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The Law Offices of Herman Thordsen provides a full spectrum of legal services to our clients.

The founding member of the firm, Herman Thordsen, is an acknowledged expert in the areas of mortgage fraud and  regulatory compliance.  He is counsel to numerous mortgage brokers and mortgage broker associations.  He is a contributing author to the Legal Corner section of Mortgage Matters magazine, and many other publications.

If you have any questions, you may contact us by telephone at (714) 662-4990.

This list is generally effective through the date that it was last revised.

e gladly provide this information as a free reference service to persons interested in mortgage compliance issues.

We have made every effort to provide as complete a listing of predatory lending laws and pending legislation as is possible.  However, this page should not be considered an exhaustive listing of all predatory lending laws pending or recently enacted in the United States of America.

If you are aware of current or pending legislation or laws that either just recently became or will soon be in effect, and they are not listed here, please notify us so we may add them to the list compiled here.

We are especially interested in laws and regulations being discussed at the state and local levels.  Many cities and counties are enacting their own ordinances under the mantle of "predatory lending practices" consumer protection measures, and many of them will add significantly to the regulatory burden of lenders and mortgage brokers.

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PREDATORY LENDING LAWS  &  REGULATIONS
(Affecting YSPs, Interest Rates, Points & Fees, etc.)

U.S. Legislature

The Clay Bill

H.R. 4471 Introduced December 2005. Lenders that charge points and fees that exceed 5% of the loan amount would not be able to require mandatory arbitration, and investors would be liable for violations under an assignee liability provision. YSP paid to mortgage brokers up to 2% of the loan amount would be exempt from the 5% points/fees test. The Clay bill also restricts prepayment penalties to 2.5% of the loan amount on all home loans and prohibits all lenders from steering customers into higher-cost subprime loans.

Federal Agencies

1. FRB Amends Regulation Z (12 CFR Part 226) to Implement HOEPA
2. FRB Changes Regulation C ( HMDA) to Track Predatory Lending Loans

1. Final Rule:  Compliance with these amendments to Reg. Z becomes mandatory on October 1, 2002.
   
2. Final Rule:  The amendments are effect for data collection beginning January 1, 2003.

See ML 94-16 for more information regarding pricing variances referred to here.

• "Refusing to do business with financial institutions that engage in predatory lending practices
  
• Requiring [its] business partners to report complete credit information about borrowers to all the credit repositories
  
• Refusing to invest in mortgages with the following characteristics:
  
  • Mortgages originated in connection with single-premium credit insurance
    
  • High-rate or high-fee mortgages covered by the Homeownership and Equity Protection Act of 1994 (HOEPA loans)
    
  • Subprime mortgages with prepayment penalty terms that exceed three years, for all subprime mortgages originated on or after 10/01/02"

State Activity

House Bill 2618 (the “Bill”) was introduced February 4, 2005.  The Bill, if enacted, would create a “High Cost Home Mortgage Loan” category and impose restrictions on loan terms and lending practices pertaining to those loans.

The High Cost Home Mortgage Loan designation would apply to consumer credit transactions, secured by the borrower’s dwelling (excluding reverse mortgages), in which the APR or points and fees exceed certain levels.  The APR triggers proposed in the Bill are 8% above comparable Treasury securities for first lien loans and 9% above comparable Treasury securities for subordinate lien loans.  The points and fees test is satisfied when total points and fees (with certain exclusions) exceed the greater of 5% of the total loan amount or $400.

The Bill imposes restrictions on lending practices and loan terms in connection with High Cost Home Mortgage Loans.  The Bill includes provisions regarding enforcement and penalties for violations.  In addition to the provisions relating to High Cost Home Mortgage Loans, the Bill proposes adding restrictions pertaining to refinancing other mortgage loans.  The Bill proposes adding that a lender may not refinance a borrower’s debt with a Home Loan if the refinancing transaction is not in “the borrower’s interest.”  The Bill also proposes banning the practice of financing credit insurance premiums into a home mortgage loan, except those insurance products with premiums calculated and payable on a monthly basis.

Neither the Bill nor current Arizona law provide definitions for the terms “home loan” or “home mortgage loan.”
 

