Senate File 277 - Introduced
SENATE FILE
BY BOLKCOM
Passed Senate, Date Passed House, Date
Vote: Ayes Nays Vote: Ayes Nays
Approved
A BILL FOR
1 An Act creating the home loan protection Act, and providing a
2 penalty.
3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
4 TLSB 1595XS 81
5 eg/cf/24
PAG LIN
1 1 Section 1. NEW SECTION. 535D.1 TITLE == PURPOSE.
1 2 1. This chapter shall be known and may be cited as the
1 3 "Home Loan Protection Act".
1 4 2. This chapter shall be liberally construed to effectuate
1 5 its purpose of protecting the homes and the equity of
1 6 individual borrowers. This chapter is to be construed as a
1 7 consumer protection statute for all purposes.
1 8 Sec. 2. NEW SECTION. 535D.2 DEFINITIONS.
1 9 As used in this chapter, unless the context otherwise
1 10 requires:
1 11 1. "Affiliate" means any company that controls, is
1 12 controlled by, or is under common control with another company
1 13 as set forth in 12 U.S.C. } 1841 et seq.
1 14 2. "Annual percentage rate" means the annual percentage
1 15 rate for a loan calculated according to the provisions of the
1 16 federal Truth in Lending Act, 12 C.F.R. pt. 226.
1 17 3. "Bona fide discount points" means an amount knowingly
1 18 paid by a borrower for the express purpose of reducing, and
1 19 which in fact does result in a bona fide reduction of, the
1 20 interest rate applicable to a home loan; provided the
1 21 undiscounted interest rate for the home loan does not exceed
1 22 the conventional mortgage rate by two percentage points for a
1 23 home loan secured by a first lien, or by three and one=half
1 24 percentage points for a home loan secured by a subordinated
1 25 lien.
1 26 4. "Borrower" means any natural person obligated to repay
1 27 a loan, including a coborrower, cosigner, or guarantor.
1 28 5. "Brokering" means to act as a mortgage broker in
1 29 connection with a home loan.
1 30 6. "Conventional mortgage rate" means the most recently
1 31 published annual yield on conventional mortgages published by
1 32 the board of governors of the federal reserve system, as
1 33 published in statistical release H.15 or any publication that
1 34 may supersede it, as of the applicable time set forth in 12
1 35 C.F.R. pt. 226.32(a)(1)(i).
2 1 7. "Conventional prepayment penalty" means any prepayment
2 2 penalty or fee that may be collected or charged in a home
2 3 loan, and that is authorized by law other than this chapter,
2 4 provided the home loan does not do either of the following:
2 5 a. Have an annual percentage rate that exceeds the
2 6 conventional mortgage rate by more than two percentage points.
2 7 b. Permit any prepayment fees or penalties that exceed two
2 8 percent of the amount prepaid.
2 9 8. "Creditor" means the same as "lender" as set forth in
2 10 24 C.F.R. } 3500.2. "Creditor" also means a mortgage broker.
2 11 9. "Excluded points and fees" means, in connection with a
2 12 home loan, up to and including one percent of the total loan
2 13 amount attributable to bona fide fees paid to a federal or
2 14 state government agency that insures payment of some portion
2 15 of a home loan plus an amount not to exceed two percent of the
2 16 total loan amount attributable to bona fide discount points or
2 17 a conventional prepayment penalty. In no case shall the total
2 18 excluded points and fees in connection with a home loan exceed
2 19 three percent of the total loan amount.
2 20 10. "Flipping" means making a home loan to a borrower that
2 21 refinances an existing home loan and the new loan does not
2 22 have reasonable, tangible net benefit to the borrower
2 23 considering all of the circumstances, including, but not
2 24 limited to, the terms of both the new and refinanced loans,
2 25 the cost of the new loan, and the borrower's circumstances.
2 26 11. "High=cost home loan" means a home loan in which the
2 27 terms of the loan meet or exceed one or more thresholds.
