House Bill text for HB0316

HOUSE BILL 316

49th legislature - STATE OF NEW MEXICO - first session, 2009

INTRODUCED BY

Patricia A. Lundstrom

FOR THE INDIAN AFFAIRS COMMITTEE

AN ACT

RELATING TO REAL ESTATE; PROHIBITING CERTAIN HOME LOANS; AMENDING THE HOME LOAN PROTECTION ACT.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

Section 1. Section 58-21A-1 NMSA 1978 (being Laws 2003, Chapter 436, Section 1) is amended to read:

"58-21A-1. SHORT TITLE.--[Sections 1 through 14 of this act] Chapter 58, Article 21A NMSA 1978 may be cited as the "Home Loan Protection Act"."

Section 2. A new section of the Home Loan Protection Act is enacted to read:

"[NEW MATERIAL] PURPOSE.--Some problematic forms of mortgage lending have emerged in New Mexico, including some interest-only home loans, adjustable rate home loans with an initially low teaser rate that is reset after a short period to a higher rate resulting in borrower payment shock and adjustable rate home loans with payment increase caps but without interest rate caps that may result in negative amortization, as well as mortgage lending underwriting practices such as no verification of borrower income, approval of borrowers with less than ideal credit histories and prospective home loan payments that constitute an unrealistically high proportion of the borrower's net income. These mortgage lending practices may result in a higher rate of home loan foreclosures and displacement of borrowers and their families. The purpose of this 2009 act is to address mortgage lending practices that adversely affect the welfare of New Mexico homeowners."

Section 3. Section 58-21A-3 NMSA 1978 (being Laws 2003, Chapter 436, Section 3) is amended to read:

"58-21A-3. DEFINITIONS.--As used in the Home Loan Protection Act:

A. "adjustable rate home loan" means a home loan that has an initial interest rate that adjusts to a variable interest rate at the end of a specified initial period or subsequent periods of time during the remaining term of the home loan;

[A.] B. "affiliate" means a person that controls, is controlled by or is under common control with another person;

[B.] C. "bona fide discount points" means loan discount points that are knowingly paid by the borrower for the express purpose of reducing, and which in fact do result in a bona fide reduction of, the annual percentage rate otherwise applicable to the home loan; provided, however, that discount points are not "bona fide discount points" if the annual percentage rate otherwise applicable to the home loan exceeds the conventional mortgage rate by more than:

(1) one and one-half percentage points for a home loan secured by a first lien; or

(2) three percentage points for a home loan secured by a junior lien;

[C.] D. "borrower" means a natural person obligated to repay a home loan, including a co-borrower, cosigner or guarantor;

[D.] E. "bridge loan" means a loan for the initial construction of a borrower's principal dwelling on land owned by the borrower with a maturity of less than eighteen months that only requires the payment of interest until the entire unpaid balance is due and payable;

[E.] F. "conventional mortgage rate" means the most recently published annual yield on conventional mortgages published by the board of governors of the federal reserve system as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor;

[F.] G. "conventional prepayment penalty" means a prepayment penalty or fee that may be collected in a home loan and that is authorized by federal law; provided that a prepayment penalty is not a "conventional prepayment penalty" if the home loan:

(1) has an annual percentage rate that exceeds the conventional mortgage rate by more than two percent; or

(2) permits prepayment fees or penalties that exceed two percent of the amount prepaid;

[G.] H. "creditor" means a person who regularly makes a home loan and includes a loan broker;

[H.] I. "high-cost home loan" means a home loan in which:

(1) the contract rate exceeds the [rates] rate threshold; or

(2) the total points and fees exceed the total points and fees threshold;

[I.] J. "home loan" means a loan, including an open-end credit plan, other than a reverse mortgage transaction or a bridge loan, where the principal amount does not exceed the conforming loan size limit for a single-family dwelling as established by the federal national mortgage association and where the loan is secured by:

(1) a mortgage or deed of trust on real estate in this state upon which there is located or there is to be located a structure:

(a) designed principally for occupancy by one to four families; and

(b) that is or will be occupied by a borrower as the borrower's principal residence; or

(2) a security interest on a manufactured home that is or will be occupied by a borrower as the borrower's principal residence;

