February 17, 2005, Introduced by Reps. Hunter, Tobocman, Gonzales, Cheeks, Farrah, McConico and Murphy and referred to the Committee on Banking and Financial Services.
A bill to amend 2002 PA 660, entitled
"Consumer mortgage protection act,"
by amending the title and sections 1, 2, 4, 5, 8, 9, 10, 12, and 15
(MCL 445.1631, 445.1632, 445.1634, 445.1635, 445.1638, 445.1639,
445.1640, 445.1642, and 445.1645); and to repeal acts and parts of
acts.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
TITLE
An act to prohibit certain lending practices; to require
disclosure of certain information for home loans and high-cost home
loans; to prescribe certain duties and obligations of the lender in
a
home loan or high-cost home loan transaction; to prescribe the
powers
and duties of certain state agencies and officials; and to
prescribe penalties and provide for remedies.
Sec.
1. This act shall be known and may be cited as the
"consumer
mortgage "home loan protection act".
Sec. 2. (1) As used in this act:
(a)
"Commissioner" means the commissioner of the office of
financial
and insurance services of the department of consumer and
industry
services.
(b)
"Depository institution" means a bank, savings and loan
association,
savings bank, or a credit union chartered under state
or
federal law.
(c)
"Home improvement installment contract" means an agreement
of
1 or more documents covering the sale of goods or furnishing of
services
to a buyer for improvements to the buyer's principal
dwelling
located in this state used for occupancy of 4 or fewer
families
under which the buyer promises to pay in installments all
or
any part of the price of the goods or services.
(d)
"Mortgage loan" means a loan or home improvement
installment
contract secured by a first or subordinate mortgage or
any
other form of lien or a land contract covering real property
located
in this state used as the borrower's principal dwelling and
designed
for occupancy by 4 or fewer families. Mortgage loan does
not
include any of the following:
(i) Loans in which the proceeds are used to acquire
the
dwelling.
(ii) Reverse-mortgage transactions.
(iii) An open-end credit plan being a loan in which the
lender
reasonably
contemplates repeated advances.
(e)
"Person" means an individual, corporation, partnership,
association,
governmental entity, or any other legal entity.
(f)
"Reverse-mortgage" means a nonrecourse loan under which
both
of the following apply:
(i) A mortgage or other form of lien securing 1 or
more
advances
is created in the borrower's principal dwelling.
(ii) The principal, interest, or shared appreciation or
equity
is
payable only after the borrower dies, the dwelling is
transferred,
or the borrower ceases to occupy the dwelling as a
principal
dwelling.
(g)
"Regulated lender" means a depository institution or a
licensee
or a registrant under the consumer financial services act,
1988
PA 161, MCL 487.2051 to 487.2072, 1984 PA 379, MCL 493.101 to
493.114,
the secondary mortgage loan act, 1981 PA 125, MCL 493.51
to
493.81, or the mortgage brokers, lenders, and servicers
licensing
act, 1987 PA 173, MCL 445.1651 to 445.1684, and a seller
under
the home improvement finance act, 1965 PA 332, MCL 445.1101
to
445.1431.
(h)
"State and federal laws" means, individually and
collectively,
1 or more of the laws or regulations of this state or
the
federal government which regulate or are applicable to a
mortgage
loan or a person when brokering, making, servicing, or
collecting
a mortgage loan, including, without limitation, the
federal
truth in lending act, title I of the consumer credit
protection
act, Public Law 90-321, 15 U.S.C. 1601 to 1608, 1610 to
1613,
1615, 1631 to 1635, 1637 to 1649, and 1661 to 1667f, real
estate
settlement procedures act of 1974, Public Law 93-533, 88
Stat.
1724, equal credit opportunity act, title VII of the consumer
credit
protection act, Public Law 90-321, 15 U.S.C. 1691 to 1691f,
fair
housing act, title VIII of the civil rights act of 1968,
Public
Law 90-284, 82 Stat. 81, fair credit report act, title VI of
the
consumer credit protection act, Public Law 90-321, 15 U.S.C.
