H.B. 160 Enrolled

MORTGAGE ACT AMENDMENTS
2004 GENERAL SESSION
STATE OF UTAH
Sponsor: Wayne A. Harper

LONG TITLE
General Description:
This bill creates the "Utah High Cost Home Loan Act."
Highlighted Provisions:
This bill:
. provides definitions;
. enacts provisions regarding prepayment penalties;
. places restrictions on financing of points and fees;
. places restrictions on the arbitration clause;
. prohibits single premium credit life insurance;
. places limitations on refinancing; and
. requires the lender to provide the borrower a full copy of all documents pertaining to
the transaction.
Monies Appropriated in this Bill:
This bill appropriates:
. $61,250 for fiscal year 2004-05 from the Commerce Service Fund to the Department
of Commerce.
Other Special Clauses:
None
Utah Code Sections Affected:
ENACTS:
61-2d-101, Utah Code Annotated 1953
61-2d-102, Utah Code Annotated 1953
61-2d-103, Utah Code Annotated 1953

61-2d-104, Utah Code Annotated 1953
61-2d-105, Utah Code Annotated 1953
61-2d-106, Utah Code Annotated 1953
61-2d-107, Utah Code Annotated 1953
61-2d-109, Utah Code Annotated 1953
61-2d-110, Utah Code Annotated 1953
61-2d-111, Utah Code Annotated 1953
61-2d-112, Utah Code Annotated 1953
61-2d-113, Utah Code Annotated 1953
61-2d-114, Utah Code Annotated 1953
70D-1-21, Utah Code Annotated 1953

Be it enacted by the Legislature of the state of Utah:
Section 1. Section 61-2d-101 is enacted to read:
CHAPTER 2d. UTAH HIGH COST HOME LOAN ACT
61-2d-101. Title.
This chapter is known as the "Utah High Cost Home Loan Act."
Section 2. Section 61-2d-102 is enacted to read:
61-2d-102. Definitions.
As used in this part:
(1) "Accelerate" means a demand for immediate repayment of the entire balance of a
residential mortgage loan.
(2) "Borrower" means a person that:
(a) seeks a high-cost mortgage; or
(b) is obligated under a high-cost mortgage.
(3) "High-cost mortgage" means a borrower credit transaction that is secured by the
borrower's principal dwelling, if any of the following apply with respect to such borrower credit
transaction:

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(a) the transaction is secured by a first mortgage on the borrower's principal dwelling and
the annual percentage rate on the credit, at the consummation of the transaction, will exceed by
more than eight percentage points the yield on treasury securities having comparable periods of
maturity on the 15th day of the month immediately preceding the month in which the application
for the extension of credit is received by the lender;
(b) the transaction is secured by a junior or subordinate mortgage on the borrower's
principal dwelling and the annual percentage rate on the credit, at the consummation of the
transaction, will exceed ten percentage points the yield on treasury securities having comparable
periods of maturity on the 15th day of the month immediately preceding the month in which the
application for the extension of credit is received by the lender; or
(c) (i) the total points and fees payable at or before the transaction will exceed the greater
of 8% of the total loan amount or $400;
(ii) the $400 figure shall be adjusted annually on January 1 to match the adjusted number
adopted by the Board of Governors of the Federal Reserve in accordance with Section
226.32(a)(1)(ii) of the Code of Federal Regulations. If the Board of Governors of the Federal
Reserve System does not announce an adjusted figure, the last adjustment of the $400 figure shall
be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index
that was reported on the preceding June 1; and
(d) the loan is made by or originated through a person or business required to hold a
license as provided in Title 61, Chapter 2c, Utah Residential Mortgage Practices Act.
(4) "Lender" means a person that:
(a) offers a high-cost mortgage; or
(b) extends a high-cost mortgage; and
(c) is required to have a license as provided in Title 61, Chapter 2c, Utah Residential
Mortgage Practices Act.
(5) "Prepay" or "prepayment" means to make a payment to a lender that:
(a) is more than the amount of the next scheduled payment due;
(b) pays more than half of the principal balance of the high-cost mortgage; and

