HOUSE BILL No. 1698
DIGEST OF INTRODUCED BILL
Synopsis: Home loan protection. Transfers licensing and regulation of
loan brokers to the department of financial institutions. Restricts
certain lending acts and practices. Establishes the mortgage fraud unit
under the attorney general. Increases mortgage recording and loan
broker registration and renewal fees. Requires the housing finance
authority to provide mortgage literacy training programs. Allocates
increased revenue to the housing finance authority and the mortgage
Effective: Upon passage; July 1, 2003.
January 21, 2003, read first time and referred to Committee on Financial Institutions.
First Regular Session 113th General Assembly (2003)
PRINTING CODE. Amendments: Whenever an existing statute (or a section of the Indiana
Constitution) is being amended, the text of the existing provision will appear in this style type,
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will appear in that style type in the introductory clause of each SECTION that adds
a new provision to the Indiana Code or the Indiana Constitution.
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between statutes enacted by the 2002 Regular or Special Session of the General Assembly.
HOUSE BILL No. 1698
A BILL FOR AN ACT to amend the Indiana Code concerning trade
regulations and consumer sales and credit and to make an
Be it enacted by the General Assembly of the State of Indiana:
SOURCE: IC 23-2-5-1.1; (03)IN1698.1.1. -->
IS ADDED TO THE INDIANA CODE
AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JULY
1, 2003]: Sec. 1.1. As used in this chapter, "director" refers to the
director of the department of financial institutions appointed under
SOURCE: IC 23-2-5-3; (03)IN1698.1.2. -->
, AS AMENDED BY P.L.115-2001,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]: Sec. 3. (a) As used in this chapter, "certificate of
registration" means a certificate issued by the
authorizing an individual to engage in origination activities on behalf
of a licensee.
(b) As used in this chapter, "creditor" means a person:
(1) that loans funds of the person in connection with a loan; and
(2) to whom the loan is initially payable on the face of the note or
contract evidencing the loan.
(c) As used in this chapter, "license" means a license issued by the
commissioner director authorizing a person to engage in the loan
(d) As used in this chapter, "licensee" means a person that is issued
a license under this chapter.
(e) As used in this chapter, "loan broker" means any person who, in
return for any consideration from any person, promises to procure a
loan for any person or assist any person in procuring a loan from any
third party, or who promises to consider whether or not to make a loan
to any person. "Loan broker" does not include:
(1) any bank, savings bank, trust company, savings association,
credit union, or any other financial institution that is:
(A) regulated by any agency of the United States or any state;
(B) regularly actively engaged in the business of making
consumer loans that are not secured by real estate or taking
assignment of consumer sales contracts that are not secured by
(2) any person authorized to sell and service loans for the Federal
National Mortgage Association or the Federal Home Loan
Mortgage Corporation, issue securities backed by the Government
National Mortgage Association, make loans insured by the United
States Department of Housing and Urban Development, act as a
supervised lender or nonsupervised automatic lender of the
United States Department of Veterans Affairs, or act as a
correspondent of loans insured by the United States Department
of Housing and Urban Development;
(3) any insurance company;
(4) any person arranging financing for the sale of the person's
(5) any community development corporation (as defined in
(f) As used in this chapter, "loan brokerage business" means a
person acting as a loan broker.
(g) As used in this chapter, "origination activities" means
establishing the terms or conditions of a loan with a borrower or
(h) As used in this chapter, "person" means an individual, a
partnership, a trust, a corporation, a limited liability company, a limited
liability partnership, a sole proprietorship, a joint venture, a joint stock
company, or another group or entity, however organized.
(i) As used in this chapter, "registrant" means an individual who is
registered to engage in origination activities under this chapter.
(j) As used in this chapter, "ultimate equitable owner" means a
person who, directly or indirectly, owns or controls any ownership
interest in a person, regardless of whether the person owns or controls
the ownership interest through one (1) or more other persons or one (1)
or more proxies, powers of attorney, or variances.
SOURCE: IC 23-2-5-4; (03)IN1698.1.3. -->
, AS AMENDED BY P.L.230-1999,
SECTION 2, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]: Sec. 4. (a) Any person desiring to engage or continue
in the loan brokerage business shall apply to the
director for a license under this chapter.
(b) An individual employed by a licensee to engage in origination
activities shall be registered, by the licensee, with the
director under section 5(a)(6) and section 5(c) of this chapter.
SOURCE: IC 23-2-5-5; (03)IN1698.1.4. -->
, AS AMENDED BY P.L.115-2001,
SECTION 2, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]: Sec. 5. (a) An application for license or renewal of a
license must contain:
(1) consent to service of process under subsection (e);
(2) evidence of the bond required in subsection (b);
(3) an application fee of two hundred ten
(4) an affidavit affirming that none of the applicant's ultimate
equitable owners, directors, managers, or officers have been
convicted, in any jurisdiction, of an offense involving fraud or
deception that is punishable by at least one (1) year of
imprisonment, unless waived by the
(5) evidence that the applicant, if the applicant is an individual,
has completed the education requirements under section 21 of this
(6) a registration form setting forth the name, home address, home
telephone number, and Social Security number of each employee
or prospective employee of the applicant who is or who will be
engaged in origination activities; and
(7) evidence that the license applicant's proposed registrants have
completed the education requirements of section 21 of this
(b) A licensee must maintain a bond satisfactory to the
in the amount of fifty thousand dollars
($50,000), which shall be in favor of the state and shall secure payment
of damages to any person aggrieved by any violation of this chapter by
shall issue a license to an applicant
that meets the licensure requirements of this chapter. Whenever the
registration provisions of this chapter have been complied with, the
commissioner director shall issue a certificate of registration
authorizing the registrant to engage in origination activities.
(d) Licenses issued by the securities commissioner under
January 1, 2001, July 1, 2003, shall be valid, and
renewal of such licenses shall not be required until January 1, 2001.