  The Arkansas Home Loan Protection Act.   

  ARKANSAS NOW HAS ITS OWN PREDATORY LENDING LAW

Financial Code sectinos 4970-4979.8

Amended to now cover all consumer loans secured by homeowners property up to the Fannie Mae conforming loan amount.

1. HB 02-1259
   Concerning Protection of Consumers' Home Ownership Equity
   
2. SB 02-073
   Protection of Colorado Homeowners Against Abusive Home Loan Practices

1. Sent to Governor for Signature 5-28-02
   Loans with total points and fees exceeding six percent (6%) of the total loan amount and otherwise subject to the federal Home Ownership and Equity Protection Act of 1994 are covered by the bill.
   The following provisions are Effective 1-1-03 if signed by Governor
   
   Severely Limits Balloon Payments
   No Call Provision
   No Negative Amortization
   No Increased Interest Rate Upon Default
   Mandatory Arbitration Clauses Severely Restricted
   No Advance Payments from Loan Proceeds
   Prepayment Fees Severely Limited
   No Covered Loans Without Precautionary Notice to Borrower
   No Equity-Based Loans...Must Give Due Regard to Borrower Ability to Repay
   Severe Restrictions on Refinancings Within One Year
   No Refinancing on Certain Low-Rate Loans
   Restrictions on Loan Proceeds Being Used to Pay Home Improvement Contracts
   No Financing of Credit Insurance
   No Recommending Default
   No Fee for Payoff Quote
   Must Report to Credit Bureaus Both Favorable and Unfavorable Information
   Private Right of Action to Borrower for Violation, in Addition to State Enforcement
   Various Unfair Trade Practices Prohibitions on Mortgage Brokers/Originators
   
2. Passed Senate 3-27-02; Stalled in House Information & Technology Committee
   
   OFFICIAL SYNOPSIS:  "Adds a new part to the 'Uniform Consumer Credit Code' . . . Defines terms.  Creates additional protections regarding high-cost home loans, including limitations on permissible late fees, financing of points and fees, payments to home improvement contractors, and advance payments.  Further protects high-cost home loan consumers by prohibiting the financing of credit insurance and charging a fee for providing a credit balance, prepayment penalties, balloon payments, negative amortization, refinancing that does not benefit the borrower or that results in a loss of certain benefits to the borrower, increased interest rates after default, mandatory arbitration and cognovit clauses, lending without regard to repayment ability and without home ownership counseling, modification and deferral fees, recommendations to default on existing loans, steering, and acceleration of indebtedness.  Specifies civil remedies to enforce the consumer protections."

JANUARY 1, 2003

The Colorado Consumer Equity Protection Act is effective commencing January 1, 2003 through Colorado Statutes 5-3.5-101 and following.  Briefly:

For All Loans Covered by Section 32 of Reg Z as well as loans where the points and fees are more than 6 points above the loan amount:

1. No balloon payments if loan is less than 20-years.
2. No “call” provisions with exceptions.
3. No negative amortization with exceptions.
4. No mandatory arbitration clauses unless specific requirements are met.
5. No advance payments.
6. No prepayment penalties after 36-months with exceptions.  Must give borrower choice of products without penalty and written notification thereof.
7. Notice to borrower before doing covered loan is required.
8. Lender must check ability to repay loan.
9. No refinancing of covered loans into another covered loan within first 12-months of loan.
10. No refinancing of low rate governmental or nonprofit loans without consent of current lender.
11. No financing of credit insurance.
12. No charge for payoff quote and must give quote within 5-business days.
13. Report payment history to credit bureaus.

Buyers on the secondary market liable same as original lender to limited extent.

OFFICIAL SYNOPSIS:  "[R]equires lenders to make certain disclosures to prospective borrowers seeking high-cost home loans, including the interest rate and the consequences of mortgaging a home . . . prohibits lenders from including certain loan provisions or from taking certain actions with respect to such loans, like charging unwarranted or excessive fees or providing incomplete information . . . imposes conditions on a lender’s ability to sell credit insurance to a borrower . . . creates new penalties for lenders who violate its provisions . . . prohibits lenders from charging a fee for the first payoff statement requested each year except when it is delivered on an expedited basis pursuant to an agreement with the borrower."

