AN ACT CONCERNING PREDATORY LENDING.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Subsection (c) of section 36a-486 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2006):

(c) Each first mortgage loan negotiated, solicited, placed, found or made without a license or registration is voidable by the borrower and shall constitute a separate violation for purposes of section 36a-50.

Sec. 2. Subsection (c) of section 36a-511 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2006):

(c) Each secondary mortgage loan negotiated, solicited, placed, found or made without a license is voidable by the borrower and shall constitute a separate violation for purposes of section 36a-50.

Sec. 3. Subsection (a) of section 36a-706 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2006):

(a) (1) No mortgage lender shall commit to a first mortgage loan applicant or the applicant's representative that the lender will make the loan at a specified rate if the loan is closed by the expiration of a specified period of time except by issuing a mortgage rate lock-in not less than five days prior to the date of closing on such loan, and the period for which the terms are locked in is at least as long as the mortgage lender's good faith estimate of the anticipated time from when the mortgage loan application is submitted to the lender to the time when such lender will be ready to close such loan, taking into consideration current market conditions and the processing requirements for the type of first mortgage loan in question. (2) In the event a mortgage rate lock-in is issued after the mortgage loan application is submitted to the lender, the minimum period for which the terms may be locked in shall be the period determined in accordance with subdivision (1) of this subsection, less the number of days elapsed since the application was submitted to the lender.

Sec. 4. Section 36a-708 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2006):

(a) No mortgage broker shall collect a rate lock-in fee, except where required by a governmental agency to be collected directly by the mortgage broker, issue a mortgage rate lock-in or otherwise represent to a first mortgage loan applicant or the applicant's representative that the loan will be made at a specified rate if the loan is closed by the expiration of a specified period of time. Notwithstanding the provisions of this section, a mortgage broker may provide a mortgage lender's mortgage rate lock-in to a mortgage loan applicant or the applicant's representative on behalf of such mortgage lender and collect a rate lock-in fee on the mortgage lender's behalf payable to the mortgage lender, provided such mortgage rate lock-in is issued to the borrower not less than five days prior to the date of closing on such loan.

(b) No mortgage broker or mortgage lender shall represent to the applicant that the terms of a first mortgage loan commitment or a mortgage rate lock-in will be at a particular rate, number of points or variable rate terms if, at the time of the representation, the mortgage broker or mortgage lender knows or should know that the terms of the first mortgage loan commitment or mortgage rate lock-in will not be at the represented rate, number of points or variable rate term.

(c) No mortgage broker or mortgage lender shall advertise that any type of mortgage loan is available at a particular rate, number of points or variable rate term unless the advertised rate, number of points or variable rate term is available to applicants at the time of advertisement and the advertisement contains a date on which such offer is effective.

(d) A violation of this section shall be deemed an unfair or deceptive trade practice under subsection (a) of section 42-110b.

Sec. 5. (NEW) (Effective January 1, 2007) The Banking Commissioner shall adopt regulations, in accordance with chapter 54 of the general statutes, requiring each mortgage broker or mortgage lender, with respect to a first or secondary mortgage, to provide a notice to the borrower: (1) With any mortgage rate lock-in disclosure, that advises the borrower in clear and conspicuous type (A) to review the terms of the agreement and be certain that the borrower can afford the mortgage, (B) to ask whether the mortgage has an adjustable rate and what the monthly payment would be if interest rates remain the same and if the maximum interest rate was charged, (C) to calculate how much the borrower will need to pay for insurance and property taxes as well as the monthly mortgage payment, (D) that the borrower will be paying these bills with net income and not the gross income listed on the application, and (E) that the lender is only committed to terms that are contained in a written agreement so that the interest rate, fees and other aspects of the loan may change and that the borrower should not rely on any oral representations as to mortgage terms; and (2) with any mortgage loan application, that advises the borrower in clear and conspicuous type (A) to compare rates and fees with other lenders, (B) to seek independent professional advice from an attorney, credit counselor or financial advisor prior to committing to any mortgage, (C) to be aware that failure to pay a mortgage loan could result in the loss of the home and a poor credit rating, and (D) that applying for a loan does not commit the borrower to sign the mortgage loan. For the purposes of this section, "mortgage lender" and "mortgage broker" have the same meanings as provided in section 36a-705 of the 2006 supplement to the general statutes.

Statement of Purpose:

To (1) prohibit mortgage brokers or lenders from advertising or representing that a loan or lock-in will be at a specific rate or with specific points when the broker or lender knew or should have known that the loan will not ultimately be made with those terms; (2) prohibit advertising certain loan characteristics such as interest rate and fees when such loans are not generally available to applicants at the time of advertisement; (3) require all mortgage loan commitments by lenders or notices of loan approvals by brokers to be made in writing and signed by the borrower at least five days in advance of the closing; (4) require lenders or brokers to provide a notice to consumers at the time of submission of a loan application that informs the borrower: (A) To compare rates and fees with other lenders; (B) to seek professional advice from an attorney, credit counselor or financial advisor; (C) to be aware that failure to pay a mortgage could result in the loss of the home and poor credit rating; (D) to be aware that applying for a loan does not commit the borrower to sign the loan; and (5) require lenders or brokers to provide a notice to consumers with the mortgage commitment or notice of loan approval that informs the borrower: (A) To review the terms of the agreement and be certain that the borrower can afford the mortgage; (B) to ask whether the mortgage has an adjustable rate and what the monthly payment would be if interest rates remain the same and if the maximum interest rate was charged; (C) to calculate how much the borrower will need to pay for insurance and property taxes as well as the monthly mortgage payment; (D) that the borrower will be paying these bills with net income and not the gross income listed on the application; and (E) that the lender is only committed to terms that are contained in a written agreement and that the interest rate, fees and other aspects of the loan may change.

[Proposed deletions are enclosed in brackets. Proposed additions are indicated by underline, except that when the entire text of a bill or resolution or a section of a bill or resolution is new, it is not underlined.]