October 11, 2007, Introduced by Reps. Melton, Tobocman, Sak, Angerer, Simpson, Clack, Jackson, Miller, Byrnes, Accavitti, Johnson, Young, Kathleen Law, Hopgood, Brown, Valentine, Hammel, Robert Jones, Vagnozzi, Virgil Smith and Dean and referred to the Committee on Banking and Financial Services.
A bill to amend 2002 PA 660, entitled
"Consumer mortgage protection act,"
by amending section 5 (MCL 445.1635) and by adding section 4a.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 4a. (1) A creditor shall not extend a rate spread home
loan or nontraditional mortgage to a borrower unless a reasonable
creditor would believe at the time the loan is closed that the
borrower is able to make the scheduled payments associated with the
loan. All of the following apply to a determination of a borrower's
ability to pay under this subsection:
(a) The determination includes, but is not limited to,
consideration of the borrower's income, current obligations,
employment status, the debt to income ratio of the borrower's
monthly gross income, and whether the borrower has sufficient
residual income and other available financial resources other than
the borrower's equity in the principal dwelling that secures or
will secure the home loan.
(b) All of the following calculation assumptions applicable to
the loan are used in evaluating the borrower's ability to repay:
(i) For a nontraditional mortgage, other than a rate spread
home loan, the monthly payment amounts, based on, at a minimum, the
fully indexed rate, assuming a fully amortizing repayment schedule.
(ii) For a rate spread home loan, the maximum monthly payments
that could be due under the terms of the home loan being offered
for the first 7 years of the loan term and the changes in payments
that would result from differences in the payments toward principal
of the loan.
(iii) For a home loan product that permits negative
amortization, the repayment analysis is based on the initial loan
amount plus any balance increase that may accrue from the negative
amortization provision.
(iv) The borrower's other expenses, including private mortgage
insurance premiums, property taxes and hazard insurance, and
scheduled payments for all other debt.
(v) Verification of all sources of income by tax returns,
payroll receipts, bank records, or any reasonable alternative or
third-party verification.
(2) A creditor shall not provide a rate spread home loan or a
nontraditional mortgage unless the creditor requires the escrow of
property taxes and hazard insurance.
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 other requirements of this act, a high-cost home loan is
subject to the following additional limitations and prohibited
practices:
(a) A creditor shall not directly or indirectly finance any
points or fees in connection with a high-cost home loan.
(b) A creditor 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 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
certificate of home occupancy or certificate of final inspection,
as applicable, 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.
(i) 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.
(j) A high-cost home loan document that creates a debt or an
interest in property to secure a debt shall include the following
notice, printed conspicuously on the face of the document:
"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.".
Enacting section 1. This amendatory act does not take effect
unless all of the following bills of the 94th Legislature are
enacted into law:
(a) Senate Bill No.____ or House Bill No. 5294(request no.
02456'07 *).
(b) Senate Bill No.____ or House Bill No. 5295(request no.
04909'07 *).
(c) Senate Bill No.____ or House Bill No. 5297(request no.
04911'07 *).
(d) Senate Bill No.____ or House Bill No. 5298(request no.
04912'07 *).
(e) Senate Bill No.____ or House Bill No. 5299(request no.
04913'07 *).
(f) Senate Bill No.____ or House Bill No. 5300(request no.
05435'07).
(g) Senate Bill No.____ or House Bill No. 5301(request no.
05436'07).
(h) Senate Bill No.____ or House Bill No. 5302(request no.
05437'07).
(i) Senate Bill No.____ or House Bill No. 5303(request no.
05438'07).