PROPOSED RULEMAKING
DEPARTMENT OF BANKING
[10 PA. CODE CH. 46]
Proper Conduct of Lending and Brokering in the Mortgage Loan Business
[37 Pa.B. 3416]
[Saturday, July 21, 2007]The Department of Banking (Department) proposes to add Chapter 46 (relating to proper conduct of lending and brokering in the mortgage loan business) under the Mortgage Bankers and Brokers and Consumer Equity Protection Act (63 P. S. §§ 456.101--456.3101), the Secondary Mortgage Loan Act (7 P. S. §§ 6601--6627) and the Consumer Discount Company Act (7 P. S. §§ 6201--6219) (collectively ''acts'').
Purpose of Proposed Rulemaking
The Department is proposing this rulemaking because in the past decade the mortgage loan business has significantly increased in complexity and competitiveness, resulting in a drastically changed borrowing landscape. Unfortunately, because of this complexity and competitiveness, borrowers may not understand the loan products offered to them or the process of obtaining a loan. The Department also believes that there are individuals and entities in the mortgage loan business who take advantage of borrowers by placing them in loan products they are not reasonably capable of repaying. Therefore, the Department is proposing this rulemaking governing the proper conduct of lending and brokering to persons and entities operating in the mortgage loan business under the acts.
Explanation of Proposed Requirements
This proposed rulemaking provides regulations for the proper conduct of lending and brokering in the mortgage loan business for licensees under the acts. The proposed rulemaking sets forth requirements for additional disclosures regarding the terms of offered loans and for licensees to perform an ability to repay analysis when offering loans to consumers. The proposed rulemaking also prohibits certain practices in the mortgage loan process that harm consumers and businesses alike.
Entities Affected
Existing and future licensees under the acts will be affected by the proposed rulemaking.
Costs and Paperwork Requirements
The proposed rulemaking will have no fiscal impact on the Department, the Commonwealth or its political subdivisions. The proposed rulemaking will fiscally impact licensees under the acts to the extent licensees may need to incur costs to alter or revise current business practices to comply with the regulations.
Effectiveness/Sunset Date
Proposed § 46.2(b)--(e) will be effective 90 days from final-form publication in the Pennsylvania Bulletin. The remaining provisions of the proposed rulemaking will be effective immediately upon publication in the Pennsylvania Bulletin.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on July 5, 2007, the Department submitted a copy of this proposed rulemaking and a copy of a Regulatory Analysis Form to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House Committee on Commerce and the Senate Committee on Banking and Insurance. A copy of this material is available to the public upon request.
Under section 5(g) of the Regulatory Review Act, IRRC may convey any comments, recommendations or objections to the proposed rulemaking within 30 days of the close of the public comment period. The comments, recommendations or objections must specify the regulatory review criteria which have not been met. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the rulemaking, by the Department, the General Assembly and the Governor of comments, recommendations or objections raised.
Public Comments
Interested persons are invited to submit written comments, suggestions or objections regarding the proposed rulemaking within 30 days after publication in the Pennsylvania Bulletin to the Office of Chief Counsel, Department of Banking, Attention: Public Comment on Regulation 3-43, 17 N. Second Street, Suite 1300, Harrisburg, PA 17101-2290, (717) 787-1471.
VICTORIA A. REIDER,
Acting SecretaryFiscal Note: 3-43. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 10. BANKS AND BANKING
PART IV. BUREAU OF CONSUMER CREDIT AGENCIES
CHAPTER 46. PROPER CONDUCT OF LENDING AND BROKERING IN THE MORTGAGE LOAN BUSINESS (Editor's Note: The following chapter is new. It has been printed in regular type to enhance readability.)
Sec.
46.1. Definitions. 46.2. Proper conduct of lending and brokering in the mortgage loan business. 46.3. Enforcement. § 46.1. Definitions.
The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:
Advertising--As defined in 12 CFR 226.2(a)(2) (relating to definitions and rules of construction).
