1.1                          A bill for an act 
  1.2             relating to commerce; regulating certain real property 
  1.3             loans; prohibiting prepayment penalties; requiring 
  1.4             interest on escrow accounts; regulating private 
  1.5             mortgage insurance; regulating lending practices; 
  1.6             amending Minnesota Statutes 2000, sections 47.20, 
  1.7             subdivisions 5 and 9; and 58.13, subdivision 1; 
  1.8             proposing coding for new law in Minnesota Statutes, 
  1.9             chapter 47. 
  1.10  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.11     Section 1.  Minnesota Statutes 2000, section 47.20, 
  1.12  subdivision 5, is amended to read: 
  1.13     Subd. 5.  [PREPAYMENT PENALTY.] (a) ~~Unless the mortgagor~~ 
  1.14  ~~waives its right to prepay the mortgage loan without penalty, in~~ 
  1.15  ~~a uniform written disclosure waiver approved by the commissioner~~ 
  1.16  ~~and signed by the mortgagor,~~ No conventional loan or loan 
  1.17  authorized in subdivision 1 shall contain a provision requiring 
  1.18  or permitting the imposition of a penalty in the event the loan 
  1.19  or advance of credit is prepaid.  ~~The prepayment penalty shall~~ 
  1.20  ~~not exceed the lesser of two percent of the unpaid principal~~ 
  1.21  ~~balance or 60 days interest on the unpaid principal balance.  A~~ 
  1.22  ~~lender that offers a mortgage loan with a prepayment penalty~~ 
  1.23  ~~shall also offer a mortgage loan without a prepayment penalty.~~ 
  1.24     ~~This section does not permit the imposition of a prepayment~~ 
  1.25  ~~penalty in the event that the property securing the mortgage~~ 
  1.26  ~~loan is sold or the mortgage loan is prepaid in part.  No~~ 
  1.27  ~~prepayment penalty may be enforced after 42 months from the date~~ 
  2.1   ~~of the mortgage loan.~~ 
  2.2      (b) A precomputed conventional loan or precomputed loan 
  2.3   authorized in subdivision 1 shall provide for a refund of the 
  2.4   precomputed finance charge according to the actuarial method if 
  2.5   the loan is paid in full by cash, renewal or refinancing, or a 
  2.6   new loan, one month or more before the final installment due 
  2.7   date.  The actuarial method for the purpose of this section is 
  2.8   the amount of interest attributable to each fully unexpired 
  2.9   monthly installment period of the loan contract following the 
  2.10  date of prepayment in full, calculated as if the loan was made 
  2.11  on an interest-bearing basis at the rate of interest provided 
  2.12  for in the note based on the assumption that all payments were 
  2.13  made according to schedule.  A precomputed loan for the purpose 
  2.14  of this section means a loan for which the debt is expressed as 
  2.15  a sum comprised of the principal amount and the amount of 
  2.16  interest for the entire term of the loan computed actuarially in 
  2.17  advance on the assumption that all scheduled payments will be 
  2.18  made when due, and does not include a loan for which interest is 
  2.19  computed from time to time by application of a rate to the 
  2.20  unpaid principal balance, interest-bearing loans, or 
  2.21  simple-interest loans.  For the purpose of calculating a refund 
  2.22  for precomputed loans under this section, any portion of the 
  2.23  finance charge for extending the first payment period beyond one 
  2.24  month may be ignored.  Nothing in this section shall be 
  2.25  considered a limitation on discount points or other finance 
  2.26  charges charged or collected in advance, and nothing in this 
  2.27  section shall require a refund of the charges in the event of 
  2.28  prepayment.  Nothing in this section shall be considered to 
  2.29  supersede section 47.204. 
  2.30     Sec. 2.  Minnesota Statutes 2000, section 47.20, 
  2.31  subdivision 9, is amended to read: 
  2.32     Subd. 9.  [ESCROW ACCOUNTS.] For purposes of this 
  2.33  subdivision the term "mortgagee" shall mean all state banks and 
  2.34  trust companies, national banking associations, state and 
  2.35  federally chartered savings associations, mortgage banks, 
  2.36  savings banks, insurance companies, credit unions or assignees 
  3.1   of the above. 