If enacted, would go into effect 10-1-2005

Bill adds a definition to the term "prepayment penalty"
Adds the prepayment penalty limitation used in high cost mortgages to all mortgages made by Connecticut banks, credit unions, first mortgage lenders, brokers and originators and secondary mortgage lenders. 

Prohibits prepayment penalties when the mortgagee is refinancing a mortgage with the same lender or an affiliate of such lender; request that all refinancing of existing mortgages have some "benefit to the borrower". 

1. B14-0509
   Protections from Predatory Lending Revision Act of 2002
   
2. B14-0515
   Home Loan Protection Act of 2002
   
3. B14-0536
   Protections from Predatory Lending and Mortgage Foreclosure Improvements Congressional Review Emergency Amendment Act of 2002
   
4. B14-0555
   Home Loan Protection Emergency Act of 2002
   
5. B14-0556
   Home Loan Protection Temporary Act of 2002

1. In CRA Committee
   
2. Approved, signed by Mayor 3-1-02; Transmitted to Congress 3-21-02; Effective Date 5-7-02;
   Follows HOEPA provisions of REG Z closely
   
3. Approved, signed by Mayor 2-25-02
   Amends Home Loan Protection Act to allow for further review time by Congress
   
4. Signed by Mayor 3-1-02; effective immediately, expires 5-30-02.
   Declared to be a set of emergency protections against predatory lending practices while other legislation is still under review by Congress.
   
5. Withdrawn, 2-19-02.

FLORIDA FAIR LENDING ACT EFFECTIVE OCTOBER 2, 2002

 FACTS

Florida Senate Bill 2262 became effective on October 2, 2002.  In summary form a high cost loan is defined as a section 32 loan.  8 points for first mortgages and 10 points for second mortgages above a comparable federal security as of the 15^th of the month preceding the loan or more than 8 points above the loan amount.  Law restricts prepayment penalties, notice to borrower before obligated on loan, restrictions on balloon payments and default interest, no negative amortization, no more than two months advance payments, borrower ability to repay must be considered, no refinance in the first    18-months of the loan and more.  Read the bill if you are doing a high cost loan.

  MORAL

We have a web site with a predatory lending law hyperlink to give summaries.  It is reasonably current and should be checked if you are going into a state    with a predatory lending law.  We have a syllabus with a little more detail and can give a seminar on all the predatory laws or   the laws of one state at your request.

1. HB 1361
   Georgia Fair Lending Act
2. SB 53  Georgia Fair Lending Act
3. SB 78 Banking and Finance Regulations; Comprehensive Revisions;
4. HB 808
   Georgia Predatory Lending Prevention Act

1. Final Passage, House & Senate, 4-12-02; Signed by Governor, 4-22-02
   
   SYNOPSIS:  'Georgia Fair Lending Act'  provides for definitions of prohibited practices and limitations relating to high-cost home loans.  Creates specific and numerous consumer protections for high-cost home loans; provides for penalties and enforcement.  There  are no good faith purchasers and all assignees of the note are liable for violation.  Provides for civil and criminal penalties. 
   
   Effective 10-1-02
2. Signed by the Governor on March 7, 2003, as Act 1, effective immediately.
3. Provides for enforcement violations of the Georgia Fair Lending Act.  The Senate passed the bill on March 3, 2003 and sent it to the House the next day.  The Governor signed on June 4, 2003.
4. Proposed HB 808 creates categories of "home loan" and "high cost home loans" as well as limitations on loan terms and lending practices in connection with "home loans" and "high cost home loans."
   

Sets up specific prohibitions for equity-based loans and high-cost mortgages, and specifically targets the making of loans at a higher cost than the borrower qualifies for (looks like another state where YSPs are going to be a thing of the past).