Applicant--A person who submits an application for a loan.
Application--As defined in 24 U.S.C.A. § 3500.2(b) (relating to definitions).
CDCA--The Consumer Discount Company Act (7 P. S. §§ 6201--6219).
Consummation--As defined in 12 CFR 226.2(a)(13).
Covered loan--As defined in section 503 of the MBBCEPA (63 P. S. § 456.503).
First mortgage loan--A mortgage loan as defined in section 302 of the MBBCEPA (63 P. S. § 456.302).
Income--As defined in 26 U.S.C.A. § 61 (relating to definitions).
Licensee--A licensee under the MBBCEPA, SMLA, CDCA or a partially exempt entity under the MBBCEPA.
Loan--
(i) A first mortgage loan or secondary mortgage loan, or both, as the context may require.
(ii) The term does not include a covered loan.
MBBCEPA--The Mortgage Bankers and Brokers and Consumer Equity Protection Act (63 P. S. §§ 456.101--456.3101).
Mortgage loan business--The first mortgage loan business as defined in section 302 of the MBBCEPA, the secondary mortgage loan business as defined in section 3(a)(5) of the SMLA (7 P. S. § 6603(a)(5)), and any kind of mortgage lending or brokering activity conducted by a licensee under the CDCA.
Person--A person as defined in section 302 of the MBBCEPA, section 2 of the SMLA (7 P. S. § 6602) and section 2 of the CDCA (7 P. S. § 6202), as applicable.
SMLA--The Secondary Mortgage Loan Act (7 P. S. §§ 6601--6627).
Secondary mortgage loan--A secondary mortgage loan as defined in section 2 of the SMLA.
§ 46.2. Proper conduct of lending and brokering in the mortgage loan business.
(a) Advertising. A licensee may not engage in false or misleading advertising.
(b) Disclosures to applicant. On a form prescribed by the Department and signed and dated by the applicant and the licensee, a licensee who has contact with the applicant shall disclose the following to the applicant no later than 3 business days after the application is received or prepared by the licensee:
(1) If the lender providing the loan will escrow the applicable taxes and insurance.
(2) If the licensee is a lender with the ability to directly lock-in a loan interest rate.
(3) Whether the loan contains a variable interest rate or balloon payment feature.
(4) Whether the loan includes a prepayment penalty.
(5) Whether the loan has a negative amortization feature.
(c) Required redisclosures. A licensee who has issued the disclosure form required by subsection (b) shall issue an updated disclosure form at the time the licensee knows or reasonably should know that the initial disclosure form is inaccurate.
(d) Required retention of disclosure form. A licensee shall retain the disclosure form required by subsections (b) and (c) in the applicant's loan file.
(e) Evaluation of applicant ability to repay.
(1) A licensee may not offer a loan without having reasonably determined, based on the documents and information provided under this subsection, that the applicant will have the ability to repay the loan in accordance with the loan terms and conditions by final maturity at the fully indexed rate, assuming a fully amortized repayment schedule.
(2) In performing an analysis to determine whether an applicant will have the ability to repay a loan, a licensee shall consider, verify and document the following:
(i) Income of the applicant.
(ii) Fixed expenses of the applicant.
(3) A licensee may consider and document information in addition to verified income and fixed expenses as required in paragraph (2) in determining an applicant's ability to repay an offered loan, provided that the additional factors are reasonably related to an applicant's ability to repay.
(4) A licensee may not primarily rely upon the sale or refinancing of an applicant's collateral in determining an applicant's ability to repay an offered loan.
(5) The records, worksheets and supporting documentation used in the licensee's ability to repay analysis shall be maintained in the applicant's loan file.
(6) In determining an applicant's ability to repay a loan offered under this subsection, a licensee may not ignore facts or circumstances that it knows or reasonably should know which would indicate that an applicant does not have the ability to repay the offered loan.