  3.2      (a) Each mortgagee requiring funds of a mortgagor to be 
  3.3   paid into an escrow, agency or similar account for the payment 
  3.4   of taxes or homeowner's insurance premiums with respect to a 
  3.5   mortgaged one-to-four family, owner occupied residence located 
  3.6   in this state, unless the account is required by federal law or 
  3.7   regulation or maintained in connection with a conventional loan 
  3.8   in an original principal amount in excess of 80 percent of the 
  3.9   lender's appraised value of the residential unit at the time the 
  3.10  loan is made or maintained in connection with loans insured or 
  3.11  guaranteed by the secretary of housing and urban development, by 
  3.12  the administrator of veterans affairs, or by the administrator 
  3.13  of the farmers home administration or any successor, shall 
  3.14  calculate interest on such funds at a rate of not less than 
  3.15  three percent per annum.  Such interest shall be computed on the 
  3.16  average monthly balance in such account on the first of each 
  3.17  month for the immediately preceding 12 months of the calendar 
  3.18  year or such other fiscal year as may be uniformly adopted by 
  3.19  the mortgagee for such purposes and shall be annually credited 
  3.20  to the remaining principal balance on the mortgage, or at the 
  3.21  election of the mortgagee, paid to the mortgagor or credited to 
  3.22  the mortgagor's account.  If the interest exceeds the remaining 
  3.23  balance, the excess shall be paid to the mortgagor or vendee.  
  3.24  The requirement to pay interest shall apply to such accounts 
  3.25  created in conjunction with mortgage loans made prior to July 1, 
  3.26  1996, and on or after July 1, 2001. 
  3.27     (b) Unless the account is exempt from the requirements of 
  3.28  paragraph (a), a mortgagee shall allow a mortgagor to elect to 
  3.29  discontinue escrowing for taxes and homeowner's insurance after 
  3.30  the seventh anniversary of the date of the mortgage, unless the 
  3.31  mortgagor has been more than 30 days delinquent in the previous 
  3.32  12 months.  This paragraph shall apply to accounts created prior 
  3.33  to July 1, 1996, as well as to accounts created on or after July 
  3.34  1, 1996.  The mortgagor's election shall be in writing.  The 
  3.35  lender or mortgage broker shall, with respect to mortgages made 
  3.36  on or after August 1, 1997, notify an applicant for a mortgage 
  4.1   of the applicant's rights under this paragraph.  This notice 
  4.2   shall be given at or prior to the closing of the mortgage loan 
  4.3   and shall read substantially as follows: 
  4.4                "NOTICE OF RIGHT TO DISCONTINUE ESCROW
  4.5      If your mortgage loan involves an escrow account for taxes 
  4.6   and homeowner's insurance, you may have the right in five years 
  4.7   to discontinue the account and pay your own taxes and 
  4.8   homeowner's insurance.  If you are eligible to discontinue the 
  4.9   escrow account, you will be notified in five years." 
  4.10     If the escrow account has a negative balance or a shortage 
  4.11  at the time the mortgagor requests discontinuance, the mortgagee 
  4.12  is not obligated to allow discontinuance until the escrow 
  4.13  account is balanced or the shortage has been repaid. 
  4.14     (c) The mortgagee shall notify the mortgagor within 60 days 
  4.15  after the seventh anniversary of the date of the mortgage if the 
  4.16  right to discontinue the escrow account is in accordance with 
  4.17  paragraph (b).  For mortgage loans entered into, on or prior to 
  4.18  July 1, 1989, the notice required by this paragraph shall be 
  4.19  provided to the mortgagor by January 1, 1997. 
  4.20     (d) Effective January 1, 1998, the requirements of 
  4.21  paragraph (b), regarding the mortgagor's election to discontinue 
  4.22  the escrow account, and paragraph (c), regarding notification to 
  4.23  mortgagor, shall apply when the fifth anniversary of the date of 
  4.24  the mortgage has been reached. 
