05 LC 34
0363
House
Bill 808
By:
Representatives Mangham of the
94th,
Fludd of the
66th,
Watson of the
91st,
Stephenson of the
92nd,
Sinkfield of the
60th,
and others
A
BILL TO BE ENTITLED
AN ACT
AN ACT
To
amend Title 7 of the Official Code of Georgia Annotated, relating to banking and
finance, so as to enact a new chapter, the "Georgia Predatory Lending Prevention
Act"; to provide a short title; to provide for legislative findings; to provide
for definitions relating to predatory lending; to list prohibited practices; to
provide for severability; to provide for an effective date; to repeal
conflicting laws; and for other purposes.
BE
IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:
SECTION
1.
Title
7 of the Official Code of Georgia Annotated, relating to banking and finance, is
amended by enacting a new chapter, the "Georgia Predatory Lending Prevention
Act", to read as follows:
"CHAPTER
6B
7-6B-1.
This
Act shall be known and may be cited as the 'Georgia Predatory Lending Prevention
Act.'
7-6B-2.
(a)
The General Assembly finds that:
(1)
A dramatic increase in the practice of subprime lending has occurred in the
state. Nationally, subprime lending grew 900 percent from 1993 to 1999 and a
similar trend occurred in Georgia;
(2)
Subprime loans are intended for people who, because of blemished credit, are
unable to obtain conventional prime loans at standard mortgage
rates;
(3)
While subprime lending is a legitimate practice, expanding access to credit for
home ownership, most predatory practices occur in the subprime lending
market;
(4)
Predatory lenders tend to target groups that can least afford to be stripped of
their assets including lower income families, minorities, and elderly citizens;
and
(5)
The state of Georgia must act to protect its residents from these most abusive
loan practices.
(b)
This law is enacted to protect the equity and property of homeowners, provide
needed consumer protections, and safeguard the economic vitality of our
state.
7-6B-3.
(a)
As used in this Code section, the term:
(1)
'Annual percentage rate' means the annual percentage rate for a loan, calculated
according to the provisions of the federal Truth In Lending Act, 15 U.S.C.
Section 1601, et seq., and the regulations promulgated thereunder by the Board
of Governors of the Federal Reserve System.
(2)
'Borrower' means any individual obligated to repay the loan including a
coborrower, cosigner, or guarantor.
(3)
'Flipping' means knowingly refinancing an existing home loan when any of the
following occurs:
(A)
More than 50 percent of the prior debt refinanced bears a lower interest rate
than the new loan;
(B)
It will take more than five years of reduced interest rate payments for the
borrower to recoup the
transactiońs
prepaid finance charges and closing costs; or
(C)
Refinancing a special mortgage originated, subsidized or guaranteed by or
through a state, tribal or local government, or nonprofit organization, which
either bears a below-market interest rate or has nonstandard payment terms
beneficial to the borrower, such as payments that vary with income or are
limited to a percentage of income, or where no payments are required under
specified conditions, and where, as a result of the refinancing, the borrower
will lose one or more of the benefits of the special mortgage.
(4)
'High-cost home loan' means a home loan where:
(A)
The total points and fees on the loan exceed 5 percent of the total loan amount;
or
(B)
The annual percentage rate of interest of the home loan equals or exceeds eight
percentage points over the yield on United States Treasury securities that have
comparable periods of maturity to the loan maturity as of the 15th day of the
month immediately preceding the month in which the application for credit is
received by the lender.
(5)
'Home loan' means a loan, other than a reverse mortgage transaction, where the
principal amount of the loan does not exceed the conforming loan size limit for
a single-family dwelling as established from time to time by the Federal
National Mortgage Association and Federal Home Loan Mortgage Corporation, and
the loan is secured by a mortgage or deed of trust on real estate upon which
there is located or is to be located a structure or structures, designed
principally for occupancy of from one to four families, which is or will be
occupied by a borrower as the
borroweŕs
principal dwelling. Home loan does not include an open-end line of credit as
defined in Part 226 of Title 12 of the Code of Federal Regulations.
(6)
'Lender' means any entity that originated or acted as a mortgage broker for more
than five home loans within the previous 12 months.
