2003 WISCONSIN ACT 257
An Act to amend 138.052 (2) (a) 2., 138.052 (9), 138.056 (3) (a), chapter 428 (title), 428.101 (intro.), 428.101 (3), 428.102 (intro.), 428.102 (2), 428.103 (1) (intro.) and 428.106; and
to create subchapter I (title) of chapter 428 [precedes 428.101] and subchapter II of chapter 428 [precedes 428.202] of the statutes; relating to: regulating certain consumer mortgage lenders, granting rule-making authority, and providing a penalty.
The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:
257, s. s. 1
138.052 (2) (a) 2. of the statutes is amended to read:
138.052 (2) (a) 2. The Except as provided in s. 428.207, the parties may agree that if a prepayment is made within 5 years of the date of the loan, then the lender shall receive an amount not exceeding 60 days' interest at the contract rate on the amount by which the aggregate principal prepayments for a 12-month period exceeds 20% of the original amount of the loan.
257, s. s. 2
138.052 (9) of the statutes is amended to read:
138.052 (9) Chapters 421 to 428 427 and subch. I of ch. 428 do not apply to the refinancing, modification, extension, renewal or assumption of a loan which had an original principal balance in excess of $25,000 if the unpaid principal balance of the loan has been reduced to $25,000 or less.
257, s. s. 3
138.056 (3) (a) of the statutes is amended to read:
138.056 (3) (a) A variable rate loan involving a mobile home transaction or using an approved index may be prepaid at any time in whole or in part without penalty. Other variable rate loans may be prepaid in whole or part without penalty within 30 days after notice of an increase in the interest rate and, except as provided in s. 428.207, with the prepayment penalty under s. 138.052 (2) (a) 2. and 3. if prepayment is made before or after the 30-day period. This paragraph controls if there is a conflict with s. 138.052 (2) (a).
257, s. s. 4
Chapter 428 (title) of the statutes is amended to read:
first lien real estate
and other mortgage loans
257, s. s. 5
Subchapter I (title) of chapter 428 [precedes 428.101] of the statutes is created to read:
first lien real estate loans
257, s. s. 6
428.101 (intro.) of the statutes is amended to read:
428.101 Applicability. (intro.) This
chapter subchapter applies to:
257, s. s. 7
428.101 (3) of the statutes is amended to read:
428.101 (3) Loans made on or after November 1, 1981, by a creditor to a customer and which are secured by a first lien real estate mortgage or equivalent security interest if the amount financed is $25,000 or less and if the loan is not subject to subch. II.
257, s. s. 8
428.102 (intro.) of the statutes is amended to read:
428.102 Definitions. (intro.) In this chapter subchapter:
257, s. s. 9
428.102 (2) of the statutes is amended to read:
428.102 (2) "Creditor" means a person who regularly engages in, arranges for or procures from 3rd persons, loans within the scope of this chapter subchapter.
257, s. s. 10
428.103 (1) (intro.) of the statutes is amended to read:
428.103 (1) (intro.) The following limitations shall apply to all loans subject to this chapter subchapter:
257, s. s. 11
428.106 of the statutes is amended to read:
428.106 Remedies. (1) Violations of this chapter subchapter may be enforced by a customer subject to this section and ss. 425.308 to 425.311.
(2) With respect to a loan subject to this chapter subchapter, if the court as a matter of law finds that any aspect of the transaction, any conduct directed against the customer, by the creditor, or any result of the transaction is unconscionable, the court shall, in addition to the remedies and penalties set forth in this chapter subchapter, and a penalty not to exceed that specified in s. 428.103 (2), refuse to enforce the unconscionable aspect of the transaction or so limit the application of any unconscionable aspect or conduct to avoid any unconscionable result.
(3) Notwithstanding other provisions of this chapter subchapter, a customer shall not be entitled to recover the specific penalties provided in ss. 428.103 (2) (a) and 428.104 (2) (a) if the person violating this chapter
subchapter shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid such error.
(4) Any action brought by a customer to enforce rights under sub. (1) shall be commenced within one year after the date of the last violation of this chapter
subchapter, 2 years after consummation of the agreement or one year after the last payment, whichever is later. But in no event shall an action be commenced more than 6 years after the date of the last violation.
