Report Title:

Home Loan Protection

Description:

Prohibits mortgage brokers from engaging in predatory lending practices. (HB1438 HD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

1438

TWENTY-SECOND LEGISLATURE, 2003

H.D. 1

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO HOME LOAN PROTECTION.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Chapter 454, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§454- Disclosure. At the time of application for a brokered high cost home loan, the mortgage broker or mortgage solicitor shall provide to the borrower, clearly and conspicuously in writing, in a form that the borrower may keep, the following disclosure: "You are not required to complete this agreement merely because you have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations.

§454- Fiduciary duty. A mortgage broker or mortgage solicitor who provides mortgage brokerage services to a borrower in a proposed high cost home loan transaction is the fiduciary of the borrower, and any violation of the mortgage broker's or mortgage solicitor's fiduciary duties shall be a violation of this chapter. A mortgage broker or mortgage solicitor who arranges a high cost home loan owes this fiduciary duty to the borrower regardless of who else the mortgage broker or mortgage solicitor may be acting as an agent for in the course of the home loan transaction."

SECTION 2. Section 454-1, Hawaii Revised Statutes, is amended by adding three new definitions to be appropriately inserted and to read as follows:

""Borrower" means:

(1) Any natural person obligated to repay the loan; or

(2) A prospective borrower.

"High cost home loan" means a consumer credit mortgage loan transaction, involving real property located within this State, that is considered a "mortgage" under section 152 of the Home Ownership and Equity Protection Act of 1994 (15 U.S.C. §1602 (aa)), and the regulations adopted pursuant thereto by the Board of Governors of the Federal Reserve System, including Sections 226.32 and 226.34 of Title 12 of the Code of Federal Regulations, and the Official Staff Commentary to the regulations as each may be amended from time to time.

"Institutional investor" means:

(1) Banks, savings and loan institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, pension or profit sharing trusts, any of the class of persons permitted to qualify as foreign lenders under section 207-11, or other financial institutions or institutional buyers, whether acting for themselves or as fiduciaries;

(2) The United States or any foreign government, any state or territory thereof, or any agency or corporate or other instrumentality of the United States, a foreign government, or of any state, territory or political subdivision thereof.

"Lender" means any person who makes a high cost home loan or any person who originates a high cost home loan through a mortgage broker."

SECTION 3. Section 454-3.1, Hawaii Revised Statutes, is amended to read as follows:

"[[]§454-3.1[]] Written agreements. For any transaction between a mortgage broker or a mortgage solicitor and a borrower, the following requirements shall apply:

(1) A mortgage broker and a mortgage solicitor shall comply with all provisions of the Real Estate Settlement Procedures Act, the Truth in Lending Act, and the Equal Credit Opportunity Act, as those laws currently exist or as they may be amended[.];

(2) Any written commitment letter to make a mortgage loan with specified terms, including loan amount, interest rate, points, and payment terms, which is issued by a mortgage broker or solicitor and accepted by a borrower, must be honored by the mortgage broker or solicitor if the borrower has completely satisfied all of the conditions of the commitment in a timely manner and prior to the specified expiration date of the commitment[.];

(3) A mortgage broker or mortgage solicitor shall not broker a high cost home loan without due regard to the borrower's repayment ability;

(4) A mortgage broker or mortgage solicitor shall not broker a high cost home loan that refinances an existing high cost home loan when the new loan does not have a reasonable, tangible net benefit to the borrower considering all of the circumstances, including the terms of both the new and refinanced high cost home loans, the cost of the new high cost home loan, and the borrower's circumstances;

(5) A mortgage broker or mortgage solicitor shall not knowingly misrepresent or conceal any material fact or make false promises likely to influence, persuade, or induce an applicant for a mortgage loan to take a mortgage loan, or to pursue a course of misrepresentation regarding a mortgage loan through agents or otherwise;

(6) A mortgage broker or mortgage solicitor shall not broker a high cost home loan that contains a scheduled payment that is more than twice as large as the average of earlier scheduled payments, unless such balloon payment becomes due and payable not less than sixty months after the loan closing. This paragraph shall not apply when:

(A) The payment schedule is adjusted to account for the seasonal or irregular income of the borrower; or

(B) The high cost home loan has a maturity of less than one 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;

(7) A mortgage broker or mortgage solicitor shall not broker any mortgage loan as a direct result of offering, soliciting, or selling such mortgage loan at the dwelling of a borrower without a prearranged appointment initiated by and at the express invitation of the borrower;

(8) A mortgage broker or mortgage solicitor shall not broker a high cost home loan that finances directly any credit life, credit disability, credit unemployment, credit property, or any other life or health insurance;