1681
to 1681v, the homeowners protection act of 1998, Public Law
105-216,
112 Stat. 897, the fair debt collection practices act,
title
VIII of the consumer credit protection act, Public Law 90-
321,
15 U.S.C. 1601nt and 1692 to 1692o, consumer financial
services
act, 1988 PA 161, MCL 487.2051 to 487.2072, mortgage
brokers,
lenders, and servicers licensing act, 1987 PA 173, MCL
445.1651
to 445.1684, the secondary mortgage loan act, 1981 PA 125,
MCL
493.51 to 493.81, 1977 PA 135, MCL 445.1601 to 445.1614, and
home
improvement finance act, 1965 PA 332, MCL 445.1101 to
445.1422.
(a) "Affiliate" means a company that controls, is controlled
by, or is under common control with another company.
(b) "Annual percentage rate" means an annual percentage rate
for a loan determined under 12 CFR part 226.
(c) "Bona fide discount points" means an amount paid by a
borrower that meets all of the following:
(i) It is knowingly paid by the borrower for the express
purpose of reducing the interest rate applicable to a home loan.
(ii) It actually reduces the interest rate applicable to the
home loan.
(iii) It is paid in connection with a home loan for which the
undiscounted interest rate does not exceed the conventional
mortgage rate by 2 or more percentage points for a home loan
secured by a first lien or by 3-1/2 or more percentage points for a
home loan secured by a subordinated lien.
(d) "Borrower" means any natural person obligated to repay a
loan, including a coborrower, cosigner, or guarantor.
(e) "Company" means a person other than a natural person.
(f) "Conventional mortgage rate" means the most recently
published annual yield on conventional mortgages published by the
board of governors of the federal reserve system in statistical
release H.15, or any publication that may supersede it, as of the
applicable time set forth in 12 CFR 226.32(a)(1)(i).
(g) "Conventional prepayment penalty" means a prepayment
penalty or fee that is collected or charged in a home loan and that
is authorized by law other than this act, if the home loan does not
have an annual percentage rate that exceeds the conventional
mortgage rate by more than 2 percentage points and does not permit
any prepayment fees or penalties that exceed 2% of the amount
prepaid.
(h) "Creditor" means a lender, as that term is defined in 24
CFR 3500.2, or a mortgage broker.
(i) "Excluded points and fees" means, in connection with a
home loan, 1% of the total loan amount attributable to bona fide
fees paid to a federal or state government agency that insures
payment of some portion of a home loan, plus an amount that does
not exceed 2% of the loan amount attributable to either bona fide
discount points or a conventional prepayment penalty, but not both.
(j) "High-cost home loan" means a home loan in which the terms
of the loan meet or exceed 1 or more thresholds.
(k) "Home loan" means an open-end credit plan or extension of
credit that meets all of the following:
(i) It does not exceed the maximum original principal
obligation as set forth in and from time to time adjusted under
section 305(a)(2) of the federal home loan mortgage act, 12 USC
1454(a)(2).
(ii) It meets the requirements for a federally related mortgage
loan under 24 CFR 3500.2.
(iii) It is not a reverse mortgage transaction or a loan
primarily for business, agricultural, or commercial purposes.
(l) "Mortgage broker" means that term as defined in 24 CFR
3500.2.
(m) Subject to subsection (2), "points and fees" means all of
the following:
(i) All items included in the definition of finance charge in
12 CFR 226.4(a) and 12 CFR 226.4(b), except interest or the time
price differential.
(ii) All items described in 12 CFR 226.32(b)(1)(iii).
(iii) All compensation paid directly or indirectly to a mortgage
broker from any source, including a mortgage broker that originates
a loan in its own name in a table-funded transaction.
(iv) The cost of all premiums directly or indirectly financed
by the creditor for any credit life, credit disability, credit
unemployment, or credit property insurance, or any other life or
health insurance, or any payments directly or indirectly financed
by the creditor for any debt cancellation or suspension agreement
or contract. However, insurance premiums paid on a monthly basis or
debt cancellation or suspension fees calculated and paid on a
monthly basis are not considered financed by the creditor.
(v) The maximum prepayment fees and penalties that may be
charged or collected under the terms of the loan documents.
