Synopsis: Home loan practices. Restricts certain lending acts and practices. Establishes the homeowner protection unit in the office of the attorney general. Provides enforcement procedures for deceptive mortgage acts. Establishes a $3 mortgage recording fee. Requires the Indiana housing finance authority to provide home ownership training programs. Provides that certain provisions do not apply to certain financial institutions. Makes changes to the definition of a high cost home loan. Prohibits certain lending practices.

Effective: Upon passage; July 1, 2004.

    January 20, 2004, read first time and referred to Committee on Judiciary.
    January 29, 2004, amended, reported _ Do Pass.
    February 4, 2004, read second time, amended, ordered engrossed.

    A BILL FOR AN ACT to amend the Indiana Code concerning trade regulations; consumer sales and credit and to make an appropriation.

[EFFECTIVE JULY 1, 2004]: Sec. 4. (a) The authority has all of the powers necessary or convenient to carry out and effectuate the purposes and provisions of this chapter including the power:
        (1) to make or participate in the making of construction loans to sponsors of multiple family residential housing that is federally assisted or assisted by a government sponsored enterprise, such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Federal Agricultural Mortgage Corporation, the Federal Home Loan Bank, and other similar entities approved by the authority;
        (2) to make or participate in the making of mortgage loans to sponsors of multiple family residential housing that is federally assisted or assisted by a government sponsored enterprise, such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Federal Agricultural Mortgage Corporation, the Federal Home Loan Bank, and other similar entities approved by the authority;
        (3) to purchase or participate in the purchase from mortgage lenders of mortgage loans made to persons of low and moderate income for residential housing;
        (4) to make loans to mortgage lenders for the purpose of furnishing funds to such mortgage lenders to be used for making mortgage loans for persons and families of low and moderate income. However, the obligation to repay loans to mortgage lenders shall be general obligations of the respective mortgage lenders and shall bear such date or dates, shall mature at such time or times, shall be evidenced by such note, bond, or other certificate of indebtedness, shall be subject to prepayment, and shall contain such other provisions consistent with the purposes of this chapter as the authority shall by rule or resolution determine;
        (5) to collect and pay reasonable fees and charges in connection with making, purchasing, and servicing of its loans, notes, bonds, commitments, and other evidences of indebtedness;
        (6) to acquire real property, or any interest in real property, by conveyance, including purchase in lieu of foreclosure, or foreclosure, to own, manage, operate, hold, clear, improve, and rehabilitate such real property and sell, assign, exchange, transfer, convey, lease, mortgage, or otherwise dispose of or encumber such real property where such use of real property is necessary or appropriate to the purposes of the authority;
        (7) to sell, at public or private sale, all or any part of any mortgage

or other instrument or document securing a construction loan, a land development loan, a mortgage loan, or a loan of any type permitted by this chapter;
        (8) to procure insurance against any loss in connection with its operations in such amounts and from such insurers as it may deem necessary or desirable;
        (9) to consent, subject to the provisions of any contract with noteholders or bondholders which may then exist, whenever it deems it necessary or desirable in the fulfillment of its purposes to the modification of the rate of interest, time of payment of any installment of principal or interest, or any other terms of any mortgage loan, mortgage loan commitment, construction loan, loan to lender, or contract or agreement of any kind to which the authority is a party;
        (10) to enter into agreements or other transactions with any federal, state, or local governmental agency for the purpose of providing adequate living quarters for such persons and families in cities and counties where a need has been found for such housing;
        (11) to include in any borrowing such amounts as may be deemed necessary by the authority to pay financing charges, interest on the obligations (for a period not exceeding the period of construction and a reasonable time thereafter or if the housing is completed, two (2) years from the date of issue of the obligations), consultant, advisory, and legal fees and such other expenses as are necessary or incident to such borrowing;
        (12) to make and publish rules respecting its lending programs and such other rules as are necessary to effectuate the purposes of this chapter;
        (13) to provide technical and advisory services to sponsors, builders, and developers of residential housing and to residents and potential residents, including housing selection and purchase procedures, family budgeting, property use and maintenance, household management, and utilization of community resources;
        (14) to promote research and development in scientific methods of constructing low cost residential housing of high durability;
        (15) to encourage community organizations to participate in residential housing development;
        (16) to make, execute, and effectuate any and all agreements or other documents with any governmental agency or any person, corporation, association, partnership, limited liability company, or other organization or entity necessary or convenient to

