(a) "Affiliate" means any entity that controls, is controlled by, or is under common control with another entity, as the term "control" is defined under the Bank Holding Company Act, 12 U.S.C. §§ 1841 - 1849, including any successors in interest or alter egos.
(b) "Annual percentage rate" means the annual percentage rate for the loan calculated according to the provisions of the federal Truth in Lending Act (15 U.S.C. § 1601 et seq.), and the regulations promulgated thereunder by the Federal Reserve Board (as said Act and regulations are amended from time to time).
(c) "Business Entity" means any individual, domestic corporation, foreign corporation, association, syndicate, joint stock company, partnership, joint venture, or unincorporated association, including any parent company, subsidiary, exclusive distributor or company affiliated therewith, engaged in a business or commercial enterprise.
(d) "City" means the City of Cleveland, its departments, boards and commissions.
(e) "Points and Fees" means:
(1) All items required to be disclosed under sections 226.4(a) and 226.4(b) of Title 12 of the Code of Federal Regulations, as amended from time to time, except the interest rate or time-price differential;
(2) Subject to the exclusions provided in this section, all charges for items listed under section 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; otherwise the charges are not included within the meaning of the phrase "points and fees"; and
(3) All compensation paid directly or indirectly to a mortgage broker, including a broker that originates a loan in its own name in a tablefunded transaction, not otherwise included in divisions (1) or (2) of this section.
"Points and fees" shall not include any charges or fees excluded by paragraphs (c) through (e) of Regulation Z of the Truth in Lending Act, section 226.4 of Title 12 of the Code of Federal Regulations; however, notwithstanding the foregoing, any fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents shall be included in the definition of "points and fees".
(f) "Predatory loan" means a loan that is secured by owner-occupied residential real property located within the City of Cleveland on which there is situated a dwelling for not more than four families, a condominium unit, or a cooperative unit, if:
(1) at any time over the life of the loan for a fixed interest rate loan, or at the time a loan is consummated for a variable interest rate loan, the annual percentage rate of the loan equals or exceeds by more than four and one half (4 1/2) percentage points but less than or equal to eight (8) percentage points in the case of a mortgage that is a first lien when it is made, or equals or exceeds by more than six and one half (6 1/2) percentage points but less than or equal to ten (10) percentage points in the case of a mortgage that is junior when it is made, the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; and
(2) that was made under circumstances that involve any of the following acts or practices or that contains any of the following loan terms:
A. "Loan Flipping". "Flipping" a loan means the refinancing of an existing loan secured by owner-occupied residential real estate in the City of Cleveland on which there is situated a dwelling for not more than four families, a condominium unit, or a cooperative unit when:
i. More than 50% of the prior debt refinanced bears a lower interest rate than the new loan unless the lender has received notice from a counselor employed by a housing counseling agency approved by the Department of Housing and Urban Development, that the borrower has received counseling describing the loan transaction and its impact on the borrower;
ii. The borrower's payment of prepaid finance charges and closing costs reduces the interest rate but it will take more than five (5) years for the borrower to recoup the transactions costs; or
iii. A mortgage is refinanced that originated, or was subsidized or guaranteed by or through a state, tribal or local government, or nonprofit organization, which bears either a below-market interest rate, or has nonstandard payment terms beneficial to the borrower, such as payments that vary with income, are limited to a percentage of income, or where no payments are required under specified conditions, and where, as a result of the refinancing, the borrower will lose one or more of the benefits of the mortgage, unless the borrower has received counseling from a certified housing counseling agency regarding such refinancing and the borrower and current holder of the loan consent in writing to the refinancing.
B. "Balloon Payments". A loan that contains a scheduled payment that is more than twice as large as the average of earlier scheduled payments or which contains a provision that gives the lender, in its sole discretion, the right to accelerate the indebtedness in the absence of the default of the borrower. The term "balloon payment" shall not apply to (i) any loan with a maturity of one year or less, if the purpose of the loan is a "bridge" loan connected with the acquisition or construction of a dwelling intended to become the consumer's principal dwelling, or (ii) a home equity line of credit secured by the borrower's primary dwelling.
