Home Loan Protection
Prohibits mortgage brokers from engaging in predatory lending practices. (HB1438 HD2)
HOUSE OF REPRESENTATIVES
TWENTY-SECOND LEGISLATURE, 2003
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. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:
HAWAII HOME LOAN PROTECTION ACT
§ -1 Definitions. As used in this chapter:
(1) Any natural person obligated to repay the loan, including a co-borrower, cosigner, or guarantor; or
(2) A prospective borrower.
"Home loan" means a loan secured by:
(1) A mortgage or deed of trust on real property in this State upon which there is located or there is to be located a residential structure or structures designed principally for occupancy by from one to four individuals or families that is or will be occupied by a borrower as the borrower's principal dwelling; or
(2) A security interest on a manufactured home that is or will be occupied by a borrower as the borrower's principal dwelling.
This term includes a loan secured by an individual condominium unit, cooperative unit, mobile home, or trailer, if it is or will be occupied by a borrower as the borrower's principal dwelling.
"Lender" means any person who makes a home loan or any person who originates a home loan through a mortgage broker.
"Mortgage broker" means a person who for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly makes, negotiates, acquires, or offers to make, negotiate, or acquire a home loan on behalf of a borrower seeking a home loan, including but not limited to mortgage brokers and solicitors subject to chapter 454.
"Person" means an individual or entity, including but not limited to a corporation, firm, trust, partnership, or incorporated or unincorporated association existing under or authorized by the laws of this State, any other state, or any foreign country.
§ -2 Prohibited practices. It shall be a prohibited practice for any mortgage broker, in connection with a home loan, to engage in any of the following practices:
(1) Broker a home loan without due regard to the borrower's repayment ability; the mortgage broker shall be presumed to have violated this paragraph if the mortgage broker fails to verify or document the borrower's repayment ability;
(2) Broker a home loan that refinances an existing 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 loans, the cost of the new loan, and the borrower's circumstances;
(3) Misrepresent or conceal any material fact or make false promises likely to influence, persuade, or induce an applicant for a home loan to take a home loan, or to pursue a course of misrepresentation through agents or otherwise;
(4) Broker a 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 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;
(5) Broker a home loan as a direct result of offering, soliciting, or selling a home loan at the dwelling of a potential borrower without a prearranged appointment initiated by and at the express invitation of the potential borrower;
(6) Broker a home loan that finances, directly or indirectly, any credit life, credit disability, credit unemployment, credit property, or any other life or health insurance;
(7) Include or cause to be included in a home loan application or any other loan-related document, directly or indirectly, any false or misleading information regarding a borrower including, without limitation, information concerning the borrower's income or ability to repay the loan;
(8) Make or cause to be made, directly or indirectly, any false, deceptive, or misleading statement or representation in connection with a home loan transaction including, without limitation, a false, deceptive, or misleading statement or representation regarding any charge or fee or the terms of the loan;
(9) 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. As used in this paragraph, "high-cost home loan" means a home loan in which the:
(A) Annual percentage rate is equal to or exceeds the rate described in section 226.32(a)(1)(i) of Regulation Z, 12 C.F.R. §226.32(a)(1)(i), as amended; or
(B) Total points and fees payable by the borrower at or before the loan closing will exceed five per cent of the total loan amount, as the terms "total points and fees" and "total loan amount" are used in section 226.32 of Regulation Z, 12 C.F.R. §226.32, as amended;
(10) Broker a home loan that permits the assessment of prepayment fees or penalties subsequent to thirty-six months after the loan closing;
(11) Broker a home loan that includes payment terms under which the outstanding principal balance will increase at any time over the course of the loan because the regular periodic payments do not cover the full amount of interest due;
(12) Broker a home loan that contains a provision that increases the interest rate after default;
(13) Broker a 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;
(14) Recommend or encourage default on an existing home loan or other debt prior to and in connection with the closing or planned closing of a home loan that refinances all or any portion of such existing loan or debt;
(15) Broker a 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;
(16) Broker a home loan that permits the lender or assignee, in its sole discretion, to accelerate the indebtedness. This paragraph shall not prohibit acceleration of the loan in good faith due to the borrower's failure to abide by the material terms of the loan;
(17) Require a borrower to sign any note, loan agreement, mortgage, or guaranty evidencing a 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;
(18) Charge a fee for a product or service to be paid to another party related to the loan or required as a condition of the loan, where payment is not actually made or where the payment is made but the mortgage broker has actual knowledge the product or service will not be provided;
(19) Fail to account for or to deliver to any person any funds, documents, or other thing of value obtained in connection with a home loan, including money provided by a borrower for real estate appraisal or a credit report, which the mortgage broker or lender is not entitled to retain under the circumstances;
(20) 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 home loan;
(21) Broker a 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 loan transaction;
(22) Advertise home loans, including rates, margins, discounts, points, fees, commissions, or other material information, including material limitations on the loans, unless the person is able to make the advertised home loans available to a reasonable number of qualified applicants; or
(23) Steer, counsel, or direct any borrower to accept a home loan at a higher cost than that for which the borrower could qualify based on the loan products offered by the lenders with which the mortgage broker regularly does business.