July 1, 2003. Individuals engaging in origination activities for a
licensee before January 1, 2001, July 1, 2003, shall not be required to
apply for and receive a certificate of registration until January 1, 2001.
July 1, 2003. Except as otherwise provided in this subsection, licenses
and certificates of registration issued by the securities commissioner
are valid until January 1 of the second year after issuance. The
education requirements of section 21 of this chapter shall first apply to
applicants for issuance or renewal of licenses or registrations effective
as of January 1, 2001. July 1, 2003.
(e) Every applicant for licensure or for renewal of a license shall file
commissioner, director, in such form as the commissioner
director by rule or order prescribes, an irrevocable consent appointing
the secretary of state director to be the applicant's agent to receive
service of any lawful process in any noncriminal suit, action, or
proceeding against the applicant arising from the violation of any
provision of this chapter. Service shall be made in accordance with the
Indiana Rules of Trial Procedure.
(f) Upon good cause shown, the
commissioner director may waive
the requirements of subsection (a)(4) for one (1) or more of an
applicant's ultimate equitable owners, directors, managers, or officers.
(g) Whenever an initial or renewal application for license is denied
or withdrawn, the
commissioner director shall retain the initial or
renewal application fee paid.
SOURCE: IC 23-2-5-6; (03)IN1698.1.5. -->
, AS AMENDED BY P.L.115-2001,
SECTION 3, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]: Sec. 6. A licensee may not continue engaging in the
loan brokerage business unless the licensee's license is renewed
biennially. A registrant may not continue engaging in origination
activities unless the registrant's certificate of registration is renewed
biennially. A licensee shall renew its license and the certificates of
registration of its registrant employees by filing with the
at least thirty (30) days before the expiration of the
registration, an application containing any information the
may require to indicate any material change
from the information contained in the applicant's original application
or any previous application.
SOURCE: IC 23-2-5-7; (03)IN1698.1.6. -->
, AS AMENDED BY P.L.115-2001,
SECTION 4, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]: Sec. 7. (a) The loan broker regulation account is
created in the state general fund. The money in the loan broker
regulation account may be used only for the regulation of loan brokers
under this chapter. The loan broker regulation account shall be
administered by the treasurer of state. The money in the loan broker
regulation account does not revert to any other account within the state
general fund at the end of a state fiscal year.
(b) Except as provided in subsection (c), all fees and funds accruing
from the administration of this chapter shall be accounted for by the
commissioner director and shall be deposited with the treasurer of
state who shall deposit them in the loan broker regulation account in
the state general fund.
(c) All expenses incurred in the administration of this chapter shall
be paid from appropriations made from the state general fund.
However, costs of investigations and civil penalties recovered under
this chapter shall be deposited in the
securities division enforcement
account financial institutions fund created under IC 23-2-1-15
IC 28-11-2-9. The funds in the securities division enforcement account
financial institutions fund shall be available, with the approval of the
state budget agency, to augment and supplement the funds appropriated
for the administration of this chapter.
SOURCE: IC 23-2-5-10; (03)IN1698.1.7. -->
, AS AMENDED BY P.L.14-2000,
SECTION 53, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]: Sec. 10. (a) The
commissioner director may deny,
suspend, or revoke the license of a licensee or the registration of a
registrant if the licensee or the registrant:
(1) fails to maintain the bond required under section 5 of this
(2) is insolvent;
(3) has violated any provision of this chapter;
(4) has knowingly filed with the
commissioner director any
document or statement containing any false representation of a
material fact or omitting to state a material fact or if a
representation becomes false after the filing but during the term
of a license or certificate of registration as provided in subsection
(5) has been convicted, within ten (10) years before the date of the
application, renewal, or review, of any crime involving fraud or
commissioner director may not enter a final order denying,
suspending, or revoking the license of a licensee or the registration of
a registrant without prior notice to all interested parties, opportunity for
a hearing, and written findings of fact and conclusions of law.
However, the commissioner director may by summary order deny,
suspend, or revoke a license or certificate of registration pending final
determination of any proceeding under this section. Upon the entry of
a summary order, the commissioner director shall promptly notify all
interested parties that it has been entered, of the reasons for the
summary order, and that upon receipt by the commissioner director of
a written request from a party, the matter will be set for hearing to
commence within fifteen (15) business days after receipt of the request.
If no hearing is requested and none is ordered by the commissioner,
director, the order remains in effect until it is modified or vacated by
the commissioner. If a hearing is requested or ordered, the
commissioner, director, after notice of the hearing has been given to
all interested persons and the hearing has been held, may modify or
vacate the order or extend it until final determination.
(c) IC 4-21.5 does not apply to a proceeding under this section.
(1) a licensee desires to have a previously unregistered employee
begin engaging in origination activities; or
(2) an individual who was previously registered under this chapter
is employed by another licensee who desires to have the registrant
engage in origination activities;
the employer licensee shall, within fifteen (15) days after the employee
first conducts origination activities, submit to the
director, on a form prescribed by the commissioner, director, notice
of the registrant's employment. If the employee has not previously been
registered, the licensee shall submit evidence that the employee has
completed the education requirements of section 21 of this chapter.
(e) If a material fact or statement included in an application under
this chapter changes after the application has been submitted, the
applicant shall provide written notice to the
commissioner director of
the change. The commissioner director may revoke or refuse to renew
the license or registration of any person who:
(1) is required to submit a written notice under this subsection
and fails to provide the required notice within two (2) business
days after the person discovers or should have discovered the
(2) would not qualify for licensure or registration under this
chapter as a result of a change in material fact or statement.
SOURCE: IC 23-2-5-11; (03)IN1698.1.8. -->
, AS AMENDED BY P.L.230-1999,
SECTION 6, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]: Sec. 11. (a) The
commissioner director may do the
(1) Adopt rules under
to implement this chapter.