C. "Negative Amortization". 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. "Points and Fees". The financing of points and fees in excess of four (4) percentage points of the total loan amount if the loan amount is $16,000 or greater, or $800 if the loan amount is less than $16,000.
E. "Increased Interest Rate". A loan that provides for an interest rate applicable after default that is higher than the interest rate that applies before default.
F. "Advance Payments". A loan which 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.
G. "Mandatory Arbitration". A loan which contains a mandatory arbitration clause that limits in any way the right of the borrower to seek relief through a court of law or equity.
H. "Prepayment Penalties". A loan under which a borrower must pay a prepayment penalty for paying all or part of the principal before the date on which the principal is due. Any method of computing a refund of unearned scheduled interest is a prepayment penalty if it is less favorable to the consumer than the actuarial method, as "actuarial method" is defined in division (A) of Section 1349.25 of the Revised Code. The term "prepayment penalties" shall not include prepayment penalties imposed in accordance with the Home Ownership and Equity Protection Act of 1994, 15 U.S.C.A. 1639(c)(2), as amended, and the regulations adopted thereunder by the federal reserve board, as amended.
I. "Financing of Credit Insurance". The financing of single premium credit life, credit disability, credit unemployment, or any other life or health insurance, directly or indirectly, into one or more loans.
J. "Lending Without Home Loan Counseling". Except in conformity with the provisions of division (b)(1)(B) of Section 659.02, failing to receive notice from a counselor employed by a housing counseling agency approved by the Department of Housing and Urban Development that the borrower has received counseling describing of the loan transaction and its impact on the borrower based upon the information provided by borrower and lender to the counselor at the time counseling is provided to the borrower.
K. "Lending Without Due Regard to Repayment". Except in conformity with the provisions of division (b)(1)(B) of Section 659.02, making, issuing or originating a loan without reasonable belief at the time the loan is consummated that the borrower or borrowers (when considered collectively in the case of multiple borrowers) will be able to make the scheduled payments to repay the obligation based upon a consideration of their 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 shall be presumed to be able to make the scheduled payments to repay the obligation if, at the time the loan is consummated, or at the time of the first rate adjustment in the case of a lower introductory interest rate (i) the borrower's scheduled monthly payments on the loan (including principal, interest, taxes, insurance and assessments), combined with the scheduled payments for all other debt, do not exceed 50% of the borrower's documented and verified monthly gross income, and (ii) provided that the borrower has sufficient "residual income" as defined in the guidelines established in 38 C.F.R. § 36.4337(e) and VA form 26-6393 to pay essential monthly expenses after paying the scheduled payments and any additional debt.
L. The payment by a lender to a contractor on a home improvement contract from the proceeds of a loan, other than:
i. by an instrument payable to the borrower or borrowers;
ii. by an instrument payable jointly to the borrower and the contractor, provided however that no more than 30% of the total proceeds of the loan shall be disbursed to the contractor at the time of closing; or
iii. at the election of the borrower, by a third party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender and the contractor before the date of payment. However, "predatory loan" shall not include a loan that is made primarily for a business purpose unrelated to the residential real property securing the loan.
For purposes of division (f)(1) of this Section, if the terms of the home loan include an initial or introductory period, and the annual percentage rate is less than that which will apply after the end of such initial or introductory period, then the annual percentage rate that shall be taken into account for purposes of this Section shall be the first annual percentage rate adjustment that is calculated and disclosed in conformance with the provisions of division (b) of Section 659.01 for the period after the initial or introductory period.
(g) "Home Improvement Contractor" means any person who engages in the business of making home improvements, and who undertakes or offers to undertake or agrees to perform any home improvement, whether or not such person is registered, or subject to the licensing and registration requirements of Chapter 3107 of the Codified Ordinances of the City of Cleveland, and whether or not such person is a general contractor.
(Ord. No. 45-03. Passed 1-13-03, eff. 1-15-03)
(a) Prohibited Conduct.