accomplish the purposes of this chapter;
        (17) to accept gifts, devises, bequests, grants, loans, appropriations, revenue sharing, other financing and assistance, and any other aid from any source whatsoever and to agree to, and to comply with, conditions attached thereto;
        (18) to sue and be sued in its own name, plead and be impleaded;
        (19) to maintain an office in the city of Indianapolis and at such other place or places as it may determine;
        (20) to adopt an official seal and alter the same at pleasure;
        (21) to adopt and from time to time amend and repeal bylaws for the regulation of its affairs and the conduct of its business and to prescribe rules and policies in connection with the performance of its functions and duties;
        (22) to employ fiscal consultants, engineers, attorneys, real estate counselors, appraisers, and such other consultants and employees as may be required in the judgment of the authority and to fix and pay their compensation from funds available to the authority therefor;
        (23) to invest any funds held in reserve or in sinking fund accounts or any money not required for immediate disbursement in obligations of the state, the United States, or their agencies or instrumentalities and such other obligors as may be permitted under the terms of any resolution authorizing the issuance of the authority's obligations;
        (24) to make or participate in the making of construction loans, mortgage loans, or both, to individuals, partnerships, limited liability companies, corporations, and organizations for the construction of residential facilities for the developmentally disabled or for the mentally ill or for the acquisition or renovation, or both, of a facility to make it suitable for use as a new residential facility for the developmentally disabled or for the mentally ill;
        (25) to make or participate in the making of construction and mortgage loans to individuals, partnerships, corporations, limited liability companies, and organizations for the construction, rehabilitation, or acquisition of residential facilities for children;
        (26) to purchase or participate in the purchase of mortgage loans from:
            (A) public utilities (as defined in IC 8-1-2-1); or
            (B) municipally owned gas utility systems organized under IC 8-1.5;
        if those mortgage loans were made for the purpose of insulating

and otherwise weatherizing single family residences in order to conserve energy used to heat and cool those residences;
        (27) to provide financial assistance to mutual housing associations (IC 5-20-3) in the form of grants, loans, or a combination of grants and loans for the development of housing for low and moderate income families; and
        (28) to service mortgage loans made or acquired by the authority and to impose and collect reasonable fees and charges in connection with such servicing; and
         (29) to identify, promote, assist, and fund home ownership training programs throughout Indiana, and adopt rules under IC 4-22-2 governing certification procedures and counseling requirements for nonprofit home ownership counselors.
    (b) The authority shall structure and administer any program conducted under subsection (a)(3) or (a)(4) in order to assure that no mortgage loan shall knowingly be made to a person whose adjusted family income shall exceed one hundred twenty-five percent (125%) of the median income for the geographic area within which the person resides and at least forty percent (40%) of the mortgage loans so financed shall be for persons whose adjusted family income shall be below eighty percent (80%) of the median income for such area.
    (c) In addition to the powers set forth in subsection (a), the authority may, with the proceeds of bonds and notes sold to retirement plans covered by IC 5-10-1.7, structure and administer a program of purchasing or participating in the purchasing from mortgage lenders of mortgage loans made to qualified members of retirement plans and other individuals. The authority shall structure and administer any program conducted under this subsection to assure that:
        (1) each mortgage loan is made as a first mortgage loan for real property:
            (A) that is a single family dwelling, including a condominium or townhouse, located in Indiana;
            (B) for a purchase price of not more than ninety-five thousand dollars ($95,000);
            (C) to be used as the purchaser's principal residence; and
            (D) for which the purchaser has made a down payment in an amount determined by the authority;
        (2) no mortgage loan exceeds seventy-five thousand dollars ($75,000);
        (3) any bonds or notes issued which are backed by mortgage loans purchased by the authority under this subsection shall be offered for sale to the retirement plans covered by IC 5-10-1.7; and

business for a lending institution if the fees are paid by the lending institution.
    (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.