2 28 12. "Home loan" means an extension of credit, including an
2 29 open=end credit plan, in which all of the following apply:
2 30 a. The loan does not exceed the maximum original principal
2 31 obligation as set forth in and from time to time adjusted
2 32 according to the provisions of 12 U.S.C. } 1454(a)(2).
2 33 b. The loan is considered a federally related mortgage
2 34 loan as set forth in 24 C.F.R. } 3500.2.
2 35 c. The loan is neither a reverse mortgage transaction nor
3 1 a loan primarily for business, agricultural, or commercial
3 2 purposes.
3 3 13. "Manufactured home" means the same as set forth in
3 4 section 335.30.
3 5 14. "Mortgage broker" means the same as set forth in 24
3 6 C.F.R. } 3500.2.
3 7 15. a. "Points and fees" means any of the following:
3 8 (1) All items included in the definition of finance charge
3 9 in 12 C.F.R. } 226.4(a) and 12 C.F.R. } 226.4(b) except
3 10 interest or the time price differential.
3 11 (2) All real estate=related fees described in 12 C.F.R. }
3 12 226.32(b)(1)(iii), which includes fees for title insurance,
3 13 abstracts of title, credit reports, or appraisals.
3 14 (3) All compensation paid directly or indirectly to a
3 15 mortgage broker from any source, including a mortgage broker
3 16 that originates a loan in its own name in a table=funded
3 17 transaction.
3 18 (4) The cost of all premiums financed by a creditor,
3 19 directly or indirectly for any credit life, credit disability,
3 20 credit unemployment, or credit property insurance, or any
3 21 other life or health insurance, or any payments financed by
3 22 the creditor directly or indirectly for any debt cancellation
3 23 or suspension agreement or contract, except that insurance
3 24 premiums or debt cancellation or suspension fees calculated
3 25 and paid in full on a monthly basis shall not be considered
3 26 financed by the creditor.
3 27 (5) The maximum prepayment fees and penalties that may be
3 28 charged or collected under the terms of the loan documents.
3 29 (6) All prepayment fees or penalties that are incurred by
3 30 the borrower if the loan refinances a previous loan originated
3 31 or currently held by the same creditor or an affiliate of the
3 32 creditor.
3 33 (7) For open=end loans, "points and fees" are calculated
3 34 by adding the total points and fees known at or before
3 35 closing, including the maximum prepayment penalties which may
4 1 be charged or collected under the terms of the loan document,
4 2 plus the minimum additional fees the borrower would be
4 3 required to pay to draw down an amount equal to the total
4 4 credit line.
4 5 b. "Points and fees" does not include any of the
4 6 following:
4 7 (1) Taxes, filing fees, recording, or other charges and
4 8 fees paid or to be paid to public officials for determining
4 9 the existence of or for perfecting, releasing, or satisfying a
4 10 security interest.
4 11 (2) Bona fide and reasonable fees paid to a person other
4 12 than the creditor or an affiliate of the creditor for any of
4 13 the following: fees for tax payment services; fees for flood
4 14 certification; fees for pest infestation or flood
4 15 determination; appraisal fees; fees for inspections performed
4 16 prior to closing; credit reports; surveys; attorney fees, if
4 17 the borrower has the right to select the attorney from an
4 18 approved list or otherwise; notary fees; escrow charges, so
4 19 long as not otherwise included under paragraph "a",
4 20 subparagraph (1); title insurance premiums; or fire and hazard
4 21 insurance and flood insurance premiums, provided that the
4 22 conditions in 12 C.F.R. } 226.4(d)(2) are met.
4 23 16. "Threshold" means any of the following items, as
4 24 defined:
4 25 a. "Rate threshold" means, for a home loan, the annual
4 26 percentage rate equals or exceeds the rate set forth in 12
4 27 C.F.R. } 226.32(a)(1)(i), without regard to whether the home
4 28 loan may be considered a "residential mortgage transaction" or
4 29 an extension of "open=end credit" as those terms are set forth
4 30 in 12 C.F.R. } 226.2.