Subject to the limitations of division (b) of this section:
(1) Issuing Predatory Loans. No person or business entity shall make, issue, or arrange a predatory loan, or assist others in doing so. A person who, when acting in good faith, falls to comply with this division will not be deemed to have violated this division if the person establishes that the compliance failure was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid such errors, and within 60 days after the discovery of the compliance failure and prior to the institution of any action under this Chapter or the receipt of written notice of compliance failure, the borrower is notified of the compliance failure, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the borrower, (i) make the predatory loan satisfy the requirements of this Chapter, or (ii) change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be considered a predatory loan subject to the provisions of this Chapter. Examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors. An error of legal judgment with respect to a person's obligations under this Chapter is not a bona fide error.
(2) Lending Without Home Loan Counseling. No person or business entity shall make, issue or arrange, or assist others in making, issuing or arranging, any loan that is secured by owner-occupied residential real property located within the City of Cleveland on which there is situated a dwelling for not more than four families, a condominium unit, or a cooperative unit in which either:
A. the annual percentage rate at consummation will exceed by more than eight (8) percentage points for first lien loans, or by more than ten (10) percentage points for subordinate-lien loans, the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or
B. the total points and fees payable by the consumer at or before loan closing will exceed the greater of eight (8) percent of the total loan amount, or $400; the $400 figure shall be adjusted annually on January 1 by the annual percentage rate change in the consumer price index that was reported on the preceding June 1, unless that person or business entity first receives notice from a counselor employed by a housing counseling agency approved by the Department of Housing and Urban Development that the borrower has received counseling describing the loan transaction and its impact on the borrower based upon the information provided by borrower and lender to the counselor at the time counseling is provided to the borrower.
(3) Payments to Home Improvement Contractors. A home improvement contractor may not receive directly and solely from the lender, the proceeds of a loan that is secured by owner-occupied residential real property located within the City of Cleveland on which there is situated a dwelling for not more than four families, a condominium unit, or a cooperative unit in which, at any time over the life of the loan for a fixed interest rate loan, or at the time a loan is consummated for a variable interest rate loan, the annual percentage rate of the loan equals or exceeds by more than four and one half (4 1/2) percentage points in the case of a mortgage that is a first lien when it is made, or equals or exceeds by more than six and one half (6 1/2) percentage points in the case of a mortgage that is junior when it is made, the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor.
(4) Incorporating Governmental Financial Assistance Funds. All persons shall be barred from promoting, utilizing, packaging, or in any other way incorporating funds from any of the programs administered by the City in combination with any predatory loan. Any contract, lease, grant or other agreement entered into by the City with any person or business entity shall contain a provision requiring that the person or business entity, in the administration of governmental housing assistance funds, abide by the provisions of this division as though its administration of such funds was directly subject to the provisions of this division.
(b) Activities of Certain Financial Institutions Exempted.
(1) Division (a) of this section is not applicable in the following circumstances:
A. With respect to a lender duly licensed as may be required under State law, solely because of the presence of a loan provision described in divisions (f)(2)(B), (C) or (H) of Section 659.01, provided that such provision(s) are made in conformity with the requirements of federal law pursuant to the Alternative Mortgage Transaction Parity Act, 12 U.S.C. § 3803 and provided that any such loan is not otherwise predatory as defined in division (f) of Section 659.01; or
B. In the case of a loan made pursuant to the Ohio's Mortgage Loan Act, R.C. § 1321.51 et seq., solely because the loan contains any provision authorized by such act, provided that any such loan is not otherwise predatory as defined in division (f) of Section 659.01.
(2) Divisions (a)(1) and (a)(2) of this section are not applicable with respect to a State chartered bank, bank and trust company, savings bank, private bank, national bank, or a State or federally chartered savings and loan association, a federally chartered savings bank, a State or federally chartered credit union.
(3) This section shall apply to affiliates of the entities enumerated in division (b)(2) of this section, except insofar as such affiliates are themselves one of those financial institutions.
