3 27 Sec. 10. NEW SECTION. 535D.7 REQUIRED DISCLOSURES.
3 28 1. A lender shall disclose to a borrower all of the
3 29 following:
3 30 a. The annual percentage rate of the loan.
3 31 b. The amount of the regular monthly repayment.
3 32 2. A lender shall not finance, directly or indirectly, any
3 33 portion of the points, fees, or other charges payable to the
3 34 lender or any third party in an amount in excess of eight
3 35 percent of the total loan amount, unless the following
4 1 disclosures are made to the borrower in conspicuous type size:
4 2 a. "You are not required to complete this agreement merely
4 3 because you have received these disclosures or have signed the
4 4 loan application."
4 5 b. "If you obtain this loan, the lender will have a
4 6 mortgage on your home. You could lose your home or property,
4 7 and any money you have put into it, if you do not meet your
4 8 obligations under this loan."
4 9 c. "The timing and amount of payments on debts you already
4 10 have contribute to the credit rating that is used to determine
4 11 whether you may get a new loan and how much you will pay for
4 12 that new loan. You should not accept any advice to ignore or
4 13 delay making any payment on loans you already have, even if
4 14 those loans will be paid off with the new loan."
4 15 d. "You may get into serious financial difficulties if you
4 16 use this loan to pay off old debts and then run up other new
4 17 debts."
4 18 3. The disclosures required by this section shall be given
4 19 to the borrower no less than seventy=two hours prior to
4 20 closing on the loan.
4 21 4. After providing the disclosures required by this
4 22 section, a lender may not change the terms of the extension of
4 23 credit if such changes make the disclosures inaccurate.
4 24 However, a lender may provide new disclosures by telephone, if
4 25 the borrower initiated the change in the terms of credit and
4 26 at the closing under which the credit is extended:
4 27 a. The lender provides to the borrower the new written
4 28 disclosures.
4 29 b. The lender and borrower certify in writing that the new
4 30 disclosures were provided by telephone at least seventy=two
4 31 hours prior to the closing.
4 32 Sec. 11. NEW SECTION. 535D.8 ARBITRATION CLAUSES.
4 33 An arbitration clause in a high=cost mortgage loan document
4 34 is not valid unless it complies with the federal Arbitration
4 35 Act, title 9 U.S.C.
5 1 Sec. 12. NEW SECTION. 535D.9 INSURANCE PROHIBITION.
5 2 A lender shall not offer, sell, or finance any insurance
5 3 policy that insures, guarantees, or indemnifies the repayment
5 4 of an outstanding balance of the high=cost mortgage in the
5 5 event of loss of life, health, personal property, or income.
5 6 Sec. 13. NEW SECTION. 535D.10 LIMITATIONS ON
5 7 REFINANCING.
5 8 1. A lender shall not refinance a high=cost mortgage made
5 9 by the lender, or an affiliate of the lender, with another
5 10 high=cost mortgage during the one=year period from the date of
5 11 the closing on the prior high=cost mortgage.
5 12 2. This section does not apply if the scheduled finance
5 13 charge for the balance of the prior existing high=cost
5 14 mortgage exceeds the scheduled finance charge for the
5 15 subsequent high=cost mortgage.
5 16 Sec. 14. NEW SECTION. 535D.11 HOME IMPROVEMENT
5 17 CONTRACTS.
5 18 A lender shall not make a payment to a contractor under a
5 19 home improvement contract from amounts extended as credit
5 20 under a high=cost mortgage unless the instrument is payable to
5 21 the borrower or jointly to the borrower and the contractor.
5 22 Sec. 15. NEW SECTION. 535D.12 ACCELERATION.
5 23 A high=cost mortgage shall not include terms that give the
5 24 lender sole discretion to accelerate the indebtedness.
5 25 However, repayment of a loan may be accelerated as follows:
5 26 1. Upon default or pursuant to a due=on=sale provision or
5 27 some other provision of the loan document unrelated to the
5 28 payment schedule. If a defaulting borrower is entitled to a
5 29 rebate of interest, the rebate shall be computed by any method
5 30 that is not less favorable than the actuarial method. A
5 31 lender may elect to apply a rebate of interest to reduce the
5 32 principal owed on the loan.
5 33 2. Due to any action or inaction by the borrower that
5 34 adversely affects the lender's security interest in the
5 35 residence or any rights of the lender in such security.
6 1 Sec. 16. NEW SECTION. 535D.13 DOCUMENTS.
6 2 1. A lender shall provide to the borrower at least
6 3 seventy=two hours prior to the closing of the loan all good
6 4 faith estimates of all closing costs and fees and copies of
6 5 all documents to be signed.
