Oakland, CA Anti-Predatory Lending Ordinance
Status: Adopted on 10/5/01
Source File: http://tinyurl.com/2c2mwl
An Ordinance Amending The Oakland Municipal Code To Prohibit Predatory Lending Practices For Home Loans In The City Of Oakland
The Council of the City of Oakland does ordain as follows:
This Ordinance shall be known as the "Anti-Predatory Lending Ordinance."
Chapter 5.33 is hereby added to the Oakland Municipal Code to read as follows Chapter 5.33 HOME MORTGAGE LENDING
The purpose of this chapter is to prohibit certain predatory lending practices for home loans made in the City of Oakland.
The City Council finds and determines the following:
A. The City of Oakland as a home rule charter city has the right and power to make and enforce all laws and regulations that are its municipal affair, including the power to regulate business practices to promote the health, morals, safety, property, good order, well-being, general prosperity or general welfare of Oakland residents.
B. Predatory lending on home loans is a widespread, significant and growing problem in the City of Oakland, and threatens the well-being and general prosperity of Oakland residents and the City as a whole. Predatory lending practices are a significant economic drain on lower-income families and communities in Oakland. Predatory lending practices also lead to conditions of blight and the loss of affordable housing in Oakland, increase displacement and economic dislocation, reduce property values, erode the tax base, and increase the strain on City services.
C. Because of socioeconomic and market conditions in Oakland which give rise to predatory lending practices, predatory lending is a municipal affair and a matter of unique local interest and concern for the City of Oakland.
D. Neither state law nor federal law adequately address the predatory lending problem in Oakland.
E. The regulation of home mortgage lending practices by the City to prevent predatory lending, by prohibiting certain lending practices and requiring independent counseling on high-cost home loans, serves the public interest, is necessary to protect the health, morals, safety, property, general welfare, well being and prosperity of the residents of Oakland, and is within the home rule powers and police powers of the City.
As used in this chapter, the following terms have the following meanings:
An "affiliate" means any business entity that controls, is controlled by, or is under common control with, another entity, as set forth in the federal Bank Holding Company Act of 1956 (12 U.S.C. §1841, et seq.), as such statute may be amended from time to time, and includes any successors in interest or alter egos to the business entity.
"Annual percentage rate" means the annual percentage rate for a home loan calculated according to the provisions of the federal Truth in Lending Act (15 U.S.C. §1601, et seq.) and its implementing regulations, as such statute or regulations may be amended from time to time.
A "borrower" means singularly or collectively any natural person or persons with an obligation to repay a home loan, including without limitation a co-borrower, cosigner, or guarantor.
A "business entity" means any individual, domestic corporation, foreign corporation, association, syndicate, joint stock company, partnership, joint venture, limited liability company, sole proprietorship, or unincorporated association engaged in a business or commercial enterprise.
The "City" means the City of Oakland.
A "first mortgage" means a home loan secured by a deed of trust or mortgage on real property if the deed of trust or mortgage is senior in priority to any other deed of trust or mortgage on the real property.
A "high-cost home loan" means a home loan that meets either of the following thresholds:
- the annual percentage rate of the loan equals or exceeds (a) by more than 3 percentage points, if the home loan is a first mortgage, or (b) by more than 5 percentage points, if the home loan is a junior mortgage, the rate set by the required net yield for a 90-day standard mandatory delivery commitment for a first mortgage loan from either the Federal National Mortgage Association or the Federal Home Loan Mortgage Association, whichever is greater, as such yield is reported on the fifteenth day of the month immediately preceding the month in which the application for the home loan is received by the lender; or
- the total points and fees on the loan equal or exceed either 5% of the total loan amount or $800, whichever amount is greater.
If the terms of the home loan provide for an initial or introductory period during which the annual percentage rate is lower than that which will apply after the end of such initial or introductory period, then the annual percentage rate to be considered for purposes of this definition is the rate which applies after the initial or introductory period. If the terms of the home loan provide for an annual percentage rate that varies in accordance with an index plus a margin, then the annual percentage rate to be considered for purposes of this definition is the rate that is in effect on the date of loan consummation. In the case of a home loan with a regular interest rate that varies in accordance with an index plus a margin, but with an initial or introductory interest rate established in some other manner, the annual percentage rate to be considered is the rate that would have been in effect on the date of loan consummation were the regular rate determined by the index plus the margin to apply, that is, the fully-indexed rate on the date of loan consummation.