(2) Make investigations and examinations:
(A) in connection with any application for licensure or for
registration of a licensee or registrant or with any license or
certificate of registration already granted; or
(B) whenever it appears to the
commissioner, director, upon
the basis of a complaint or information, that reasonable
grounds exist for the belief that an investigation or
examination is necessary or advisable for the more complete
protection of the interests of the public.
(3) Charge as costs of investigation or examination all reasonable
expenses, including a per diem prorated upon the salary of the
commissioner director or employee and actual traveling and
hotel expenses. All reasonable expenses are to be paid by the
party or parties under investigation or examination if the party has
violated this chapter.
(4) Issue notices and orders, including cease and desist notices
and orders, after making an investigation or examination under
subdivision (2). The
commissioner director may also bring an
action on behalf of the state to enjoin a person from violating this
chapter. The commissioner director shall notify the person that
an order or notice has been issued, the reasons for it, and that a
hearing will be set within fifteen (15) days after the commissioner
director receives a written request from the person requesting a
(5) Sign all orders, official certifications, documents, or papers
issued under this chapter or delegate the authority to sign any of
those items to a deputy.
(6) Hold and conduct hearings.
(7) Hear evidence.
(8) Conduct inquiries with or without hearings.
(9) Receive reports of investigators or other officers or employees
of the state of Indiana or of any municipal corporation or
governmental subdivision within the state.
(10) Administer oaths, or cause them to be administered.
(11) Subpoena witnesses, and compel them to attend and testify.
(12) Compel the production of books, records, and other
(13) Order depositions to be taken of any witness residing within
or without the state. The depositions shall be taken in the manner
prescribed by law for depositions in civil actions and made
returnable to the commissioner.
(14) Order that each witness appearing under the commissioner's
order to testify before the
commissioner director shall receive the
fees and mileage allowances provided for witnesses in civil cases.
(b) If a witness, in any hearing, inquiry, or investigation conducted
under this chapter, refuses to answer any question or produce any item,
commissioner director may file a written petition with the circuit
or superior court in the county where the hearing, investigation, or
inquiry in question is being conducted requesting a hearing on the
refusal. The court shall hold a hearing to determine if the witness may
refuse to answer the question or produce the item. If the court
determines that the witness, based upon the witness's privilege against
self-incrimination, may properly refuse to answer or produce an item,
the commissioner director may make a written request that the court
grant use immunity to the witness. Upon written request of the
commissioner, the court shall grant use immunity to a witness. The
court shall instruct the witness, by written order or in open court, that:
(1) any evidence the witness gives, or evidence derived from that
evidence, may not be used in any criminal proceedings against
that witness, unless the evidence is volunteered by the witness or
is not responsive to a question; and
(2) the witness must answer the questions asked and produce the
A grant of use immunity does not prohibit evidence that the witness
gives in a hearing, investigation, or inquiry from being used in a
prosecution for perjury under
If a witness refuses to give
the evidence after he has been granted use immunity, the court may
find him in contempt.
(c) In any prosecution, action, suit, or proceeding based upon or
arising out of this chapter, the
commissioner director may sign a
certificate showing compliance or noncompliance with this chapter by
any person. This shall constitute prima facie evidence of compliance
or noncompliance with this chapter and shall be admissible in evidence
in any action at law or in equity to enforce this chapter.
SOURCE: IC 23-2-5-12; (03)IN1698.1.9. -->
IS AMENDED TO READ AS
FOLLOWS [EFFECTIVE JULY 1, 2003]: Sec. 12. Copies of any
statement or document filed with the
copies of any records of the
certified to by the
or any deputy are admissible in any
prosecution, action, suit, or proceeding based upon, or arising out of or
under, the provisions of this chapter to the same effect as the original
of the statement, document, or record would be if actually produced.
SOURCE: IC 23-2-5-14; (03)IN1698.1.10. -->
, AS AMENDED BY P.L.230-1999,
SECTION 8, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]: Sec. 14. (a) If the
commissioner director determines,
after a hearing, that a person has violated this chapter, the
commissioner director may, in addition to all other remedies, impose
a civil penalty upon the person in an amount not to exceed ten thousand
dollars ($10,000) for each violation.
commissioner director may bring an action in the circuit or
superior court of Marion County to enforce payment of any penalty
imposed under this section.
SOURCE: IC 23-2-5-18; (03)IN1698.1.11. -->
, AS AMENDED BY P.L.230-1999,
SECTION 10, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]: Sec. 18. (a) Each loan broker agreement shall be given
an account number. Each licensee shall keep and maintain the
following records or their electronic equivalent:
(1) A file for each borrower or proposed borrower that contains
(A) The name and address of the borrower or any proposed
(B) A copy of the signed loan broker agreement.
(C) A copy of any other papers or instruments used in
connection with the loan broker agreement and signed by the
borrower or any proposed borrower.
(D) If a loan was obtained for the borrower, the name and
address of the creditor.
(E) If a loan is accepted by the borrower, a copy of the loan
(F) The amount of the loan broker's fee that the borrower has
paid. If there is an unpaid balance, the status of any collection
(2) All receipts from or for the account of borrowers or any
proposed borrowers and all disbursements to or for the account of
borrowers or any proposed borrowers, recorded so that the
transactions are readily identifiable.
(3) A general ledger that shall be posted at least monthly, and a
trial balance sheet and profit and loss statement prepared within
thirty (30) days of the
commissioner's director's request for the
(4) A sample of:
(A) all advertisements, pamphlets, circulars, letters, articles,
or communications published in any newspaper, magazine, or
(B) scripts of any recording, radio, or television
(C) any sales kits or literature;
to be used in solicitation of borrowers.
(b) The records listed in subsection (a) shall be kept for a period of
two (2) years in the licensee's principal office and must be separate or
readily identifiable from the records of any other business that is
conducted in the office of the loan broker.
SOURCE: IC 23-2-5-19; (03)IN1698.1.12. -->
, AS AMENDED BY P.L.230-1999,
SECTION 11, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]: Sec. 19. (a) The following persons are exempt from the
requirements of sections 4, 5, 6, 9, 10, 17, and 18 of this chapter:
(1) Any attorney while engaging in the practice of law.
