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REFERENCE TITLE: qualified mortgage standards |
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State of Arizona Senate Fifty-first Legislature Second Regular Session 2014
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SB 1273 |
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Introduced by Senators Farley, Murphy: Barto, Burges, Crandell, Farnsworth D, Griffin, Melvin, Pierce, Ward, Yee; Representatives Forese, Gray, Mesnard, Orr, Pierce J
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AN ACT
amending title 6, Arizona Revised Statutes, by adding chapter 18; relating to mortgages.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Title 6, Arizona Revised Statutes, is amended by adding chapter 18, to read:
CHAPTER 18
MORTGAGES
ARTICLE 1. GENERAL PROVISIONS
6-1801. Definitions
In this chapter, unless the context otherwise requires:
1. "Covered transaction" means a consumer credit transaction that is secured by a dwelling, as defined in 12 Code of Federal Regulations section 1026.2(a)(19), including any real property attached to a dwelling, other than a transaction that is exempt from coverage under section 6‑1802.
2. "Fully amortizing payment" means a periodic payment of principal and interest that will fully repay the loan amount over the loan term.
3. "Fully indexed rate" means the interest rate calculated using the index or formula that will apply after recast, as determined at the time of consummation and the maximum margin that can apply at any time during the loan term.
4. "Higher-priced covered transaction" means a covered transaction with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date that the interest rate is set by 1.5 or more percentage points for a first-lien covered transaction, or by 3.5 or more percentage points for a subordinate-lien covered transaction.
5. "Loan amount" means the principal amount that the consumer will borrow as reflected in the promissory note or loan contract.
6. "Loan term" means the period of time to repay the obligation in full.
7. "Maximum loan amount" means the loan amount plus any increase in principal balance that results from negative amortization, as defined in 12 Code of federal regulations section 1026.18(s)(7)(v), based on the terms of the legal obligation, assuming that:
(a) The consumer makes only the minimum periodic payments for the maximum possible time, until the consumer must begin making fully amortizing payments.
(b) The maximum interest rate is reached at the earliest possible time.
8. "Mortgage-related obligations" mean property taxes, premiums and similar charges identified in 12 code of federal regulations sections 1026.4(b)(5), (7), (8) and (10) that are required by the creditor, fees and special assessments imposed by a condominium, cooperative or homeowners' association, ground rent and leasehold payments.
9. "Points and fees" has the same meaning prescribed in 12 code of federal regulations section 1026.32(b)(1).
10. "Prepayment penalty" has the same meaning prescribed in 12 code of federal regulations section 1026.32(b)(6).
11. "Recast" means:
(a) For an adjustable-rate mortgage, as defined in 12 code of federal regulations section 1026.18(s)(7)(i), the expiration of the period during which payments based on the introductory fixed interest rate are permitted under the terms of the legal obligation.
(b) For an interest-only loan, as defined in 12 code of federal regulations section 1026.18(s)(7)(iv), the expiration of the period during which interest-only payments are permitted under the terms of the legal obligation.
(c) For a negative amortization loan, as defined in 12 code of federal regulations section 1026.18(s)(7)(v), the expiration of the period during which negatively amortizing payments are permitted under the terms of the legal obligation.
12. "Simultaneous loan" means another covered transaction or home equity line of credit thAt is subject to 12 code of federal regulations section 1026.40 and that will be secured by the same dwelling and made to the same consumer at or before consummation of the covered transaction or, if to be made after consummation, will cover closing costs of the first covered transaction.
13. "Third-party record" means any of the following:
(a) A document or other record that is prepared or reviewed by an appropriate person other than the consumer, the creditor or the mortgage broker, as defined in 12 code of federal regulations section 1026.36(a)(2), or an agent of the creditor or mortgage broker.
(b) A copy of a tax return filed with the Internal Revenue Service or a State taxing authority.
(c) A record that the creditor maintains for an account of the consumer held by the creditor.
