Subchapter II. Prohibited Practices.
§ 26–1152.01. Applicability.
This subchapter shall only apply to a covered loan as defined in § 26-1151.01(7)(A).
§ 26–1152.02. Insufficient repayment ability.
(a) A lender shall not make a covered loan if the borrower, at the time that the covered loan is closed, cannot reasonably be expected to make the scheduled payments. For purposes of making this determination:
(1) The lender’s consideration shall include the ability to make any payments for mortgage insurance premiums, escrow deposits, or direct payment of real estate taxes and property insurance premiums (in addition to the payments of interest and principal) and the employment status of the borrower. The lender may consider the current and expected income, current obligations, and other financial resources of the borrower (other than the borrower’s equity in the dwelling which secures repayment of the loan).
(2) The lender shall not consider the borrowers’ equity interest in the residential real property which secures repayment of the covered loan; provided, that the borrower’s equity interest in the residential real property which secures repayment of the covered loan may be considered by the lender in determining whether to approve the loan as part of the evaluation of the borrower’s likelihood of default.
(3) In the case of a covered loan which includes payment terms under which the aggregate amount of the scheduled payments will not fully amortize the outstanding principal balance, the lender’s determination of the ability of the borrowers to make an expected balloon payment at the scheduled maturity date may include consideration of the borrowers’ equity interest in the residential real property and the borrowers’ ability, based on current market conditions, to refinance the covered loan without penalty, hardship, or material loss of equity.
(4) A lender shall not include or add a borrower to the covered loan who did not own or reside in the residential real property securing the covered loan prior to the covered loan transaction for the purpose of increasing the income and ability of the borrowers owning or residing in the residential real property to make all the scheduled payments of interest, principal, and mortgage insurance premiums, and escrow deposits for, or direct payment of, real estate taxes and property insurance premiums, unless the included or added borrower separately confirms in writing to the lender that the borrower expects and commits to make or substantially contribute to:
(A) The scheduled payments on the covered loan; and
(B) Escrow deposits for or direct payment of real estate taxes and property insurance premiums.
(b) The requirements of subsection (a) of this section shall only apply to borrowers whose gross income, as reported on the loan application which the lender relied upon in making the credit decision, does not exceed 120% of median family income. For purposes of this subsection, the median family income shall be the most recent estimate made by the U.S. Department of Housing and Urban Development at the time the application is received. For purposes of determining gross income under this section, only the income of the borrower shall be considered.
(c) The current and expected income, current debts, current assets, and employment of the borrowers shall be verified by the lender in accordance with standard residential mortgage lending industry practices to underwrite a loan secured by a residential lien instrument. For the purposes of this subsection, the lender shall be deemed to have followed standard residential mortgage lending industry practices if the lender verified the borrowers’ current and expected income and current debts in accordance with the verification guidelines and practices of the Federal National Mortgage Association, Federal Home Loan Corporation, U.S. Department of Housing and Urban Development, or U.S. Department of Veterans Affairs. Nothing in this subsection shall preclude the utilization of other standard industry verification practices accepted by applicable regulatory authorities.
§ 26–1152.03. Restrictions on the financing of single-premium credit insurance.
A lender shall not sell any individual or group credit life, accident, health, or unemployment insurance product on a prepaid single premium basis in conjunction with a covered loan. Credit insurance sold by a lender on a basis other than a prepaid single premium shall be accompanied by a clear and conspicuous disclosure, provided at least 3 days before closing, stating that the credit insurance shall not be a condition to the extension of mortgage credit and that the borrower may elect not to purchase the insurance. Insurance premiums or debt cancellation or suspension fees calculated and paid on a monthly or bi-weekly basis shall not be considered financed by the lender; provided, that the disclosure required by this section shall be provided to the borrower for any insurance, debt cancellation, or suspension services purchased by the borrower.
§ 26–1152.04. Restriction on financing origination/discount points and fees.
If a lender refinances a loan secured by the same residential real property to the same borrower which was made 18 months or less before the covered loan is made, the same lender shall not finance, directly or indirectly, any portion of the covered loan’s origination/discount points and fees or other fees payable to the lender or any third party in excess of the greatest of 3% of the new covered loan principal amount actually funded, $400, or such amount as the Mayor may establish by regulation, excluding:
(1) Reasonable charges described in 12 C.F.R. § 226.4(c)(7)(i), (iii), (iv), and (v); and
(2) Bona fide loan discount points.