(Ord. No. 45-03. Passed 1-13-03, eff. 1-15-03)
(a) No person or business entity that knowingly funds a home improvement loan under the circumstances described in this section shall fail to furnish the notice described in this section. At least three (3) business days prior to closing, every lender who knowingly funds a home improvement loan shall furnish a notice along with any home improvement loan for any work to be performed on owner-occupied residential real estate located within the City of Cleveland on which there is situated a dwelling for not more than four families, a condominium unit, or a cooperative unit and which loan is secured by that real estate, shall furnish a notice to the borrower. That notice shall be furnished as a separate document, printed in 16 point font, with the signature line at the top of the page, and shall be in substantially the same form as the following, as may be amended from time to time by the Department of Consumer Affairs:
IMPORTANT NOTICE TO CUSTOMERS OF HOME IMPROVEMENT CONTRACTORS
I received this notice on this date:
———————————————(date)
———————————————signature of
home owner(s)
If you need a loan to pay for home improvements:
BE CAREFUL. A lender will probably want to take a mortgage on your house.
You should not borrow more than you can afford or more than you need. The loan you are being offered may be a predatory loan. You may be eligible for a different loan which charges significantly less interest or fees. Be very cautious about consolidating your debt with a home mortgage. Beware that if you default on this loan you could lose your house! In certain cases, it is now the law in Cleveland that before you sign a home loan you must receive housing counseling assistance.
For the name, address and phone number of a housing counseling or legal services agency in your neighborhood, turn this notice over to see the list of agencies printed on the reverse side.
(b) For purposes of division (a) of this section, a "home improvement loan" shall not include a loan commonly known as a "home equity line of credit".
(Ord. No. 45-03. Passed 1-13-03, eff. 1-15-03)
Note: Affected institutions and City departments shall have 60 days from the effective date of this ordinance to comply with Sections 659.03 and 659.04.
No lender or, if applicable, mortgage broker, shall fail to submit the certification of compliance to the Cuyahoga County Recorder's Office as described in this section. At the time of recording a mortgage on owner-occupied residential real property located in the City of Cleveland on which there is situated a dwelling for not more than four families, a condominium unit, or a cooperative unit, and which mortgage secures a loan where the annual percentage rate of the loan equals or exceeds by more than four and one half (4 1/2) percentage points in the case of a mortgage that is a first lien when it is made, or equals or exceeds by more than six and one half (6 1/2) percentage points in the case of a mortgage that is junior when it is made, the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application of the extension of credit is received by the creditor, the lender and, if applicable the mortgage broker, shall submit a certification of compliance to the Cuyahoga County Recorder's Office for recording along with the mortgage instrument and deed. It is not necessary to record a certificate of compliance for a loan that is made primarily for a business purpose unrelated to the residential real property securing the loan. The certification of compliance shall be substantially in the following form and shall comply with any formatting requirements promulgated from time to time by the Cuyahoga County Recorder's Office.
CERTIFICATION
The undersigned lender and mortgage broker certify, that to the best of our knowledge, information and belief, the attached mortgage, described below, entered into between ————————————————————————————————————————
(name of lender) and ————————————————————————————————————————
(name of borrower) on ————————————————————————————————————————
(date of execution) for the property located at ————————————————————————————————————————
————————————————————————————————————————
(street address of property) contains the following characteristics and terms:
/sp 3./Type of mortgage:
Purchase Money/sp 1./ Non-purchase Money
/sp 3.5/(circle one)
First Mortgage/sp 1./ Junior Mortgage
/sp 3.5/(circle one)
a. The annual percentage rate of the loan at closing is ————————————————————————————————————————
————————————————————————————————————————
b. The applicable Treasury Rate (i.e., the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor) is ————————————————————————————————————————
c. The total loan amount is ————————————————————————————————————————
————————————————————————————————————————
d. The total amount of points and fees (as defined in division (e) of Section 659.01) is ————————————————————————————————————————
e. The percentage of points and fees (calculated according to the equation d/ (c-d) x 100) financed is ————————————————————————————————————————
————————————————————————————————————————
f. The borrower has or has not (circle one) received housing counseling. A notice of housing counseling is or is not (circle one) attached to this certification.
g. The mortgage does or does not (circle one) violate any provisions of Chapter 659 of the Codified Ordinances of the City of Cleveland, 1976.