(2) Any certified public accountant, public accountant, or
accountant practitioner holding a certificate or registered under
IC 25-2.1 while performing the practice of accountancy (as
(3) Any person licensed as a real estate broker or salesperson
under IC 25-34.1 to the extent that the person is rendering loan
related services in the ordinary course of a transaction in which a
license as a real estate broker or salesperson is required.
(4) Any broker-dealer, agent, or investment advisor registered
(5) Any person that:
(B) promises to procure; or
(C) assists in procuring;
a loan that is not subject to the Truth in Lending Act (15 U.S.C.
1601 through 1667e).
(6) Any community development corporation (as defined in
Any person who is a creditor, or proposed to be a creditor, for
(b) As used in this chapter, "bona fide third party fee" includes fees
for the following:
(1) Credit reports, investigations, and appraisals performed by a
person who holds a license or certificate as a real estate appraiser
(2) If the loan is to be secured by real property, title examinations,
an abstract of title, title insurance, a property survey, and similar
(3) The services provided by a loan broker in procuring possible
business for a lending institution if the fees are paid by the
(c) As used in this section, "successful procurement of a loan"
means that a binding commitment from a creditor to advance money
has been received and accepted by the borrower.
(d) The burden of proof of any exemption or classification provided
in this chapter is on the party claiming the exemption or classification.
SOURCE: IC 23-2-5-21; (03)IN1698.1.13. -->
, AS ADDED BY P.L.230-1999,
SECTION 13, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]: Sec. 21. (a) Except as provided under section 5(d) of
this chapter, a person applying for a license or certificate of registration
must provide to the
commissioner director evidence that during the
twenty-four (24) month period immediately preceding the application
that the person completed at least twenty-four (24) hours of academic
instruction, acceptable to the commissioner, director, related to the
loan brokerage business. A person renewing a license or certificate of
registration must provide to the commissioner director evidence that
during the twenty-four (24) month period immediately preceding the
application that the person completed at least twelve (12) hours of
academic instruction, acceptable to the commissioner, director, related
to the loan brokerage business.
(b) In determining the acceptability of academic instruction the
commissioner director shall give consideration to approval of a
licensee's internal academic instruction programs completed by
SOURCE: IC 24-4.6-5; (03)IN1698.1.14. -->
IS ADDED TO THE INDIANA CODE
AS A NEW
CHAPTER TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2003]:
Chapter 5. Home Loan Protection Act
Sec. 1. As used in this chapter, "benchmark rate" means the
interest rate a borrower may reduce by paying bona fide discount
points. The rate may not exceed the weekly average yield of United
States Treasury securities having a maturity of five (5) years, as
determined on the fifteenth day of the month immediately before
the month in which the loan is made, plus four (4) percentage
Sec. 2. As used in this chapter, "bona fide discount points"
means loan discount points that are:
(1) knowingly paid by the borrower;
(2) paid for the express purpose of lowering the benchmark
(3) in fact reducing the interest rate or time-price differential
applicable to the loan from an interest rate that does not
exceed the benchmark rate; and
(4) recouped within the first four (4) years of the scheduled
loan payments, if the reduction in the interest rate that is
achieved by the payment of the loan discount points reduces
the interest charged on the scheduled payments so that the
borrower's dollar amount of savings in interest over the first
four (4) years is equal to or greater than the dollar amount of
loan discount points paid by the borrower.
Sec. 3. As used in this chapter, "borrower" means a person
obligated to repay a home loan, including a coborrower, cosigner,
Sec. 4. (a) As used in this chapter, "creditor" means:
(1) a person who extends consumer credit that is subject to a
finance charge or is payable by written agreement in more
than four (4) installments, and to whom the obligation is
payable at any time;
(2) a home loan broker, including any person who:
(A) directly or indirectly:
(iii) places; or
home loans for others; or
(B) closes home loans that:
(i) may be in the home loan broker's own name with
funds provided by others; and
(ii) are afterwards assigned to the provider of the
funding of the loan.
(b) The term does not include an attorney providing legal
services in association with the closing of a home loan.
Sec. 5. As used in this chapter, "department" means the
department of financial institutions.
Sec. 6. As used in this chapter, "flipping" refers to making a
home loan that refinances an existing home loan when the new loan
does not have reasonable, tangible net benefit to the borrower
considering all the circumstances, including the terms of both the
new and refinanced loans, the cost of the new loan, and the
Sec. 7. As used in this chapter, "high cost home loan" means a
home loan in which the terms of the loan meet or exceed one (1) or
more of the thresholds described in section 12 of this chapter.
Sec. 8. As used in this chapter, "home loan" means a loan, other
than a reverse mortgage transaction, but including an open end
credit plan, where the loan is secured by a:
(1) mortgage or deed of trust on real estate in Indiana upon
which there is located or there is to be located a structure or
structures designed primarily for occupancy of one (1) to four
(4) families and that is or will be occupied by a borrower as
the borrower's principal dwelling; or
(2) security interest on a manufactured home that is or will be
occupied by a borrower as the borrower's principal dwelling.
Sec. 9. (a) As used in this chapter, "manufactured home" means
a structure transportable in one (1) or more sections:
(A) is greater than or equal to eight (8) body feet in width;
(B) is greater than or equal to forty (40) body feet in
(2) built on a permanent chassis; and
(3) designed to be used as a dwelling:
(A) with a permanent foundation when erected on land
secured in conjunction with the real property where the
manufactured home is located;
(B) connected to the required utilities; and
(C) containing the required plumbing, heating, air
conditioning, and electrical systems.
(b) The term includes any structure:
(1) that meets all requirements of subsection (a) except
subsection (a)(1)(A) or (a)(1)(B); and
(2) with respect to which the manufacturer:
(A) voluntarily files a certification required by the United
States Department of Housing and Urban Development;
(B) complies with the standards established under the
National Manufactured Housing Construction and Safety
Standards Act (42 U.S.C. 5401 et seq.).
