Law:Division 1.9. Higher-priced Mortgage Loans (California)

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Ca Codes (fin:4995-4995.6) Financial Code Section 4995-4995.6



4995. The following definitions shall apply for purposes of this division: (a) "Higher-priced mortgage loan" has the meaning set forth in Part 226 of Title 12 of the Code of Federal Regulations. (b) "Licensed person" means a real estate broker licensed under the Real Estate Law (Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code), a finance lender or broker licensed under the California Finance Lenders Law (Division 9 (commencing with Section 22000)), a residential mortgage lender licensed under the California Residential Mortgage Lending Act (Division 20 (commencing with Section 50000)), a commercial or industrial bank organized under the Banking Law (Division 1 (commencing with Section 99)), a savings association organized under the Savings Association Law (Division 2 (commencing with Section 5000)), and a credit union organized under the California Credit Union Law (Division 5 (commencing with Section 14000)). (c) "Mortgage broker" means a licensed person who provides mortgage brokerage services. For purposes of this division, a licensed person who makes home loans is a "mortgage broker," and subject to the requirements of this division applicable to mortgage brokers, only with respect to transactions in which the licensed person provides mortgage brokerage services. (d) "Mortgage brokerage services" means arranging or attempting to arrange, as exclusive agent for the borrower or as dual agent for the borrower and lender, for compensation or in expectation of compensation, paid directly or indirectly, a higher-priced mortgage loan made by an unaffiliated third party.


4995.1. Notwithstanding any other provision of law, the maximum amount of a prepayment penalty that may be imposed by a licensed person in connection with a higher-priced mortgage loan shall not exceed 2 percent of the principal balance prepaid, for prepayment of the loan during the first 12 months following loan consummation or 1 percent of the principal balance prepaid, for prepayment of the loan during the second 12 months following loan consummation.


4995.2. (a) This division shall apply to any licensed person who in bad faith attempts to avoid the application of this division by doing either of the following: (1) Dividing any loan transaction into separate parts for the purpose and with the intent of evading the provisions of this division. (2) Any other subterfuge. (b) Notwithstanding any other provision of law, a licensed person shall not make, or cause to be made, any false, deceptive, or misleading statement or representation in connection with a higher-priced mortgage loan. (c) A mortgage broker who arranges only higher-priced mortgage loans shall disclose that fact to a borrower, both orally and in writing, at the time of initially engaging in mortgage brokerage services with that borrower. (d) A mortgage broker who provides mortgage brokerage services shall not steer, counsel, or direct a borrower to accept a loan at a higher cost than that for which the borrower could qualify based upon the loans offered by the persons with whom the broker regularly does business. (e) (1) A mortgage broker who provides mortgage brokerage services for a borrower shall not receive compensation, including a yield spread premium, fee, commission, or any other compensation, for arranging a higher-priced mortgage loan with a prepayment penalty that exceeds the compensation that the mortgage broker would otherwise receive for arranging that higher-priced mortgage loan without a prepayment penalty. (2) When providing mortgage brokerage services for a borrower, a mortgage broker shall receive the same compensation for providing those services whether paid by the lender, borrower, or a third party. (f) No licensed person shall recommend or encourage default on an existing loan or other debt prior to and in connection with the closing or planned closing of a higher-priced mortgage loan that refinances all or any portion of the existing loan or debt. (g) A licensed person shall not make a higher-priced mortgage loan that contains a provision for negative amortization. This subdivision shall not preclude a licensed person from entering into a subsequent agreement with a borrower to capitalize payments as a means of permitting a borrower to cure or prevent a delinquency. (h) A licensed person who makes a higher-priced mortgage loan and who, when acting in good faith, fails to comply with this section, shall not be liable if the licensed person establishes either of the following: (1) Within 90 days of the loan closing and prior to the institution of any action against the licensed person under this section, the licensed person did all of the following: (A) Notified the borrower of the compliance failure. (B) Tendered appropriate restitution. (C) Offered, at the borrower's option, either to make the higher-priced mortgage loan comply with the requirements of this division or change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be considered a higher-priced mortgage loan subject to the provisions of this division. (D) Within a reasonable period of time following the borrower's election of remedies, took appropriate action based on the borrower's choice. (2) (A) The compliance failure was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid those errors, and within 120 days after receipt of a complaint or the discovery of the compliance failure or the licensed person's receipt of written notice of the compliance failure, the licensed person did all of the following: (i) Notified the borrower of the compliance failure. (ii) Tendered appropriate restitution. (iii) Offered, at the borrower's option, either to make the higher-priced mortgage loan comply with the requirements of this division or change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be considered a higher-priced mortgage loan subject to the provisions of this division. (iv) Within a reasonable period of time following the borrower's election of remedies, took appropriate action based on the borrower's choice. (B) For purposes of this subdivision, examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors.


4995.3. (a) Any licensed person who violates any provision of this division shall be deemed to have violated that person's licensing law. (b) The licensing agency may, by order and after appropriate administrative hearing, prohibit licensees under this division from engaging in acts or practices in connection with higher-priced mortgage loans that the licensing agency finds to be unfair, deceptive, or designed to evade laws of this state. (c) A violation of Section 2923.1 of the Civil Code in connection with a higher-priced mortgage loan is a violation of this division. (d) A violation of the provisions of Part 226 of Title 12 of the Code of Federal Regulations, relating to prepayment penalties in connection with higher-priced mortgage loans, is a violation of this division. (e) The provisions of this division may be enforced only by the Attorney General or the licensed person's licensing agency. Any licensed person who willfully and knowingly violates any provision of this division shall be liable for a civil penalty of not more than ten thousand dollars ($10,000) for each violation. (f) A prepayment penalty or yield spread premium provision of a higher-priced mortgage loan that violates this division shall be unenforceable.

4995.4. The provisions of this division shall apply to higher-priced mortgage loans originated on or after July 1, 2010.


4995.5. The provisions of this division are severable. If any provision of this division or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.


4995.6. Nothing in this division shall be construed to affect any other rights or remedies otherwise available under the law.


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