PRINTER'S NO. 65
No. 40 Session of 2007
INTRODUCED BY THOMAS, CALTAGIRONE, BLACKWELL AND JAMES, JANUARY 30, 2007
REFERRED TO COMMITTEE ON COMMERCE, JANUARY 30, 2007
AN ACT 1 Amending the act of January 30, 1974 (P.L.13, No.6), entitled 2 "An act regulating agreements for the loan or use of money; 3 establishing a maximum lawful interest rate in the 4 Commonwealth; providing for a legal rate of interest; 5 detailing exceptions to the maximum lawful interest rate for 6 residential mortgages and for any loans in the principal 7 amount of more than fifty thousand dollars and Federally 8 insured or guaranteed loans and unsecured, noncollateralized 9 loans in excess of thirty-five thousand dollars and business 10 loans in excess of ten thousand dollars; providing 11 protections to debtors to whom loans are made including the 12 provision for disclosure of facts relevant to the making of 13 residential mortgages, providing for notice of intention to 14 foreclose and establishment of a right to cure defaults on 15 residential mortgage obligations, provision for the payment 16 of attorney's fees with regard to residential mortgage 17 obligations and providing for certain interest rates by banks 18 and bank and trust companies; clarifying the substantive law 19 on the filing of and execution on a confessed judgment; 20 prohibiting waiver of provisions of this act, specifying 21 powers and duties of the Secretary of Banking, and 22 establishing remedies and providing penalties for violations 23 of this act," further providing for definitions; providing 24 for prohibited acts and practices with respect to residential 25 mortgages; further providing for attorney fees; and providing 26 for foreclosure and other legal actions. 27 The General Assembly of the Commonwealth of Pennsylvania 28 hereby enacts as follows: 29 Section 1. Section 101 of the act of January 30, 1974
1 (P.L.13, No.6), referred to as the Loan Interest and Protection
2 Law, amended October 5, 1978 (P.L.1100, No.258), October 5, 1978
3 (P.L.1127, No.264) and April 6, 1979 (P.L.15, No.4), is amended
4 to read:
5 Section 101. Definitions.--As used in this act:
6 "Actual settlement costs" means reasonable sums paid for:
7 (a) Any insurance premiums which have been approved by the
8 Insurance Commissioner of the Commonwealth.
9 (b) Title examination and search, and examination of public
10 records.
11 (c) The preparation and recording of any or all documents
12 required by law or custom for settlement.
13 (d) Appraisal and/or survey of property securing the loan.
14 (e) A single service charge, which shall include any
15 consideration paid by the residential mortgage debtor and
16 received and retained by the residential mortgage lender for or
17 related to the acquisition, making, refinancing or modification
18 of a residential mortgage loan, plus any consideration received
19 by the residential mortgage lender for making a mortgage
20 commitment, whether or not an actual loan follows such
21 commitment.
22 The service charge shall not exceed one per cent of the
23 original bona fide principal amount of the loan, except that in
24 the case of a construction loan, the service charge shall not
25 exceed two per cent of the original bona fide principal amount
26 of the loan.