(d) If the consumer is an employee of the creditor or the mortgage broker, a document or other record maintained by the creditor or mortgage broker regarding the consumer's employment status or employment income.
6-1802. Applicability
This chapter applies to any consumer credit transaction that is secured by a dwelling, as defined in 12 code of federal regulations section 1026.2(a)(19), including any real property attached to a dwelling, other than:
1. A home equity line of credit subject to 12 code of federal regulations section 1026.40.
2. A mortgage transaction secured by a consumer's interest in a timeshare plan, as defined in 11 United States Code section 101(53D).
3. For the purposes of this chapter:
(a) A reverse mortgage subject to 12 code of federal regulations section 1026.33.
(b) A temporary or bridge loan with a term of twelve months or less, such as a loan to finance the purchase of a new dwelling in which the consumer plans to sell a current dwelling within twelve months or a loan to finance the initial construction of a dwelling.
(c) A construction phase of twelve months or less of a construction‑to-permanent loan.
6-1803. Repayment ability determination
A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.
6-1804. Basis for repayment ability determination
Except as otherwise provided in section 6‑1810 or article 2 of this chapter, in making the repayment ability determination required under section 6‑1803, a creditor must consider all of the following:
1. The consumer's current or reasonably expected income or assets, other than the value of the dwelling, including any real property attached to the dwelling, that secures the loan.
2. If the creditor relies on income from the consumer's employment in determining repayment ability, the consumer's current employment status.
3. The consumer's monthly payment on the covered transaction, calculated in accordance with section 6‑1807.
4. The consumer's monthly payment on any simultaneous loan that the creditor knows or has reason to know will be made, calculated in accordance with section 6‑1808.
5. The consumer's monthly payment for mortgage-related obligations.
6. The consumer's current debt obligations, alimony and child support.
7. The consumer's monthly debt-to-income ratio or residual income in accordance with section 6‑1809.
8. The consumer's credit history, including whether the consumer has had at least five years without a late or missed payment on a mortgage that has a payment at least as high as the mortgage payment for which the consumer is applying.
9. Whether the consumer has a credit rating of at least seven hundred fifty.
10. Whether the consumer has liquid assets that are greater than the amount of the mortgage.
6-1805. Verification using third-party records
A creditor must verify the information that the creditor relies on in determining a consumer's repayment ability under 12 code of federal regulations section 1026.43(c)(2) using reasonably reliable third-party records, except that:
1. For purposes of section 6‑1804, paragraph 1, a creditor must verify a consumer's income or assets that the creditor relies on in accordance with 12 code of federal regulations section 1026.43(c)(4).
2. For purposes of section 6‑1804, paragraph 2, a creditor may verify a consumer's employment status verbally if the creditor prepares a record of the information obtained verbally.
3. For purposes of section 6‑1804, paragraph 6, if a creditor relies on a consumer's credit report to verify a consumer's current debt obligations and a consumer's application states a current debt obligation not shown in the consumer's credit report, the creditor need not independently verify such an obligation.
6-1806. Verification of income or assets
A creditor must verify the amounts of income or assets that the creditor relies on under 12 code of federal regulations section 1026.43(c)(2)(i) to determine a consumer's ability to repay a covered transaction using third-party records that provide reasonably reliable evidence of the consumer's income or assets. A creditor may verify the consumer's income using a tax return transcript issued by the Internal Revenue Service. Other records the creditor may use to verify the consumer's income or assets include:
1. Copies of tax returns the consumer filed with the internal revenue service or a State taxing authority.
2. internal revenue service Form W-2s or similar internal revenue service forms used for reporting wages or tax withholding.