(c) The term does not include:
(1) rental property;
(2) second homes; or
(3) manufactured homes when not secured in conjunction
with the real property on which the manufactured home is
Sec. 10. As used in this chapter, "points and fees" means any of
(1) An amount payable under a point, discount, or other
system or additional charges.
(2) A service or carrying charge.
(3) A loan fee, finder's fee, or similar charge.
(4) A fee for an investigation report.
(5) Items exempted from computation of points and fees in
extensions of credit secured by an interest in real property.
However, the following items, when charged in connection
with any extension of credit secured by an interest in real
property, may not be included in the computation of the
finance charge with respect to that transaction, provided that
the creditor does not receive direct or indirect compensation
in connection with the charge and the charge is not paid to an
affiliate of the creditor:
(A) Fees or premiums for title examination, title insurance,
or similar purposes.
(B) Fees for preparation of loan related documents.
(C) Escrows for future payments of taxes and insurance.
(D) Fees for notarizing deeds and other documents.
(E) Appraisal fees, including fees related to any pest
infestation or flood hazard inspections conducted before
(F) Credit reports.
(6) All compensation paid directly or indirectly to a mortgage
broker, including a broker that originates a loan in its own
name in a table funded transaction.
(7) The cost of all premiums financed by the creditor, directly
or indirectly, for:
(A) credit life;
(B) credit disability;
(C) credit unemployment;
(D) credit property insurance;
(E) other life or health insurance; or
(F) any payments financed by the creditor directly or
indirectly for any debt cancellation or suspension
agreement or contract. However, insurance premiums
calculated and paid on a monthly basis are not considered
financed by the creditor.
(8) The maximum prepayment fees and penalties that may be
charged or collected under the terms of the loan documents.
(9) A prepayment fee or penalty that is charged the borrower
if the loan refinances a previous loan made by the same
creditor or an affiliate of the creditor.
(10) For an open end loan, the points and fees are calculated
by adding the total points and fees known at or before closing,
including the maximum prepayment penalties that may be
charged or collected under the terms of the loan documents,
plus the minimum additional fees the borrower would be
required to pay to draw down an amount equal to the total
Sec. 11. As used in this chapter, "rate" means the interest rate
charged on the home loan, based on an annual simple interest yield.
Sec. 12. As used in this chapter, "threshold" means any of the
(1) Rate threshold, which means:
(A) for a first lien mortgage loan, that the trigger rate
equals or exceeds six (6) percentage points over the weekly
average yield on five (5) year United States Treasury
(B) for a subordinate mortgage lien or a mortgage secured
solely by a security interest in a manufactured home, that
the trigger rate equals or exceeds eight (8) percentage
points over the weekly average yield on five (5) year United
States Treasury securities.
(2) Total points and fees threshold, which means the total
points and fees on the loan, paid by the borrower at or before
closing, that exceed:
(A) for a loan in which the total amount of the loan is at
least thirty thousand dollars ($30,000), three percent (3%)
of the total loan amount, excluding up to two (2) bona fide
discount points; or
(B) for a loan in which the total amount of the loan is less
than thirty thousand dollars ($30,000), the lesser of nine
hundred dollars ($900) or six percent (6%) excluding up to
two (2) bona fide discount points.
(3) Prepayment penalty threshold, which means the home
loan agreement permits the lender to charge or collect
prepayment penalties more than thirty (30) months after the
loan closing or that exceed, in total, more than two percent
(2%) of the amount prepaid.
Sec. 13. As used in this chapter, "total loan amount" means:
(1) the principal of the loan minus the points and fees that are
included in the principal amount of the loan; or
(2) the total line of credit allowed under the home loan for an
open end loan.
Sec. 14. As used in this chapter, "trigger rate" means:
(1) for fixed rate loans in which the interest rate will not vary
during the term of the loan, the rate as of the date of closing;
(2) for loans in which the interest varies according to an
index, the sum of the index rate as of the date of loan closing
plus the maximum margin permitted at any time under the
loan agreement; or
(3) for all other loans in which the rate may vary at any time
during the term of the loan, the maximum rate that may be
charged during the term of the loan.
Sec. 15. A creditor making a home loan may not finance,
directly or indirectly, any:
(1) credit life insurance;
(2) credit disability insurance;
(3) credit unemployment insurance;
(4) credit property insurance;
(5) other life or health insurance; or
(6) payments directly or indirectly for any cancellation
suspension agreement or contract.
However, insurance premiums, debt cancellation fees, or
suspension fees calculated and paid on a monthly basis may not be
considered financed by the creditor for purposes of this chapter.
Sec. 16. A creditor may not engage in flipping. A home loan
refinancing is presumed to be flipping if:
(1) the primary tangible benefit to the borrower is an interest
rate lower than the interest rate on debts satisfied or
refinanced in connection with the home loan, and it will take
more than four (4) years for the borrower to recoup the costs
of the points and fees and other closing costs through savings
resulting from the lower interest rate; or
(2) the new loan refinances an existing home loan that:
(A) is a special mortgage originated, subsidized, or
guaranteed by or through a state or local government or
nonprofit organization; and
(B) either bore a below market interest rate at the time the
loan was originated or has nonstandard payment terms
beneficial to the borrower, including payments that vary
with income or are limited to a percentage of income, or
terms under which no payments are required under
where, as a result of the refinancing, the borrower will lose
one (1) or more of the benefits of the special mortgage.
Sec. 17. A creditor may not recommend or encourage default on
an existing loan or other debt before and in connection with the
closing or planned closing of a home loan that refinances all or any
part of the existing loan or debt.
Sec. 18. A creditor may not charge a late payment fee except
according to the following rules:
(1) The late payment fee may not be in excess of four percent
(4%) of the amount of the payment past due.
(2) The late payment fee may be assessed only for a payment
past due for fifteen (15) days or more.