2005, must prominently display the following on the face of the instrument:
        "This instrument secures a zero (0) interest rate or other subsidized low rate loan subject to IC 24-9-3-2.".
     (d) A creditor may reasonably rely on the presence or absence of the statement described in subsection (c) on the face of an instrument executed after January 1, 2005, as conclusive proof of the existence or nonexistence of a zero (0) interest rate or other subsidized low rate loan.
    Sec. 3. 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 part of the existing loan or debt.
    Sec. 4. A creditor shall treat each payment made by a borrower in regards to a home loan as posted on the same business day as the payment was received by the creditor, servicer, or creditor's agent, or at the address provided to the borrower by the creditor, servicer, or creditor's agent for making payments.
    Sec. 5. (a) A home loan agreement may not contain a provision that permits the creditor, in the creditor's sole discretion, to accelerate the indebtedness without material cause.
    (b) This section does not prohibit acceleration of a home loan in good faith due to the borrower's failure to abide by the material terms of the loan.
    Sec. 6. (a) 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 written release upon prepayment. A creditor must provide a payoff balance not later than ten (10) business days after the request is received by the creditor.
    (b) For purposes of this section, "fee" does not include actual charges incurred by a creditor for express or priority delivery requested by the borrower of home loan documents to the borrower.
    Sec. 7. A person may not:
        (1) divide a loan transaction into separate parts with the intent of evading a provision of this article;
        (2) structure a home loan transaction as an open-end loan with the intent of evading the provisions of this article if the loan would be a high cost home loan if the home loan had been structured as a closed-end loan; or
        (3) engage in a deceptive act in connection with a home loan.
    Sec. 8. A person, in seeking to enforce the person's rights under

section 7(3) of this chapter, may not knowingly or intentionally intimidate, coerce, or harass another person.
    Sec. 9. It is unlawful for a creditor to discriminate against any applicant with respect to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, or age, if the applicant has the ability to contract.
    Chapter 4. Additional Prohibitions for High Cost Home Loans
    Sec. 1. 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 and 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 two percent (2%) of the high cost home loan amount prepaid during the first twenty-four (24) months after the high cost home loan closing.
        (3) A prepayment penalty may not be contracted for after the second year following the high cost home 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. The terms of the offer must be made in writing and must be initialed by the borrower. The document containing the offer must be clearly labeled in large bold type and must include 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.".
        (5) A creditor shall not sell or otherwise assign a high cost home loan without furnishing the following statement to the purchaser or assignee:
            "NOTICE: This is a loan subject to special rules under IC 24-9. Purchasers or assignees may be liable for all claims and defenses with respect to the loan that the borrower could assert against the lender.".
        (6) A mortgage or deed of trust that secures a high cost home loan at the time the mortgage or deed of trust is recorded must prominently display the following on the face of the instrument:
            "This instrument secures a high cost home loan as defined

in IC 24-9-2-8.".
        (7) A creditor making a high cost home loan may not finance, directly or indirectly, any life or health insurance.
     Sec. 2. A creditor may not knowingly or intentionally:
        (1) refinance a high cost home loan by charging points and fees on the part of the proceeds of the new high cost home loan that is used to refinance the existing high cost loan within four (4) years of the origination of the existing high cost home loan; or
         (2) divide a home loan transaction into multiple transactions with the effect of evading this article. Where multiple transactions are involved, the total points and fees charged in all transactions shall be considered when determining whether the protections of this section apply.
    Sec. 3. Notwithstanding IC 24-4.5-3-402, a high cost home loan agreement may not require a scheduled payment that is more than twice as large as the average of earlier scheduled monthly payments under the high cost home loan agreement unless the payment becomes due and payable at least one hundred twenty (120) months after the date of the high cost home loan. This prohibition does not apply if:
        (1) the payment schedule is adjusted to account for the seasonal or irregular income of the borrower; or
        (2) the loan is a bridge loan connected with or related to the acquisition or construction of a dwelling intended to become the borrower's principal dwelling.
    Sec. 4. (a) Except as provided in subsection (b), 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 high cost home loan because the regular periodic payments do not cover the full amount of interest due.
    (b) This section does not apply to a temporary forbearance that is requested by a borrower regarding a high cost home loan.
    Sec. 5. A high cost home loan may not contain a provision that increases the interest rate after default. However, this section does not apply to interest rate changes in a variable rate loan otherwise consistent with the provisions of the high cost home loan documents if the change in the interest rate is not triggered by the event of default or the acceleration of the indebtedness.
    Sec. 6. A high cost home loan may not include terms under which more than two (2) periodic payments required under the high cost home loan are consolidated and paid in advance from the