27 (f) Charges and fees that are reasonable and necessary for
28 [or related to] the transfer of the property or the closing of
29 the residential mortgage loan, paid by the residential mortgage
30 debtor and received by any party other than the residential
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1 mortgage lender, whether or not paid by the residential mortgage 2 debtor directly to the third party or to the residential 3 mortgage lender for payment to the third party. 4 "Discount points" means any charges, whether or not actually 5 denominated as "discount points," which are paid by the seller 6 of residential real property to a residential mortgage lender 7 which directly or indirectly affects the ability of the buyer of 8 the real estate to secure a residential mortgage. 9 "Finance charge" means the total cost of a loan or charge for 10 the use of money, including any extensions or grant of credit 11 regardless of the characterization of the same and includes any 12 interest, time price differential, points, premiums, finder's 13 fees, and other charges levied by the residential mortgage 14 lender or residential mortgage intermediary, either directly or 15 indirectly, against the person obtaining the loan or against the 16 seller, lender, mortgagee or any other party to the transaction 17 except any actual settlement costs. The finance charges plus the 18 actual settlement costs charged by the residential mortgage 19 lender shall include all charges made by the residential 20 mortgage lender or residential mortgage intermediary to the 21 residential mortgage debtor other than the principal of the 22 loan. In computing finance charge on any mortgage which does not 23 require the full amount of the first year's interest to be paid 24 during the first year and on a variable interest rate mortgage 25 interest shall be calculated at the rate applicable to the first 26 year of the loan. 27 "Loan yield" means the annual rate of return obtained by a 28 residential mortgage lender from a residential mortgage debtor 29 over the term of the loan and shall be determined in accordance 30 with regulations issued by the Secretary of Banking. Such 20070H0040B0065 - 3 -
1 regulations shall establish the method for calculating such rate 2 of return and shall provide that the finance charge be amortized 3 over the contract term of the loan. In computing loan yield on 4 any mortgage which does not require the full amount of the first 5 year's interest to be paid during the first year and on a 6 variable interest rate mortgage interest shall be calculated at 7 the rate applicable to the first year of the mortgage. 8 "Monthly Index of Long Term United States Government Bond 9 Yields" means the monthly unweighted average of the daily 10 unweighted average of the closing bid yield quotations in the 11 over the counter market for all outstanding United States 12 Treasury Bond issues, based on available statistics, which are 13 either maturing or callable in ten years or more. This index is 14 expressed in terms of percentage interest per annum. 15 "Mortgage commitment" means a legally binding obligation to 16 lend money on the security of a residential mortgage. 17 "Person" means an individual, corporation, business trust, 18 estate trust, partnership or association or any other legal 19 entity, and shall include but not be limited to residential 20 mortgage lenders. 21 "Residential mortgage" means an obligation to pay a sum of 22 money [in an original bona fide principal amount of fifty 23 thousand dollars ($50,000) or less,] evidenced by a security 24 document and secured by a lien upon real property intended to be 25 used as the residence of the obligor and located within this 26 Commonwealth, containing two or fewer residential units or on 27 which two or fewer residential units are to be constructed, and 28 shall include such an obligation on a residential condominium 29 unit. 30 "Residential mortgage debtor" means a non-corporate borrower 20070H0040B0065 - 4 -
1 who is obligated to a residential mortgage lender to repay in 2 whole or in part a residential mortgage and a successor record 3 owner of the property, if any, who gives notice thereof to the 4 residential mortgage lender. 5 "Residential mortgage intermediary" means a real estate 6 broker, mortgage broker or other person receiving directly or 7 indirectly from a residential mortgage lender or residential 8 mortgage debtor a finder's fee, commission, placement fee, 9 service charge or other similar compensation other than actual 10 settlement costs in conjunction with the issuance of a 11 residential mortgage or mortgage commitment. Residential 12 mortgage intermediary shall not mean an employee of a 13 residential mortgage lender. 14 "Residential mortgage lender" means any person who lends 15 money or extends or grants credit and obtains a residential 16 mortgage to assure payment of the debt. The term shall also 17 include the holder at any time of a residential mortgage 18 obligation. 19 "Residential mortgage servicer" means a person who collects 20 payments from a residential mortgage debtor on behalf of the 21 holder of a residential mortgage obligation. 22 "Residential real property" means real property located 23 within this Commonwealth containing not more than two 24 residential units or on which not more than two residential 25 units are to be constructed and includes a residential 26 condominium unit. 27 "Security document" means a mortgage, deed of trust, real 28 estate sales contract or other document creating upon 29 recordation a lien upon real estate. 30 Section 2. The act is amended by adding a section to read: 20070H0040B0065 - 5 -
