46th legislature - STATE OF NEW MEXICO - first session, 2003

RELATING TO MORTGAGE LOANS; AMENDING AND ENACTING CERTAIN SECTIONS OF THE MORTGAGE LOAN COMPANY AND LOAN BROKER ACT TO INCLUDE CONSUMER FINANCE COMPANIES, PROHIBIT CERTAIN PRACTICES AND PREEMPT REGULATION BY LOCAL GOVERNMENTS.

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

Section 1. Section 58-21-6 NMSA 1978 (being Laws 1983, Chapter 86, Section 6, as amended by Laws 2001, Chapter 251, Section 5 and by Laws 2001, Chapter 264, Section 5) is amended to read:

"58-21-6. PERSONS EXEMPT FROM REGISTRATION.--The following persons shall be exempt from all provisions of the Mortgage Loan Company and Loan Broker Act:

A. banks, trust companies, savings and loan associations, credit unions, [consumer finance companies] insurance companies or real estate investment trusts as defined in 26 USCA 856;

B. an attorney licensed to practice law in New Mexico who is not principally engaged in the business of negotiating loans secured by real or personal property, when the person renders services in the course of his practice as an attorney;

C. a New Mexico-licensed real estate broker rendering service in the performance of his duties as a real estate broker who obtains financing for a real estate transaction involving an actual bona fide sale of real estate or real estate contract handled by the broker and who receives only the customary real estate broker's commission in connection with the transaction;

D. a person doing an act under order of a court;

E. a person making or acquiring a mortgage loan with his own funds for his own investment without the intent to resell the mortgage loan;

F. the United States of America, state of New Mexico or any of their branches, agencies, departments, boards, instrumentalities or institutions and all political subdivisions of the state and their agencies, instrumentalities and institutions; and

G. a company licensed as a small business investment company under the federal Small Business Investment Act of 1958."

Section 2. A new section of the Mortgage Loan Company and Loan Broker Act, Section 58-21-18.1 NMSA 1978, is enacted to read:

"58-21-18.1. [NEW MATERIAL] PROHIBITED ACTS--DEFINITIONS.--

A. As used in Sections 58-21-18.1 through 58-21-18.5 NMSA 1978:

(1) "annual percentage rate" means the annual percentage rate for a mortgage loan calculated according to the provisions of 15 USCA 1606;

(2) "borrower" means any natural person obligated to repay a high-cost home loan, including, but not limited to, a co-borrower, co-signor or guarantor;

(3) "bridge loan" means a loan with a maturity of less than eighteen months that only requires the payment of interest until the entire unpaid balance is due and payable;

(4) "high-cost home loan" means a mortgage loan in which:

(a) the annual percentage rate exceeds, by more than the allowable percentage points set by rule of the director, the yield on United States treasury securities having comparable periods of maturity on the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the mortgage loan company or loan broker; or

(b) the total points and fees payable by the borrower at or before closing exceed the greater of: 1) eight percent of the total loan amount; or 2) a dollar amount set by rule of the director; and

(5) "total points and fees" means:

(a) all items included in the finance charge, except interest or the time-price differential;

(b) all compensation paid to loan brokers; and

(c) all other charges paid at closing unless: 1) the charge is reasonable; 2) the mortgage loan company or loan broker receives no direct or indirect benefit; and 3) the charge is paid to a third party that is unaffiliated with the mortgage loan company or loan broker.

B. No mortgage loan company or loan broker:

(1) shall make or arrange a high-cost home loan that provides for a higher interest rate after default on the loan; provided, however, that this prohibition does not apply to interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan documents if the change in interest rate is not triggered by a default or the acceleration of the interest rate;

(2) shall make or arrange a high-cost home loan that has a term of less than ten years that contains terms under which the aggregate amount of the regular periodic payments would not fully amortize the outstanding principal balance; provided, however, this prohibition does not apply when the payment schedule is adjusted to account for the seasonal or irregular income of the borrower or if the loan is a bridge loan;

(3) shall make or arrange a high-cost home loan that contains 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 the interest due;

(4) shall make or arrange a high-cost 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;

(5) shall engage in any pattern or practice of extending high-cost home loans to borrowers based upon the borrowers' collateral without regard to the borrowers' ability to repay the loan, including the borrowers' current and expected income, current obligations and employment;

