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Second Substitute H.B. 160

Representative Wayne A. Harper proposes the following substitute bill:




Sponsor: Wayne A. Harper

             6      LONG TITLE
             7      General Description:
             8          This bill creates the "Utah High Cost Home Loan Act."
             9      Highlighted Provisions:
             10          This bill:
             11          .    provides definitions;
             12          .    enacts provisions regarding prepayment penalties;
             13          .    places restrictions on financing of points and fees;
             14          .    places restrictions on the arbitration clause;
             15          .    prohibits single premium credit life insurance;
             16          .    places limitations on refinancing; and
             17          .    requires the lender to provide the borrower a full copy of all documents pertaining
             18      to the transaction.
             19      Monies Appropriated in this Bill:
             20          None
             21      Other Special Clauses:
             22          None
             23      Utah Code Sections Affected:
             24      ENACTS:
             25          61-2d-101, Utah Code Annotated 1953

             26          61-2d-102, Utah Code Annotated 1953
             27          61-2d-103, Utah Code Annotated 1953
             28          61-2d-104, Utah Code Annotated 1953
             29          61-2d-105, Utah Code Annotated 1953
             30          61-2d-106, Utah Code Annotated 1953
             31          61-2d-107, Utah Code Annotated 1953
             32          61-2d-108, Utah Code Annotated 1953
             33          61-2d-109, Utah Code Annotated 1953
             34          61-2d-110, Utah Code Annotated 1953
             35          61-2d-111, Utah Code Annotated 1953
             36          61-2d-112, Utah Code Annotated 1953
             37          61-2d-113, Utah Code Annotated 1953
             38          70D-1-21, Utah Code Annotated 1953
             40      Be it enacted by the Legislature of the state of Utah:
             41          Section 1. Section 61-2d-101 is enacted to read:

             43          61-2d-101. Title.
             44          This chapter is known as the "Utah High Cost Home Loan Act."
             45          Section 2. Section 61-2d-102 is enacted to read:
             46          61-2d-102. Definitions.
             47          As used in this part:
             48          (1) "Accelerate" means a demand for immediate repayment of the entire balance of a
             49      residential mortgage loan.
             50          (2) "Borrower" means a person that:
             51          (a) seeks a high-cost mortgage; or
             52          (b) is obligated under a high-cost mortgage.
             53          (3) "High-cost mortgage" means a borrower credit transaction that is secured by the
             54      borrower's principal dwelling, if any of the following apply with respect to such borrower
             55      credit transaction:
             56          (a) the transaction is secured by a first mortgage on the borrower's principal dwelling

             57      and the annual percentage rate on the credit, at the consummation of the transaction, will
             58      exceed by more than eight percentage points the yield on treasury securities having comparable
             59      periods of maturity on the 15th day of the month immediately preceding the month in which
             60      the application for the extension of credit is received by the lender;
             61          (b) the transaction is secured by a junior or subordinate mortgage on the borrower's
             62      principal dwelling and the annual percentage rate on the credit, at the consummation of the
             63      transaction, will exceed ten percentage points the yield on treasury securities having
             64      comparable periods of maturity on the 15th day of the month immediately preceding the month
             65      in which the application for the extension of credit is received by the lender; or
             66          (c) (i) the total points and fees payable at or before the transaction will exceed the
             67      greater of 8% of the total loan amount or $400;
             68          (ii) the $400 figure shall be adjusted annually on January 1 to match the adjusted
             69      number adopted by the Board of Governors of the Federal Reserve in accordance with Section
             70      226.32(a)(1)(ii) of the Code of Federal Regulations. If the Board of Governors of the Federal
             71      Reserve System does not announce an adjusted figure, the last adjustment of the $400 figure
             72      shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price
             73      Index that was reported on the preceding June 1; and
             74          (d) the loan is made by or originated through a person or business required to hold a
             75      license as provided in Title 61, Chapter 2c, Utah Residential Mortgage Practices Act.
             76          (4) "Lender" means a person that:
             77          (a) offers a high-cost mortgage; or
             78          (b) extends a high-cost mortgage; and
             79          (c) is required to have a license as provided in Title 61, Chapter 2c, Utah Residential
             80      Mortgage Practices Act.
             81          (5) "Prepay" or "prepayment" means to make a payment to a lender that:
             82          (a) is more than the amount of the next scheduled payment due;
             83          (b) pays more than half of the principal balance of the high-cost mortgage; and
             84          (c) is paid more than 24 months before the last scheduled payment according to the
             85      terms of the high-cost mortgage when it is made.
             86          (6) "Residential mortgage transaction" means a transaction in which a mortgage, deed
             87      of trust, purchase money security interest arising under an installment sales contract, or