4 31 b. "Total points and fees threshold" means:
4 32 (1) For loans in which the total loan amount is twenty
4 33 thousand dollars or more, the total points and fees payable in
4 34 connection with the home loan less any excluded points and
4 35 fees exceed five percent of the total loan amount.
5 1 (2) For loans in which the total loan amount is less than
5 2 twenty thousand dollars, the total points and fees payable in
5 3 connection with the home loan less any excluded points and
5 4 fees exceed the lesser of one thousand dollars or eight
5 5 percent of the total loan amount.
5 6 17. "Total loan amount" means the principal of the loan
5 7 minus those points and fees that are included in the principal
5 8 amount of the loan. For open=end loans, the total loan amount
5 9 shall be calculated using the total line of credit allowed
5 10 under the home loan at closing.
5 11 Sec. 3. NEW SECTION. 535D.3 PROHIBITED ACTS AND
5 12 PRACTICES.
5 13 1. A creditor making a home loan shall not finance,
5 14 directly or indirectly, any credit life, credit disability,
5 15 credit unemployment, or credit property insurance, or any
5 16 other life or health insurance, or any payments directly or
5 17 indirectly for any debt cancellation or suspension agreement
5 18 or contract, except that insurance premiums or debt
5 19 cancellation or suspension fees calculated and paid in full on
5 20 a monthly basis shall not be considered financed by the
5 21 creditor.
5 22 2. A creditor shall not knowingly or intentionally engage
5 23 in the act or practice of flipping a home loan.
5 24 3. A creditor shall not recommend or encourage default on
5 25 an existing loan or other debt prior to and in connection with
5 26 the closing or planned closing of a home loan that refinances
5 27 all or any portion of such existing loan or debt.
5 28 4. A creditor shall not impose a late payment charge
5 29 unless the loan documents specifically authorize the charge,
5 30 the charge is not imposed unless the payment is past due for
5 31 ten days or more, and the charge does not exceed five percent
5 32 of the amount of the late payment. A late payment charge
5 33 shall not be imposed more than once with respect to a
5 34 particular late payment. If a late payment charge is deducted
5 35 from a payment made on the home loan and such deduction
6 1 results in a subsequent default on a subsequent payment, a
6 2 late payment charge shall not be imposed for such default. A
6 3 creditor may apply any payment made in the order of maturity
6 4 to a prior period's payment due even if the result is late
6 5 payment charges accruing on subsequent payments due.
6 6 5. The terms of a home loan shall not include a provision
6 7 that permits the creditor, in its sole discretion, to
6 8 accelerate the indebtedness. This subsection does not
6 9 prohibit acceleration of a loan in good faith due to the
6 10 borrower's failure to abide by the material terms of the loan.
6 11 6. A creditor or servicer shall not charge a fee for
6 12 informing or transmitting to any person the balance due to pay
6 13 off a home loan or to provide a release upon prepayment.
6 14 However, when such information is provided by facsimile or if
6 15 it is provided upon request within sixty days of the
6 16 fulfillment of a previous request, a creditor or servicer may
6 17 charge a processing fee of up to ten dollars. Payoff balances
6 18 shall be provided within a reasonable time but in any event no
6 19 more than five business days after the request.
6 20 Sec. 4. NEW SECTION. 535D.4 HIGH=COST HOME LOANS.
6 21 A high=cost home loan is subject to the following
6 22 additional limitations and prohibited practices:
6 23 1. In connection with a high=cost home loan, a creditor
6 24 shall not directly or indirectly finance any points or fees.
6 25 2. Prepayment fees or penalties shall not be included in
6 26 the loan documents for a high=cost home loan.
6 27 3. A high=cost home loan shall not contain a scheduled
6 28 payment that is more than twice the amount of the average of
6 29 earlier scheduled payments. This subsection does not apply
6 30 when the payment schedule is adjusted to the seasonal or
6 31 irregular income of the borrower.