A "home loan" means a loan of money, including without limitation a line of credit or an open-end credit plan, if all of the following apply:
- the principal amount of the loan does not exceed the current conforming first mortgage loan size limit for a single-family dwelling as established by the Federal National Mortgage Association,
- the borrower incurred the loan primarily for his or her personal, family, or household uses,
- the loan is secured in whole or in part by a deed of trust, a mortgage (as defined under California Civil Code §2920 or §2924), or a similar security device or instrument, on real property located within the City of Oakland,
- this real property contains or will contain either (a) one to four residential units, or (b) individual residential units of condominiums or cooperatives, and
- one of these residential units is or will be occupied by the borrower as the borrower's principal dwelling.
In the case of multiple borrowers, the criteria in subsections (2) and (5) above will be considered satisfied if at least one of the borrowers has met the stated criteria. A "home loan" does not include a reverse mortgage as defined in California Civil Code §1923.
A "junior mortgage" means a home loan secured by a deed of trust or mortgage on real property if the deed of trust or mortgage is junior in priority to another deed of trust or mortgage on the real property.
A "lender" means any person or business entity that extends a home loan or arranges for the extension of a home loan. Notwithstanding the above, a "lender" does not include a bank chartered under the federal National Bank Act (12 U.S.C. §21, et seq.), a credit union chartered under the Federal Credit Union Act (12 U.S.C. §1751, et seq.), or a savings and loan association regulated under the federal Home Owners' Loan Act of 1933 (12 U.S.C. §1461, et seq.); however, an affiliate of any such federally chartered or regulated bank, credit union, or savings and loan association that extends home loans is considered a "lender" if the affiliate itself is not a bank, credit union, or savings and loan association chartered or regulated under the above-referenced federal statutes.
A "mortgage broker" means any person who functions as intermediary for a fee between the borrower and the lender in the making of a home loan.
A "person" means a natural person or a business entity.
"Points and fees" means the following:
- all items required to be disclosed under §226.4(a) and §226.4(b) of Title 12 of the Code of Federal Regulations, as amended from time to time, except interest or the time-price differential;
- all charges for items listed under §226.4(c)(7) of Title 12 of the Code of Federal Regulations, as amended from time to time, but only if the lender receives direct or indirect compensation in connection with the charge or the charge is paid to an affiliate of the lender;
- all compensation not otherwise specified in this definition paid directly or indirectly to a mortgage broker, including a broker that originates a home loan in its own name through an advance of funds and subsequently assigns the home loan to the person advancing the funds;
- the premium of any single premium credit life, credit disability, credit unemployment or other life or health insurance; and
- all prepayment fees or penalties. The term "points and fees" does not include any of the following: (1) taxes, filing fees, recording and other charges and fees paid or to be paid to public officials for determining the existence of, or for perfecting, releasing, or satisfying a security interest; or (2) charges paid to a person other than the lender, an affiliate of the lender, a mortgage broker, or an affiliate of a mortgage broker, as follows: fees for flood certification; fees for pest infestation and flood determinations; appraisal fees, fees for inspections performed prior to loan closing; credit report fees; survey fees; attorneys' fees (if the borrower has the right to select the attorney from an approved list or otherwise); notary fees; escrow charges that are not required to be disclosed under §226.4(a) and §226.4(b) of Title 12 of the Code of Federal Regulations; title insurance premiums; or fire insurance or flood insurance premiums (provided that the conditions in §226.4(d)(2) of Title 12 of the Code of Federal Regulations are met).
"Total loan amount" means the total credit received by the borrower as part of the loan, excluding points and fees.
5.33.040 Prohibited terms and practices for home loans in general.
No lender may make a home loan in violation of any of the following prohibited terms or practices:
A. No excessive prepayment penalties. No lender may charge a prepayment penalty on a home loan, unless the home loan is not a high-cost home loan, and the prepayment penalty is only imposed on prepayments within the first three years of the date of the promissory note for the home loan, and then solely as set forth herein and otherwise allowed by state and federal law. Any such prepayment penalty is limited to 3% of the total loan amount during the first year after the date of the note, 2% of the total loan amount during the second year, and 1% of the total loan amount during the third year. Notwithstanding the above, when a borrower refinances a home loan, at no time may a lender charge a prepayment penalty on the home loan being refinanced if the same lender or an affiliate of that lender will be the holder of the note for the new home loan. For purposes of this paragraph, a "prepayment penalty" means any penalty, fee, or charge imposed on a borrower by the lender or an affiliate of the lender for paying all or part of the principal of the home loan before the date when the principal payment is due.
