HBA-SEP S.B. 1581 77(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 1581 By: West, Royce Financial Institutions 5/15/2001 Engrossed BACKGROUND AND PURPOSE Regulating certain practices relating to home loans and providing mortgage and refinancing applicants with additional information may better protect individuals with imperfect credit histories when obtaining highinterest mortgage loans. Senate Bill 1581 provides regulations and requires lenders to provide borrowers with resources indicating where additional mortgage information can be found. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS Senate Bill 1581 amends the Finance Code to prohibit a lender from replacing or consolidating a low-rate home loan directly made by a government or nonprofit lender before the seventh anniversary of the loan unless the new or consolidated loan is a restructure to avoid foreclosure or has a lower interest rate and requires payment of a lesser amount of points and fees than the original loan (Sec. 343.101). For a home loan with an interest rate of 12 percent or greater a year, when the lender makes the disclosure required under the Real Estate Settlement Procedures Act of 1974, for the good faith estimate, or if that Act does not apply, three business days after the date the application is made, the lender is also required to provide the borrower with resources where mortgage information can be found. A person who knowingly and wilfully violates the disclosure provision is liable to the aggrieved borrower for damages and court costs. These provisions expire September 1, 2003 (Secs. 343.102 and 343.103). A lender is prohibited from offering any individual or group credit life, disability, or unemployment insurance on a prepaid single premium basis in conjunction with a home loan unless the specified insurance notice is provided to each loan applicant not later than the third business day after the date the applicant's application for a home loan is received. This provision applies only to a loan closed on or after the later of January 1, 2002, or the date the Texas Department of Insurance approves a product allowing lenders to offer complying individual or group credit life or credit disability insurance and certifies to the Finance Commission of Texas that this coverage is available (Sec. 343.104 and SECTION 2). A high-cost home loan is prohibited from containing a provision for a scheduled payment that is more than twice as large as the average of earlier scheduled monthly payments, unless the balloon payment becomes due not less than 60 months after the date of the loan. This prohibition does not apply if the payment schedule is adjusted to account for the irregular income of the borrower or if the loan is a bridge loan in connection with the acquisition or construction of a dwelling intended to become the borrower's principal dwelling (Sec. 343.202). The bill prohibits a high-cost home loan from providing for a payment schedule with regular periodic payments that cause the principal balance to increase, except that this provision does not prohibit negative amortization as a consequence of a temporary forbearance, bridge loan, or restructure sought by the borrower (Sec. 343.203). A lender is prohibited from engaging in a pattern or practice of extending credit to consumers under highcost loans based on the consumers' collateral without regard to the obligor's repayment ability other than the obligor's equity in the dwelling that secures repayment of the loan (Sec. 343.204). A lender is prohibited from making a high-cost home loan containing a provision for a prepayment penalty (Sec. 343.205). These provisions are not applicable to a reverse mortgage or an open-end account (Sec. 343.002). EFFECTIVE DATE September 1, 2001.