PRINTER'S NO. 1806
No. 1202 Session of 2004
INTRODUCED BY ORIE, LOGAN, WOZNIAK, KITCHEN, PIPPY, FERLO,
BOSCOLA, LEMMOND, WAGNER, RAFFERTY, TARTAGLIONE AND RHOADES,
JULY 22, 2004
REFERRED TO BANKING AND INSURANCE, JULY 22, 2004
AN ACT
1 Amending the act of December 22, 1989 (P.L.687, No.90), entitled
2 "An act providing for the regulation and licensing of
3 mortgage bankers and mortgage brokers; imposing additional
4 powers and duties on the Department of Banking and the State
5 Real Estate Commission; and providing penalties," further
6 providing for licensee limitations, for legislative findings,
7 for limitations on covered loan terms and practices and for
8 civil liability.
9 The General Assembly of the Commonwealth of Pennsylvania
10 hereby enacts as follows:
11 Section 1. Section 309(a)(5) of the act of December 22, 1989
12 (P.L.687, No.90), known as the Mortgage Bankers and Brokers and
13 Consumer Equity Protection Act, amended June 25, 2001 (P.L.621,
14 No.55), is amended and subsection (a) is amended by adding
15 paragraphs to read:
16 Section 309. Licensee limitations.
17 (a) Prohibitions.--A licensee shall not:
18 * * *
19 (5) In the case of a mortgage broker or limited mortgage
20 broker, commit to close or close mortgage loans in its own
1 name, service mortgage loans, enter into lock-in agreements
2 or collect lock-in fees, provided, however, that a mortgage
3 broker or limited mortgage broker can provide a lender's
4 lock-in agreement to a borrower on behalf of that lender and
5 collect lock-in fees on the lender's behalf payable to that
6 lender[.]; nor shall a mortgage broker or limited mortgage
7 broker engage in any practice, utilize any business name or
8 make any representation that is likely to give the impression
9 to a consumer of average sophistication that the broker is a
10 lender.
11 (6) Contract for or receive any fee from a consumer on
12 whose behalf the licensee negotiated or placed a mortgage
13 loan without, prior to applying for any such loan, having a
14 written contract with the consumer that explains to the
15 consumer the nature and scope of the services to be provided,
16 including the terms of the loan being sought and a statement
17 that the licensee is representing the consumer and will be
18 seeking a suitable loan that meets the consumer's needs and
19 interests.
20 (7) Contract for or receive any fee, premium, commission
21 or other compensation from a lender where such compensation
22 is tied to an increase in the rate being charged to a
23 consumer on whose behalf the licensee negotiated or placed
24 the mortgage loan, unless the amount of such compensation and
25 the amount of the rate were disclosed in writing in advance
26 of any loan closing and the licensee does not receive any
27 separate fee, either in cash or out of the loan proceeds,
28 from the consumer, provided that a broker shall not contract
29 for or receive any such fee, premium, commission or other
30 compensation unless the broker offers the consumer the option
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1 of paying all fees in cash or out of the loan proceeds in
2 order to obtain the lower rate.
3 * * *
4 Section 2. Sections 502 and 511 of the act, added June 25,
5 2001 (P.L.621, No.55), are amended to read:
6 Section 502. Legislative findings.
7 The General Assembly finds and declares as follows:
8 (1) All citizens are entitled to fair access to credit
9 and the ability to share in the American dream of
10 homeownership, including those whose financial or other
11 personal circumstances make them vulnerable to predatory
12 lenders who could take advantage of them by making or
13 arranging high-cost loans that borrowers may not be able to
14 repay and by refinancing mortgage loans with added fees that
15 result in the borrower's equity being stripped.
16 (2) The subprime lending market provides loans to many
17 borrowers who have impaired credit, and this lending market
18 performs a significant service to citizens of this
19 Commonwealth, particularly those in distressed urban areas.
20 However, this market has also given rise to abusive practices
21 that have targeted and exploited vulnerable consumers and
22 neighborhoods with damaging forms of mortgage-secured credit.
23 (3) Legislation affecting the subprime market should not
24 be overly broad and should restrict only those relatively few
25 lenders who are purposefully engaged in patterns and
26 practices of unfair treatment to vulnerable consumers
27 commonly referred to as predatory lending. However, this act
28 shall be liberally construed to effectuate its purpose of
29 protecting the homes and equity of Pennsylvania borrowers
30 from those lenders that are engaged in abusive, predatory and
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1 unfair treatment.
2 (4) [The legitimate conventional and subprime markets
3 should not be subject to the same restrictions, prohibitions,
4 remedies and penalties as the high-cost loans which meet
5 thresholds that distinguish them from loans in other
6 markets.] For most individuals, their home is their most
7 important asset. It is critical, therefore, that consumers be
8 protected from unfair or abusive lending practices that put
9 this asset at risk. This risk is even greater in the case of
10 high-cost mortgage lending.
11 Section 511. Limitations on covered loan terms and practices.
12 [(a) Limitation of balloon payment.--No covered loan may
13 contract for a scheduled payment that is more than twice as
14 large as the average of earlier scheduled monthly payments
15 unless such balloon payment becomes due and payable not less
16 than 120 months after the date of the loan. This prohibition
17 does not apply when the payment scheduled is adjusted to account
18 for the seasonal or irregular income of the obligor or if the
19 purpose of the loan is a bridge loan connected with or related
20 to the acquisition or construction of a dwelling intended to
21 become the obligor's principal dwelling.