3. Payroll statements, including military Leave and Earnings Statements.
4. Financial institution records.
5. Records from the consumer's employer or a third party that obtained information from the employer.
6. Records from a Federal, State or local government agency stating the consumer's income from benefits or entitlements.
7. Receipts from the consumer's use of check-cashing services.
8. Receipts from the consumer's use of a funds-transfer service.
6-1807. Payment calculation
A. Except as provided in subsection B of this section, a creditor must make the consideration required under section 6‑1804, paragraph 3 using both:
1. The fully indexed rate or any introductory interest rate, whichever is greater.
2. Monthly, fully amortizing payments that are substantially equal.
B. A creditor must make the consideration required under section 6‑1804, paragraph 3 for:
1. A loan with a balloon payment, as defined in 12 code of federal regulations section 1026.18(s)(5)(i), using either:
(a) The maximum payment scheduled during the first five years after the date on which the first regular periodic payment will be due for a loan that is not a higher-priced covered transaction.
(b) The maximum payment in the payment schedule, including any balloon payment, for a higher-priced covered transaction.
2. An interest-only loan, as defined in 12 code of federal regulations section 1026.18(s)(7)(iv), using both:
(a) The fully indexed rate or any introductory interest rate, whichever is greater.
(b) Substantially equal monthly payments of principal and interest that will repay the loan amount over the term of the loan remaining as of the date that the loan is recast.
3. A negative amortization loan, as defined in 12 code of federal regulations section 1026.18(s)(7)(v), using both:
(a) The fully indexed rate or any introductory interest rate, whichever is greater.
(b) Substantially equal monthly payments of principal and interest that will repay the maximum loan amount over the term of the loan remaining as of the date that the loan is recast.
6-1808. Simultaneous loans
For the purposes of making the evaluation required under section 6‑1804, paragraph 4, a creditor must consider, taking into account any mortgage-related obligations, a consumer's payment on a simultaneous loan that is:
1. A covered transaction, by following section 6‑1807.
2. A home equity line of credit subject to 12 code of federal regulations section 1026.40, by using the periodic payment required under the terms of the plan and the amount of credit to be drawn at or before consummation of the covered transaction.
6-1809. Monthly debt‑to‑income ratio; residual income; definitions
A. If a creditor considers the consumer's monthly residual income under section 6‑1804, paragraph 7, the creditor must consider the consumer's remaining income after subtracting the consumer's total monthly debt obligations from the consumer's total monthly income.
B. If a creditor considers the consumer's monthly debt-to-income ratio under section 6‑1804, paragraph 7, the creditor must consider the ratio of the consumer's total monthly debt obligations to the consumer's total monthly income.
C. FOr the purposes of this section:
1. "total monthly debt obligations" means the sum of all of the following:
(a) the payment on the covered transaction, as calculated pursuant to section 6‑1804, paragraph 3 and section 6‑1807.
(b) simultaneous loans, as calculated pursuant to section 6‑1804, paragraph 4 and section 6‑1808.
(c) mortgage-related obligations, as calculated pursuant to section 6‑1804, paragraph 5.
(d) current debt obligations, alimony and child support, as calculated pursuant to section 6‑1804, paragraph 6.
2. "Total monthly income" means the sum of the consumer's current or reasonably expected income, including any income from assets, as calculated pursuant to section 6‑1804, paragraph 1 and section 6‑1806.
6-1810. Applicability; definitions
A. This section applies to the refinancing of a nonstandard mortgage into a standard mortgage if the following conditions are met:
1. The creditor for the standard mortgage is the current holder of the existing nonstandard mortgage or the servicer acting on behalf of the current holder.
2. The monthly payment for the standard mortgage is materially lower than the monthly payment for the nonstandard mortgage, as calculated under subsection D of this section.
3. The creditor receives the consumer's written application for the standard mortgage not later than two months after the nonstandard mortgage has recast.
4. The consumer has made not more than one payment more than thirty days late on the nonstandard mortgage during the twelve months immediately preceding the creditor's receipt of the consumer's written application for the standard mortgage.
5. The consumer has made no payments more than thirty days late during the six months immediately preceding the creditor's receipt of the consumer's written application for the standard mortgage.
