1-1                                   AN ACT
 1-2     relating to certain practices in connection with a home loan.
 1-4           SECTION 1.  Subtitle B, Title 4, Finance Code, is amended by
 1-5     adding Chapter 343 to read as follows:
 1-6                          CHAPTER 343.  HOME LOANS
 1-7                      SUBCHAPTER A.  GENERAL PROVISIONS
 1-8           Sec. 343.001.  DEFINITIONS.  In this chapter:
 1-9                 (1)  "Bridge loan" means temporary or short-term
1-10     financing requiring payment of only interest until the entire
1-11     unpaid balance is due.
1-12                 (2)  "Home loan" means a loan that is:
1-13                       (A)  made to one or more individuals for
1-14     personal, family, or household purposes; and
1-15                       (B)  secured in whole or part by:
1-16                             (i)  a manufactured home, as defined by
1-17     Section 347.002, used or to be used as the borrower's principal
1-18     residence; or
1-19                             (ii)  real property improved by a dwelling
1-20     designed for occupancy by four or fewer families and used or to be
1-21     used as the borrower's principal residence.
1-22                 (3)  "Restructure" means a change in the payment
1-23     schedule or other terms of a home loan as a result of the
1-24     borrower's default.
1-25           Sec. 343.002.  APPLICABILITY.  This chapter does not apply
 2-1     to:
 2-2                 (1)  a reverse mortgage; or
 2-3                 (2)  an open-end account, as defined by Section
 2-4     301.002.
 2-5           Sec. 343.003.  CONFLICT WITH OTHER PROVISIONS OF TITLE.  If
 2-6     this chapter conflicts with another provision of this title, this
 2-7     chapter controls.
 2-8              (Sections 343.004-343.100 reserved for expansion
2-10           Sec. 343.101.  REFINANCING.  (a)  For purposes of this
2-11     section, a low-rate home loan is a home loan that at its inception
2-12     carries an interest rate two percentage points or more below the
2-13     yield on treasury securities having comparable periods of maturity
2-14     to the loan maturity, except that if the loan's interest rate is a
2-15     discounted introductory rate or a rate that automatically steps up
2-16     over time, the fully indexed rate or the fully stepped-up rate, as
2-17     appropriate, shall be used instead of the rate at the loan's
2-18     inception to determine whether the loan is a low-rate loan.
2-19           (b)  A lender may not replace or consolidate a low-rate home
2-20     loan directly made by a government or nonprofit lender before the
2-21     seventh anniversary of the date of the loan unless the new or
2-22     consolidated loan has a lower interest rate and requires payment of
2-23     a lesser amount of points and fees than the original loan or is a
2-24     restructure to avoid foreclosure.
2-26     LOANS.  (a)  For a home loan with an interest rate of 12 percent or
 3-1     greater a year, when the lender makes the disclosure required under
 3-2     the Real Estate Settlement Procedures Act of 1974 (12 U.S.C.
 3-3     Section 2601 et seq.), as amended, for the good faith estimate, or
 3-4     if that Act does not apply, three business days after the date the
 3-5     application is made, the lender shall also provide to the borrower:
 3-6                 (1)  a statement regarding the value of mortgage
 3-7     counseling before taking out a home loan;
 3-8                 (2)  a list of the nearest available housing counseling
 3-9     agencies approved by the United States Department of Housing and
3-10     Urban Development;
3-11                 (3)  a list of other resources where mortgage
3-12     information can be found, including toll-free telephone numbers and
3-13     online resources; and
3-14                 (4)  other disclosures required by the finance
3-15     commission, including an official notice regarding high-cost home
3-16     loans.
3-17           (b)  This section expires September 1, 2003.
3-19     (a)  A person who knowingly and wilfully violates Section 343.102
3-20     is liable to the aggrieved borrower for:
3-21                 (1)  the actual damages caused by the violation;
3-22                 (2)  punitive damages not to exceed $10,000 in an
3-23     action brought by the aggrieved borrower; and
3-24                 (3)  court costs.
3-25           (b)  This section expires September 1, 2003.
 4-1     INSURANCE.  A lender may not offer any individual or group credit
 4-2     life, disability, or unemployment insurance on a prepaid single
 4-3     premium basis in conjunction with a home loan unless the following
 4-4     notice is provided to each applicant for the loan by hand delivery
 4-5     or mail to the applicant not later than the third business day
 4-6     after the date the applicant's application for a home loan is
 4-7     received:
 4-8                        INSURANCE NOTICE TO APPLICANT
 4-9                 You may elect to purchase credit life,
4-10           disability, or involuntary unemployment insurance in
4-11           conjunction with this mortgage loan.  If you elect to
4-12           purchase this insurance coverage, you may pay for it
4-13           either on a monthly premium basis or with a single
4-14           premium payment at the time the lender closes this
4-15           loan.  If you choose the single premium payment, the
4-16           cost of the premium will be financed at the interest
4-17           rate provided for in the mortgage loan.
4-18                 This insurance is NOT required as a condition of
4-19           closing the mortgage loan and will be included with the
4-20           loan only at your request.
4-21                 You have the right to cancel this credit
4-22           insurance once purchased.  If you cancel it within 30
4-23           days of the date of your loan, you will receive either
4-24           a full refund or a credit against your loan account.
4-25           If you cancel this insurance at any other time, you
4-26           will receive either a refund or credit against your
 5-1           loan account of any unearned premium.  YOU MUST CANCEL
 5-3           FULL REFUND OR CREDIT.