22 (b) No call provision.--No covered loan may contain a call
23 provision that permits the lender in its sole discretion to
24 accelerate the indebtedness. This prohibition does not apply
25 when repayment of the loan has been accelerated:
26 (1) by default;
27 (2) pursuant to a due-on-sale provision;
28 (3) where there is fraud or material misrepresentation
29 by an obligor in connection with the loan; or
30 (4) where there is any action or inaction by the obligor
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1 that adversely affects the lender's security for the loan or
2 any rights of the lender in such security.
3 (c) No negative amortization.--Except for loans to obligors
4 with gross income in excess of 150% of median family income, no
5 covered loan may contract for a payment schedule with regular
6 periodic payments that cause the principal balance to increase.
7 This subsection shall not prohibit negative amortization as a
8 consequence of a temporary forbearance or restructure consented
9 to by the obligor.
10 (d) No increased interest rate upon default.--No covered
11 loan may contract for any increase in the interest rate as a
12 result of a default. This provision shall not apply to periodic
13 interest rate changes in a variable rate loan otherwise
14 consistent with the provisions of the loan agreement provided
15 the change in the interest rate is not occasioned by the event
16 of default or permissible acceleration of the indebtedness.
17 (e) No advance payments.--No covered loan may include terms
18 under which any periodic payments required under the loan are
19 paid in advance from the loan proceeds.
20 (f) Limitations on prepayment fees.--The following
21 limitation on prepayment fees shall be observed:
22 (1) A prepayment fee or penalty shall be permitted only
23 during the first 60 months after the date of execution of a
24 covered loan.
25 (2) A lender shall not include a prepayment fee in a
26 covered loan unless it also makes available a loan product
27 without a prepayment fee.
28 (3) No prepayment fee or penalty may be charged on a
29 refinancing of a covered loan with a covered loan if the
30 covered loan being refinanced is owned by the refinancing
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1 lender at the time of such refinancing.]
2 In addition to the limitations imposed under the act of
3 January 30, 1974 (P.L.13, No.6), referred to as the Loan
4 Interest and Protection Law (Usury Law), covered loans shall be
5 subject to the following limitations:
6 (1) No covered loan shall contain any term or be the
7 product of any practice that violates section 129 of the
8 Truth in Lending Act (Public Law 90-321, 15 U.S.C. § 1639),
9 or the regulations adopted pursuant thereto by the Federal
10 Reserve Board.
11 (2) No covered loan may contract for a scheduled payment
12 that is more than twice as large as the average of earlier
13 scheduled monthly payments. This prohibition does not apply
14 when the payment scheduled is adjusted to account for the
15 seasonal or irregular income of the obligor or if the purpose
16 of the loan is a bridge loan connected with or related to the
17 acquisition or construction of a dwelling intended to become
18 the obligor's principal dwelling.
19 (3) No covered loan may contract for a payment schedule
20 with regular periodic payments that has the effect of causing
21 the principal balance to increase. This prohibition shall not
22 prohibit negative amortization as a result of a temporary
23 forbearance or restructure consented to by the obligor.
24 (4) No covered loan may refinance an existing
25 residential mortgage that has a lower rate, unless a
26 nonprofit housing counseling agency, certified by either the
27 United States Department of Housing and Urban Development or
28 the Pennsylvania Housing Finance Agency, reviews the proposed
29 refinancing, provides counseling to the residential mortgage
30 debtor, and independently determines that the proposed
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1 transaction provides a reasonable, tangible net benefit to
2 the residential mortgage debtor.
3 Section 3. Section 512 of the act, added June 25, 2001
4 (P.L.621, No.55), is repealed.
5 Section 4. Section 522 of the act, added June 25, 2001
6 (P.L.621, No.55), is amended to read:
7 Section 522. Civil liability.
8 [(a) Damages for material violations.--If a lender
9 purposefully engages in a pattern or practice of material
10 violations of this chapter, an obligor on a covered loan may
11 initiate a civil action to recover damages.
12 (b) Exclusive remedies.--The remedies provided in this
13 subchapter shall be the sole and exclusive remedies for any
14 violation of any provision of this chapter. Persons engaged in
15 the purchase, sale, assignment, securitization or servicing of
16 covered loans shall not be held liable for the action or
17 inactions of persons originating such loans.]
18 (a) Unfair trade practices.--A lender who violates any
19 provision of this chapter, a person who arranges a loan that
20 violates any provision of this chapter and any other person who
21 participates in a violation of this chapter shall be deemed to
22 have violated the act of December 17, 1968 (P.L.1224, No.387),
23 known as the Unfair Trade Practices and Consumer Protection Law.
24 (b) Additional remedy.--In addition to any other remedies
25 available under the law, a person who becomes obligated on a
26 covered loan that was made in violation of any provision of this
27 act may bring an action for rescission of the loan in a court of
28 competent jurisdiction against the current holder of the loan,
29 together with reasonable attorney fees and costs.
30 (c) Liability for punitive damages in case of pattern and
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1 practice of violations.--A person who purposefully engages in a
2 pattern or practice that violates this chapter shall, in
3 addition to any other remedies provided under this or any other
4 applicable law, be liable for punitive damages as determined by
5 a court of competent jurisdiction.
6 (d) Borrower defenses to foreclosure.--In any action brought
7 to enforce a covered loan obligation, including mortgage
8 foreclosure, a borrower may assert, by way of recoupment, claims
9 under this section against any holder of the covered loan
10 obligation.
11 Section 5. This act shall take effect immediately.
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