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(c) is paid more than 24 months before the last scheduled payment according to the terms
of the high-cost mortgage when it is made.
(6) "Residential mortgage transaction" means a transaction in which a mortgage, deed of
trust, purchase money security interest arising under an installment sales contract, or equivalent
consensual security interest is created or retained in the borrower's principal dwelling to finance
the acquisition or initial construction of that dwelling.
(7) "Reverse mortgage transaction" means a nonrecourse borrower credit obligation in
which:
(a) a mortgage, deed of trust, or equivalent consensual security interest securing one or
more advances is created in the borrower's principal dwelling; and
(b) any principal, interest, or shared appreciation or equity is due and payable, other than
in the case of default, only after:
(i) the borrower dies;
(ii) the dwelling is transferred; or
(iii) the borrower ceases to occupy the dwelling as a principal dwelling.
Section 3. Section 61-2d-103 is enacted to read:
61-2d-103. Prepayment penalty.
(1) The terms of a high-cost mortgage loan may contain terms under which a borrower
must pay a penalty for prepayment.
(a) However, a penalty for prepayment cannot be assessed more than 36 months after the
loan was originally made.
(b) The amount of the penalty may not exceed the total amount of interest paid at 80% of
the immediately preceding six scheduled payments.
(2) For purposes of this section, any method of computing a refund or unearned
scheduled interest is a prepayment penalty if it is less favorable to the borrower than the actuarial
method.
(3) Notwithstanding Subsection (1), a high-cost mortgage may not require a prepayment
penalty if:

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(a) the high-cost mortgage is paid with the proceeds of a new loan by the same lender or
an affiliate of that lender; or
(b) the penalty is prohibited under other applicable law.
(4) If a prepayment does not pay the full amount owed on the high-cost mortgage when
the prepayment is made, the penalty shall be reduced by a percentage equal to the percentage of
the balance owed before the prepayment that remains unpaid.
Section 4. Section 61-2d-104 is enacted to read:
61-2d-104. Negative amortization prohibited.
A high cost mortgage shall provide for regular, periodic payments sufficient to pay:
(1) all accrued interest and a portion of principal on the scheduled due date for each
payment; and
(2) the full amount owed during the term of the loan, if no late fees or other contingent
charges are incurred.
Section 5. Section 61-2d-105 is enacted to read:
61-2d-105. Financing points and fees -- Restrictions.
(1) A lender may not, in connection with the formation or consummation of a high-cost
mortgage, finance, directly or indirectly, any portion of the points, fees, or other charges payable
to the lender or any third party in an amount in excess of 8% of the total loan amount, unless the
following additional disclosures are made to the borrower in conspicuous type size:
(a) "You are not required to complete this agreement merely because you have received
these disclosures or have signed the loan application."
(b) "If you obtain this loan, the lender will have a mortgage on your home. You could
lose your home or property, and any money you have put into it, if you do not meet your
obligations under this loan."
(c) "The timing and amount of payments on debts you already are carrying contribute to
the credit rating that is used to determine whether you may get a new loan and how much you will
pay for that new loan. You should not accept any advice to ignore or delay making any payment
on loans you already have, even if those loans will be paid off with the new loan."

