AB991: Bill Text

(3) With certain exceptions, no lender may make a high-cost home loan with a payment schedule that causes the principal balance to increase.

(4) No lender may make a high-cost home loan 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) No lender may make a high-cost home loan that includes a payment schedule that consolidates more than two scheduled payments and pays them in advance out of the proceeds of the loan.

(6) No lender may charge a customer any fees 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.

(7) No lender may make a high-cost home loan without first receiving certification from a counselor approved by the Department of Financial Institutions (DFI) that the customer has received counseling on the advisability of the loan.

(8) No lender may make a high-cost home loan unless the lender reasonably believes at the time that the loan is consummated that the customer, co-signor, or guarantor under the loan will be able to make the scheduled payments to repay the loan. In making its determination, the lender must consider current or expected income, current obligations, employment status, and other financial resources, not including the customer's equity in the dwelling pledged as security for the loan. The lender's duty is presumed to be fulfilled if the customer's total monthly debts do not exceed 50 percent of the customer's monthly gross income.

(9) No lender may make a high-cost home loan that finances points and fees or any charges payable to persons other than the lender or, if the loan refinances an existing loan held by the lender, that finances prepayment fees or penalties payable by the customer.

(10) No lender may charge a customer points and fees in connection with a high-cost home loan if the proceeds of the high-cost home loan are used to refinance an existing high-cost home loan held by the same lender.

(11) No lender may pay proceeds of a high-cost home loan to a person who is under contract to make home improvements, as specified in the bill, unless the payment is made by an instrument that is payable to the customer or jointly to the customer and the person who is under contract or, with the consent of the customer, the payment is made through a third party in accordance with a written agreement signed by the customer, the lender, and the person under contract.

(12) No lender may, for the purpose of evading the provisions of the bill: structure a loan transaction as an open-end credit plan if the loan would have been a high-cost home loan had the loan been structured as a closed-end loan; divide a loan transaction into separate parts; or engage in any other acts of subterfuge.

(13) No lender may make a high-cost home loan to a customer that finances premiums for credit life, credit disability, or credit unemployment insurance or any other life or health insurance, except if the premium is required to be paid monthly.

(14) No lender may make a high-cost home loan to a customer that refinances an existing high-cost home loan, unless the new high-cost home loan provides a reasonable, tangible net benefit to the customer considering the circumstances.

(15) No lender may recommend that a customer default, or encourage a customer to default, on a loan before and in connection with the closing or planned closing of a high-cost home loan.

Remedies

The bill permits a customer, or a cosigner or guarantor under a high-cost home loan, to bring an action to enforce any requirement or prohibition under the subchapter created in the bill regulating high-cost home loans. The bill also specifies that the subchapter may be enforced by class action. An action must be commenced during the term of the high-cost home loan or within six years after the cause of action accrues, whichever is later. The bill further specifies that the remedies section must be liberally construed to the end that any aggrieved party is put in at least as good a position as if the person committing the violation had fully complied with this subchapter.

Under the bill, any act that violates the subchapter confers no rights or obligations enforceable by action. In addition, with certain exceptions, a person who violates the subchapter created in the bill is liable to the customer, cosigner, or guarantor in an amount equal to the total of the following:

(1) Twice the amount of interest paid under the applicable high-cost home loan, plus an amount equal to the total of all interest remaining under the loan.

(2) The actual damages, including any incidental and consequential damages, sustained by the aggrieved party as a result of the violation.

Furthermore, if an aggrieved party prevails in such an action, he or she must recover the aggregate amount of costs and expenses determined by the court to have been reasonably incurred in connection with the prosecution of the action, together with a reasonable amount for attorney fees.

Administration and criminal penalty

The bill permits DFI to promulgate rules to administer the subchapter created in the bill. In addition, the bill requires DFI, upon the request of any person, to review any act, practice, procedure, or form that has been submitted to it in writing to determine whether the act, practice, procedure, or form is consistent with this subchapter. The bill permits DFI to perform investigations and to bring administrative enforcement proceedings to enforce the subchapter created in the bill. The bill also permits the Department of Justice to bring an action to enforce the subchapter.

