PRINTER'S NO. 65

THE GENERAL ASSEMBLY OF PENNSYLVANIA


HOUSE BILL

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
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     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
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     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:
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     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
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     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
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     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
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     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.
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     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
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     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.




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