(3) The late payment fee may not be charged more than one
(1) time with respect to a single late payment. If a late
payment charge is deducted from a payment made on the loan
and the deduction causes a subsequent default on a
subsequent payment, a late payment charge may not be
imposed for the default. If a late payment charge has been
imposed one (1) time with respect to a particular late
payment, a late payment fee may not be imposed with respect
to any future payment that would have been timely and
sufficient, but for the previous default.
(4) A late payment fee may not be charged unless the creditor
notifies the borrower within forty-five (45) days following the
date the payment was due that a late payment charge has
been imposed for a particular late payment. A late payment
charge may not be collected from any borrower if the
borrower informs the creditor that nonpayment of an
installment is in dispute and presents proof of payment within
forty-five (45) days after receipt of the creditor's notice of the
(5) A creditor shall treat each payment as posted on the same
date as it was received by the creditor, servicer, or creditor's
agent, or at the address provided to the borrower by the
creditor, servicer, or the creditor's agent for making
Sec. 19. A home loan may not contain a provision that permits
the creditor, in its sole discretion, to accelerate the indebtedness.
This subsection does not prohibit acceleration of the loan in good
faith due to the borrower's failure to abide by the material terms
of the loan.
Sec. 20. A creditor may not charge a fee for informing or
transmitting to a person the balance due to pay off a home loan or
to provide a release upon prepayment. A creditor must provide a
payoff balance not later than seven (7) business days after the
request is received by the creditor.
Sec. 21. (a) The following additional limitations and prohibited
practices apply to a high cost home loan:
(1) A creditor making a high cost home loan may not directly
or indirectly finance any points or fees.
(2) Prepayment fees or penalties may not be included in the
loan documents for a high cost home loan or charged to the
borrower if the fees or penalties exceed in total:
(A) in the first twelve (12) months after the loan closing,
more than two percent (2%) of the loan amount prepaid;
(B) in the second twelve (12) months after the loan closing,
more than one percent (1%) of the amount prepaid.
(3) A prepayment penalty may not be contracted for after the
second year following the loan closing.
(4) A creditor may not include a prepayment penalty fee in a
high cost home loan unless the creditor offers the borrower
the option of choosing a loan product without a prepayment
fee. A lender is considered to have complied with this clause
if the borrower receives and executes the following disclosure:
"LOAN PRODUCT CHOICE
I was provided with an offer to accept a product both with
and without a prepayment penalty provision. I have chosen
to accept the product with a prepayment penalty.".
This notice may be incorporated with any other language.
(b) A high cost home loan may not contain a scheduled payment
that is more than twice as large as the average of earlier scheduled
payments, unless the payment schedule is adjusted to the seasonal
or irregular income of the borrower.
(c) A high cost home loan may not include payment terms under
which the outstanding principal balance will increase at any time
over the course of the loan because the regular periodic payments
do not cover the full amount of interest due.
(d) A high cost home loan may not contain a provision that
increases the interest rate after default. However, this subsection
does not apply to interest rate changes in a variable rate loan
otherwise consistent with the provisions of the loan documents if
the change in the interest rate is not triggered by the event of
default or the acceleration of the indebtedness.
(e) A high cost home loan may not include terms under which
more than two (2) periodic payments required under the loan are
consolidated and paid in advance from the loan proceeds provided
to the borrower.
(f) Without regard to whether a borrower is acting individually
or on behalf of others similarly situated, any provision of a home
loan agreement that:
(1) allows a party to require a borrower to assert any claim or
defense in a forum that is:
(A) less convenient;
(B) more costly; or
(C) more dilatory;
for the resolution of the dispute than a judicial forum
established in this state where the borrower may otherwise
bring a claim or defense; or
(2) limits in any way any claim or defense the borrower may
is unconscionable and void.
(g) A creditor may not make a high cost home loan without first
receiving certification from a third party nonprofit counselor
approved by the United States Department of Housing and Urban
Development or the Indiana housing finance authority established
that the borrower has received counseling on the
advisability of the loan transaction.
(h) A creditor may not make a high cost home loan without
regard to repayment ability. If a creditor presents evidence that
the creditor followed commercially reasonable practices in
determining the debt to income ratio, there is a rebuttable
presumption that the creditor made the loan with due regard to
(i) A creditor may not pay a contractor under a home
improvement contract from the proceeds of a high cost home loan
(1) the creditor is presented with a signed and dated
completion certificate showing that the home improvements
have been completed; and
(2) the instrument is payable to the borrower or jointly to the
borrower and the contractor or, at the election of the
borrower, through a third party escrow agent under a written
agreement signed by the borrower, the creditor, and the
contractor before the disbursement.
(j) A creditor may not charge a borrower any fees or other
charges 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
(k) A creditor making a high cost home loan that has the right
to foreclose must use the judicial foreclosure procedures of the
state where the property securing the loan is located. The borrower
has the right to assert in the proceeding the nonexistence of a
default and any other claim or defense to acceleration and
foreclosure, including any claim or defense based on any violations
of this chapter, though no claim or defense is considered a
(l) A creditor may not engage in a practice or have a policy that
encourages making a high cost home loan on the basis of race,
ethnicity, gender, or age.
Sec. 22. (a) If a creditor asserts that grounds for acceleration
exist and requires the payment in full of all sums secured by the
security instrument, the borrower or anyone authorized to act on
the borrower's behalf at any time before the title is transferred by
means of foreclosure, by judicial proceeding and sale, or otherwise,
may cure the default and reinstate the home loan by tendering the
amount or performance as specified in the security instrument. If
the borrower cures the default, the borrower must be reinstated to
the same position as if the default had not occurred, and any
acceleration of any obligation under the security instrument or
note arising from the default is nullified as of the date of the cure.