(6) shall make payments to a contractor under a home improvement contract from amounts of a high-cost home loan other than:

(a) in the form of an instrument that is payable to the borrower or jointly to the borrower and the contractor; or

(b) at the election of the borrower by a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender and the contractor prior to the date of payment;

(7) shall make or arrange a high-cost home loan that contains a provision that permits the lender in its sole discretion to call or accelerate the indebtedness; provided, however, that this provision does not prohibit acceleration of the loan due to the borrower's failure to abide by the terms of the loan, or due to fraud or material misrepresentation by the consumer in connection with the loan;

(8) or an affiliate or assignee of a mortgage loan company or loan broker shall refinance any high-cost home loan to the same borrower when the refinancing does not have a reasonable 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;

(9) shall engage in acts or practices to evade the requirements of this section, including a pattern or practice of arranging for the refinancing of the lender's or assignee's own loans by affiliated or unaffiliated lenders or modifying a loan agreement, whether or not the existing loan is satisfied and replaced by the new loan, and charging a fee;

(10) shall recommend or encourage default on an existing loan or other debt prior to and in connection with the closing or planned closing of a high-cost home loan that refinances all or any portion of such existing loan or debt;

(11) make or arrange a high-cost home loan that is a direct result of a potential or future lender or its representative offering or selling a high-cost home loan at the residence of a potential borrower without a prearranged appointment with the potential borrower or the expressed invitation of the potential borrower. This prohibition shall not apply to mail solicitations that may be received by the potential borrower;

(12) shall make or arrange a high-cost home loan that includes provisions for charging a late payment fee except as provided in this paragraph. A late payment fee shall not be in excess of five percent of the amount of the payment past due. A late payment fee shall only be assessed for a payment past due for fifteen days or more. A late payment fee may not be charged more than once with respect to a single late payment. If a late payment fee is deducted from a payment made on the loan and the deduction causes a subsequent default on a subsequent payment, a late payment fee may not be imposed for the default. If a late payment fee has been imposed once with respect to a particular late payment, no such fee shall be imposed with respect to any future payment that would have been timely and sufficient but for the previous default; and

(13) shall charge a borrower any fees or other charges to modify, refinance, extend or amend a high-cost home loan or to defer any payment due under the terms of a high-cost home loan on a minimum of one modification, renewal, extension, or deferral per each twelve months of the length of the loan."

Section 3. A new section of the Mortgage Loan Company and Loan Broker Act, Section 58-21-18.2 NMSA 1978, is enacted to read:

"58-21-18.2. [NEW MATERIAL] DISCLOSURE.--A mortgage loan company or loan broker shall not make or arrange a high-cost home loan unless the company or the broker has provided the following notice in writing to the borrower not less than three business days prior to the closing of the loan:

If you obtain this loan, which pursuant to New Mexico state law is a high-cost home 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 under the loan.

You should shop around and compare loan rates and fees. Mortgage loan rates and closing costs and fees vary based on many factors, including your particular credit and financial circumstances, your earnings history, the loan-to-value requested and the type of property that will secure your loan. The loan rate and fees could vary based on which lender or mortgage broker you select. Higher rates and fees may be related to the individual circumstances of a particular consumer's application.

You should consider consulting a credit counselor or other experienced financial adviser regarding the rate, fees and provisions of this mortgage loan before you proceed.

You are not required to complete any loan agreement merely because you have received these disclosures or have signed a loan application. If you proceed with this mortgage loan, you should also remember that you may face serious financial risks if you use this loan to pay off credit card debts and other debts in connection with this transaction and then subsequently incur significant new credit card charges or other debts.

Property taxes and homeowner's insurance are your responsibility. Not all lenders provide escrow services for these payments. You should ask your lender about these services.

Your payments on existing debts contribute to your credit ratings. You should not accept any advice to ignore your regular payments to your existing creditors. Accordingly, it is important that you make regular payments to your existing creditors."."

Section 4. A new section of the Mortgage Loan Company and Loan Broker Act, Section 58-21-18.3 NMSA 1978, is enacted to read:

"58-21-18.3. [NEW MATERIAL] ADDITIONAL POWERS AND DUTIES OF DIVISION.--

A. The division shall promulgate such rules as are necessary to carry out the provisions of Sections 58-21-18.1 and 58-21-18.2 NMSA 1978, including, after considering similar rules of the board of governors of the federal reserve system, the allowable percentage points pursuant to Subparagraph (a) of Paragraph (4) of Subsection A of Section 58-21-18.1 NMSA 1978 and the dollar amount allowed by Subparagraph (b) of that paragraph.