1 Section 402.1. Prohibited Acts and Practices with Respect to 2 Residential Mortgages.--The following acts and practices are 3 prohibited: 4 (1) No residential mortgage shall include, within the 5 original principal of the loan, finance charges, not including 6 prepaid interest, which, together with any service charge, 7 exceeds three per cent of the original principal. 8 (2) No residential mortgage lender shall finance, directly 9 or indirectly, any credit life, credit disability, credit 10 unemployment or credit property insurance product or any other 11 life or health insurance, or any payments directly or indirectly 12 for debt cancellation or suspension agreement or contract, 13 except that insurance premiums or debt cancellation or 14 suspension fees calculated and paid on a monthly basis shall not 15 be considered to be financed by the lender. 16 (3) A residential mortgage lender shall not make a 17 residential mortgage based on the residential mortgage debtor's 18 home equity without due regard to the debtor's ability to make 19 the scheduled payments, as determined by the documented and 20 verified current and expected income, current obligations and 21 employment status of the residential mortgage debtor. A 22 residential mortgage debtor shall be presumed to be able to make 23 the scheduled payments to repay the obligation if, at the time 24 the loan is consummated, the debtor's monthly housing payments 25 (including the scheduled payment, reasonably anticipated real 26 estate taxes, homeowner's insurance and other mortgage payments) 27 do not exceed fifty per cent of the documented, verified and 28 available monthly income. Notwithstanding the foregoing 29 presumption, a residential mortgage debtor shall be presumed to 30 be unable to make the scheduled payments if the debtor lacks 20070H0040B0065 - 6 -
1 sufficient "residual income," as defined in the Department of 2 Veterans Affairs' residual income guidelines established in 38 3 CFR 36.4337(e) (relating to underwriting standards, processing 4 procedures, lender responsibility, and lender certification), to 5 pay essential monthly expenses after paying the scheduled 6 payments. The Secretary of Banking shall, from time to time, 7 publish the Department of Veterans Affairs' residual income 8 guidelines and may, by regulation, update or modify those 9 guidelines as they apply to this paragraph. 10 (4) A residential mortgage lender shall not refinance a 11 special mortgage originated, subsidized or guaranteed by or 12 through a state, tribal or local government or nonprofit 13 organization which either bears a below-market interest rate at 14 the time the loan was originated or has nonstandard payment 15 terms beneficial to the borrower, such as payments that vary 16 with income or are limited to a percentage of income, or where 17 no payments are required under specified conditions, and where, 18 as a result of refinancing, the borrower will lose one or more 19 of the benefits of the special mortgage, unless the agency or 20 organization that provided or services the special mortgage 21 determines, at its discretion, that the refinancing provides a 22 reasonable, tangible net benefit to the residential mortgage 23 debtor or a nonprofit housing counseling agency, certified by 24 either the United States Department of Housing and Urban 25 Development or the Pennsylvania Housing Finance Agency, reviews 26 the proposed refinancing, provides counseling to the residential 27 mortgage debtor and independently determines that the proposed 28 transaction provides a reasonable, tangible net benefit to the 29 residential mortgage debtor. For purposes of this paragraph, a 30 mortgage obtained by the Pennsylvania Housing Finance Agency to 20070H0040B0065 - 7 -
1 secure homeowner's emergency assistance granted under the act of 2 December 22, 1989 (P.L.687, No.90), known as the "Mortgage 3 Bankers and Brokers and Consumer Equity Protection Act," shall 4 be considered a special mortgage. 5 (5) No residential mortgage shall contain a provision that 6 permits the residential mortgage lender, in its sole discretion, 7 to accelerate the indebtedness: Provided, That this paragraph 8 does not prohibit acceleration, in accordance with this act, due 9 to the residential mortgage debtor's failure to abide by the 10 material terms of the loan. No residential mortgage shall 11 contain a contractual balloon payment under circumstances where 12 the residential mortgage lender knows or should know that the 13 residential mortgage debtor has no reasonable likelihood of 14 being able to pay the balloon when due. 15 (6) No person shall recommend or encourage default on an 16 existing residential mortgage or other debt prior to and in 17 connection with the closing or planned closing of a residential 18 mortgage that refinances all or any portion of the existing loan 19 or debt. 20 (7) In addition to the prohibitions contained in section 21 2(4) of the act of December 17, 1968 (P.L.1224, No.387), known 22 as the "Unfair Trade Practices and Consumer Protection Law," no 23 person shall, in connection with a residential mortgage 24 transaction, make any false or misleading representations, 25 either explicit or implied, regarding: 26 (i) the monthly housing expense being assumed by the 27 residential mortgage debtor; 28 (ii) the economic benefits or advantages produced by the 29 transaction; 30 (iii) any future refinancing or payment reduction; or 20070H0040B0065 - 8 -