(9) A mortgage broker or mortgage solicitor shall not include or cause to be included in any mortgage loan application or any other mortgage loan-related document, false or misleading information regarding a borrower that the mortgage broker or mortgage solicitor obliquity knows to be false or misleading;

(10) A mortgage broker or mortgage solicitor shall not broker a high cost home loan without first receiving certification from a counselor approved by the United States Department of Housing and Urban Development that the borrower has received counseling on the advisability of the loan transaction;

(11) A mortgage broker or mortgage solicitor shall not broker a high cost home loan that permits the assessment of prepayment fees or penalties subsequent to thirty-six months after the loan closing;

(12) A mortgage broker or mortgage solicitor shall not broker a high cost home loan that includes payment terms under which the outstanding principal balance will increase at any time over the course of the high cost home loan because the regular periodic payments do not cover the full amount of interest due;

(13) A mortgage broker or mortgage solicitor shall not broker a high cost home loan that contains a provision that increases the interest rate after default;

(14) A mortgage broker or mortgage solicitor shall not broker a high cost home loan that includes terms under which more than two periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower;

(15) A mortgage broker or mortgage solicitor shall not recommend or encourage default on an existing high cost home loan or other debt prior to and in connection with the closing or planned closing of a brokered high cost home loan that refinances all or any portion of such existing high cost home loan;

(16) A mortgage broker or mortgage solicitor shall not broker a high cost home loan that permits charging a late payment fee in excess of five per cent of the amount of the payment past due, assessing the fee for a payment past due for less than fifteen days, or charging the fee more than once with respect to a single late payment;

(17) A mortgage broker or mortgage solicitor shall not broker a high cost home loan that permits the high cost home loan to be accelerated except for acceleration of the loan in good faith due to the borrower's failure to abide by the material terms of the high cost home loan;

(18) A mortgage broker or mortgage solicitor shall not require a borrower to sign any note, loan agreement, mortgage, or guaranty evidencing a high cost home loan, Truth in Lending Act rescission statement, or other document in which blanks are left to be filled in, except where consistent with customary industry practice and permissible under all applicable laws;

(19) A mortgage broker or mortgage solicitor shall not charge a fee for a product or service to be paid to another party related to the brokered high cost home loan or required as a condition of the high cost home loan, where payment is not actually made or where the payment is made but the mortgage broker or mortgage solicitor has actual knowledge that the product or service will not be provided;

(20) A mortgage broker or mortgage solicitor shall not fail to account for or to deliver to any person any funds, documents, or other thing of value obtained in connection with a high cost home loan, including money provided by a borrower for real estate appraisal or a credit report, which the mortgage broker or mortgage solicitor is not entitled to retain under the circumstances;

(21) A mortgage broker or mortgage solicitor shall not engage in any transaction, practice, or course of business that is not in good faith or fair dealing or that constitutes a fraud upon any person, in connection with the brokering of any mortgage loan;

(22) A mortgage broker or mortgage solicitor shall not broker a high cost home loan that is subject to a mandatory arbitration clause that limits in any way the right of the borrower to seek relief through the judicial process for any and all claims and defenses the borrower may have related to the high cost home loan transaction;

(23) A mortgage broker or mortgage solicitor shall not advertise high cost home loans, including rates, margins, discounts, points, fees, commissions, or other material information, including material limitations on the high cost home loans, unless the person is able to make the advertised high cost home loans available to a reasonable number of qualified applicants; and

(24) A mortgage broker or mortgage solicitor shall not steer, counsel, or direct any borrower to accept a high cost home loan at a higher cost than that for which the borrower could qualify based on the loan products offered by the persons with whom the mortgage broker or mortgage solicitor regularly does business."

SECTION 4. Section 454-9, Hawaii Revised Statutes, is amended to read as follows:

"§454-9 Fees, commissions, and charges. The commissioner may also adopt rules concerning maximum fees, commissions, and charges on mortgage loan and high cost home loan transactions. The maximum fees, commissions, and charges shall be related to the actual amount of money made available to the borrower, over and above the indebtedness of prior mortgages. The commissioner may also adopt rules concerning the full disclosure of the fees, commissions, and charges."

SECTION 5. The provisions of this chapter shall be severable, and if any phrase, clause, sentence, or provision is declared to be invalid or is preempted by federal law or regulation, the validity of the remainder of this chapter shall not be affected thereby. If any provision of this chapter is declared to be inapplicable to any specific category, type, or kind of loan or points and fees, the provisions of this chapter shall nonetheless continue to apply with respect to all other loans and points and fees.

SECTION 6. The law of this State shall be applied to all transactions governed by the chapter. This chapter shall apply to all high cost home loans made or entered into after the effective date of the chapter.

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect on July 1, 2003.