§ 26–1152.05. No encouragement of default.
A lender shall not recommend or encourage the borrower to default on an existing loan or other debt prior to and in connection with the closing or planned closing of a covered loan that refinances all or any portion of the existing loan or other debt.
§ 26–1152.06. Unfair steering or improper use of credit scores.
(a) A lender shall not steer, counsel, or direct any prospective borrower to accept a loan product with a risk grade less favorable than the risk grade that the borrower would qualify for based on that lender’s then current underwriting guidelines, prudently applied, considering the information available to that lender, including the information provided by the borrower. A lender shall not violate this section if the risk grade determination applied to a borrower is reasonably based on the lender’s underwriting guidelines and if it is an appropriate risk grade category for which the borrower qualifies with the lender.
(b) The lender shall not make, or cause to be made, any false, deceptive, or misleading statement, representation, or determination regarding the borrower’s ability to qualify for any mortgage product or the borrower’s credit score.
§ 26–1152.07. Failing to report favorable payment record.
A lender or its servicer shall report a borrower’s favorable payment history and information to a nationally recognized credit-reporting agency at least once every 12 months. This section shall not prevent a lender or its servicer from agreeing with the borrower not to report payment history information and shall not apply to covered loans held or serviced by a lender for less than 90 days. Nothing in this section shall prevent a lender from reporting a borrower’s unfavorable payment history.
§ 26–1152.08. Home improvement contracts.
(a) A lender shall not pay a contractor under a home improvement contract from the proceeds of a covered loan other than by an instrument payable to the borrower or jointly payable to the borrower and the contractor or, at the election of the borrower, through a third-party escrow agent that is independent from the contractor in accordance with the terms established in a written agreement signed by the borrower, the mortgage lender, and the contractor prior to the disbursement of funds to the contractor. The borrower shall be responsible for any reasonable fees or costs associated with the election. A lender may conclusively rely on a certified written statement from either the contractor or the third-party escrow agent that states that the escrow agent and contractor are independent from each other.
(b) A lender shall not purchase a home improvement contract in connection with, or make an instrument payable to, a home improvement contractor that is not bonded with the District pursuant to subchapter IV of Chapter 28 of Title 47. The Mayor shall maintain a list of home improvement contractors that are bonded and in good standing. Unless the lender has notice that the contractor is not licensed or authorized to do business in the District, a lender who relies on the list within 60 days of the closing shall be considered in compliance with this section; provided, that the lender has provided the Mayor with a name, telephone number, mailing address, and electronic mail address of a contact person to whom the Mayor can provide updates or amendments to the list required by this subsection.
§ 26–1152.09. No increase in interest rate upon default.
A lender shall not make a covered loan that includes a provision that increases the covered loan’s interest rate upon a default. This section shall not apply to an interest rate increase in adjustable rate covered loans based on a recognized adjustable rate mortgage index and constant margin amount if an event of default or the acceleration of the maturity date of the covered loan does not cause or permit the increase in the interest rate.
§ 26–1152.10. Charges in bad faith.
A lender shall not charge and retain fees paid by the borrower in making a covered loan which are:
(1) For services that are not actually performed;
(2) For loan discount points which are not bona fide discount points; or
(3) In violation of the Real Estate Procedures Settlement Act of 1974, approved December 22, 1974 (88 Stat. 1724; 12 U.S.C. § 2601 et seq.).
§ 26–1152.11. Failure to timely send disclosure notice.
(a) In making a covered loan, a lender shall send to the borrower a Red Flag Warning Disclosure Notice.
(b) This notice shall be received by the borrower at least 3 business days prior to closing of the loan.
(c) If the loan is originated with the assistance of a mortgage broker, the mortgage broker shall provide the Red Flag Warning Disclosure Notice.
(d) Only one Red Flag Warning Disclosure Notice must be provided to each borrower.