6 32 4. A high=cost home loan shall not include payment terms
6 33 under which the outstanding principal balance or accrued
6 34 interest will increase at any time over the course of the loan
6 35 because the regularly scheduled periodic payments do not cover
7 1 the full amount of interest due.
7 2 5. A high=cost home loan shall not contain a provision
7 3 that increases the interest rate after default. This
7 4 subsection does not apply to interest rate changes in a
7 5 variable rate loan otherwise consistent with the provisions of
7 6 the loan documents, provided the change in the interest rate
7 7 is not triggered by the event of default or the acceleration
7 8 of the indebtedness.
7 9 6. A high=cost home loan shall not include terms under
7 10 which more than two periodic payments required under the loan
7 11 are consolidated and paid in advance from the loan proceeds
7 12 provided to the borrower.
7 13 7. A creditor shall not make a high=cost home loan without
7 14 first receiving certification from a counselor with a third=
7 15 party nonprofit organization approved by the United States
7 16 department of housing and urban development, a housing
7 17 financing agency of this state, or the regulatory agency that
7 18 has jurisdiction over the creditor, that the borrower has
7 19 received counseling on the advisability of the loan
7 20 transaction.
7 21 8. A high=cost home loan shall not be extended to a
7 22 borrower unless a reasonable creditor would believe at the
7 23 time the loan is closed that the borrower residing in the home
7 24 will be able to make the scheduled payments associated with
7 25 the loan based upon a consideration of the borrower's current
7 26 and expected income, current obligations, employment status,
7 27 and other financial resources, other than the borrower's
7 28 equity in the collateral that secures the repayment of the
7 29 loan. There is a rebuttable presumption that the borrower
7 30 residing in the home is able to make the scheduled payments to
7 31 repay the obligation if, at the time the loan is consummated,
7 32 the borrower's total monthly debts, including amounts under
7 33 the loan, do not exceed fifty percent of the borrower's
7 34 monthly gross income as verified by tax returns, payroll
7 35 receipts, and other third=party income verification.
8 1 9. A creditor shall not pay a contractor under a home=
8 2 improvement contract from the proceeds of a high=cost home
8 3 loan, unless the following conditions are met:
8 4 a. The creditor is presented with a signed and dated
8 5 completion certificate issued by the contractor showing that
8 6 the home improvements have been completed.
8 7 b. The instrument is payable to the borrower or jointly to
8 8 the borrower and the contractor, or, at the election of the
8 9 borrower, through a third=party escrow agent in accordance
8 10 with terms established in a written agreement signed by the
8 11 borrower, the creditor, and the contractor prior to the
8 12 disbursement.
8 13 10. A creditor shall not charge a borrower any fees or
8 14 other charges to modify, renew, extend, or amend a high=cost
8 15 home loan or to defer any payment due under the terms of a
8 16 high=cost home loan.
8 17 11. All high=cost home loan documents that create a debt
8 18 or pledge property as collateral shall contain the following
8 19 notice on the first page in a conspicuous manner: "Notice:
8 20 This is a high=cost home loan subject to special rules under
8 21 state law. Purchasers or assignees of this high=cost home
8 22 loan may be liable for all claims and defenses by the borrower
8 23 with respect to the home loan."
8 24 Sec. 5. NEW SECTION. 535D.5 PURCHASE OR ASSIGNMENT OF
8 25 HIGH=COST HOME LOAN == CLAIMS.
8 26 1. A person who purchases or is otherwise assigned a high=
8 27 cost home loan is subject to all affirmative claims and any
8 28 defenses with respect to the loan that the borrower could
8 29 assert against the original creditor of the loan, provided
8 30 that this subsection shall not apply if the purchaser or
8 31 assignee demonstrates by a preponderance of the evidence that
8 32 all of the following conditions apply:
8 33 a. The purchaser or assignee has in place at the time of
8 34 the purchase or assignment of the subject loan, policies that
8 35 expressly prohibit its purchase or acceptance of assignment of
9 1 any high=cost home loans.