Amends section 26-3102 of the Idaho Code

2.  The High Risk Home Loan Act.

2.  Illinois enacted a new law signed by the Governor August 2003 that adding to the state's existing predatory lending law and makes it easier for consumers to sue lenders and investors who purchase high cost mortgage loans. The High Risk Home Loan Act sets lending standards on loans with interest rates or fees that exceed 5% of the total loan amount.  The new law amends the Illinois Consumer Fraud and Deceptive Practices Act and it gives the state attorney general authority to prosecute unscrupulous lenders.  (ON82503)

Indiana Adds Predatory Lending Law

Effective July 1, 2004 Indiana House Bill 1229 will be the law of the state.  It amends the Loan Broker Act by changing the definition of broker and exemptions; amends the Uniform Consumer Credit Code to change the exemptions; and creates a predatory lending act applicable to high-cost loans and home loans which prohibits a lender from financing credit insurance and encouraging default on an existing loan, imposes prepayment penalty restrictions and restrictions on balloon loans, requires lenders to give a high-cost home loan disclosure and imposes penalties for violations of the law.

The Indiana Home Loan Practices Act (Ind. Code Ann. §§24-9-1 through 24-9-9) is effective January 1, 2005. The law applies to owner-occupied home loans secured by property located in the State of Indiana.   This law is onerous enough that Fannie Mae will not accept any loans that activate this law.

Bill will prohibit a creditor making a home loan from: financing directly or indirectly, any credit life, credit disability, credit employment or credit property insurance or any other life or health insurance. Prohibits flipping, encouraging default, including call provisions, imposing a late payment charge unless the loan documents specifically authorize the charge, the charge is not imposed unless the payment is past due for 10 days or more, the charge does not exceed 5% of the amount of the late payment; and charging off a payoff fee or release fee in connection with a home loan, unless the information is provied by facsimile or if it is provided upon request within 60 days of a previous request, then the credit is permitted to charge $10 processing

1. Puts limitations on financing directly or indirectly any points or fees, prepayment fees or penalties, scheduled payments that are more than twice as large as the average or earlier scheduled payments, negative amortization, increased interest rate after default, advance payments, assessing borrowers ability to pay, modification and deferral fees, making high cost home loans before borrower has received counseling for the loan. 

2. Home loan: is an extension of credit, including an open-end credit plan, to which all of the following applies: a) the loan does not exceed the applicable Freddie Mac conforming loan limit; b) the loan is a federally related mortgage loan under RESPA and c) the loan is not a reverse mortgage loan or a loan made primarily for business, agricultural or commercial purposes. 

3. High Cost Home loan: is a home loan in which the terms of the loan meet or exceed one or more thresholds. APR that equals or exceeds the rate set forth under HOEPA. Total points and fees threshold means for loans in which the total loan amount is $20,000 or more, the total points and fees payable in connection with the home loan less any excludable points and fees exceed 5% of the total loan amount. 

2.  HB 287

      An Act Relating to Mortgage Loans.