6 6 2. All lines, figures, forms, and blanks in the loan
6 7 documents that regulate, govern, control, and authorize a
6 8 mortgage must be filled in before the documents are signed.
6 9 3. A lender shall provide a complete set of all documents
6 10 pertaining to the transaction, including copies of all
6 11 executed documents and all documents to be recorded as
6 12 follows:
6 13 a. At the time of the closing if done in person.
6 14 b. Within three business days from the date of closing if
6 15 done by mail or any other format.
6 16 4. All documents shall be provided at no cost to the
6 17 borrower.
6 18 Sec. 17. NEW SECTION. 535D.14 PAYMENT ABILITY OF
6 19 BORROWER.
6 20 1. A lender shall not engage in a pattern or practice of
6 21 extending credit to borrowers based on the borrower's
6 22 collateral without regard to the borrower's repayment ability,
6 23 including the borrower's current and expected income,
6 24 obligations, and employment.
6 25 2. A lender shall not rely on a borrower's statement of
6 26 income for purposes of this section if the borrower has no
6 27 earned income.
6 28 Sec. 18. NEW SECTION. 535D.15 ENCOURAGING DEFAULT
6 29 PROHIBITED.
6 30 A lender shall not recommend or encourage default or
6 31 nonpayment on an existing loan or other debt prior to and in
6 32 connection with the closing or planned closing of a high=cost
6 33 mortgage that refinances all or any portion of such existing
6 34 loan or debt.
6 35 Sec. 19. NEW SECTION. 535D.16 LATE PAYMENT CHARGES.
7 1 1. A lender shall not charge a borrower a late payment
7 2 charge unless the loan documents specifically authorize the
7 3 charge, the charge is not imposed unless the payment is past
7 4 due for ten days or more, and the charge does not exceed four
7 5 percent of the amount of the late payment.
7 6 2. A late payment charge shall not be imposed more than
7 7 once with respect to a particular late payment.
7 8 3. If a late payment charge is deducted from a payment
7 9 made on the mortgage and such deduction results in a
7 10 subsequent default on a subsequent payment, a late payment
7 11 charge may not be imposed for such default.
7 12 4. A lender may apply any payment made in the order of
7 13 maturity to a prior period's payment due even if the result is
7 14 late payment charges accruing on subsequent payments due.
7 15 Sec. 20. NEW SECTION. 535D.17 PAYOFF INFORMATION.
7 16 A lender shall not charge a fee for informing or
7 17 transmitting to any person the balance due to pay off a high=
7 18 cost mortgage or to provide a release upon prepayment. When
7 19 such information is provided by facsimile or if it is provided
7 20 upon request within sixty days of the fulfillment of a
7 21 previous request, a lender may charge a processing fee up to
7 22 ten dollars. Payoff balances shall be provided within a
7 23 reasonable time but no more than five business days after the
7 24 request is made.
7 25 Sec. 21. NEW SECTION. 535D.18 INFORMATION FOR BORROWERS.
7 26 A lender shall provide to the borrower, at no charge,
7 27 information on financing or educational resources on
7 28 financing. The lender shall do all of the following:
7 29 1. Post a notice that educational resources are available.
7 30 The notice shall be posted in a public area of the office.
7 31 2. Provide a written list of educational opportunities or
7 32 programs offered in the surrounding area including the program
7 33 name and telephone number.
7 34 3. Make available a printed brochure or booklet on
7 35 responsible lending and borrowing.
8 1 EXPLANATION
8 2 This bill creates the "Iowa High=Cost Mortgage Act" in new
8 3 Code chapter 535D.
8 4 The bill applies to lenders who are licensed mortgage
8 5 bankers or brokers under Code chapter 535B that make high=cost
8 6 mortgages. A "high=cost mortgage" is secured by the
8 7 borrower's principal dwelling and is subject to a high rate of
8 8 interest or a high percentage or amount of points and fees.
8 9 The bill provides prohibitions, restrictions, and
8 10 guidelines for lenders and high=cost mortgages. The bill
8 11 addresses prepayment penalties, increased interest upon
8 12 default, balloon payments, negative amortization, required
8 13 disclosures, arbitration clauses, insurance, refinancing, home
8 14 improvement contracts, acceleration, documentation procedures,
8 15 loan criteria, late payment charges, and payoff information.
8 16 A mortgage banker or broker can have the person's license,
8 17 issued pursuant to Code chapter 535B, suspended or revoked by
8 18 the superintendent of the division of banking for a violation
8 19 of the new Code chapter.
8 20 LSB 1808YH 81
8 21 eg:nh/gg/14