9 2 b. The purchaser or assignee requires by contract that a
9 3 seller or assignor of home loans represents and warrants to
9 4 the purchaser or assignee either of the following:
9 5 (1) The seller or assignor will not sell or assign any
9 6 high=cost home loans to the purchaser or assignee.
9 7 (2) The seller or assignor is a beneficiary of a
9 8 representation and warranty from a previous seller or assignor
9 9 to that effect.
9 10 c. The seller or assignor exercises reasonable due
9 11 diligence at the time of purchase or assignment of home loans
9 12 or within a reasonable period of time after the purchase or
9 13 assignment of such home loans, intended by the purchaser or
9 14 assignee to prevent the purchaser or assignee from purchasing
9 15 or taking assignment of any high=cost home loans, provided
9 16 further that reasonable due diligence shall provide for
9 17 sampling and shall not require loan=by=loan review.
9 18 2. A borrower acting only in an individual capacity may
9 19 assert claims that the borrower could assert against a
9 20 creditor of the home loan against any subsequent holder or
9 21 assignee of the home loan limited to amounts required to
9 22 reduce or extinguish the borrower's liability under the home
9 23 loan plus amounts required to recover costs, including
9 24 reasonable attorney fees. Such claims shall be limited to the
9 25 following:
9 26 a. Within five years of the closing of a high=cost home
9 27 loan, a claim of a violation of this chapter in connection
9 28 with the loan, brought as an original action.
9 29 b. At any time during the term of a high=cost home loan,
9 30 after an action to collect on the home loan or foreclose on
9 31 the collateral securing the home loan has been initiated or
9 32 the debt arising from the home loan has been accelerated or
9 33 the home loan has become sixty days in default, any defense,
9 34 claim or counterclaim, or action to enjoin foreclosure or
9 35 preserve or obtain possession of the home that secures the
10 1 loan.
10 2 3. The provisions of this section shall be effective
10 3 notwithstanding any other provision of law, provided that
10 4 nothing in this section shall be construed to limit the
10 5 substantive rights, remedies, or procedural rights available
10 6 to a borrower against any creditor, assignee, or holder under
10 7 any other law. The rights conferred on borrowers by
10 8 subsections 1 and 2 are independent of each other and do not
10 9 limit each other.
10 10 Sec. 6. NEW SECTION. 535D.6 ENFORCEMENT == PENALTY.
10 11 1. The originating or brokering of a home loan that
10 12 violates a provision of this chapter is a violation of the
10 13 chapter.
10 14 2. Any person found by a preponderance of the evidence to
10 15 have violated this chapter shall be liable to the borrower for
10 16 the following:
10 17 a. Actual damages, including consequential and incidental
10 18 damages. The borrower shall not be required to demonstrate
10 19 reliance in order to receive actual damages.
10 20 b. For a violation of section 535D.3 or 535D.4, statutory
10 21 damages equal to two times the finance charges paid under the
10 22 loan and forfeiture of the remaining interest under the loan.
10 23 c. Punitive damages, when the violation was malicious or
10 24 reckless.
10 25 d. Costs, including reasonable attorney fees.
10 26 3. A borrower may be granted injunctive, declaratory, or
10 27 other equitable relief as the court deems appropriate in an
10 28 action to enforce compliance with this chapter.
10 29 4. The right of recision granted under 15 U.S.C. } 1601 et
10 30 seq., for a violation of that law shall be available to a
10 31 borrower by way of recoupment against a party foreclosing on
10 32 the home loan or collecting on the loan, at any time during
10 33 the term of the loan. Nothing in this chapter shall be
10 34 construed to limit recoupment rights available to the borrower
10 35 under any other law.