high cost home loan proceeds provided to the borrower.
    Sec. 7. A creditor may not make a high cost home loan without first providing the borrower information to facilitate contact with a nonprofit counseling agency certified by:
        (1) the United States Department of Housing and Urban Development; or
        (2) the Indiana housing finance authority under IC 5-20-1-15.5;
at the same time as the good faith estimates are provided to the borrower in accordance with the requirements of the federal Real Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.) as amended.
    Sec. 8. (a) A creditor may not make a high cost home loan without regard to repayment ability.
    (b) If a creditor presents evidence that the creditor followed commercially reasonable practices in determining the borrower's debt to income ratio, there is a rebuttable presumption that the creditor made the high cost home loan with due regard to repayment ability. For purposes of this section, there is a rebuttable presumption that the borrower's statement of income provided to the creditor is true and complete.
    (c) Commercially reasonable practices include the use of:
        (1) the debt to income ratio:
            (A) listed in 38 CFR 36.4337(c)(1); and
            (B) defined in 38 CFR 36.4337(d); and
        (2) the residual income guidelines established under:
            (A) 38 CFR 36.4337(e); and
            (B) United States Department of Veterans Affairs form 26-6393.
    Sec. 9. A creditor may not pay a contractor under a home improvement contract from the proceeds of a high cost home loan unless:
        (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.
    Sec. 10. 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 a payment due under the terms of a high cost home loan.
    Sec. 11. A creditor may not make a high cost home loan unless the creditor has given the following notice, in writing, to the borrower not later than the time that notice is required under 12 CFR 226.31(c):

financial institutions;
            (B) are subject to the jurisdiction or regulatory supervision of the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration, the Federal Deposit Insurance Corporation, the Federal Trade Commission, or the United States Department of Housing and Urban Development;
            (C) are chartered by the United States Congress to engage in secondary market mortgage transactions;
            (D) are created by the Indiana housing finance authority; or
            (E) originate, purchase, sell, assign, securitize, or service property interests or obligations created by financial transactions or loans made, executed, originated, or purchased by persons referred to in clauses (A), (B), (C), or (D).
    Chapter 8. Penalties and Enforcement
    Sec. 1. A person who knowingly or intentionally violates this article commits:
        (1) a Class A misdemeanor; and
        (2) an act that is actionable by the attorney general under IC 24-5-0.5 and is subject to the penalties listed in IC 24-5-0.5.
    Sec. 2. (a) The attorney general and the attorney general's homeowner protection unit established under IC 4-6-12 shall enforce this article for any violation occurring within five (5) years after the making of a home loan.
    (b) The attorney general may refer a matter under section 1 of this chapter to a prosecuting attorney for enforcement.
    Sec. 3. (a) The attorney general may bring an action to enjoin a violation of this article. A court in which the action is brought may:
        (1) issue an injunction;
        (2) order a person to make restitution;
        (3) order a person to reimburse the state for reasonable costs of the attorney general's investigation and prosecution of the violation of this article; and
         (4) impose a civil penalty of not more than ten thousand dollars ($10,000) per violation.
    (b) A person who violates an injunction under this section is subject to a civil penalty of not more than ten thousand dollars ($10,000) per violation.
    (c) The court that issues an injunction retains jurisdiction over

a proceeding seeking the imposition of a civil penalty under this section.
    Sec. 4. The attorney general may file complaints with any of the agencies listed in IC 4-6-12-4 to implement this chapter.
    Chapter 9. Fees
    Sec. 1. The county recorder shall assess a fee of three dollars ($3) under IC 36-2-7-10(b)(11) for each mortgage recorded. The fee shall be paid to the county treasurer at the end of each calendar month as provided in IC 36-2-7-10(a).
    Sec. 2. The county treasurer shall credit fifty cents ($0.50) of the fee collected under IC 36-2-7-10(b)(11) for each mortgage recorded to the county recorder's records perpetuation fund established under IC 36-2-7-10(c).
    Sec. 3. On or before June 20 and December 20 of each year, after completing an audit of the county treasurer's monthly reports required by IC 36-2-10-16, the county auditor shall distribute to the auditor of state two dollars and fifty cents ($2.50) of the mortgage recording fee collected under IC 36-2-7-10(b)(11) for each mortgage recorded by the county recorder.
    Sec. 4. The auditor of state shall distribute one dollar and twenty-five cents ($1.25) of the mortgage recording fee to the home ownership training account established by IC 5-20-1-15.6. The auditor of state shall credit one dollar and twenty-five cents ($1.25) of the mortgage recording fee to the homeowner protection unit account established by IC 4-6-12-9.