Sec. 23. (a) Before an action is filed to foreclose upon the home
or before other action is taken to seize or transfer ownership of the
home, a notice of the right to cure the default in a home loan must
be delivered to the borrower, informing the borrower of the
(1) The nature of default claimed on the home loan and the
borrower's right to cure the default by paying the sum of
money required to cure the default. However, a creditor or
servicer may not refuse to accept any partial payment made
or tendered in response to the notice. If the amount necessary
to cure the default will change during the thirty (30) day
period after the effective date of the notice due to the
application of a daily interest rate or the addition of late fees
as allowed by this chapter, the notice must give sufficient
information to enable the borrower to calculate the amount at
any point during the thirty (30) day period.
(2) The date by which the borrower must cure the default to
avoid acceleration and initiation of foreclosure or other action
to seize the home. The date may not be less than thirty (30)
days after the date the notice is effective. The name, address,
and telephone number of a person to whom the payment or
tender must be made must also be disclosed.
(3) That if the borrower does not cure the default by the date
specified, the creditor may take steps to terminate the
borrower's ownership in the property by requiring payment
in full of the home loan and commencing a foreclosure
proceeding or other action to seize the home.
(4) The name and address of the creditor and the telephone
number of a representative of the creditor whom the
borrower may contact if the borrower disagrees with:
(A) the creditor's assertion that a default has occurred; or
(B) the correctness of the creditor's calculation of the
amount required to cure the default.
(b) To cure a default under this section, a borrower may not be
required to pay a charge, fee, or penalty attributable to the
exercise of the right to cure a default, as provided for in this
section, other than the fees specifically allowed by this section. The
borrower is not liable for:
(1) attorney's fees relating to the borrower's default that are
incurred by the lender before or during the thirty (30) day
period described in subsection (a)(2); or
(2) a fee exceeding one hundred dollars ($100) that is incurred
by the lender after the expiration of the thirty (30) day period
but before the lender files a foreclosure action or takes other
action to seize or transfer ownership of the home.
After the lender files a foreclosure action or takes other action to
seize or transfer ownership of the home, the borrower is liable only
for attorney's fees that are reasonable and actually incurred by the
lender, based on a reasonable hourly rate and a reasonable number
(c) If a default is cured before the initiation of an action to
foreclose or to seize the residence, the creditor may not institute the
foreclosure proceeding or other action for that default. If a default
is cured after the initiation of any action to foreclose, the creditor
shall take the steps necessary to terminate the foreclosure
proceeding or other action. A creditor making a home loan who
has the legal right to foreclose must use the judicial foreclosure
procedures of the state where the property securing the loan is
located. The borrower may assert in a judicial foreclosure
proceeding or other action the nonexistence of a default and any
other claim or defense to acceleration and foreclosure, including a
claim or defense based on violations of this chapter. However, a
claim or defense may not be considered a compulsory
Sec. 24. (a) Notwithstanding any other law, but limited to the
amount required to:
(1) cover costs, including reasonable attorney's fees; or
(2) extinguish the borrower's liability under a home loan;
a borrower may assert defenses, claims, or counterclaims in actions
in connection with a home loan.
(b) A borrower acting in an individual capacity may assert any
defense, claim, or counterclaim against:
(1) a creditor;
(2) an assignee of a home loan; or
(3) any subsequent holder of a home loan;
in connection with the loan as an original action.
(c) A borrower acting in an individual capacity may assert any
defense, claim, or counterclaim:
(1) after an action:
(A) to collect on a home loan;
(B) to foreclose on the collateral securing a home loan is
(C) on the debt arising from a home loan that is
(D) when a home loan is sixty (60) days in default; and
(A) a creditor;
(B) an assignee of a home loan; or
(C) any subsequent holder of a home loan;
at any time during the term of the loan.
(d) Notwithstanding any other law, the remedies provided in
this chapter apply to:
(1) the creditor;
(2) a director, an officer, an employee, or a controlling
stockholder of or agent for a creditor who personally
participated in the making or approving of a high cost home
(3) any other person to whom this chapter applies and who
violates the requirements of this chapter.
A person who purchases or is otherwise assigned a high cost home
loan is subject to all affirmative claims and any defenses with
respect to the loan that the borrower could assert against the
original creditor or broker of the loan.
(e) Notwithstanding any other law, a borrower who is in default
for more than sixty (60) days or who is in foreclosure may assert a
violation of this chapter against any creditor, holder, or assignee
of the home loan by way of offset:
(1) as an original action;
(2) as a defense or counterclaim to an action to collect
amounts owed; or
(3) to obtain possession of the home secured by the home loan.
(f) It is a violation of this chapter for a person to attempt to
avoid the application of this chapter by:
(1) dividing a loan transaction into separate parts; or
(2) engaging in other subterfuge.
Sec. 25. (a) A person who knowingly or intentionally violates
this article commits:
(1) a Class A misdemeanor; and
(2) a deceptive act that is actionable by the attorney general
under IC 24-5-0.5 and is subject to the penalties listed in
(b) A person who violates this chapter is liable to the borrower
for the following:
(1) Actual damages, including consequential and incidental
damages. The borrower is not required to demonstrate
reliance in order to receive actual damages.
(2) Statutory damages equal to the finance charges agreed to
in the home loan agreement, plus ten percent (10%) of the
(3) Punitive damages, if the violation was malicious or
(4) Costs and reasonable attorney's fees.
(c) A borrower may be granted injunctive, declaratory, and
other equitable relief as the court determines appropriate in an
action to enforce compliance with this chapter.
(d) The knowing or intentional violation of this chapter or a rule
adopted under the authority of this chapter renders the home loan
agreement void, and the creditor has no right to collect, receive, or
retain any principal, interest, or other charges with respect to the
loan. The borrower may recover any payments made under the
(e) The remedies provided in this section are cumulative but are
not intended to be the exclusive remedies available to a consumer.
A consumer is not required to exhaust any administrative remedies
under this chapter or under any other applicable law.