[J.] K. "manufactured home" means a structure, transportable in one or more sections, which in the traveling mode is eight body feet or more in width or forty body feet or more in length or, when erected on site is three hundred twenty or more square feet and which is built on a permanent chassis and designed to be used as a dwelling with a permanent foundation when erected on land secured in conjunction with the real property on which the manufactured home is located and connected to the required utilities and includes the plumbing, heating, air conditioning and electrical systems contained therein. "Manufactured home" includes any structure that meets all the requirements of this subsection except the size requirements and with respect to which the manufacturer voluntarily files a certification required by the secretary of the United States department of housing and urban development and complies with the standards established under the federal National Manufactured Housing Construction and Safety Standards Act of 1974. "Manufactured home" does not include rental property or second homes or manufactured homes when not secured in conjunction with the real property on which the manufactured home is located;

[K.] L. "points and fees" means:

(1) all amounts payable by a borrower at or before the closing of a home loan, exclusive of any time-price differential due at closing on the loan proceeds, including:

(a) loan discount points or other discounts;

(b) loan fees, finder's fees or similar charges; and

(d) does not include fees for the following purposes, if the amounts are bona fide and reasonable and paid to a person other than the creditor or an affiliate of the creditor: 1) service or carrying charges; 2) credit reports; 3) title exam, title insurance or similar purposes; 4) escrow charges for future payments of taxes and insurance; 5) fees for notarizing deeds and other documents; 6) appraisals, including fees related to any pest infestation or flood hazard inspections conducted prior to closing; 7) inspection performed prior to closing; 8) attorney fees, if the borrower has the right to select the attorney from an approved list or otherwise; 9) fire and hazard insurance and flood insurance premiums if the conditions in 12 C.F.R. s.226.4(d)(2) are met; 10) tax payment services; 11) surveys; 12) flood certification; and 13) pest infestation and flood determination;

(2) all compensation paid directly or indirectly to a mortgage broker, including a broker that originates a loan in its own name in a table-funded transaction;

(3) the maximum prepayment fees and penalties that may be charged or collected under the terms of the loan documents;

(4) all prepayment fees or penalties that are incurred by the borrower if the loan refinances a previous loan made or currently held by the same creditor or an affiliate of the creditor;

(5) the cost of all premiums financed by the creditor, directly or indirectly, for any credit life, credit disability, credit unemployment or credit property insurance, or any other life or health insurance, or any payments financed by the creditor, directly or indirectly, for any debt cancellation or suspension agreement or contract, except that insurance premiums calculated and paid on a monthly basis shall not be considered financed by the creditor; and

(6) for open-end loans, the points and fees included in Paragraphs (1) through (5) of this subsection that are known at or before closing plus the minimum additional fees the borrower would be required to pay to draw down an amount equal to the total credit line;

[L.] M. "rate threshold" means:

(1) for a first lien mortgage home loan, an interest rate equal to seven percentage points over the weekly average yield on comparable United States treasury securities on the fifteenth day of the month immediately preceding the month in which the loan is made; and

(2) for a subordinate mortgage lien, an interest rate equal to nine percentage points over the weekly average yield on comparable United States treasury securities on the fifteenth day of the month immediately preceding the month in which the loan is made;

[M.] N. "total points and fees" means the result obtained by subtracting the sum of the conventional prepayment penalties and the bona fide discount points paid from the sum of the points and fees, except that if the sum of the conventional prepayment penalties and the bona fide discount points paid exceeds two points, then only the amount that represents two points shall be subtracted; [and

N.] O. "total points and fees threshold" means:

(1) for a home loan in which the total principal loan amount is twenty thousand dollars ($20,000) or more, an amount equal to five percent of the total principal loan amount; and

(2) for a home loan in which the total principal loan amount is less than twenty thousand dollars ($20,000), an amount equal to the lesser of one thousand dollars ($1,000) or eight percent of the total principal loan amount; and

P. "variable interest rate" means an interest rate that changes periodically based upon a specified index plus a specified additional rate margin."