  4.25     (e) A mortgagee may require the mortgagor to reestablish 
  4.26  the escrow account if the mortgagor has failed to make timely 
  4.27  payments for two consecutive payment periods at any time during 
  4.28  the remaining term of the mortgage, or if the mortgagor has 
  4.29  failed to pay taxes or insurance premiums when due.  A payment 
  4.30  received during a grace period shall be deemed timely. 
  4.31     (f) The mortgagee shall, subject to paragraph (b), return 
  4.32  any funds remaining in the account to the mortgagor within 60 
  4.33  days after receipt of the mortgagor's written notice of election 
  4.34  to discontinue the escrow account. 
  4.35     (g) The mortgagee shall not charge a direct fee for the 
  4.36  administration of the escrow account, nor shall the mortgagee 
  5.1   charge a fee or other consideration for allowing the mortgagor 
  5.2   to discontinue the escrow account. 
  5.3      Sec. 3.  [47.095] [PRIVATE MORTGAGE INSURANCE.] 
  5.4      Subdivision 1.  [DEFINITIONS.] For the purposes of this 
  5.5   section, the terms defined in this subdivision have the meanings 
  5.6   given them. 
  5.7      (a) "Borrower" has the meaning given in section 58.02. 
  5.8      (b) "Current fair market value" is the value of the 
  5.9   mortgagor's property determined by either: 
  5.10     (1) an appraisal conducted within 120 days of the 
  5.11  mortgagor's initial request for cancellation of private mortgage 
  5.12  insurance by a real estate appraiser licensed or certified by a 
  5.13  state or federal agency.  The appraisal may be conducted at 
  5.14  either the request of the lender, the mortgagor, or the 
  5.15  servicer; or 
  5.16     (2) the market value of the property as currently assessed 
  5.17  by the state or its subdivisions to serve as a basis of taxation.
  5.18     (c) "Lender" has the meaning given in section 58.02. 
  5.19     (d) "Private mortgage insurance" means insurance paid for 
  5.20  by the mortgagor, including any mortgage guaranty insurance, 
  5.21  against the nonpayment of, or default on, a residential mortgage 
  5.22  loan, other than mortgage insurance made available under the 
  5.23  federal National Housing Act, United States code, title 38, or 
  5.24  title V of the federal Housing Act of 1949. 
  5.25     (e) "Residential mortgage loan" has the meaning given in 
  5.26  section 58.02.  
  5.27     (f) "Servicer" has the meaning given in section 58.02. 
  5.28     Subd. 2.  [RIGHT TO CANCEL PRIVATE MORTGAGE 
  5.29  INSURANCE.] With regard to a residential mortgage loan made 
  5.30  either before or after the effective date of this section, a 
  5.31  mortgagor has the right to cancel private mortgage insurance in 
  5.32  connection with a residential mortgage loan if all of the 
  5.33  following terms and conditions have been met: 
  5.34     (1) if the current unpaid principal balance of the mortgage 
  5.35  is 80 percent or less of the current fair market value of the 
  5.36  property; 
  6.1      (2) the mortgagor has not: 
  6.2      (i) made a mortgage payment that was 60 days or longer past 
  6.3   due during the 12-month period beginning 24 months before the 
  6.4   date on which the mortgage reaches the cancellation date; or 
  6.5      (ii) made a mortgage payment that was 30 days or longer 
  6.6   past due during the 12-month period preceding the date on which 
  6.7   the mortgage reaches the cancellation date; and 
  6.8      (3) the mortgage has not been pooled with other mortgages 
  6.9   in order to constitute, in whole or in part, collateral for 
  6.10  bonds issued by the state of Minnesota or any political 
  6.11  subdivision of the state of Minnesota or of any agency of any 
  6.12  political subdivision of the state of Minnesota.  