(e) The Mayor shall promulgate, by regulation, the Red Flag Warning Disclosure Notice and instructions for completing, executing, and sending the disclosure notice. The Mayor may revise the disclosure notice or instructions at any time not less than 90 days in advance of the publication in the District of Columbia Register. After the publication of a revised disclosure notice or revised instructions, either the existing or revised instructions may be followed and either the existing or revised disclosure notice shall be accepted until the advance publication period expires.
§ 26–1152.12. Prepayment premium, fee or charge.
A lender shall not include in a covered loan or collect or attempt to collect any prepayment premium, fee, or charge in violation of Chapter 33 of Title 28.
§ 26–1152.13. Limitations on balloon payments.
A lender shall not make a covered loan that provides for a scheduled payment that is more than twice as large as the average of earlier scheduled monthly payments unless the balloon payment becomes due and payable not less than 7 years after the date of the loan closing. This section shall not apply if the payment schedule is adjusted to account for the seasonal or irregular income of the borrower or if 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.
§ 26–1152.14. No call provision.
A lender shall not make a covered loan that includes a call provision that permits the lender, in its sole discretion, to accelerate the indebtedness; provided, that this prohibition shall not apply when repayment of the covered loan has been accelerated by a bona fide default or pursuant to some other provision of the loan agreement unrelated to the payment schedule.
§ 26–1152.15. No negative amortization.
A lender shall not make a covered loan with a payment schedule with regular periodic payments that causes the principal balance to increase.
§ 26–1152.16. No advance payments.
A lender shall not make a covered loan that includes terms under which any periodic payments required under the loan are paid in advance from loan proceeds.
§ 26–1152.17. No advance waivers.
A provision in a covered loan whereby a borrower waives in advance a violation of this chapter shall be void.
§ 26–1152.18. No oppressive mandatory arbitration clause.
(a) A mandatory arbitration clause in a note, lien, instrument, or ancillary lien instrument or obligation that evidences or secures a covered loan that is oppressive, unfair, unconscionable, or in substantially in derogation of the rights of borrowers shall be void.
(b) Arbitration clauses that comply with the standards adopted by the Mayor pursuant to regulation shall be presumed not to violate this section; provided, the Mayor’s standards be in accordance with the procedures of a nationally recognized arbitration forum such as the American Arbitration Association.
§ 26–1152.19. Homeownership counseling.
A lender shall inform a borrower of his or her right to obtain counseling in connection with a covered loan. A Red Flag Warning Disclosure Notice shall satisfy this requirement.
§ 26–1152.20. Broker licensor.
Upon initiation of a business relationship with a mortgage broker, a lender shall verify that each mortgage broker with whom it does business in connection with making a covered loan is licensed or otherwise authorized to do business in the District. After verifying that the broker is licensed or authorized to do business in the District, the lender shall be entitled thereafter to rely upon a signed written statement by the mortgage broker that the mortgage broker is duly authorized to conduct business in the District unless the lender has notice that the mortgage broker is not licensed or authorized to do business in the District; provided, that the lender has provided the Mayor with a name, telephone number, mailing address, and electronic mail address of a contact to whom the Mayor can provide updates or amendments to the list of licensed brokers.
§ 26–1152.21. Filing requirements.
(a) Within 14 days following the funding of a covered loan, a lender otherwise subject to the jurisdiction of the Mayor shall submit to the Mayor a loan package including copies of the following documents:
(1) The settlement statement;
(2) The FP-7 Form filed with the Recorder of Deeds;
(3) The final Truth in Lending Act disclosure; and
(4) The note.
(b) In its transmittal of the loan package required by subsection (a) of this section, the lender shall certify that each of the documents provided are true copies of the original documents.
(c) The loan package submitted pursuant to subsection (a) of this section shall remain confidential and exempt from disclosure under any law except to the borrower, a lender involved in the covered loan transaction, or current noteholder.
§ 26–1152.22. Suspect settlement service providers.
The Mayor may create and maintain a public list of lenders and other settlement service providers, including real estate agents and appraisers, who have been found by a court to have engaged in a systematic pattern or practice of fraud or in operations in violation of the requirements of District law.
§ 26–1152.23. Median family income.
The Mayor shall periodically publish or make available to lenders median family income for Washington, D.C. that may be relied upon by lenders for purposes of this chapter.