(5) The administrator specified in s. 426.103, solely through the department of justice, may on behalf of any customer institute an action to enforce this chapter
subchapter and to recover the damages and penalties provided for this chapter subchapter. In such action the administrator may obtain an order restraining by temporary or permanent injunctions any violation of this chapter subchapter. This subsection shall not be construed to incorporate or grant to the administrator with respect to the enforcement of this chapter subchapter, any of the provisions of ch. 426.
257, s. s. 12
Subchapter II of chapter 428 [precedes 428.202] of the statutes is created to read:
responsible high cost
428.202 Definitions. In this subchapter:
(1) "Bridge loan" means a loan with a maturity of less than 18 months which requires only payments of interest until the time that the unpaid balance is due.
"Business day" has the meaning that is specified under 12 CFR 226.2
(a) (6) for purposes of 12 CFR 226.31
(2) "Covered loan" means a consumer credit mortgage loan transaction other than an open-end credit plan or reverse mortgage in which all of the following apply:
(a) The customer is a natural person.
(b) The debt is incurred by the customer primarily for personal, family, or household purposes.
(c) The loan is secured by a mortgage on, or an equivalent security interest in, residential real property, and the residential real property is or will be occupied by the customer as the customer's principal dwelling.
(d) The terms of the loan provide any of the following:
1. That the loan transaction, at the time that the loan is consummated, is considered a mortgage under 15 USC 1602
(aa) and regulations adopted thereunder, including 12 CFR 226.32
2. That total points and fees payable by the customer at or before the loan closing exceed 6 percent of the total loan amount. For purposes of this subdivision, "total points and fees" does not include reasonable fees paid to affiliates or nonaffiliates of the lender for bona fide services listed in 12 CFR 226.4
(3) "Customer" means an individual to whom a covered loan is offered or made. "Customer" does not include a surety, guarantor, cosigner, or endorser.
(4) "Department" means the department of financial institutions.
(5) "Lender" means any person who originates a covered loan and to whom the covered loan is initially payable, except that "lender" does not include an assignee of a covered loan or any person who, for at least 12 consecutive months, has failed to originate any covered loans.
(5m) "Licensed lender" means a person licensed under s. 138.09.
(6) "Loan originator" has the meaning given in s. 224.71 (1r).
(6m) "Local governmental unit" has the meaning given in s. 16.97 (7).
(7) "Mortgage banker" has the meaning given in s. 224.71 (3).
(8) "Mortgage broker" has the meaning given in s. 224.71 (4).
"Servicer" has the meaning given in 12 USC 2605
428.203 Prohibitions on and requirements of lenders and assignees. (1) Balloon payments. Except as otherwise provided in this subsection, no lender may make a covered loan to a customer that requires, or that permits the lender to require, a payment that is more than twice as large as the average of all earlier scheduled payments. This subsection does not apply to a loan under which the payment schedule is adjusted to account for seasonal or irregular income of the customer or to a bridge loan with a maturity of less than one year that the customer obtains for the purpose of facilitating the acquisition or construction of a dwelling as the customer's principal dwelling.
(2) Call provision. No lender may make a covered loan to a customer that permits the lender or an assignee of the loan to demand payment of the outstanding balance before the original maturity date, except that a covered loan may permit a lender or assignee to so demand as a result of any of the following:
(a) The customer's failure to make payments required under the loan.
(b) A provision in the loan agreement permitting the lender or assignee to make such a demand after the sale of real property that is pledged as security for the loan.
(c) Fraud or material misrepresentation by the customer in connection with the loan.
(d) Any act or omission by the customer that adversely affects the lender's or assignee's security for the loan or any right of the lender or assignee in such security.
(3) Negative amortization. No lender may make a covered loan to a customer with a payment schedule that causes the principal balance to increase, except that this subsection does not prohibit such a payment schedule as a result of a temporary forbearance or loan restructuring consented to by the customer.
(4) Increased interest rate. No lender may make a covered loan to a customer that imposes or permits the lender or an assignee of the loan to impose an increase in the interest rate as a result of the customer's default.
(5) Advance payments. No lender may make a covered loan to a customer that includes a payment schedule that consolidates more than 2 scheduled payments and pays them in advance out of the proceeds of the loan.
(6) Repayment ability. No lender may make covered loans to customers based on the customer's collateral without regard to the customer's ability to repay, including the customer's current or expected income, current obligations, and employment. A lender is presumed to have violated this subsection if the lender engages in a pattern or practice of making covered loans without verifying and documenting the customer's repayment ability.