  6.13     Subd. 3.  [NOTICE OF RIGHT TO CANCEL PRIVATE MORTGAGE 
  6.14  INSURANCE.] (a) With respect to all existing or future 
  6.15  residential mortgage loans, a servicer shall provide an annual 
  6.16  written notice to each mortgagor currently paying premiums for 
  6.17  private mortgage insurance.  The notice must be in 12-point type 
  6.18  or greater and appear substantially as follows: 
  6.19      "NOTICE OF RIGHT TO CANCEL PRIVATE MORTGAGE INSURANCE 
  6.20     If you currently pay private mortgage insurance premiums, 
  6.21  you may have the right under federal law or Minnesota law to 
  6.22  cancel the insurance and stop paying premiums.  This would lower 
  6.23  your total monthly payment. 
  6.24     You may have the right to cancel private mortgage insurance 
  6.25  if the principal balance of your loan is 80 percent or less of 
  6.26  the current market value of your home.  Under Minnesota law, the 
  6.27  value of your property may be based either on an appraisal by a 
  6.28  licensed appraiser, or on the tax assessed value of your 
  6.29  property. 
  6.30     If you wish to learn whether you are eligible to cancel 
  6.31  this insurance, please contact us at (enter address and phone 
  6.32  number of servicer)." 
  6.33     (b) The notice required by this subdivision must be on its 
  6.34  own page, but a disclosure notice concerning private mortgage 
  6.35  insurance required by federal law may be included on the same 
  6.36  page as the disclosure notice required by this subdivision.  The 
  7.1   page containing the notice required by this subdivision may be 
  7.2   included with other disclosures or notices required by federal 
  7.3   law that are sent to the mortgagor. 
  7.4      Subd. 4.  [SERVICER RESPONSE TO CANCELLATION REQUEST.] 
  7.5   Within 30 days of receipt of a mortgagor's request to cancel 
  7.6   private mortgage insurance, a servicer shall either:  
  7.7      (1) provide a written notice to the insurer to cancel the 
  7.8   private mortgage insurance and written notice to the mortgagor 
  7.9   and to the lender that a request for cancellation has been sent 
  7.10  to the insurer if the servicer determines that the private 
  7.11  mortgage insurance should be canceled; 
  7.12     (2) provide a written response to the mortgagor identifying 
  7.13  all additional information needed from the mortgagor if the 
  7.14  servicer reasonably needs more information from the mortgagor to 
  7.15  determine whether the mortgagor is eligible for cancellation of 
  7.16  private mortgage insurance; or 
  7.17     (3) provide a written notice to the mortgagor of the 
  7.18  reasons for the servicer's refusal to cancel the private 
  7.19  mortgage insurance if the servicer determines that a mortgagor 
  7.20  has not met the requirements for cancellation of private 
  7.21  mortgage insurance.  If a lender receives a request for 
  7.22  cancellation of private mortgage insurance, the lender shall 
  7.23  either timely provide the written notices required in this 
  7.24  subdivision or promptly forward the mortgagor's request for 
  7.25  cancellation to the servicer. 
  7.26     Subd. 5.  [RIGHT TO APPRAISAL WITH TAX ASSESSED 
  7.27  PROPERTY.] If the mortgagor requesting cancellation of private 
  7.28  mortgage insurance relies solely on a tax assessment to 
  7.29  establish current fair market value, a lender or servicer may 
  7.30  use an appraisal of the mortgagor's property conducted within 
  7.31  120 days of the mortgagor's initial request for cancellation of 
  7.32  private mortgage insurance by a real estate appraiser licensed 
  7.33  or certified by a state or federal agency to establish the 
  7.34  current fair market value of the mortgagor's property.  The 
  7.35  lender or servicer requesting the appraisal is responsible for 
  7.36  the cost of the appraisal.  A lender or servicer that obtains an 
  8.1   appraisal under this subdivision is not responsible for 
  8.2   providing the notices required by subdivision 4 until 150 days 
  8.3   from receipt of a mortgagor's request to cancel private mortgage 
  8.4   insurance or 30 days following receipt of the appraisal report, 
  8.5   whichever is earlier. 