(vi) All prepayment fees or penalties that are incurred by the
borrower if the loan refinances a previous loan originated or
currently held by the same creditor or an affiliate of the
creditor.
(vii) For an open-end loan, points and fees are calculated by
adding the total points and fees known at or before closing,
including the maximum prepayment penalties that may be charged or
collected under the terms of the loan documents, plus the minimum
additional fees the borrower must pay to draw down an amount equal
to the total credit line.
(n) "Rate threshold" means an annual percentage rate
calculated under 12 CFR 226.32(a)(1)(i), whether the home loan is a
"residential mortgage transaction" or an extension of "open-end
credit" as those terms are defined in 12 CFR 226.2.
(o) "Servicer" means that term as defined in 24 CFR 3500.2.
(p) "Servicing" means that term as defined in 12 CFR 3500.2.
The term also includes any other activities or responsibilities
undertaken in connection with a home loan by a person who acts as a
servicer with respect to that home loan, including, but not limited
to, collection and default management functions.
(q) "Threshold" means a rate threshold or a total points and
fees threshold.
(r) "Total loan amount" means the principal of the loan minus
those points and fees that are included in the principal amount of
the loan. For an open-end loan, the total loan amount is calculated
using the total line of credit allowed under the home loan at
closing.
(s) "Total points and fees threshold" means 1 of the
following, as applicable:
(i) For a home loan in which the total loan amount is
$20,000.00 or more, the total points and fees payable in connection
with the home loan exceed 4% of the total loan amount.
(ii) For a home loan in which the total loan amount is less
than $20,000.00, the total points and fees payable in connection
with the home loan exceed $800.00 or 7% of the total loan amount,
whichever is less.
(t) "Truth in lending act" means the federal truth in lending
act, 15 USC 1601 to 1667f.
(2) Points and fees do not include any of the following:
(a) Taxes, filing fees, recording fees, or other charges or
fees paid to or required by a public official for determining the
existence of or for perfecting, releasing, or satisfying a security
interest.
(b) Bona fide and reasonable fees paid to a person other than
a creditor or an affiliate of the creditor for any of the
following:
(i) Tax payment services.
(ii) Flood certification.
(iii) Pest infestation or flood determination.
(iv) Appraisal.
(v) Inspections performed before the closing.
(vi) Credit reports.
(vii) Surveys.
(viii) Attorney fees, if the borrower has the right to select
the attorney from an approved list or otherwise.
(ix) Notary fees.
(x) Escrow charges in addition to any paid under subdivision
(a).
(xi) Title insurance premiums.
(xii) Fire and hazard insurance and flood insurance premiums,
if the conditions in 12 CFR 226.4(d)(2) are met.
Sec.
4. (1) A person offering to make or making a mortgage
loan
shall not do either of the following:
(a)
Charge a fee for a product or service if the product or
service
is not actually provided to the customer.
(b)
Misrepresent the amount charged by or paid to a third
party
for a product or service.
(2)
A lender in making a mortgage loan shall not finance as
part
of the loan single premium coverage for any credit life,
credit
disability, or credit unemployment.
(3)
A person, appraiser, or real estate agent shall not make,
directly
or indirectly, any false, deceptive, or misleading
statement
or representation in connection with a mortgage loan
including,
but not limited to, the borrower's ability to qualify
for
a mortgage loan or the value of the dwelling that will secure
repayment
of the mortgage loan.
(4)
A lender shall not insert or change information on an
application
for a mortgage loan if the lender knows that the
information
is false and misleading and intended to deceive a third
party
that the borrower is qualified for the loan when in fact the
third
party would not approve the loan without the insertion or
change.
(5)
A statement or representation is deceptive or misleading
if
it has the capacity to deceive or mislead a borrower or
potential
borrower. The commissioner shall consider any of the
following
factors in deciding whether a statement or
misrepresentation
is deceptive or misleading:
(a)
The overall impression that the statement or
representation
reasonably creates.
(b)
The particular type of audience to which the statement is
directed.
(c)
Whether it may be reasonably comprehended by the segment
of
the public to which the statement is directed.