1.  New sections of KRS Chapter 360 defines "high-cost home loan"; prohibit a high-cost home loan from containing a provision allowing the lender to charge or collect prepayment fees or penalties more than 36 months after the loan closing or which exceed defined amounts; prohibit a provision allowing the lender to accelerate the indebtedness; prohibit balloon payments; prohibit negative amortization; prohibit a provision which increases the rate after default; prohibit terms under which two or more periodic payments are consolidated and paid in advance from the loan proceeds; provide that a lender cannot charge a borrower fees to modify, renew, extend, or amend a high-cost home loan or to defer any payment, unless the fees are less than one-half of any fees that would be charged to refinance, or unless the borrower is in default, and it is in the best interest of the borrower; provide that a lender cannot make a high-cost home loan unless the borrower has been provided a written notice that the borrower could lose the home if the borrower fails to meet his or her obligations under the loan; require the notice to explain that mortgage rates and closing costs and fees vary based on many factors, including credit and employment history, loan-to-value requested, and the type of property; require the notice to suggest consulting a qualified independent credit counselor or other experienced financial advisor; require the notice to point out that the borrower is not required to complete the loan agreement, that homeowners insurance and property taxes are the responsibility of the borrower, and that payments on existing debts affect a person's credit rating; prohibit a lender from making a high-cost home loan unless the lender reasonably believes that one or more borrowers will be able to make the scheduled payments based upon consideration of their current and expected income, current obligations, current employment status, and other financial resources; provide that there shall be a presumption that the borrower can make the scheduled payments if the borrower's total monthly debts, including amounts owed under the loan, do not exceed 50% of the borrower's monthly gross income; provide that if the proceeds of the high-cost home loan are used to refinance an existing high-cost home loan held by the same lender, the lender may not finance any prepayment penalties or fees payable by the borrower or finance points and fees which in the aggregate exceed four percent of the total amount financed; prohibit a lender or mortgage loan broker, within one year of the consummation of a high-cost home loan, from charging the borrower points and fees in connection with a high-cost home loan if the proceeds of the high-cost home loan are used to refinance an existing high-cost home loan; prohibit a lender from paying a contractor under a home-improvement contract from the proceeds of a high-cost home loan other than by an instrument payable to the borrower or jointly to the borrower and the contractor, or at the election of the borrower, through a third-party escrow agent in accordance with a written agreement signed by the borrower, lender, and contractor; prohibit a lender from refinancing, replacing, or consolidating a zero interest rate or low interest rate loan made by a governmental or nonprofit lender with a high-cost home loan; prohibit a lender from financing single premium credit life, accident, health, disability, or loss of income insurance in connection with a high-cost home loan; provide that a high-cost home loan that violates certain provisions of this Act is usurious and is an unfair and deceptive act or practice in violation of KRS 367.170; provide any party to a high-cost home loan may enforce certain provisions of this Act; provide that a lender acting in good faith will not be deemed to be in violation if certain conditions are met; provide that any extension of credit shall be deemed to have been made in the Commonwealth of Kentucky and subject to this Act if the lender offers or agrees in Kentucky to lend to a borrower who is a Kentucky resident on real property located in Kentucky or if the borrower accepts or makes the offer within Kentucky to borrow regardless of the situs of the contract; amend KRS 367.410 to include consumer loans in the definition of "home solicitation sale.  Other conditions as well

2.  This bill was introduced on February 4, 2003 and referred to the House Committee on Banking and Insurance on February 5, 2003.  On March 10, 2003, the Senate passed this bill.  Governor signed the bill March 12, 2003.  This bill became effective June 23, 2003.

---

Identical to LD 494

On February 4, 2003, the Committee on Insurance and Financial Services suggested and ordered this bill printed.  then, on the same day, the bill was referred to the Committee on Insurance and Financial Services and send for concurrence.  On February 5, 2003, it was referred to the Committee on Insurance and Financial Services. On April 1, 2003, the bill was read, accepted and adopted.  The bill was assigned for a second reading the next legislative day. On April 2, 2003, the committee on bills in the second reading reports no further verbal amendments.  The bill was read a second time and passed to be engrossed as amended by the senate.  On April 10, 2003, the bill was passed to the House.  On April 14, 2003, the Senate passed the bill.  On April 17, 2003, the bill was signed by the governor as Chapter 49 Public law.

"'COVERED LOAN' means a mortgage loan made under this subtitle [the new law] that meets the criteria for a loan subject to the federal Home Ownership Equity Protection Act set forth in 15 U.S.C. §1602(AA), as modified from time to time by Regulation Z, 12 C.F.R. Part 226, except that the comparison percentages for the mortgage loan shall be one percentage point less than those specified in 15 U.S.C. §1602(AA), as modified from time to time by Regulation Z, 12 C.F.R. Part 226."

Generally No Single Premium Insurance Financed:

Except as provided in this subsection, a lender making a covered loan may not finance as a part of the covered loan transaction single premium coverage for: (i) Credit health insurance; (ii) Credit involuntary unemployment benefit insurance; or (iii) Credit life insurance.

Housing Counseling Recommendation:

At the time the borrower completes the loan application, the lender is required to give the borrower a written recommendation to seek housing/home ownership counseling and a list of agencies approved by the county in which the property is located who provide such counseling services.

Ability to Repay:

"A lender may not make a covered loan without giving due regard to the borrower's ability to repay the loan in accordance with its terms."

Forbidden Security Interests:

Forbidden security includes instruments with blanks left to be filled in after execution, real property for loan amounts less than $2,000.00, among others; liens taken in violation of the new law are VOID.

No Local Regulation of Extensions of Credit By Financial Institutions:

State reserves all authority to regulate lending and extensions of credit by financial institutions.