(7) In addition to the analysis required by this subsection, great weight and due consideration shall be given to the ''Guidance on Nontraditional Mortgage Product Risks,'' as amended, issued by the Department in establishing a licensee's internal procedures and guidelines when implementing the ability to repay analysis required by this subsection.
(f) Loan transaction prohibitions. A licensee may not:
(1) Advise or imply to an applicant that the applicant's income is not relevant to the loan transaction.
(2) Recommend or imply that an applicant default on any existing contract or financial obligation.
(3) Advise or induce an applicant to refinance an existing loan or otherwise enter into a new financial obligation without performing the ability to repay analysis required by subsection (e).
(4) If an applicant qualifies for a loan offered by the licensee, offer to the applicant a covered loan without advising the applicant that the applicant qualifies for a loan other than a covered loan.
(5) Advise or imply that an applicant should ignore any required disclosures or suggest that a document or the execution of any document is unimportant or of no consequence.
(6) Direct, encourage, permit or otherwise be involved with the improper execution of any document, including:
(i) Requesting or allowing an applicant to sign documents that contain blank spaces where material information regarding the loan transaction is required.
(ii) Permitting the execution of documents where signatures are required to be witnessed without the witnesses being physically present.
(iii) Permitting someone other than the required signatory to execute a document unless otherwise authorized by law.
(7) Knowingly submit or permit or encourage an applicant or third party to submit, false or misleading information, or information that the licensee reasonably should know is false or misleading, to any party to a loan transaction.
(8) Improperly influence, or attempt to improperly influence:
(i) An appraiser by committing any act or omission that is intended to:
(A) Compromise the independent judgment of an appraiser.
(B) Ensure that an appraisal matches a requested or target value.
(ii) Any other entity related to the mortgage loan business, such as notaries, title companies, real estate agents, builders and sellers of properties.
(9) Obtain insurance required for a loan for an applicant at loan consummation without providing the applicant with the opportunity to secure or provide evidence of his own insurance.
(10) Charge an applicant a fee for any legally required notices or disclosures unless otherwise authorized by law.
(11) Pay compensation to or receive compensation from, contract with, or employ any person engaged in the mortgage loan business who is not licensed or otherwise exempt from licensure.
(12) Render legal advice to an applicant.
(g) Loan funding.
(1) A licensee lender may not refuse or fail to fund a consummated loan, other than when an applicant rescinds the loan in accordance with 12 CFR 226.15 or 226.23 (relating to right of rescission), as applicable.
(2) A licensee lender shall fund a consummated loan in a reasonable time period after consummation of the loan or in accordance with any commitment or agreement with the applicant; provided that, if an applicant has a right of rescission under 12 CFR 226.15 or 226.23, a licensee lender is not required to fund a consummated loan in accordance with this subsection until after the applicable rescission period has ended.
(3) Any postclosing underwriting or quality control review conducted by a licensee lender after the consummation of a loan may not delay the funding of a loan or result in a failure or refusal to fund the loan in accordance with this subsection.
(4) A licensee shall disburse loan funds in accordance with any commitment or agreement with the applicant.
(h) Licensee responsibility to provide documents. A licensee shall provide to an applicant or authorized representative of an applicant, unless prohibited by Federal or State law, copies or originals of the documents associated with a loan that an applicant has paid for or signed, such as loan applications, appraisals, surveys, loan documents, disclosures and any fee agreement executed by the applicant and the licensee.
(i) Payoff statement or statement of mortgage reinstatement. A licensee lender shall provide a borrower with payoff statements or statements of mortgage reinstatement, as applicable, for the borrower's loan within 7 business days of receipt of a written request by a borrower or a person authorized by the borrower.
§ 46.3. Enforcement.
Violations of the provisions of this chapter shall be violations of the MBBCEPA, SMLA and CDCA, as applicable.
[Pa.B. Doc. No. 07-1278. Filed for public inspection July 20, 2007, 9:00 a.m.]
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