B. No financing of credit insurance. No lender may finance any credit life, credit disability, credit property, or credit unemployment insurance, or any other life or health insurance premiums when making a home loan. Insurance premiums not included in the home loan principal and calculated and payable on a monthly basis will not be considered financed by the lender for purposes of this paragraph.
C. No recommending default. No lender may recommend or encourage a borrower to default or not to make payment on a home loan or any other debt, when such lender action is in connection with the closing or planned closing of a home loan that refinances all or part of the borrower's debt.
D. No loans violating federal lending laws. No lender may make a home loan that violates any applicable provision of the federal Truth in Lending Act, as amended by the Home Ownership and Equity Protection Act of 1994 (15 U.S.C. §1601, et seq.), or any applicable provision of the federal Real Estate Settlement Procedures Act of 1974 (12 U.S.C. §2601, et seq.), or any regulations implementing these statutes, as these statutes and regulations may be amended from time to time. The City intends that any violation of provisions in these laws pertaining to home loans shall give rise to a cause of action under this chapter independent of federal law, and shall entitle the aggrieved party or the City Attorney to pursue any of the rights and remedies set forth in this chapter.
5.33.050 Prohibited terms and practices for high-cost home loans.
No lender may make a high-cost home loan in violation of any of the following prohibited terms or practices:
A. No lending without home loan counseling. No lender may make a high-cost home loan without first receiving written certification from an independent housing or credit counselor approved by the United States Department of Housing and Urban Development, the State of California, or the City of Oakland, that the borrower either has received counseling on the advisability of the loan transaction and the appropriateness of the loan for the borrower, or has waived the counseling option as provided for in this subsection. A borrower may waive the counseling option by contacting an approved independent housing or credit counselor by personal meeting or live telephone conversation at least three days prior to the closing of the home loan and certifying in writing to the counselor that he or she has elected to waive the counseling option. The counselor shall keep any such certification of waiver on file for at least three years following the certification. A lender is not liable for the content of any advice or counseling an independent counselor gives to the borrower, nor is an independent counselor liable to a lender for the content of any advice or counseling the counselor gives to the borrower.
B. No lending without regard for repayment ability. No lender may make a high-cost home loan unless the lender reasonably believes at the time it makes the loan that one or more of the borrowers under the loan will be able to make the scheduled payments on the loan. Such a determination of the lender must be based upon a consideration of the borrower's current and expected income, current obligations, employment status, and other financial resources (other than the borrower's equity in the dwelling which secures repayment of the loan). A borrower is presumed to be able to make the scheduled payments to repay the loan if, at the time the loan is made, the borrower's debt-to-income ratio does not exceed 50%. If the borrower's debt-to-income ratio exceeds 50%, the lender must fully justify the decision to approve the high-cost home loan in a written statement provided to the borrower at loan closing that sets forth specific compensating factors, such as the excellent long-term credit history of the borrower, a demonstrated ability in the past by the borrower to make payments under comparable or greater debt-to-income ratios, conservative use of credit standards, significant liquid assets of the borrower, or other factors that reasonably justify the approval of the loan. For purposes of this paragraph, "debt" means the scheduled monthly principal and interest payments on all of the borrower's debts, including amounts owed under the home loan as well as other secured or unsecured debts of the borrower, plus payments associated with the dwelling prorated monthly for property taxes and assessments, homeowners insurance premiums, mortgage insurance premiums, and condominium or homeowners association dues or fees, and "income" means the borrower's monthly gross income as verified by the credit application, the borrower's financial statement, a credit report, financial information provided to the lender by or on behalf of the borrower, or any other reasonable means. In the case of a high-cost home loan offering a lower introductory or initial interest rate, the lender's determination of borrower debt must be based on the borrower's monthly payments on said loan at the interest rate following the introductory or initial rate rather than the monthly payments under the introductory rate. The provisions of this paragraph apply only to a high-cost home loan in which all of the borrowers have an income, as reported on the loan application that the lender relied on in making the credit decision, no greater than 120% of the median family income for the Oakland Metropolitan Statistical Area (as determined by the United States Department of Housing and Urban Development), adjusted for family size.
C. No excessive financing of points and fees. No lender may finance points and fees in excess of either 5% of the total loan amount or $800, whichever amount is greater, when making a high-cost home loan.
D. No advance payments. No lender may make a high-cost home loan that includes terms under which more than two periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower.