             88      equivalent consensual security interest is created or retained in the borrower's principal
             89      dwelling to finance the acquisition or initial construction of that dwelling.
             90          (7) "Reverse mortgage transaction" means a nonrecourse borrower credit obligation in
             91      which:
             92          (a) a mortgage, deed of trust, or equivalent consensual security interest securing one or
             93      more advances is created in the borrower's principal dwelling; and
             94          (b) any principal, interest, or shared appreciation or equity is due and payable (other
             95      than in the case of default) only after:
             96          (i) the borrower dies;
             97          (ii) the dwelling is transferred; or
             98          (iii) the borrower ceases to occupy the dwelling as a principal dwelling.
             99          Section 3. Section 61-2d-103 is enacted to read:
             100          61-2d-103. Prepayment penalty.
             101          (1) The terms of a high-cost mortgage loan may contain terms under which a borrower
             102      must pay a penalty for prepayment.
             103          (a) However, a penalty for prepayment cannot be assessed more than 36 months after
             104      the loan was originally made.
             105          (b) The amount of the penalty may not exceed the total amount of interest paid at 80%
             106      of the immediately preceding six scheduled payments.
             107          (2) For purposes of this section, any method of computing a refund or unearned
             108      scheduled interest is a prepayment penalty if it is less favorable to the borrower than the
             109      actuarial method.
             110          (3) Notwithstanding Subsection (1), a high-cost mortgage may not require a
             111      prepayment penalty if:
             112          (a) the high-cost mortgage is paid with the proceeds of a new loan by the same lender
             113      or an affiliate of that lender; or
             114          (b) the penalty is prohibited under other applicable law.
             115          (4) If a prepayment does not pay the full amount owed on the high-cost mortgage when
             116      the prepayment is made, the penalty shall be reduced by a percentage equal to the percentage of
             117      the balance owed before the prepayment that remains unpaid.
             118          Section 4. Section 61-2d-104 is enacted to read:

             119          61-2d-104. Negative amortization prohibited.
             120          A high-cost mortgage may not include terms under which the outstanding principal
             121      balance will increase at any time over the course of the loan because the regular periodic
             122      payments do not cover the full amount of the interest due.
             123          Section 5. Section 61-2d-105 is enacted to read:
             124          61-2d-105. Financing points and fees -- Restrictions.
             125          (1) A lender may not, in connection with the formation or consummation of a high-cost
             126      mortgage, finance, directly or indirectly, any portion of the points, fees, or other charges
             127      payable to the lender or any third party in an amount in excess of 8% of the total loan amount,
             128      unless the following additional disclosures are made to the borrower in conspicuous type size:
             129          (a) "You are not required to complete this agreement merely because you have received
             130      these disclosures or have signed the loan application."
             131          (b) "If you obtain this loan, the lender will have a mortgage on your home. You could
             132      lose your home or property, and any money you have put into it, if you do not meet your
             133      obligations under this loan."
             134          (c) "The timing and amount of payments on debts you already are carrying contribute
             135      to the credit rating that is used to determine whether you may get a new loan and how much
             136      you will pay for that new loan. You should not accept any advice to ignore or delay making
             137      any payment on loans you already have, even if those loans will be paid off with the new loan."
             138          (d) "You may get into serious financial difficulties if you use this loan to pay off old
             139      debts and then run up other new debts."
             140          (2) The disclosures required by this section shall be given to the borrower no less than
             141      three business days prior to consummation of the transaction.
             142          (3) After providing the disclosure required by this section, a lender may not change the
             143      terms of the extension of credit if such changes make the disclosures inaccurate, unless new
             144      disclosures are provided that meet the requirements of this section.
             145          (4) A lender may provide new disclosures pursuant to Subsection (3) by telephone, if:
             146          (a) the change is initiated by the borrower; and
             147          (b) at the consummation of the transaction under which the credit is extended:
             148          (i) the lender provides to the borrower the new disclosures in writing; and
             149          (ii) the lender and borrower certify in writing that the new disclosures were provided