6. If the nonstandard mortgage was consummated on or after the effective date of this section, the nonstandard mortgage was made in accordance with sections 6‑1803, 6-1804, 6-1805, 6-1806, 6-1807, 6-1808 and 6‑1809 or article 2 of this chapter, as applicable.
B. A creditor is not required to comply with the requirements of sections 6‑1803, 6-1804, 6-1805, 6-1806, 6-1807, 6-1808 and 6‑1809 if both:
1. The conditions in subsection A of this section are met.
2. The creditor has considered whether the standard mortgage likely will prevent a default by the consumer on the nonstandard mortgage once the loan is recast.
C. A creditor making a covered transaction under this section may offer to the consumer rate discounts and terms that are the same as or better than the rate discounts and terms that the creditor offers to new consumers, consistent with the creditor's documented underwriting practices and to the extent not prohibited by applicable State or Federal law.
D. For purposes of determining whether the consumer's monthly payment for a standard mortgage will be materially lower than the monthly payment for the nonstandard mortgage, the following apply:
1. For purposes of the comparison conducted pursuant to subsection A, paragraph 2 of this section, the creditor must calculate the monthly payment for a nonstandard mortgage based on substantially equal monthly, fully amortizing payments of principal and interest using:
(a) The fully indexed rate as of a reasonable period of time before or after the date on which the creditor receives the consumer's written application for the standard mortgage.
(b) The term of the loan remaining as of the date on which the recast occurs, assuming all scheduled payments have been made up to the recast date and the payment due on the recast date is made and credited as of that date.
(c) A remaining loan amount that is:
(i) For an adjustable-rate mortgage the outstanding principal balance as of the date of the recast, assuming all scheduled payments have been made up to the recast date and the payment due on the recast date is made and credited as of that date.
(ii) For an interest-only loan the outstanding principal balance as of the date of the recast, assuming all scheduled payments have been made up to the recast date and the payment due on the recast date is made and credited as of that date.
(iii) For a negative amortization loan the maximum loan amount, determined after adjusting for the outstanding principal balance.
2. For the purposes of the comparison conducted pursuant to subsection A, paragraph 2 of this section, the monthly payment for a standard mortgage must be based on substantially equal monthly, fully amortizing payments based on the maximum interest rate that may apply during the first five years after consummation.
E. For the purposes of this section:
1. "Nonstandard mortgage" means a covered transaction that is any of the following:
(a) An adjustable-rate mortgage as defined in 12 code of federal regulations section 1026.18(s)(7)(i), with an introductory fixed interest rate for a period of one year or longer.
(b) An interest-only loan as defined in 12 code of federal regulations section 1026.18(s)(7)(iv).
(c) A negative amortization loan as defined in 12 code of federal regulations section 1026.18(s)(7)(v).
2. "Refinancing" has the same meaning prescribed in 12 code of federal regulations section 1026.20(a).
3. "Standard mortgage" means a covered transaction:
(a) That provides for regular periodic payments that do not do any of the following:
(i) Cause the principal balance to increase.
(ii) Allow the consumer to defer repayment of principal.
(iii) Result in a balloon payment, as defined in 12 code of federal regulations section 1026.18(s)(5)(i).
(b) For which the total points and fees payable in connection with the transaction do not exceed the amounts specified in section 6-1833, subsection B.
(c) For which the term does not exceed forty years.
(d) For which the interest rate is fixed for at least the first five years after consummation.
(e) For which the proceeds from the loan are used solely for the following purposes:
(i) To pay off the outstanding principal balance on the nonstandard mortgage.
(ii) To pay closing or settlement charges required to be disclosed under the Real Estate Settlement Procedures Act (12 United States Code sections 2601 through 2617).
ARTICLE 2. QUALIFIED MORTGAGES
6-1831. Safe harbor
A creditor or assignee of a qualified mortgage, as prescribed in section 6‑1833, 6‑1834 or 6‑1837, that is not a higher-priced covered transaction complies with the repayment ability requirements of section 6‑1803.