  8.6      Subd. 6.  [LENDER CHARGES; RETURN OF UNEARNED PREMIUM.] (a) 
  8.7   A lender requiring or offering private mortgage insurance shall 
  8.8   make available to the borrower or other person paying the 
  8.9   insurance premium the same premium payment plans as are 
  8.10  available to the lender in paying the private mortgage insurance 
  8.11  premium. 
  8.12     (b) A refund or rebate for unearned private mortgage 
  8.13  insurance premiums must be paid to the mortgagor or other person 
  8.14  actually providing the funds for payment of the premium. 
  8.15     (c) A lender or servicer shall not charge the mortgagor a 
  8.16  fee or other consideration for cancellation of the private 
  8.17  mortgage insurance or for any of the acts required by this 
  8.18  section, except that the lender may charge the mortgagor its 
  8.19  costs for an appraisal fee used to determine current fair market 
  8.20  value. 
  8.21     Sec. 4.  Minnesota Statutes 2000, section 58.13, 
  8.22  subdivision 1, is amended to read: 
  8.23     Subdivision 1.  [GENERALLY.] No person acting as a 
  8.24  residential mortgage originator or servicer, including a person 
  8.25  required to be licensed under this chapter, and no person exempt 
  8.26  from the licensing requirements of this chapter under section 
  8.27  58.04, shall: 
  8.28     (1) fail to maintain a trust account to hold trust funds 
  8.29  received in connection with a residential mortgage loan; 
  8.30     (2) fail to deposit all trust funds into a trust account 
  8.31  within three business days of receipt; commingle trust funds 
  8.32  with funds belonging to the licensee or exempt person; or use 
  8.33  trust account funds for any purpose other than that for which 
  8.34  they are received; 
  8.35     (3) unreasonably delay the processing of a residential 
  8.36  mortgage loan application, or the closing of a residential 
  9.1   mortgage loan.  For purposes of this clause, evidence of 
  9.2   unreasonable delay includes but is not limited to those factors 
  9.3   identified in section 47.206, subdivision 7, clause (d); 
  9.4      (4) fail to disburse funds according to its contractual or 
  9.5   statutory obligations; 
  9.6      (5) fail to perform in conformance with its written 
  9.7   agreements with borrowers, investors, other licensees, or exempt 
  9.8   persons; 
  9.9      (6) charge a fee for a product or service where the product 
  9.10  or service is not actually provided, or misrepresent the amount 
  9.11  charged by or paid to a third party for a product or service; 
  9.12     (7) fail to comply with sections 345.31 to 345.60, the 
  9.13  Minnesota unclaimed property law; 
  9.14     (8) violate any provision of any other applicable state or 
  9.15  federal law regulating residential mortgage loans including, 
  9.16  without limitation, sections 47.20 to 47.208; 
  9.17     (9) make or cause to be made, directly or indirectly, any 
  9.18  false, deceptive, or misleading statement or representation in 
  9.19  connection with a residential loan transaction including, 
  9.20  without limitation, a false, deceptive, or misleading statement 
  9.21  or representation regarding the borrower's ability to qualify 
  9.22  for any mortgage product; 
  9.23     (10) conduct residential mortgage loan business under any 
  9.24  name other than that under which the license or certificate of 
  9.25  exemption was issued; 
  9.26     (11) compensate, whether directly or indirectly, coerce or 
  9.27  intimidate an appraiser for the purpose of influencing the 
  9.28  independent judgment of the appraiser with respect to the value 
  9.29  of real estate that is to be covered by a residential mortgage 
  9.30  or is being offered as security according to an application for 
  9.31  a residential mortgage loan; 
  9.32     (12) issue any document indicating conditional 
  9.33  qualification or conditional approval for a residential mortgage 
  9.34  loan, unless the document also clearly indicates that final 
  9.35  qualification or approval is not guaranteed, and may be subject 
  9.36  to additional review; 
 10.1      (13) make or assist in making any residential mortgage loan 
 10.2   with the intent that the loan will not be repaid and that the 