             150      by telephone, at least three days prior to the date of consummation of the transaction.
             151          Section 6. Section 61-2d-106 is enacted to read:
             152          61-2d-106. Arbitration clauses.
             153          To be valid, an arbitration clause in a high-cost mortgage contract must comply with the
             154      standards set forth in Title 78, Chapter 31a, Utah Uniform Arbitration Act or the Federal
             155      Arbitration Act, or any successor acts.
             156          Section 7. Section 61-2d-107 is enacted to read:
             157          61-2d-107. Prohibition on single premium credit life insurance.
             158          A borrower credit transaction involving a high-cost mortgage may not include:
             159          (1) the offer or sale of any insurance policy, on a single premium basis, that insures,
             160      guarantees, or indemnifies the repayment of the outstanding balance of the loan against:
             161          (a) death;
             162          (b) illness;
             163          (c) accident;
             164          (d) disability; or
             165          (e) unemployment of the borrower; or
             166          (2) debt cancellation or a debt suspension agreement.
             167          Section 8. Section 61-2d-108 is enacted to read:
             168          61-2d-108. Limitations on refinancing.
             169          (1) A lender may not refinance a high-cost mortgage made by that lender or an affiliate
             170      of that lender with another high-cost mortgage during the one-year period beginning on the
             171      date of the consummation of the prior high-cost mortgage.
             172          (2) A mortgage broker may not arrange for the refinancing of a high-cost mortgage
             173      made through the same broker or an affiliate of that broker with another high-cost mortgage
             174      during the one-year period beginning on the date of consummation of the prior high-cost
             175      mortgage.
             176          (3) This section does not apply if the scheduled finance charge for the balance of the
             177      prior existing high-cost mortgage exceeds the scheduled finance charge for the subsequent
             178      high-cost mortgage by an amount greater than the amount of the fees and charges imposed by
             179      the lender for the subsequent mortgage.
             180          Section 9. Section 61-2d-109 is enacted to read:

             181          61-2d-109. Copies.
             182          The lender shall provide, at no cost to the borrower, a complete set of all documents
             183      pertaining to the transaction, including copies of all documents to be executed or recorded and
             184      any loan documents changed at the closing:
             185          (1) at the time of the closing if done in person; or
             186          (2) no later than three business days from the closing if done by mail or any other
             187      format.
             188          Section 10. Section 61-2d-110 is enacted to read:
             189          61-2d-110. Encouraging default prohibited.
             190          (1) A lender may not recommend or encourage default or nonpayment on an existing
             191      loan or other debt prior to and in connection with the closing or planned closing of a high-cost
             192      mortgage that refinances all or any portion of such existing loan or debt.
             193          (2) This section applies to all loans.
             194          Section 11. Section 61-2d-111 is enacted to read:
             195          61-2d-111. Mortgage forms.
             196          All lines, figures, forms, and blanks that regulate, govern, control, and authorize a
             197      mortgage must be filled in before the documents are signed.
             198          Section 12. Section 61-2d-112 is enacted to read:
             199          61-2d-112. Notice of information available to borrowers.
             200          (1) In addition to any other notice or disclosure a lender or title company may provide
             201      to a borrower seeking, obtaining, or inquiring about a high-cost mortgage, the lender shall
             202      provide the borrower any brochure or other document information prepared by a federal or state
             203      authority in a form intended to inform consumers about home loans or consumer credit on
             204      financing or educational resources on financing.
             205          (2) The requirement set forth in Subsection (1) may include:
             206          (a) the posting, in a public area of the office, notice indicating that educational
             207      resources are available;
             208          (b) a list of educational opportunities or programs offered in the surrounding area
             209      including the program name and phone number;
             210          (c) a printed brochure or booklet on responsible lending and borrowing available to the
             211      borrower at no charge; or

             212          (d) information from the Department of Financial Institutions on its responsible
             213      consumer financial educational program.
             214          Section 13. Section 61-2d-113 is enacted to read:
             215          61-2d-113. Effect of failure to comply.
             216          Failure to provide the notices or information described in Subsection 61-2d-105 (1) and
             217      Sections 61-2d-111 and 61-2d-112 does not affect the enforceability of the loan or any of its
             218      terms.
             219          Section 14. Section 70D-1-21 is enacted to read:
             220          70D-1-21. Ordinance or law by political subdivision prohibited.
             221          (1) No county subject to Title 17, and no municipality subject to Title 10, shall enact
             222      any ordinance or law that regulates the terms of home loans or that makes the eligibility of any
             223      person to do business with the county or municipality dependent upon the terms of home loans
             224      originated or serviced by such person.
             225          (2) The prohibition in Subsection (1) does not apply to terms of loans funded in whole
             226      or in part with money provided or administered by the county or municipality.

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