§ -3 Disclosure. At the time of application, the mortgage broker 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."
§ -4 Fiduciary duty. A mortgage broker who provides mortgage brokerage services to a borrower in a proposed home loan transaction is the fiduciary of the borrower, and any violation of the mortgage broker's fiduciary duties shall be a violation of this chapter. A mortgage broker who arranges a home loan owes this fiduciary duty to the borrower regardless of who else the mortgage broker may be acting as an agent for in the course of the home loan transaction.
§ -5 Remedies for violations. (a) Any person who engages in any act or practice prohibited by this chapter shall be deemed to have engaged in an unfair method of competition or unfair or deceptive act or practice in the conduct of a trade or commerce within the meaning of section 480-2.
(b) Any mortgage broker found by a preponderance of the evidence to have violated this chapter shall be liable to the borrower for the following:
(1) Actual damages sustained by the borrower, including consequential and incidental damages;
(2) Statutory damages equal to two times the fees paid under the home loan to the mortgage broker;
(3) Punitive damages; and
(4) Costs and reasonable attorneys' fees.
(c) A borrower may bring proceedings to enjoin any act or practice prohibited by this chapter and to obtain declaratory and other equitable relief as the court deems appropriate, and if the decree is for the borrower, the borrower shall recover reasonable attorneys' fees together with the costs of suit.
(d) A mortgage broker in a home loan who, when acting in good faith, fails to comply with the provisions of this chapter shall not be deemed to have violated this chapter if the mortage broker establishes that either:
(1) Within thirty days of the loan closing and prior to receiving any notice from the borrower of the compliance failure, the mortgage broker has made appropriate restitution to the borrower, and appropriate adjustments are made to the loan; or
(2) Within thirty days of the loan closing and prior to receiving any notice from the borrower of the compliance failure, and the compliance failure was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error, the borrower is notified of the compliance failure, appropriate restitution is made to the borrower, and appropriate adjustments are made to the loan; provided that bona fide errors may include clerical, calculation, computer malfunction and programming, and printing errors; and provided further that an error of legal judgment with respect to a person's obligations under this chapter is not a bona fide error.
(e) The remedies provided in this section are not intended to be the exclusive remedies available to a borrower, nor must the borrower exhaust any administrative remedies provided under any applicable law before proceeding under this section.
(f) Violation of this chapter shall constitute professional misconduct on the part of any person or entity duly licensed, registered, or certified by any board, commission, or program within the department of commerce and consumer affairs, and shall subject such person or entity to disciplinary or other action for violation of this chapter in addition to any other laws or rules that may be applicable. Nothing in this chapter shall be construed to impair or impede a state agency's authority under any other provisions of law. Any state agency may exercise any and all authority and powers available to it under any other provisions of law, to administer and enforce this chapter, including but not limited to the ability to investigate and issue subpoenas.
(g) Any civil, criminal, and administrative authority and remedies available to the state pursuant to law may be sought and employed in any combination deemed advisable by the state to enforce the provisions of this chapter. In addition to any fines or penalties that may be imposed for violations of this and any other applicable statutory provisions or rules, the court and the appropriate licensing agency may also order restitution or disgorgement.
(h) Nothing herein shall be construed to bar a government entity from enforcing this chapter against any person who brokers or originates a loan and who is exempt or excluded from the requirement of a license under any other law.
(i) Any action or proceeding authorized by this chapter shall be brought in the circuit court of the circuit in which the real property used to secure the home loan is situated.
(j) The remedies provided herein are cumulative.
§ -6 Limitations of actions. Any action to enforce a cause of action arising under this chapter shall be barred unless commenced within four years after the cause of action accrues, except as otherwise provided in section -5. For the purpose of this section, a cause of action for a continuing violation is deemed to accrue at any time during the period of the violation.
§ -7 Remedies not exclusive. The remedies provided for in this chapter are in addition to and not exclusive of any other remedies provided by law.
§ -8 Interpretation. This chapter shall be liberally construed to effectuate its purpose of protecting the homes and equity of individual borrowers. This chapter is to be construed as a consumer protection statute for all purposes.
§ -9 Severability. 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.
§ -10 Applicability. The law of this state shall be applied to all transactions governed by the chapter. This chapter shall apply to all home loans made or entered into after the effective date of the chapter."
SECTION 2. This Act shall take effect on July 1, 2099.