6-1832. Higher-priced covered transactions
A. A creditor or assignee of a qualified mortgage, as prescribed in section 6‑1833, 6‑1834 or 6‑1837, that is a higher-priced covered transaction is presumed to comply with the repayment ability requirements of section 6‑1803.
B. To rebut the presumption of compliance described in subsection A of this section, it must be proven that, despite meeting the requirements of section 6‑1833, 6‑1834 or 6‑1837, the creditor did not make a reasonable and good faith determination of the consumer's repayment ability at the time of consummation, by showing that the consumer's income, debt obligations, alimony, child support and monthly payment, including mortgage-related obligations, on the covered transaction and on any simultaneous loans of which the creditor was aware at consummation would leave the consumer with insufficient residual income or assets other than the value of the dwelling, including any real property attached to the dwelling, that secures the loan with which to meet living expenses, including any recurring and material nondebt obligations of which the creditor was aware at the time of consummation.
6-1833. Qualified mortgages
A. Except as provided in section 6‑1834 or 6‑1837, a qualified mortgage is a covered transaction:
1. That provides for regular periodic payments that are substantially equal, except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage, that do not do any of the following:
(a) Result in an increase of the principal balance.
(b) Allow the consumer to defer repayment of principal, except as provided in section 6‑1837.
(c) Result in a balloon payment as defined in 12 code of federal regulations section 1026.18(s)(5)(i), except as provided in section 6‑1837.
2. For which the loan term does not exceed thirty years.
3. For which the total points and fees payable in connection with the loan do not exceed the amounts specified in subsection B of this section.
4. For which the creditor underwrites the loan, taking into account the monthly payment for mortgage-related obligations, using both:
(a) The maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due.
(b) Periodic payments of principal and interest that will repay either:
(i) The outstanding principal balance over the remaining term of the loan as of the date the interest rate adjusts to the maximum interest rate set forth in subdivision (a) of this paragraph, assuming the consumer will have made all required payments as due prior to that date.
(ii) The loan amount over the loan term.
5. For which the creditor considers and verifies at or before consummation the following:
(a) The consumer's current or reasonably expected income or assets other than the value of the dwelling, including any real property attached to the dwelling, that secures the loan, in accordance with 12 code of federal regulations part 1026, appendix Q and section 6‑1804, paragraph 1 and section 6‑1806.
(b) The consumer's current debt obligations, alimony and child support in accordance with 12 code of federal regulations part 1026, appendix Q and section 6‑1804, paragraph 6 and section 6‑1805.
6. For which the ratio of the consumer's total monthly debt to total monthly income at the time of consummation does not exceed forty‑three per cent except that it may exceed forty‑three per cent if the consumer meets other ability to pay criteria. For purposes of this paragraph, the ratio of the consumer's total monthly debt to total monthly income is determined:
(a) Except as provided in paragraph 4, subdivision (b) of this subsection, in accordance with the standards in 12 code of federal regulations part 1026, appendix Q.
(b) Using the consumer's monthly payment on:
(i) The covered transaction, including the monthly payment for mortgage-related obligations, in accordance with paragraph 4 of this subsection.
(ii) Any simultaneous loan that the creditor knows or has reason to know will be made, in accordance with section 6‑1804, paragraphs 4 and 6.
B. A covered transaction is not a qualified mortgage unless the transaction's total points and fees, as defined in 12 code of federal regulations section 1026.32(b)(1), do not exceed:
1. For a loan amount greater than or equal to one hundred thousand dollars, indexed for inflation, three per cent of the total loan amount.
2. For a loan amount greater than or equal to twenty thousand dollars, indexed for inflation, but less than one hundred thousand dollars, indexed for inflation, five per cent of the total loan amount.
3. For a loan amount of less than twenty thousand dollars, indexed for inflation, eight per cent of the total loan amount.
C. The dollar amounts, including the loan amounts, prescribed in subsection B of this section must be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index for All Urban Consumers that was reported on the preceding June 1.