Section 4. Section 58-21A-4 NMSA 1978 (being Laws 2003, Chapter 436, Section 4) is amended to read:

"58-21A-4. PROHIBITED PRACTICES AND PROVISIONS REGARDING HOME LOANS.--

A. No creditor shall finance, directly or indirectly, credit life, credit disability, credit unemployment or credit property insurance, or any other life or health insurance, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract, provided that nothing in this subsection prohibits the payment or receipt of insurance premiums or debt cancellation or suspension fees calculated on the unpaid balance of a home loan and paid on a monthly basis or prohibits bona fide credit property insurance required by the federal housing administration or the United States department of agriculture to be paid in a single premium to the respective federal agency. As used in this subsection, "credit property insurance" means property insurance written in connection with credit transactions under which the creditor is the primary beneficiary.

B. No creditor shall knowingly and intentionally engage in the unfair act or practice of flipping a home loan. As used in this subsection, "flipping a home loan" means the making of a home loan to a borrower that refinances an existing home loan when the new loan does not have 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.

C. No creditor shall make a home loan that includes or uses one or more of the following lending practices:

(1) making a home loan without documenting and considering the borrower's reasonable ability to repay the home loan pursuant to its terms. The borrower's ability to repay shall be demonstrated through reasonably reliable documentation, which may include payroll receipts, tax returns, bank records, asset or credit evaluations or other similarly reliable documentation. The provisions of this paragraph shall not apply to the refinancing of a home loan facing imminent foreclosure that provides the borrower with a reasonable, tangible net benefit;

(2) making a home loan primarily based upon the foreclosure or liquidation value of the borrower's collateral home;

(3) making a home loan without determining the borrower's reasonable ability to pay the costs listed in Subparagraphs (a) through (g) of this paragraph. In the case of an adjustable rate home loan, the reasonable ability to pay shall be determined based on a fully indexed rate and repayment schedule that achieves full amortization over the life of the mortgage loan. The costs, as applicable, to be used in determining the borrower's reasonable ability to pay include:

(a) principal;

(b) interest;

(d) property insurance;

(e) property assessments;

(f) mortgage insurance premiums; and

(g) other scheduled monthly debt payments;

(4) making a home loan, except a home equity line of credit, where the borrower's payments are limited to only interest, and payment of outstanding principal of the home loan is prohibited, and where the required payments over the stated term of the loan are not sufficient to completely amortize the loan within the term of the loan;

(5) making an adjustable rate home loan, except a home equity line of credit, where the interest rate and resulting principal and interest payment may increase more frequently than annually during the term of the loan;

(6) making an adjustable rate home loan, except a home equity line of credit, where the interest rate for the initial period or subsequent periods may be increased for the next period by more than two percent, except where the initial period is at least five years in length, in which case an initial interest rate increase may be no more than five percent;

(7) making an adjustable rate home loan where caps on payment increases may be less than that necessary to reduce principal and amortize the loan over the entire term of the loan regardless of interest rate adjustments;

(8) making a home loan requiring a borrower to pay a penalty or premium if the borrower at any time during the term of the loan makes principal payments in addition to scheduled principal payments or pays the balance of the home loan prior to the stated end of the term of the loan;

(9) advertising terms of home loans, including interest rates, margins, discount points, fees, commissions or other material facts, including limitations on the home loans, unless the creditor is able to make the advertised home loans available to a reasonable number of qualified applicants;

(10) misrepresenting a borrower's credit rating;

(11) misrepresenting, inflating or fabricating, or encouraging a borrower to misrepresent, inflate or fabricate, the source or amount of a borrower's actual income or assets in the application or underwriting process of a home loan;

(12) making a home loan for an owner-occupied residence in which the loan to value ratio is greater than eighty percent, where the creditor has failed to establish an escrow account for the payment of real estate taxes and property insurance;

(13) directly or indirectly employing any scheme, device or artifice to defraud or mislead borrowers;

(14) engaging in any unfair or deceptive practice toward any person;

(15) obtaining property by fraud or misrepresentation;

(16) making any payment, threat or promise, directly or indirectly, to any person for the purpose of influencing the independent judgment of the person in connection with a home loan or making any payment, threat or promise, directly or indirectly, to any appraiser of a property for the purpose of influencing the independent judgment of the appraiser with respect to the value of the property; and

(17) causing or requiring a borrower to obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements as established by the property insurer."

Section 5. APPLICABILITY.--The provisions of this act shall not apply to applications for home loans submitted before October 1, 2009.

Section 6. EFFECTIVE DATE.--The effective date of the provisions of this act is October 1, 2009.

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