B. The division may conduct an investigation of any person whenever the division has reason to believe, upon complaint or otherwise, that a violation of Section 58-21-18.1 or 58-21-18.2 NMSA 1978 has occurred.

C. Any person having reason to believe that a provision of Section 58-21-18.1 or 58-21-18.2 NMSA 1978 has been violated may file a written compliant with the division setting forth the details of the alleged violation.

D. The division may bring action against a person who has violated a provision of Section 58-21-18.1 or 58-21-18.2 NMSA 1978 to enjoin the person from continuing in or engaging in any act in furtherance of the violation.

E. In an injunctive proceeding, the district court of Santa Fe county may, on due showing by the division, issue a subpoena or subpoena duces tecum requiring the attendance of any witness and requiring the production of any books, accounts, records or other documents and materials that appear necessary to the expeditious resolution of the application for injunction.

F. The division may issue and serve upon any person an order to cease and desist and to take corrective action whenever the division has reason to believe the person is violating or has violated Section 58-21-18.1 or 58-21-18.2 NMSA 1978.

G. Whenever the division finds a person in violation of Section 58-21-18.1 or 58-21-18.2 NMSA 1978, it may enter an order imposing a fine in an amount not exceeding one thousand dollars ($1,000) for each separate offense, provided that the aggregate fine for all violations of those sections that could have been asserted at the time of the order imposing the fine shall not exceed one hundred thousand dollars ($100,000)."

Section 5. A new section of the Mortgage Loan Company and Loan Broker Act, Section 58-21-18.4 NMSA 1978, is enacted to read:

"58-21-18.4. [NEW MATERIAL] ENFORCEMENT.--

A. Any person committing a material violation of Section 58-21-18.1 or 58-21-18.2 NMSA 1978 shall forfeit the interest charged on the high-cost home loan or contracted to be charged or received, and only the principal sum of the high-cost home loan may be enforced in a court in this state.

B. A mortgage loan company or loan broker making or arranging a high-cost home loan who, when acting in good faith, fails to comply with Section 58-21-18.1 or 58-21-18.2 NMSA 1978 shall not be deemed to have violated those sections if the mortgage loan company or loan broker establishes that within sixty days after receiving a notice from the borrower or division of the compliance failure, that noncompliance was not intentional and resulted from a bona fide error. The mortgage loan company or loan broker shall have thirty days to make an appropriate restitution to the borrower, and appropriate adjustments to the loan. Bona fide errors include clerical, calculation, computer malfunction and programming, and printing errors."

Section 6. A new section of the Mortgage Loan Company and Loan Broker Act, Section 58-21-18.5 NMSA 1978, is enacted to read:

"58-21-18.5. [NEW MATERIAL] PREEMPTION.--

A. Counties and municipalities, including home rule counties and municipalities, are prohibited from enacting and enforcing ordinances and rules regulating financial or lending activities, including ordinances, resolutions and rules disqualifying mortgage loan companies or loan brokers from doing business with a county or municipality based upon lending interest rates or imposing reporting requirements or any other obligations upon lenders regarding financial services or lending practices of persons or entities, and any subsidiaries or affiliates thereof, who:

(1) are subject to the provisions of Sections 58-21-18.1 and 58-21-18.2 NMSA 1978 or otherwise subject to the jurisdiction of the division pursuant to the Mortgage Loan Company and Loan Broker Act;

(2) are subject to the jurisdiction of the federal office of thrift supervision, the federal office of the comptroller of the currency, the national credit union administration, the federal deposit insurance corporation, the federal trade commission or the United States department of housing and urban development;

(3) originate, purchase, sell, assign, secure or service property interests or obligations created by financial transactions or loans made, executed or originated by persons provided for in Paragraphs (1) or (2) of this subsection to assist or facilitate such transactions; or

(4) are chartered by the United States congress to engage in secondary market mortgage transactions.

B. Nothing in this section prohibits a county or municipality from disqualifying a lender from doing business with a county or municipality if there is proof of noncompliance with Section 58-21-18.1 or 58-21-18.2 NMSA 1978."