Affirmative defenses

The bill also provides that a lender is not liable in any action if any of the following applies:

(1) Within 30 days after making the applicable high-cost home loan and before receiving any notice from the customer of the violation on which the action is based, the lender makes appropriate restitution to the customer and appropriate adjustments to the loan.

(2) The violation on which the action is based was unintentional and took place notwithstanding reasonable procedures adopted by the lender to avoid the violations and, within 60 days after making the applicable high-cost home loan and before receiving any notice from the customer of the violation, the lender makes appropriate restitution to the customer and appropriate adjustments to the loan.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB991, s. 1 Section 1. Chapter 428 (title) of the statutes is amended to read:

AB991,4,4 chapter 428 first lien real estate and high-cost home loans

AB991, s. 2 Section 2. Subchapter I (title) of chapter 428 [precedes 428.101] of the statutes is created to read:

AB991,4,7 chapter 428

AB991,5,2 Subchapter i first lien real estate loans

AB991, s. 3 Section 3. 428.101 (intro.) of the statutes is amended to read:

AB991,5,4 428.101 Applicability. (intro.) This chapter subchapter applies to:

AB991, s. 4 Section 4. 428.101 (3) of the statutes is amended to read:

AB991,5,9 428.101 (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.

AB991, s. 5 Section 5. 428.102 (intro.) of the statutes is amended to read:

AB991,5,11 428.102 Definitions. (intro.) In this chapter subchapter:

AB991, s. 6 Section 6. 428.102 (2) of the statutes is amended to read:

AB991,5,14 428.102 (2) "Creditor" means a person who regularly engages in, arranges for or procures from 3rd persons, loans within the scope of this chapter subchapter.

AB991, s. 7 Section 7. 428.103 (1) (intro.) of the statutes is amended to read:

AB991,5,17 428.103 (1) (intro.) The following limitations shall apply to all loans subject to this chapter subchapter:

AB991, s. 8 Section 8. 428.106 of the statutes is amended to read:

AB991,5,20 428.106 Remedies. (1) Violations of this chapter subchapter may be enforced by a customer subject to this section and ss. 425.308 to 425.311.

AB991,6,2 (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.

AB991,6,8 (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.

AB991,6,13 (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.

AB991,6,20 (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.

AB991, s. 9 Section 9. Subchapter II of chapter 428 [precedes 428.201] of the statutes is created to read:

AB991,6,23 chapter 428

AB991,6,25 subchapter ii high-cost home loans

AB991,7,1 428.201 Definitions. In this subchapter:

AB991,7,3 (1) "Affiliate" means a person that controls, is controlled by, or is under common control with another person.

AB991,7,8 (2) "Bona fide loan discount points" means amounts paid by a customer for the purpose of reducing, and which do reduce, the interest rate or time-price differential applicable to a high-cost home loan in an amount and manner that is reasonably consistent with established industry norms and practices for secondary mortgage market transactions.

AB991,7,10 (3) "Customer" means an individual who seeks or acquires a high-cost home loan for personal, family, or household purposes.

AB991,7,11 (4) "Department" means the department of financial institutions.

AB991,7,13 (5) (a) Except as provided in par. (c), "high-cost home loan" means a loan that is made to a customer and that satisfies all of the following conditions:

AB991,7,16 1. The principal amount of the loan does not exceed the lesser of the maximum amount allowable in order to be eligible for purchase by the Federal National Mortgage Association or $300,000.

AB991,7,22 2. The loan is secured by a security interest in a manufactured home, as defined in s. 101.91 (2), which is or will be occupied by the customer as the customer's principal dwelling or is secured by a mortgage or deed of trust on real estate upon which there is or will be located a structure designed principally for occupancy of from 1 to 4 families which is or will be occupied by the customer as the customer's principal dwelling.

AB991,7,23 3. The loan satisfies par. (b).