E. No modification or deferral fees. No lender may charge a borrower any fees or 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 loan, unless after the modification, renewal, extension or amendment, the home loan is no longer a high-cost home loan and the annual percentage rate on the home loan has decreased by at least two percentage points as a result of the modification, renewal, extension or amendment. The prohibition on such fees or charges shall not apply if the high-cost home loan is in default and the modification, renewal, extension, amendment, or deferral is part of a work-out arrangement.
F. No prepayment penalties. No lender may charge a prepayment penalty on a high-cost home loan. For purposes of this paragraph, a "prepayment penalty" means any penalty, fee, or charge imposed on a borrower by the lender or an affiliate of the lender for paying all or part of the principal of the high-cost home loan before the date when the principal payment is due.
G. No call provisions. No lender may make a high-cost home loan that includes terms which permit the lender in its discretion to accelerate the indebtedness. This restriction does not apply to terms that provide for the acceleration of repayment of the high-cost home loan upon default or pursuant to a due-on-sale clause.
H. No increased interest rate upon default. No lender may make a high-cost home loan that includes any provision increasing the interest rate after default or delinquency. This restriction does not apply to interest rate changes for a variable rate home loan otherwise consistent with the provisions of the loan documents, if the change in the interest rate is not triggered by an event of default, delinquency, or acceleration of the indebtedness.
I. No refinancing without borrower benefit. No lender may make a high- cost home loan if the high-cost home loan pays off all or part of an existing home loan or other debt of the borrower, and the borrower does not receive a reasonable and tangible net benefit from the new high-cost home loan considering all the circumstances, including the terms of both the new home loan and the refinanced debt, the cost of the new home loan, and the borrower's circumstances. A borrower is presumed to receive a reasonable and tangible net benefit from a refinance if any of the following are true: (1) as a result of the refinance there is a net reduction in the borrower's total monthly payments on all debts consolidated into the new home loan combined with the borrower's payments, prorated monthly, for homeowners insurance, mortgage insurance, and property taxes and assessments, whether such insurance and taxes are paid through the lender or not, and this reduction will continue for at least 36 months after the refinance, (2) as a result of the refinance there is a reduction in the borrower's blended interest rate on all debts consolidated into the new home loan, and it will not take more than 5 years for the borrower to recoup the points and fees charged for the refinance, (3) the borrower receives cash proceeds from the refinance, provided that either the amount of the points and fees charged for the refinance is no greater than 5% of the amount of the cash proceeds received by the borrower, or the cash proceeds received by the borrower equals or exceeds the greater of 15% of the total loan amount of the new loan or $12,000, or (4) the new home loan is necessary to prevent default under an existing home loan or other secured debt of the borrower, provided that the lender for the new home loan is not the same as or an affiliate of the creditor for the existing home loan or other secured debt.
J. No refinancing special mortgages. No lender may make a high-cost home loan if the high-cost home loan pays off all or part of an existing home loan, and such existing loan (1) is originated, subsidized, or guaranteed by the State of California, the City or other unit of local government, or a nonprofit organization, and (2) either has an interest rate at least two percentage points below prevailing market mortgage interest rates, or has one or more nonstandard payment terms beneficial to the borrower, such as deferred payments, loan forgiveness features, or payments that vary with income, that would be lost as a result of the refinance. This restriction shall not apply if an independent housing or credit counselor has reviewed the terms of the refinance of the special mortgage and has determined that the refinance is in the best interests of the borrower.
A lender who, when acting in good faith, fails to comply with this chapter, will not be considered to have violated this chapter if the lender establishes that, within 30 calendar days of the closing of the home loan and prior to the institution of any action under this chapter, the lender has notified the borrower of the compliance failure, the lender has made appropriate restitution, and the lender has adjusted the terms of the home loan in a manner beneficial to the borrower to make the loan comply with this chapter.
5.33.070 Investments and loan assignments.
A lender may not make investments that are backed by any home loan that violates this chapter. Any person who purchases or is otherwise assigned a home loan is subject to all claims, actions and defenses related to that home loan that the borrower, the City Attorney, or others could assert against the original lender.