1 (iv) the value of the collateral. 2 For purposes of this paragraph, a monthly housing expense shall 3 include the scheduled payment and one-twelfth of the reasonably 4 anticipated real estate taxes and homeowners' insurance premium. 5 (8) In making, arranging or closing a home loan, a 6 residential mortgage lender, residential mortgage intermediary 7 or provider of any real estate settlement service may not accept 8 or give any fee, kickback, thing of value, portion, split or 9 percentage of charges, other than as payment for goods or 10 facilities that were actually furnished or services that were 11 actually performed. The amount of the payment must be reasonably 12 related to the value of the goods or facilities that were 13 actually furnished or services that were actually performed. 14 (9) No finance charge shall be paid to a residential 15 mortgage intermediary as part of a residential mortgage 16 transaction unless the residential mortgage intermediary 17 functioned as the agent of the residential mortgage debtor in 18 arranging, obtaining or otherwise participating in the mortgage 19 transaction and the charge is consistent with a written agency 20 agreement that is signed by and furnished to the residential 21 mortgage debtor at least three days in advance of the 22 application for the residential mortgage. 23 (10) Late charges may be imposed if the mortgage documents 24 authorize the charge, but only if the payment is past due for 25 fifteen days or more and the charge does not exceed five per 26 cent of the amount of the late payment. A late payment charge 27 may not be imposed more than once with respect to a particular 28 late payment. Each and every payment shall be posted on the same 29 date it was received at the address provided to the residential 30 mortgage debtor. 20070H0040B0065 - 9 -
1 (11) No charge may be imposed for informing or transmitting 2 to any person the balance due to pay off or reinstate a 3 residential mortgage or to prepare or provide a release upon 4 prepayment. Payoff balances and reinstatement breakdowns shall 5 be provided within five business days after they are requested. 6 (12) No charge may be imposed for furnishing residential 7 mortgage debtors a legally required notice, or for responding to 8 a legally authorized request for account information. 9 (13) Force-placed insurance may be purchased when a 10 residential mortgage debtor fails to maintain adequate hazard 11 insurance that includes a mortgagee loss provision as required 12 by the residential mortgage servicer. No reimbursement 13 obligation shall be imposed on the residential mortgage debtor 14 regarding force-placed insurance unless thirty-day advance 15 written notice stating an intent to purchase such insurance, 16 together with instructions for providing proof of insurance, is 17 provided to the residential mortgage debtor and provided that 18 the residential mortgage debtor shall retain the right to obtain 19 insurance and thereby cancel any force-placed insurance 20 reimbursement obligation for the future period during which 21 insurance is maintained. 22 (14) A violation of this section shall be deemed to be a 23 violation of the "Unfair Trade Practices and Consumer Protection 24 Law." 25 Section 3. Section 406 of the act is amended to read: 26 Section 406. Attorney's Fees Payable.--With regard to 27 residential mortgages, no residential mortgage lender or 28 servicer shall contract for, demand or receive attorney's fees 29 or costs from a residential mortgage debtor except as follows: 30 (1) Reasonable and nonduplicative fees for services included 20070H0040B0065 - 10 -
1 in actual settlement costs. 2 (2) Upon commencement of foreclosure or other legal action 3 with respect to a residential mortgage, only attorney's fees and 4 costs which are reasonable and actually incurred by the 5 residential mortgage lender may be charged to the residential 6 mortgage debtor. 7 (3) Prior to commencement of foreclosure or other legal 8 action attorneys' fees which are reasonable and actually 9 incurred not in excess of fifty dollars ($50) provided that no 10 attorneys' fees may be charged for legal expenses incurred prior 11 to or during the thirty-day notice period provided in section 12 403 of this act. 13 Section 4. The act is amended by adding a section to read: 14 Section 409. Foreclosure and Other Legal Actions.--(a) 15 Notwithstanding the in rem character of an action in mortgage 16 foreclosure, a defendant residential mortgage debtor may assert 17 a claim or defense in law or equity, including a violation of 18 this act, and may join any other party that would be permitted 19 in any other action to collect a debt. 20 (b) In any proceeding pertaining to a residential mortgage, 21 the court shall have the power to determine the reasonableness 22 and necessity of fees and costs claimed by any party to the 23 proceeding in accordance with the provisions of this act. 24 Section 5. This act shall take effect in 60 days. L4L12DMS/20070H0040B0065 - 11 -