AB991,7,25 (b) A loan is a high-cost home loan only if at least one of the following applies to the loan:

AB991,8,2 1. The annual percentage rate of the loan exceeds the annual percentage rate specified under 15 USC 1602 (aa) (1) (A), as adjusted under 15 USC 1602 (aa) (2).

AB991,8,9 2. Except as otherwise provided in this subdivision, the total points and fees payable by the customer at or before the loan closing under the loan exceed 5 percent of the total loan amount if the total loan amount is $20,000 or more, or the lesser of 8 percent of the total loan amount or $1,000 if the total loan amount is less than $20,000. For purposes of this subdivision, the following amounts shall be excluded from the calculation of the total points and fees payable by the customer, as applicable:

AB991,8,15 a. The total amount of bona fide loan discount points, up to 2, that are payable by the customer in connection with the loan transaction, but only if the interest rate from which the loan's interest rate will be discounted does not exceed by more than 1 percent the required net yield for a 90-day standard mandatory delivery commitment for a reasonably comparable loan from the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, whichever is greater.

AB991,8,21 b. The total amount of bona fide loan discount point, up to one, payable by the customer in connection with the loan transaction, but only if the interest rate from which the loan's interest rate will be discounted does not exceed by more than 2 percent the required net yield for a 90-day standard mandatory delivery commitment for a reasonably comparable loan from the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, whichever is greater.

AB991,8,25 c. Prepayment fees and penalties which may be charged or collected under the terms of the loan, up to 1 percent of the amount prepaid, provided that the loan does not permit the lender to charge or collect any prepayment fees or penalties more than 30 months after the loan closing; or

AB991,9,3 3. The customer may be required, under the terms of the loan, to pay prepayment fees or penalties more than 30 months after the date on which the loan is made.

AB991,9,6 4. The customer may be required, under the terms of the loan, to pay prepayment fees or penalties which exceed, in the aggregate, more than 2 percent of the amount prepaid.

AB991,9,8 (c) "High-cost home loan" does not include an open-end credit plan or a reverse mortgage transaction.

AB991,9,10 (6) "Lender" means a person who regularly makes or arranges high-cost home loans.

AB991,9,12 (7) "Obligor" means a customer, cosigner, or guarantor under a high-cost home loan.

AB991,9,14 (8) (a) Except as provided in par. (b), "points and fees" means all of the following:

AB991,9,16 1. All items included in the definition of "finance charge" under 12 CFR 226.4 (a).

AB991,9,17 2. All items described in 12 CFR 226.4 (b) (1) to (10).

AB991,9,18 3. All compensation paid directly by the customer to a mortgage broker.

AB991,9,20 4. All prepayment fees and penalties that may be charged or collected under the terms of the high-cost home loan.

AB991,9,21 (b) "Points and fees" does not include any of the following:

AB991,9,22 1. Interest and time-price differential.

AB991,9,24 2. All items described in 12 CFR 226.4 (c) to (e), except items described in 12 CFR 226.32 (b) (1) (iii).

AB991,10,2 3. Fees for tax payment services and fees for flood certification, if paid to a person other than the creditor or an affiliate of the creditor.

AB991,10,3 4. Attorney fees, except fees described in 12 CFR 226.4 (a) (ii).

AB991,10,4 (9) "Total loan amount" means the loan principal, less points and fees.

AB991,10,9 428.202 Prohibitions on and requirements of lenders. (1) Call provision. No lender may make a high-cost home 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:

AB991,10,10 (a) The customer's failure to make payments required under the loan.

AB991,10,12 (b) A provision in the loan documents permitting the lender or assignee to make such a demand after the sale of real property that is pledged as security for the loan.

AB991,10,14 (c) Any other provision of the loan documents that is unrelated to the payment schedule.

AB991,10,20 (2) Balloon payment. Except as otherwise provided in this subsection, no lender may make a high-cost home loan to a customer that requires, or that permits the lender or an assignee of the loan 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.