Second Substitute H.B. 160

Representative Wayne A. Harper proposes the following substitute bill:

1 MORTGAGE ACT AMENDMENTS
2 2004 GENERAL SESSION
3 STATE OF UTAH
4 Sponsor: Wayne A. Harper
5
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
39
40 Be it enacted by the Legislature of the state of Utah:
41 Section 1. Section 61-2d-101 is enacted to read:
42 CHAPTER 2d. UTAH HIGH COST HOME LOAN ACT
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.