(a) Issuing Predatory Loans. No lender shall make, issue, or arrange a predatory loan or assist others in doing so. A lender who, when acting in good faith, fails to comply with this section will not be deemed to have violated this section if the person establishes that either:
(1) Within 30 days of the loan closing and prior to institution of any action under section 834.99, 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:
A. Make the predatory loan satisfy the requirements of section 834.01; or,
B. 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 section 834.01; or,
(2) 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 section 834.99, 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:
A. Make the predatory loan satisfy the requirements of section 834.01; or,
B. 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 section 834.01. 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 lender’s obligations under section 834.01 are not bona fide errors.
(b) Lending Without Due Regard to Repayment. No lender shall make, issue or originate any high cost loan if the lender does not reasonably believe at the time the loan is consummated that the borrower or 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, 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 the borrower has sufficient “residual income” as defined in the guidelines established in 38 C.F.R. 36.4337(e) and VA form 26-2393 to pay essential monthly expenses after paying the scheduled payments and any additional debt.
(c) Payments to Home Improvement Contractors. A lender shall not pay proceeds of a high cost loan to any home improvement contractor, and a home improvement contractor may not receive the proceeds of a high cost loan, other than:
(1) By an instrument payable solely to the borrower or jointly to the borrower and the contractor; or,
(2) 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 home improvement contractor before the disbursement date.
(Ord. 01-036. Passed 1-28-02.)