(f) A creditor in a home loan who in good faith fails to comply
with this chapter may not be considered to have violated this
chapter if the creditor establishes:
(1) that not later than thirty (30) days after the date of the
loan closing and before receiving any notice from the
borrower of the compliance failure, the creditor has made
appropriate restitution to the borrower and appropriate
adjustments are made to the loan; or
(A) not later than sixty (60) days after the date of the loan
closing and before receiving any notice from the borrower
of the compliance failure, the borrower is notified of the
compliance failure, appropriate restitution is made to the
borrower, and appropriate adjustments are made to the
(B) the compliance failure was not intentional and resulted
from a bona fide error, notwithstanding the maintenance
of procedures reasonably adopted to avoid the errors.
For purposes of this subsection, bona fide errors include clerical
errors, calculation errors, computer malfunction and
programming errors, and printing errors. An error of legal
judgment with respect to a person's obligations under this chapter
is not a bona fide error for purposes of this subsection.
(g) The brokering of a home loan:
(1) by a home loan broker as described in section 4(a)(2) of
this chapter; and
(2) that violates any provision of this act;
shall constitute a violation of that provision and of this chapter.
Sec. 26. The rights conferred by this chapter are in addition to
rights granted under any other law.
Sec. 27. (a) The attorney general may enforce this article for any
violation occurring within ten (10) years of the occurrence of the
(b) As used in this chapter, "unit" refers to the mortgage fraud
unit established by this section.
(c) The mortgage fraud unit is established in the office of the
(d) The attorney general shall hire qualified individuals to
implement the responsibilities of the unit, subject to the budget
(e) The unit shall do the following:
(1) Investigate allegations of fraud in connection with
(2) Institute appropriate administrative and civil actions to
redress fraud in connection with mortgage lending.
(3) Cooperate with federal, state, and local law enforcement
agencies in the investigation of fraud in connection with
(4) Cooperate with appropriate federal and state agencies in
the prosecution of criminal violations involving fraud in
connection with mortgage lending.
(f) The unit shall cooperate with the following to implement this
(1) The Indiana professional licensing agency and the
appropriate licensing boards with respect to persons licensed
under IC 25.
(2) The department of financial institutions.
(3) The department of insurance with respect to the sale of
insurance in connection with mortgage lending.
(4) The securities division of the office of the secretary of
(5) The supreme court disciplinary commission with respect
to attorney misconduct.
Sec. 28. The attorney general may file complaints with any of
the agencies listed in section 27(f) of this chapter to implement this
Sec. 29. The establishment of the unit and its powers do not limit
the jurisdiction of any agency described in section 27(f) of this
Sec. 30. (a) The attorney general and an investigator of the unit
may do any of the following when investigating alleged fraud in
connection with mortgage lending:
(1) Issue and serve a subpoena for the production of records,
including records stored in electronic data processing systems,
for inspection by the attorney general or the investigator.
(2) Issue and serve a subpoena for the appearance of any
person before the department to provide testimony under
(3) Apply to a court with jurisdiction to enforce a subpoena
described in subdivision (1) or (2).
(b) The attorney general shall make recommendations to the
general assembly for appropriate legislation to address fraud in
connection with mortgage lending.
(c) The unit shall maintain an education program to inform
consumers of mortgage loans of fraud in connection with mortgage
lending. The unit shall cooperate with the agencies listed in section
27(f) of this chapter to develop and implement the education
program required by this subsection.
Sec. 31. The fees assessed by the county recorder to record a
mortgage is increased by three dollars ($3) per mortgage filing.
The county recorder shall retain fifty cents ($0.50) of the fee
increase. Two dollars ($2) from the fee increase is credited to the
Indiana housing finance authority established by
identify, promote, and fund mortgage literacy training and
programs throughout the state. Fifty cents ($0.50) from the fee
increase is credited to the unit.
Sec. 32. The fee assessed under
by the department of
financial institutions for the registration of loan brokers and
originators is increased by ten dollars ($10) for renewal of a
registration and by ten dollars ($10) for an initial registration.
Eight dollars ($8) of the fee increase is credited to the Indiana
housing finance authority established by
promote, and fund mortgage literacy training programs
throughout the state. Two dollars ($2) from the fee increase is
credited to the unit.
SOURCE: IC 23-2-5-1; (03)IN1698.1.15. -->
SECTION 15. IC 23-2-5-1 IS REPEALED [EFFECTIVE JULY 1,
SOURCE: ; (03)IN1698.1.16. -->
SECTION 16. [EFFECTIVE UPON PASSAGE] The rules adopted
by the securities commissioner appointed under
before July 1, 2003, concerning the licensure and regulation of loan
brokers are considered on July 1, 2003, rules of the department of
SOURCE: ; (03)IN1698.1.17. -->
SECTION 17. [EFFECTIVE UPON PASSAGE] (a)
Notwithstanding any rules adopted by the securities commissioner
, the department of financial
institutions shall carry out the duties imposed on it by
, as added by this act, under interim written
guidelines approved by the director of the department of financial
(b) This SECTION expires on the earlier of the following:
(1) The date rules are adopted under
IC 24-4.6-5, as added by this act.
(2) September 1, 2003.
SOURCE: ; (03)IN1698.1.18. -->
SECTION 18. [EFFECTIVE JULY 1, 2003] On July 1, 2003, the
department of financial institutions becomes the owner of the loan
broker regulation account in the state general fund.
SOURCE: ; (03)IN1698.1.19. -->
SECTION 19. [EFFECTIVE UPON PASSAGE] This act does not
(1) rights or liabilities accrued;
(2) penalties incurred;
(3) crimes committed; or
(4) proceedings begun;
before the effective date of this act. Those rights, liabilities,
penalties, crimes, and proceedings continue and shall be imposed
and enforced under prior law as if this act had not been enacted.
SOURCE: ; (03)IN1698.1.20. -->
SECTION 20. [EFFECTIVE UPON PASSAGE] The provisions of
this act are severable in the manner provided by
SOURCE: ; (03)IN1698.1.21. -->
SECTION 21. An emergency is declared for this act.