 5-4                 To assist you in making an informed choice, the
 5-5           following estimates of premiums are being provided
 5-6           along with an example of the cost of financing.  The
 5-7           examples assume that the term of the insurance product
 5-8           is ____ years and that the interest rate is ______
 5-9           percent (a rate that has recently been available for
5-10           the type of loan you are seeking).  PLEASE NOTE THAT
5-12           THIS EXAMPLE.  "Total amount paid" is the amount that
5-13           would be paid if you financed only the total insurance
5-14           premium for a ___ year period and is equal to the
5-15           amount you would have paid if you made all scheduled
5-16           payments.  This is NOT the total of payments on your
5-17           loan.
5-18           CREDIT LIFE INSURANCE:  Estimated premium of $_______
5-19           DISABILITY INSURANCE:  Estimated premium of $_______
5-20           INVOLUNTARY UNEMPLOYMENT INSURANCE:  Estimated premium
5-21           of $________
5-22           TOTAL INSURANCE PREMIUMS:  $_______
5-23           TOTAL AMOUNT PAID:  $_______
5-24              (Sections 343.105-343.200 reserved for expansion
5-25                     SUBCHAPTER C.  HIGH-COST HOME LOANS
5-26           Sec. 343.201.  DEFINITIONS.  In this subchapter:
 6-1                 (1)  "High-cost home loan" means a loan that:
 6-2                       (A)  is made to one or more individuals for
 6-3     personal, family, or household purposes;
 6-4                       (B)  is secured in whole or part by:
 6-5                             (i)  a manufactured home, as defined by
 6-6     Section 347.002, used or to be used as the borrower's principal
 6-7     residence; or
 6-8                             (ii)  real property improved by a dwelling
 6-9     designed for occupancy by four or fewer families and used or to be
6-10     used as the borrower's principal residence;
6-11                       (C)  has a principal amount equal to or less than
6-12     one-half of the maximum conventional loan amount for first
6-13     mortgages as established and adjusted by the Federal National
6-14     Mortgage Association;
6-15                       (D)  is not:
6-16                             (i)  a reverse mortgage; or
6-17                             (ii)  an open-end account, as defined by
6-18     Section 301.002; and
6-19                       (E)  is a credit transaction described by 12
6-20     C.F.R. Section 226.32, as amended, except that the term includes a
6-21     residential mortgage transaction, as defined by 12 C.F.R.  Section
6-22     226.2, as amended, if the total loan amount is $20,000 or more and:
6-23                             (i)  the annual percentage rate exceeds the
6-24     rate indicated in 12 C.F.R. Section 226.32(a)(1)(i), as amended; or
6-25                             (ii)  the total points and fees payable by
6-26     the consumer at or before loan closing will exceed the amount
 7-1     indicated in 12 C.F.R. Section 226.32(a)(1)(ii), as amended.
 7-2                 (2)  "Points and fees" has the meaning assigned by 12
 7-3     C.F.R. Section 226.32(b), as amended.
 7-4           Sec. 343.202.  BALLOON PAYMENT.  A high-cost home loan may
 7-5     not contain a provision for a scheduled payment that is more than
 7-6     twice as large as the average of earlier scheduled monthly
 7-7     payments, unless the balloon payment becomes due not less than 60
 7-8     months after the date of the loan.  This prohibition does not apply
 7-9     if the payment schedule is adjusted to account for the seasonal or
7-10     otherwise irregular income of the borrower or if the loan is a
7-11     bridge loan in connection with the acquisition or construction of a
7-12     dwelling intended to become the borrower's principal dwelling.
7-13           Sec. 343.203.  NEGATIVE AMORTIZATION.  A high-cost home loan
7-14     may not provide for a payment schedule with regular periodic
7-15     payments that cause the principal balance to increase, except that
7-16     this section does not prohibit negative amortization as a
7-17     consequence of a temporary forbearance, bridge loan, or restructure
7-18     sought by the borrower.
7-20     (a)  In this section, "obligor" means a person obligated to pay a
7-21     loan, including a borrower, cosigner, or guarantor.  If more than
7-22     one person is obligated to pay a loan, the term refers to those
7-23     persons collectively.
7-24           (b)  A lender may not engage in a pattern or practice of
7-25     extending credit to consumers under high-cost home loans based on
7-26     the consumers' collateral without regard to the obligor's repayment
 8-1     ability, including the obligor's current and expected income,
 8-2     current obligations, employment status, and other financial
 8-3     resources, other than the obligor's equity in the dwelling that
 8-4     secures repayment of the loan.
 8-5           Sec. 343.205.  PREPAYMENT PENALTIES PROHIBITED.  A lender may
 8-6     not make a high-cost home loan containing a provision for a
 8-7     prepayment penalty.
 8-8           SECTION 2.  (a)  This Act takes effect September 1, 2001,
 8-9     and, except as provided by Subsection (b) of this section, applies
8-10     only to a loan closed on or after that date.
8-11           (b)  Section 343.102, Finance Code, as added by this Act,
8-12     applies only to a home loan application received on or after
8-13     September 1, 2001.  Section 343.104, Finance Code, as added by this
8-14     Act, applies only to a loan closed on or after the later of January
8-15     1, 2002, or the date the Texas Department of Insurance approves a
8-16     product allowing lenders to offer individual or group credit life
8-17     or credit disability insurance complying with that section and
8-18     certifies to the Finance Commission of Texas that this coverage is
8-19     available.
         _______________________________     _______________________________
             President of the Senate              Speaker of the House
               I hereby certify that S.B. No. 1581 passed the Senate on
         May 1, 2001, by a viva-voce vote.
                                                 Secretary of the Senate
               I hereby certify that S.B. No. 1581 passed the House on
         May 23, 2001, by a non-record vote.
                                                Chief Clerk of the House