6-1834. Special rules
Notwithstanding section 6‑1833, a qualified mortgage is a covered transaction that satisfies both:
1. The requirements of section 6‑1833, subsection A, paragraphs 1, 2 and 3.
2. One or more of the criteria in section 6‑1835.
6-1835. Eligible loans
A qualified mortgage must be one of the following at consummation:
1. A loan that is eligible either:
(a) To be purchased or guaranteed by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation operating under the conservatorship or receivership of the Federal Housing Finance Agency pursuant to the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (P.L. 102‑550; 106 stat. 3941; 12 United States Code section 4617(a)).
(b) To be purchased or guaranteed by any limited-life regulatory entity succeeding the charter of either the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation pursuant to section 1367(i) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (P.L. 102‑550; 106 stat. 3941; 12 United States Code section 4617(i)).
2. A loan that is eligible to be insured by the United States Department of Housing and Urban Development under the National Housing Act (12 United States Code section 1701 through 1733.
3. A loan that is eligible to be guaranteed by the United States Department of Veterans Affairs.
4. A loan that is eligible to be guaranteed by the United States Department of Agriculture pursuant to 42 United States Code section 1472(h).
5. A loan that is eligible to be insured by the Rural Housing Service.
6-1836. Sunset of special rules
A. Each respective special rule described in section 6‑1835, paragraph 2, 3, 4 or 5 expires on the effective date of a rule issued by each respective agency pursuant to its authority under the truth in lending act (15 united states code section 1639c) to define a qualified mortgage.
B. Unless otherwise expired under subsection a of this section, the special rules in this section are available only for covered transactions consummated on or before January 10, 2021.
6-1837. Balloon payment qualified mortgages
Notwithstanding section 6‑1833, a qualified mortgage may provide for a balloon payment if:
1. The loan satisfies the requirements for a qualified mortgage in section 6‑1833, subsection A, paragraph 1, subdivision (a) and paragraphs 2, 3 and 5, but without regard to the standards in 12 code of federal regulations part 1026, appendix Q.
2. The creditor determines at or before consummation that the consumer can make all of the scheduled payments under the terms of the legal obligation, as described in paragraph 5 of this section, together with the consumer's monthly payments for all mortgage-related obligations and excluding the balloon payment, from the consumer's current or reasonably expected income or assets other than the dwelling that secures the loan.
3. The creditor considers at or before consummation the consumer's monthly debt-to‑income ratio or residual income and verifies the debt obligations and income used to determine that ratio in accordance with section 6‑1809, except that the calculation of the payment on the covered transaction for purposes of determining the consumer's total monthly debt obligations in section 6‑1809 shall be determined in accordance with paragraph 4, subdivision (a) of this section, together with the consumer's monthly payments for all mortgage-related obligations and excluding the balloon payment.
4. The legal obligation provides for all of the following:
(a) Scheduled payments that are substantially equal, calculated using an amortization period that does not exceed thirty years.
(b) An interest rate that does not increase over the term of the loan.
(c) A loan term of five years or longer.
5. The loan is not subject, at consummation, to a commitment to be acquired by another person, other than a person that satisfies the requirements of paragraph 6 of this section.
6. The creditor satisfies the requirements prescribed by 12 code of federal regulations section 1026.35(b)(2)(iii)(A), (B) and (C).
6-1838. Postconsummation transfer of balloon payment qualified mortgages
A balloon payment qualified mortgage that is extended pursuant to section 6‑1837, paragraph 1 immediately loses its status as a qualified mortgage under section 6-1837, paragraph 1 if legal title to the balloon payment qualified mortgage is sold, assigned or otherwise transferred to another person, unless the balloon payment qualified mortgage is sold, signed or otherwise transferred:
1. to another person three years or more after consummation of the balloon payment qualified mortgage.