(6)
A lender shall not condition the payment of an appraisal
upon
a predetermined value or the closing of the mortgage loan
which
is the basis of the appraisal.
(7)
A person shall not directly or indirectly compensate,
coerce,
or intimidate an appraiser for the purpose of influencing
the
independent judgment of the appraiser with respect to the value
of
the dwelling offered as security for repayment of the mortgage
loan.
(8)
A mortgage loan note shall not contain blanks regarding
payments,
interest rates, maturity date, or amount borrowed to be
filled
in after the note is signed by the borrower.
(1) A creditor making a home loan shall not directly or
indirectly finance any credit life, credit disability, credit
unemployment, or credit property insurance, any other life or
health insurance, or any payments directly or indirectly for any
debt cancellation or suspension agreement or contract. However,
insurance premiums or debt cancellation or suspension fees
calculated and paid on a monthly basis are not considered financed
by the creditor.
(2) A creditor shall not engage in flipping a home loan. As
used in this subsection, "flipping" means making a home loan to a
borrower that refinances an existing home loan when the new loan
does not have reasonable, tangible net benefit to the borrower
considering all of the circumstances, including, but not limited
to, the terms of both the new and refinanced loans, the cost of the
new loan, and the borrower's circumstances.
(3) A creditor shall not recommend or encourage default on an
existing loan or other debt prior to and in connection with the
closing or planned closing of a home loan that refinances all or
any portion of that existing loan or debt.
(4) A creditor or servicer shall not do any of the following:
(a) Charge a borrower a late payment fee unless the loan
documents specifically authorize the fee, the fee is not imposed
unless the payment is past due for 10 days or more, and the fee
does not exceed 5% of the amount of the late payment.
(b) Charge more than 1 late payment fee with respect to any
single late payment.
(c) Charge a late payment fee for a default on a loan payment
if the default is the result of the creditor or servicer deducting
a late payment fee from a previous payment made on the home loan.
However, a creditor or servicer may apply any payment made to any
unpaid balances of payments due in the order of maturity, even if
the result is a late payment charge accruing on 1 or more
subsequent unpaid balances.
(5) A home loan may not contain a provision that permits the
creditor, in its sole discretion, to accelerate the indebtedness.
This subsection does not prohibit acceleration of the loan in good
faith due to the borrower's failure to abide by the material terms
of the loan.
(6) A lender shall not charge a fee for informing or
transmitting to any person the balance due to pay off a home loan
or to provide a release upon prepayment. A lender shall provide a
payoff balance within a reasonable time or within 7 business days
after the request, whichever is earlier.
Sec.
5. A mortgage loan with a term of less than 5 years
shall
not have a payment schedule with regular periodic payments
that
when aggregated do not fully amortize the outstanding
principal
balance. This section does not apply to loans with
maturities
of less than 1 year, if the purpose of the loan is a
"bridge"
loan connected with the acquisition or construction of a
dwelling
intended to become the borrower's principal dwelling. In
addition to the requirements of this act, a high-cost home loan is
subject to the following additional limitations and prohibited
practices:
(a) A creditor or originator shall not directly or indirectly
finance any points or fees in connection with a high-cost home
loan.
(b) A creditor or originator shall not include in the loan
documents for a high-cost home loan or charge a borrower in a high-
cost home loan any prepayment fees or penalties.
(c) A high-cost home loan shall not contain a scheduled
payment that is more than twice as large as the average of earlier
scheduled payments. This subdivision does not apply when the
payment schedule is adjusted to the seasonal or irregular income of
the borrower.
(d) A high-cost home loan shall not include payment terms
under which the outstanding principal balance or accrued interest
will increase at any time over the course of the loan because the
regularly scheduled periodic payments do not cover the full amount
of interest due.
(e) A high-cost home loan shall not contain a provision that
increases the interest rate after default. This subdivision does
not apply to interest rate changes in a variable rate loan
otherwise consistent with the provisions of the loan documents, if
the change in the interest rate is not triggered by the event of
default or the acceleration of the indebtedness.
(f) A high-cost home loan shall not include terms under which
more than 2 periodic payments required under the loan are
consolidated and paid in advance from the loan proceeds provided to
the borrower.