 10.3   residential mortgage originator will obtain title to the 
 10.4   property through foreclosure; 
 10.5      (14) provide or offer to provide for a borrower, any 
 10.6   brokering or lending services under an arrangement with a person 
 10.7   other than a licensee or exempt person, provided that a person 
 10.8   may rely upon a written representation by the residential 
 10.9   mortgage originator that it is in compliance with the licensing 
 10.10  requirements of this chapter; 
 10.11     (15) claim to represent a licensee or exempt person, unless 
 10.12  the person is an employee of the licensee or exempt person or 
 10.13  unless the person has entered into a written agency agreement 
 10.14  with the licensee or exempt person; 
 10.15     (16) fail to comply with the recordkeeping and notification 
 10.16  requirements identified in section 58.14 or fail to abide by the 
 10.17  affirmations made on the application for licensure; 
 10.18     (17) represent that the licensee or exempt person is acting 
 10.19  as the borrower's agent after providing the nonagency disclosure 
 10.20  required by section 58.15, unless the disclosure is retracted 
 10.21  and the licensee or exempt person complies with all of the 
 10.22  requirements of section 58.16; 
 10.23     (18) make, provide, or arrange for a residential mortgage 
 10.24  loan that is of a lower investment grade if the borrower's 
 10.25  credit score or, if the originator does not utilize credit 
 10.26  scoring or if a credit score is unavailable, then comparable 
 10.27  underwriting data, indicates that the borrower may qualify for a 
 10.28  residential mortgage loan, available from or through the 
 10.29  originator, that is of a higher investment grade, unless the 
 10.30  borrower is informed that the borrower may qualify for a higher 
 10.31  investment grade loan with a lower interest rate and/or lower 
 10.32  discount points, and consents in writing to receipt of the lower 
 10.33  investment grade loan. 
 10.34     For purposes of this section, "investment grade" refers to 
 10.35  a system of categorizing residential mortgage loans in which the 
 10.36  loans are:  (i) commonly referred to as "prime" or "subprime"; 
 11.1   (ii) commonly designated by an alphabetical character with "A" 
 11.2   being the highest investment grade; and (iii) are distinguished 
 11.3   by interest rate or discount points or both charged to the 
 11.4   borrower, which vary according to the degree of perceived risk 
 11.5   of default based on factors such as the borrower's credit, 
 11.6   including credit score and credit patterns, income and 
 11.7   employment history, debt ratio, loan-to-value ratio, and prior 
 11.8   bankruptcy or foreclosure; 
 11.9      (19) make, publish, disseminate, circulate, place before 
 11.10  the public, or cause to be made, directly or indirectly, any 
 11.11  advertisement or marketing materials of any type, or any 
 11.12  statement or representation relating to the business of 
 11.13  residential mortgage loans that is false, deceptive, or 
 11.14  misleading; 
 11.15     (20) advertise loan types or terms that are not available 
 11.16  from or through the licensee or exempt person on the date 
 11.17  advertised, or on the date specified in the advertisement.  For 
 11.18  purposes of this clause, advertisement includes, but is not 
 11.19  limited to, a list of sample mortgage terms, including interest 
 11.20  rates, discount points, and closing costs provided by licensees 
 11.21  or exempt persons to a print or electronic medium that presents 
 11.22  the information to the public; ~~and~~ 
 11.23     (21) use or employ phrases, pictures, return addresses, 
 11.24  geographic designations, or other means that create the 
 11.25  impression, directly or indirectly, that a licensee or other 
 11.26  person is a governmental agency, or is associated with, 
 11.27  sponsored by, or in any manner connected to, related to, or 
 11.28  endorsed by a governmental agency, if that is not the case; and 
 11.29     (22) mislead a borrower into accepting a higher cost 
 11.30  residential mortgage loan by misrepresenting or omitting 
 11.31  information about the borrower's eligibility for a lower cost 
 11.32  residential mortgage loan offered by that mortgage originator.