2. To a creditor that satisfies the requirements of section 6‑1837, paragraph 6.
3. To another person pursuant to a capital restoration plan or other action under 12 United States Code section 1831o, actions or instructions of any person acting as conservator, receiver or bankruptcy trustee, an order of a State or Federal governmental agency with jurisdiction to examine the creditor pursuant to State or Federal law or an agreement between the creditor and such an agency.
4. Pursuant to a merger of the creditor with another person or acquisition of the creditor by another person or of another person by the creditor.
6-1839. Prepayment penalties
A. A covered transaction may not include a prepayment penalty unless both:
1. The prepayment penalty is otherwise permitted by law.
2. The transaction:
(a) Has an annual percentage rate that cannot increase after consummation.
(b) Is a qualified mortgage under section 6‑1833, 6‑1834 or 6‑1837.
(c) Is not a higher-priced mortgage loan, as defined in 12 code of federal regulations section 1026.35(a).
B. A prepayment penalty:
1. May not apply after the three-year period following consummation.
2. May not exceed the following percentages of the amount of the outstanding loan balance prepaid:
(a) two per cent, if incurred during the first two years following consummation.
(b) One per cent, if incurred during the third year following consummation.
6-1840. Alternative offer required
A creditor may not offer a consumer a covered transaction with a prepayment penalty unless the creditor also offers the consumer an alternative covered transaction without a prepayment penalty and the alternative covered transaction:
1. Has an annual percentage rate that cannot increase after consummation and has the same type of interest rate as the covered transaction with a prepayment penalty. for purposes of this paragraph, "type of interest rate" refers to whether a transaction is either of the following:
(a) a fixed-rate mortgage, as defined in 12 code of federal regulations section 1026.18(s)(7)(iii).
(b) a step-rate mortgage, as defined in 12 code of federal regulations section 1026.18(s)(7)(ii).
2. Has the same loan term as the loan term for the covered transaction with a prepayment penalty.
3. Satisfies the periodic payment conditions under section 6‑1833.
4. Satisfies the points and fees conditions under section 6‑1833, based on the information known to the creditor at the time the transaction is offered.
5. Is a transaction for which the creditor has a good faith belief that the consumer likely qualifies, based on the information known to the creditor at the time the creditor offers the covered transaction without a prepayment penalty.
6-1841. Offer through a mortgage broker
If the creditor offers a covered transaction with a prepayment penalty to the consumer through a mortgage broker, as defined in 12 code of federal regulations section 1026.36(a)(2), the creditor must both:
1. Present the mortgage broker an alternative covered transaction without a prepayment penalty that satisfies the requirements of section 6‑1840.
2. Establish by agreement that the mortgage broker must present the consumer an alternative covered transaction without a prepayment penalty that satisfies the requirements of section 6‑1840, offered by either:
(a) The creditor.
(b) Another creditor, if the transaction offered by the other creditor has a lower interest rate or a lower total dollar amount of discount points and origination points or fees.
6-1842. Creditor that is loan originator
If the creditor is a loan originator, as defined in 12 code of federal regulations section 1026.36(a)(1), and the creditor presents the consumer a covered transaction offered by a person to which the creditor would assign the covered transaction after consummation, the creditor must present the consumer an alternative covered transaction without a prepayment penalty that satisfies the requirements of section 6‑1840, offered by either:
1. The assignee.
2. Another person, if the transaction offered by the other person has a lower interest rate or a lower total dollar amount of origination discount points and points or fees.
6-1843. Applicability
Sections 6‑1839, 6‑1840, 6‑1841 and 6‑1842 apply only if a covered transaction is consummated with a prepayment penalty and is not violated if:
1. A covered transaction is consummated without a prepayment penalty.
2. The creditor and consumer do not consummate a covered transaction.
6-1844. Open-end credit; evasion prohibited
In connection with credit secured by a consumer's dwelling that does not meet the definition of open-end credit in 12 code of federal regulations section 1026.2(a)(20), a creditor shall not structure the loan as an open-end plan to evade the requirements of this chapter.
Sec. 2. Effective date
This act is effective from and after December 31, 2014.