11 1 5. The remedies provided in this section are not intended
11 2 to be the exclusive remedies available to a borrower nor must
11 3 the borrower exhaust any administrative remedies provided
11 4 under this chapter or any other applicable law before
11 5 proceeding under this section.
11 6 6. Any person, including members, officers, and directors
11 7 of the creditor, who knowingly violates this chapter is guilty
11 8 of a serious misdemeanor.
11 9 7. A creditor acting in good faith, who fails to comply
11 10 with the provisions of this chapter, shall not be deemed to
11 11 have violated this chapter if the creditor establishes that
11 12 either:
11 13 a. Within thirty days of the loan closing, and prior to
11 14 receiving any notice that the creditor violated this chapter,
11 15 the creditor has made appropriate restitution to the borrower,
11 16 and appropriate adjustments are made to the loan.
11 17 b. Within sixty days of the loan closing and prior to
11 18 receiving any notice that the creditor violated this chapter,
11 19 and the violation was not intentional but resulted from a bona
11 20 fide error notwithstanding the maintenance of procedures
11 21 reasonably adapted to avoid such errors, the borrower is
11 22 notified of the violation, appropriate restitution is made to
11 23 the borrower, and appropriate adjustments are made to the
11 24 loan. A "bona fide error" includes clerical, calculation,
11 25 computer malfunction and programming, and printing errors. An
11 26 error of legal judgment with respect to a creditor's
11 27 obligations under this chapter is not a bona fide error.
11 28 8. The remedies provided in this section are cumulative.
11 29 9. Whether a borrower is acting individually or on behalf
11 30 of others similarly situated, any provision of a home loan
11 31 document that requires a borrower to assert any claim or
11 32 defense in a forum that is less convenient, more costly, or
11 33 more dilatory for the resolution of a dispute than a judicial
11 34 forum established in this state where the borrower may
11 35 otherwise properly bring a claim or defense or limits in any
12 1 way any claim or defense the borrower may have is
12 2 unconscionable and void.
12 3 10. It is a violation of this chapter for any person to
12 4 attempt in bad faith to avoid the application of this chapter
12 5 by dividing any loan transaction into separate parts or
12 6 structuring a home loan transaction as an open=end loan for
12 7 the purpose of evading the provisions of this chapter when the
12 8 loan would have been a high=cost home loan if the loan had
12 9 been structured as a closed=end loan or engaging in any other
12 10 subterfuge with the intent of evading any provision of this
12 11 chapter.
12 12 Sec. 7. NEW SECTION. 535D.7 ATTORNEY GENERAL
12 13 ENFORCEMENT.
12 14 The attorney general and the county attorneys of this state
12 15 shall have jurisdiction to enforce this chapter through their
12 16 general regulatory powers and through civil process.
12 17 EXPLANATION
12 18 This bill creates a new Code chapter known as the "Home
12 19 Loan Protection Act". The bill is based on federal
12 20 legislation designed to apply to all creditors that make real
12 21 estate loans, including home equity loans. The bill prohibits
12 22 various creditor practices in making and refinancing certain
12 23 consumer home loans. When making home loans, a creditor is
12 24 restricted in all of the following areas: financing insurance
12 25 premiums or debt cancellation fees; "flipping" a home loan
12 26 (i.e., refinancing a home loan with no net benefit to a
12 27 borrower); encouraging default on an existing loan prior to
12 28 closing on a refinancing loan; imposing a late payment charge;
12 29 and accelerating indebtedness. Additional restrictions apply
12 30 to creditors that make loans meeting certain thresholds known
12 31 as "high=cost" home loans. The bill provides for its
12 32 enforcement and remedies. Any person who knowingly violates
12 33 the bill is guilty of a serious misdemeanor. A serious
12 34 misdemeanor is punishable by confinement for no more than one
12 35 year and a fine of at least $250 but not more than $1,500.
13 1 LSB 1595XS 81
13 2 eg:nh/cf/24