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(d) "You may get into serious financial difficulties if you use this loan to pay off old debts
and then run up other new debts."
(2) The disclosures required by this section shall be given to the borrower no less than
three business days prior to consummation of the transaction.
(3) After providing the disclosure required by this section, a lender may not change the
terms of the extension of credit if such changes make the disclosures inaccurate, unless new
disclosures are provided that meet the requirements of this section.
(4) A lender may provide new disclosures pursuant to Subsection (3) by telephone, if:
(a) the change is initiated by the borrower; and
(b) at the consummation of the transaction under which the credit is extended:
(i) the lender provides to the borrower the new disclosures in writing; and
(ii) the lender and borrower certify in writing that the new disclosures were provided by
telephone, at least three days prior to the date of consummation of the transaction.
Section 6. Section 61-2d-106 is enacted to read:
61-2d-106. Arbitration clauses.
To be valid, an arbitration clause in a high-cost mortgage contract must comply with the
standards set forth in Title 78, Chapter 31a, Utah Uniform Arbitration Act or the Federal
Arbitration Act, or any successor acts.
Section 7. Section 61-2d-107 is enacted to read:
61-2d-107. Prohibition on single premium credit life insurance.
A borrower credit transaction involving a high-cost mortgage may not include:
(1) the offer or sale of any insurance policy, on a single premium or single fee basis, that
insures, guarantees, or indemnifies the repayment of the outstanding balance of the loan against:
(a) death;
(b) illness;
(c) accident;
(d) disability; or
(e) unemployment of the borrower; or

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(2) debt cancellation or a debt suspension agreement.
Section 8. Section 61-2d-109 is enacted to read:
61-2d-109. Copies.
The lender shall provide, at no cost to the borrower, a complete set of all documents
pertaining to the transaction, including copies of all documents to be executed or recorded and
any loan documents changed at the closing:
(1) at the time of the closing if done in person; or
(2) no later than three business days from the closing if done by mail or any other format.
Section 9. Section 61-2d-110 is enacted to read:
61-2d-110. Encouraging default prohibited.
(1) A lender may not recommend or encourage default or nonpayment leading to
foreclosure on an existing loan or other debt prior to and in connection with the closing or
planned closing of a high-cost mortgage that refinances all or any portion of such existing loan or
debt.
(2) This section applies to all loans.
Section 10. Section 61-2d-111 is enacted to read:
61-2d-111. Mortgage forms.
All lines, figures, forms, and blanks that regulate, govern, control, and authorize a
mortgage must be filled in before the documents are signed.
Section 11. Section 61-2d-112 is enacted to read:
61-2d-112. Notice of information available to borrowers.
(1) In addition to any other notice or disclosure a lender or title company may provide to
a borrower seeking, obtaining, or inquiring about a high-cost mortgage, the lender shall provide
the borrower any brochure or other document information prepared by a federal or state authority
in a form intended to inform consumers about home loans or consumer credit on financing or
educational resources on financing.
(2) The requirement set forth in Subsection (1) may include:
(a) the posting, in a public area of the office, notice indicating that educational resources

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are available;
(b) a list of educational opportunities or programs offered in the surrounding area
including the program name and phone number;
(c) a printed brochure or booklet on responsible lending and borrowing available to the
borrower at no charge; or
(d) information from the Department of Financial Institutions on its responsible consumer
financial educational program.
Section 12. Section 61-2d-113 is enacted to read:
61-2d-113. Effect of failure to comply.
Failure to provide the notices or information described in Subsection 61-2d-105 (1) and
Sections 61-2d-111 and 61-2d-112 does not affect the enforceability of the loan or any of its
terms.
Section 13. Section 61-2d-114 is enacted to read:
61-2d-114. Increase in employees.
Funds allocated for investigations in this chapter may only be used to employ additional
employees if there is a 10% increase in caseloads.
Section 14. Section 70D-1-21 is enacted to read:
70D-1-21. Ordinance or law by political subdivision prohibited.
(1) No county subject to Title 17, and no municipality subject to Title 10, shall enact any
ordinance or law that regulates the terms of home loans or that makes the eligibility of any person
to do business with the county or municipality dependent upon the terms of home loans originated
or serviced by such person.
(2) The prohibition in Subsection (1) does not apply to terms of loans funded in whole or
in part with money provided or administered by the county or municipality.
Section 15. Appropriation.
There is appropriated for fiscal year 2004-05 $61,250 from the Commerce Service Fund
to the Department of Commerce, Commerce Regulation.

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