(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 (4) 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 (4) families, a condominium unit, or a cooperative unit when:
1. More than fifty percent (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;
2. 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
3. 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 (1) 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 (1) 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 sixteen thousand dollars ($16,000.00) or greater, or eight hundred dollars ($800.00) if the loan amount is less than sixteen thousand dollars ($16,000.00).
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 (2) 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 RC 1349.25. 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. 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 (1) 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 fifty percent (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:
1. By an instrument payable to the borrower or borrowers;
2. By an instrument payable jointly to the borrower and the contractor, provided however that no more than thirty percent (30%) of the total proceeds of the loan shall be disbursed to the contractor at the time of closing; or
3. 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)