5.33.080 Civil enforcement and remedies.
A. An aggrieved borrower or an organization acting on behalf of an aggrieved borrower or borrowers may bring a civil action for injunctive relief or damages in a court of competent jurisdiction for any violation of this chapter. If the court finds that a violation of this chapter has occurred, the court shall award: (1) actual damages sustained by the borrower as a result of the violation; (2) exemplary damages to the borrower in the amount of the points and fees charged for the home loan plus 10% of the total loan amount; and (3) reasonable costs and attorneys' fees. In addition the court may, as the court deems appropriate: (1) issue an order or injunction rescinding a home loan contract which violates this chapter, or barring the lender from collecting under any home loan which violates this chapter; (2) issue an order or injunction barring any judicial or non-judicial foreclosure or other lender action under the mortgage or deed of trust securing any home loan which violates this chapter; (3) issue an order or injunction reforming the terms of the home loan to conform to this chapter; (4) issue an order or injunction enjoining a lender from engaging in any prohibited conduct; (5) award punitive damages as the court may deem appropriate if the court determines by clear and convincing evidence that the lender has shown reckless disregard for the rights of the borrower; or (6) impose such other relief, including injunctive relief, as the court may deem just and equitable.
B. A borrower may also assert a violation of this chapter as a defense, bar, or counterclaim to any default action, collection action or judicial or non-judicial foreclosure action in connection with a home loan.
C. Any relief granted to a borrower under this chapter under law or equity may not reflect negatively in the credit history of the borrower. A lender may not report any action or relief granted to a borrower under this chapter to any credit agency, and may not consider any such action or relief when considering the making of any future home loans to the borrower.
D. The City Attorney may bring a civil action for any violation of this chapter. If the court finds in any such action that a lender or other party has violated this chapter, the court shall impose civil penalties of not less than $500 and not more than $50,000 per violation, and shall award reasonable costs and attorneys' fees to the City Attorney. For purposes of this paragraph, each home loan made in violation of this chapter is considered a separate violation.
E. The remedies provide under this chapter are cumulative. The protections and remedies provided under this chapter are in addition to other protections and remedies that may be otherwise available under law. Nothing in this chapter is intended to limit the rights of any injured person to recover damages or pursue any other legal or equitable action under any other applicable law or legal theory.
5.33.090 Limitations on actions.
A borrower must file any civil action brought under this chapter within three years after the discovery of the violation by the borrower. This limitation does not apply in the case of a borrower asserting a violation of this chapter as a defense, bar, or counterclaim to any default action, collection action or judicial or non -judicial foreclosure action. The City Attorney must file any action brought under this chapter within six years after the violation.
5.33.100 Criminal liability.
Any person who willfully violates this chapter is guilty of an infraction.
Any written or oral agreement in which a borrower purports to waive any rights or remedies that he or she may have under this chapter is against public policy and is void and unenforceable.
The provisions of this chapter apply to home loans made on or after November 1, 2001. For purposes of this paragraph, a home loan is considered "made" on the date the promissory note for the loan is signed by the borrower.
The record before this Council relating to this Ordinance and supporting the findings made herein includes, without limitation, the following:
A. All staff reports and legal opinions produced by or on behalf of the City with respect to predatory lending practices and this Ordinance, and other documentation and information attached to or cited in those reports or cited in this Ordinance;
B. The ACORN study and the HUD/Treasury report;
C. All oral and written information received by City staff and the City Council including its committees before and during the consideration of this Ordinance, including public comments and testimony; and
D. All matters of common knowledge and all official enactments and acts of the City, such as the Oakland City Charter and all applicable state and federal laws, rules and regulations.
The recitals contained in this Ordinance are true and correct and are an integral part of the Council's decision.
The custodians and locations of the documents or other materials which constitute the record of proceedings upon which the City Council's decision is based are respectively: (a) the Community and Economic Development Agency, Housing and Community Development Division, 250 Frank H. Ogawa Plaza, 5th floor, Oakland, California; and (b) the Office of the City Clerk, 1 Frank H. Ogawa Plaza, 1st floor, Oakland, California.
The City Manager and his or her designee is hereby authorized to adopt rules and regulations consistent with this Ordinance as needed to implement this Ordinance, and to make such interpretations of this Ordinance as he or she may consider necessary to achieve the purposes of this Ordinance.
The provisions of this Ordinance are severable, and if any clause, sentence, paragraph, provision, or part of this Ordinance, or the application of this Ordinance to any person, is held to be invalid or preempted by state or federal law, such holding shall not impair or invalidate the remainder of this Ordinance. If any provision of this Ordinance is held to be inapplicable to any specific category, type, or kind of loan or points and fees, or category of lender, the provisions of this Ordinance shall nonetheless continue to apply with respect to all other covered loans, points and fees, and lenders. It is hereby declared to be the legislative intent of the City Council that this Ordinance would have been adopted had such provisions not been included or such persons or circumstances been expressly excluded from its coverage.