(7)
'Points and fees' means:
(A)
All items required to be disclosed as finance charges under Sections 226.4(a)
and 226.4(b) of Title 12 of the Code of Federal Regulations, including the
Official Staff Commentary, as amended from time to time, except
interest;
(B)
All compensation and fees paid to mortgage brokers in connection with the loan
transaction; and
(C)
All items listed in Section 226.4(c)(7) of Title 12 of the Code of Federal
Regulations, only if the person originating the covered loan receives direct
compensation in connection with the charge.
(8)
'Total loan amount' means the same as in section 226.32 of Title 12 of the Code
of Federal Regulations.
7-6B-4.
(a)
No lender shall:
(1)
Recommend or encourage nonpayment of an existing loan or other debt prior to and
in connection with the closing or planned closing of a home loan that refinances
all or any portion of such existing loan or debt;
(2)
Coerce, intimidate, or directly or indirectly compensate an appraiser for the
purpose of influencing his or her independent judgment concerning the value of
real estate that is to be covered by a home loan or is being offered as security
according to an application for a home loan; or
(3)
Leave blanks in any loan documents to be filled in after they are signed by the
borrower.
(b)
No lender shall require or allow the advance collection of a premium, on a
single premium basis, for any credit life, credit disability, credit
unemployment, or credit property insurance, or the advance collection of a fee
for any debt cancellation or suspension agreement or contract, in connection
with any home loan, whether such premium or fee is paid directly by the consumer
or is financed by the consumer through such loan. For purposes of this chapter,
credit insurance does not include a contract issued by a government agency or
private mortgage insurance company to insure the lender against loss caused by a
mortgagoŕs
default.
(c)
No high-cost home loan may contain a scheduled payment that is more than twice
as large as the average of earlier scheduled payments during the first seven
years of the loan. This provision does not apply to a payment schedule that is
adjusted to the seasonal or irregular income of the borrower, or a bridge loan
with a maturity of less than 12 months that requires only payments of interest
until the entire unpaid balance is due.
(d)
No high-cost home loan shall contain a prepayment penalty of more than 3 percent
of the original principal amount of the note in the first year, 2 percent in the
second year, 1 percent in the third year, or any prepayment penalty beyond the
third year.
(e)
No high-cost home loan may include payment 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 interest due. This
paragraph does not apply to a payment schedule that is adjusted to the seasonal
or irregular income of the borrower.
(f)
No high-cost home loan may contain a provision that increases the interest rate
after default. This provision does not apply to interest rate changes in a
variable rate loan otherwise consistent with the provisions of the loan
documents, provided the change in the interest rate is not triggered by a
default or the acceleration of indebtedness.
(g)
No high-cost home loan may include 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.
(h)
No high-cost home loan may contain a provision that permits the lender, in its
sole discretion, to accelerate indebtedness. This provision does not prohibit
acceleration of the loan in good faith due to the
borrower∗s
failure to abide by the material terms of the loan.
(i)
Home improvement contracts. A lender may not pay a contractor under a home
improvement contract from the proceeds of a high-cost home loan unless the
instrument is payable to the borrower or jointly to the borrower and the
contractor, or, at the election of the borrower, through 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 disbursement.
(j)
A lender may not offer a high-cost home loan while engaged in the practice of
flipping.
(k)
A lender may not charge a borrower any fees or other charges to modify, renew,
extend, or amend a high-cost home loan, or to defer any payment due under the
terms of a high-cost home loan except when the borrower is in default of the
loan.
(l)
A lender may not originate a high-cost home loan without first receiving
certification from a counselor approved by the United States Department of
Housing and Urban Development, a state housing financing agency, or the
regulatory agency that has jurisdiction over the lender that the borrower has
received counseling on the advisability of the loan transaction.
7-6B-5.
(a)
This chapter may be enforced by a private cause of action.
(b)
This chapter shall be enforced by the Attorney General and the Department of
Banking and Finance which shall promulgate such rules and regulations as are
necessary to implement and administer compliance with this chapter.
7-6B-6.
The
provisions of this chapter shall be severable and if any phrase, clause,
sentence, or provision is declared to be invalid or is preempted by federal law
or regulation, the validity of the remainder of this chapter shall not be
affected
thereby."
SECTION
2.
This
Act shall become effective on July 1, 2005.
SECTION
3.
All
laws and parts of laws in conflict with this Act are repealed.