Date: ——————————
——————————————— Mortgage Lender
——————————————— Name and Title of Officer
——————————————— Address
——————————————— Telephone Number
OR
——————————————— Mortgage Broker
——————————————— Name and Title of Officer
——————————————— Address
——————————————— Telephone Number
——————————————— State of Ohio Registration No.
I, [lender], have filled out each blank space of this document and have given it to the customer and it is true and accurate.
Signed: ——————————————— Date: ——————————
I, [mortgage broker], have filled out each blank space of this document and have given it to the customer and it is true and accurate.
Signed: ——————————————— Date: ——————————
I, [borrower], have received and reviewed with the contractor a copy of this document.
Signed: ——————————————— Date: ——————————
(Ord. No. 45-03. Passed 1-13-03, eff. 1-15-03)
Note: Affected institutions and City departments shall have 60 days from the effective date of this ordinance to comply with Sections 659.03 and 659.04.
The Director of Consumer Affairs is hereby charged with the enforcement of this Chapter. The Director shall promulgate such rules, regulations and procedures as he or she may deem necessary to aid in the administration and enforcement of the provisions of this Chapter. For the purpose of enforcement of the provisions of this Chapter, the Director shall maintain a listing of those business entitles that have been determined to make predatory loans under this Chapter and shall regularly distribute this listing to all City departments. This listing shall also be made available to the public free of charge by request of the Department of Consumer Affairs. The Director shall also maintain a list of HUD-certified housing counseling agencies and shall make such list available upon request. The Director of the Department of Consumer Affairs may make findings with respect to predatory loans and lenders who make such loans based on recommendations made by a Consumer Advisory Council.
(Ord. No. 737-02. Passed 4-22-02, eff. 4-25-02)
If any clause, sentence, paragraph or part of this Chapter, or the application thereof to any person or circumstance, shall for any reason be adjudged by a court of competent jurisdiction to be invalid, such judgment shall not affect, impair or invalidate the remainder of this Chapter nor the application of such clause, sentence, paragraph or part to other persons or circumstances but shall be confined in its operation to the clause, sentence, paragraph or part thereof and to the persons or circumstances directly involved in the controversy in which such judgment shall have been rendered. It is hereby declared to be the legislative intent that this Chapter would have been adopted had such provisions not been included or such persons or circumstances been expressly excluded from their coverage.
(Ord. No. 737-02. Passed 4-22-02, eff. 4-25-02)
(a) Whoever violates Section 659.02 is guilty of a misdemeanor of the first degree. Each day in which a borrower is assessed with interest on the principal loan amount of a predatory loan shall constitute a separate offense.
(b) Whoever violates Section 659.03 or Section 659.04 is guilty of a misdemeanor of the fourth degree.
(c)(1) No person or business entity shall be awarded a contract with the City if the person or business entity or any of its affiliates makes predatory loans or violates Section 1349.27 of the Revised Code. Every contract with the City shall contain a provision requiring that the person or business entity with which the City is contracting must certify that neither the person or business entity nor any of its affiliates has made predatory loans or has violated Section 1349.27 of the Revised Code. Nothing in this section shall affect the validity of any contract entered into in connection with any debt obligations issued by or on behalf of the City, regardless of whether the contract was awarded in compliance with this section. Any other contract awarded in violation of this section shall be voidable at the option of the City.
(2) The Finance Director may suspend the ineligibility of a person or business entity in order to allow execution of a contract with the person or entity upon written application by the head of the City department affected by the proposed contract, setting forth facts sufficient in the judgment of the Finance Director to establish:
A. that the public health, safety or welfare of the City requires the goods or services of the person or business entity; and
B. that the City is unable to acquire the goods or services at comparable price and quality, and in sufficient quantity from another source or other sources.
(Ord. No. 737-02. Passed 4-22-02, eff. 4-25-02)