(g) A creditor shall not make a high-cost home loan without
first receiving certification from a counselor from an independent
nonprofit organization approved by the United States department of
housing and urban development, a state housing financing agency, or
the regulatory agency that has jurisdiction over the creditor, that
the borrower has received counseling on the advisability of the
loan transaction.
(h) A creditor shall not extend a high-cost home loan to a
borrower residing in a home unless a reasonable creditor would
believe at the time the loan is closed that the borrower will be
able to make the scheduled payments associated with the loan based
upon a consideration of his or her current and expected income,
current obligations, employment status, and other financial
resources other than the borrower's equity in the collateral that
secures repayment of the loan. There is a rebuttable presumption
that a borrower residing in a home is able to make the scheduled
payments associated with a high-cost home loan if at the time the
loan is consummated the borrower's total monthly debts, including
amounts under the loan, do not exceed 50% of the borrower's monthly
gross income as verified by tax returns, payroll receipts, and
other independent income verification.
(i) A creditor shall not pay a contractor under a home-
improvement contract from the proceeds of a high-cost home loan,
unless both of the following are met:
(i) The creditor is presented with a signed and dated
completion certificate showing that the home improvements have been
completed.
(ii) The instrument is payable to the borrower or jointly to
the borrower and the contractor or, at the election of the
borrower, through a third-party escrow agent in accordance with
terms established in a written agreement signed by the borrower,
the creditor, and the contractor before the disbursement.
(j) A creditor shall not charge a borrower a fee or other
amount to modify, renew, extend, or amend a high-cost home loan or
to defer any payment due under the terms of a high-cost home loan.
(k) A high-cost home loan document that creates a debt or an
interest in property to secure a debt shall include the following
notice on the face of the document, printed prominently in at least
12-point boldfaced type:
"Notice: This is a high-cost home loan subject to special
rules under state law. A purchaser or assignee of this high-cost
home loan may be liable for all claims and defenses of the borrower
with respect to the home loan.".
Sec.
8. The commissioner may conduct examinations and
investigations
of a person over whom the commissioner has
regulatory
authority as necessary to determine whether the person
is
brokering, making, servicing, or collecting mortgage loans as
required
by this act.
(1) If a creditor or servicer asserts that grounds for
acceleration exist and requires the payment in full of all sums
secured by the security instrument, the borrower, or anyone
authorized to act on the borrower's behalf, has the right at any
time up to the time title is transferred by means of foreclosure by
judicial proceeding and sale or otherwise to cure the default, and
reinstate the home loan by tendering the amount or performance
specified in this section. A cure of default under this section
reinstates the borrower to the same position as if the default had
not occurred and nullifies any acceleration of any obligation under
the security instrument or note arising from the default as of the
date of the cure.
(2) Before a foreclosure or other legal action is filed to
foreclose on a loan subject to this act, the person who intends to
file the action shall deliver a notice of the right to cure the
default to the borrower informing the borrower of all of the
following:
(a) The nature of default claimed on the home loan, and of the
borrower's right to cure the default by paying the sum of money
required to cure the default. A creditor or servicer shall accept
any partial payment made or tendered in response to the notice. If
the amount necessary to cure the default will change during the 30-
day period after the effective date of the notice, due to the
application of a daily interest rate or the addition of any late
fees allowed under this act, the notice shall give sufficient
information to enable the borrower to calculate the amount at any
point during the 30-day period.
(b) The date by which the borrower must cure the default to
avoid acceleration and initiation of foreclosure, or other action
to seize the home, that is 30 days or more after the date the
notice is effective, and the name, address, and telephone number of
a person to whom the borrower may make payment or tender.
(c) That if the borrower does not cure the default by the date
specified, the creditor may take steps to terminate the borrower's
ownership in the property by requiring payment in full of the home
loan and commencing a foreclosure proceeding or other action to
seize the home.
(d) The name and address of the creditor or servicer and the
telephone number of a representative of the creditor or servicer
whom the borrower may contact if the borrower disagrees with the
assertion that a default has occurred or the correctness of the
creditor's calculation of the amount required to cure the default.
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