Borrower Has Private Right of Action for Violations:

Borrower may seek injunction against further action by lender/credit grantor, attorney fees, and actual damages.

AN ACT PROHIBITING CERTAIN PRACTICES IN HOME MORTGAGE LENDING

Chapter 183 of the General Laws is amended  to trigger predatory lending restrictions if (a) A lender knowingly make a home loan if the home loan pays off all or part of an existing home loan that was consummated within the prior 60 months or other debt of the borrower, unless the refinancing is in the borrower's interest. The "borrower's interest" standard shall be narrowly construed, and the burden is upon the lender to determine and to demonstrate that the refinancing is in the borrower's interest.  See bill for more details. 

1. Preempts local ordinances of any type that attempt to regulate the mortgage lending business or impose any type of reporting requirements on lending activity.
2. Prohibits balloon payments for loans of less than five years except for bridge loans.
3. Gives the OFIS Commissioner the explicit authority and responsibility to enforce the federal Home Ownership and Equity Protection Act (HOEPA), as well as other applicable federal consumer protection laws and regulations.
4. Prohibits originators from charging a fee for a product or service that is not actually provided to the customer.
5. Prohibits the financing of single premium coverage for credit life, credit disability, or credit unemployment insurance.
6. Prohibits blank spaces regarding payments, interest rates, maturity date or amount borrowed to be filled in after note is signed.
7. Requires that applicants be given at the time of filing an application, a Borrowers Bill of Rights statement and a Consumer Caution and Home Ownership Counseling Notice.
8. Authorizes the attorney general or county prosecuting attorneys to bring a cause of action against a person or company that has violated the act, which could include civil fines of up to $10,000 for the first offense and up to $20,000 for the second and any subsequent offense.
9. Prohibits a lender from inserting or changing information on an application if the lender knows the information is false and misleading and intended to deceive a third party.

Amends Consumer Mortgage Protection Act and renames it Home Loan Protection Act. Proposes limitations on loan terms and lending practices in "home loans" and "high cost home loans."

Home Loan: is an extension of credit, including an open-end credit plan, to which all of the following apply 1) the loan does not exceed the applicable Freddie Mac conforming loan limit; 2) the loan is federally related mortgage loan under RESPA and 3) the loan is not a reverse mortgage loan or a loan made primarily for business, agricultural or commercial purposes. 

A “high cost home loan” is a home loan in which the terms of the loan meet or exceed one or more thresholds.  Rate threshold is defined as the annual percentage rate calculated under HOEPA. Total points and fees threshold means one of the following: (a) for a home loan in which the total loan amount is $20,000 or more, the total points and fees payable in connection with the home loan exceed 4% of the total loan amount; (b) for a loan in which the total loan amount is less than $20,000, the total points and fees payable in connection with the home exceed the lesser of eight hundred dollars or 7% of the total loan amount.  All high cost home loan documents must be marked as such.

High  cost  home  loans  includes limitations or prohibitions on: Financing directly or indirectly any points or fees; Prepayment fees or penalties; Scheduled payments that are more than twice as large as the average of earlier scheduled payments; Negative amortization; Increased interest rate after default; Requiring more than two (2) advance payments from the loan proceeds; Originating a loan without assessing borrowers ability to repay loan; Modification and deferral fees; Making a high cost home loan without determining that the borrower has received counseling in connection with the loan transaction; and Making payments of loan proceeds to home improvement contractors except by certain approved means. 

Bill revises the definition for mortgage broker to be: a person or entity that provides services for a fee as an intermediary between a borrower and a lender in obtaining financing for the borrower that is to be secured by a residential dwelling for one to four families. The bill also increases the percentage of ownership interest in a mortgage broker entity that a person must have before that ownership interest must be reported to the Department of Administration. Takes Effect October 1, 2005. 

When advertising a licensee must   provide   the following information in any printed, published, televised, e-mail, or Internet advertisement for the provision of services:

(i)                  a name, address, and license number for each mortgage broker or loan originator advertising as an individual; or

the name, address, and license number only of the licensed entity when the licensed entity is advertising on its own behalf or as an entity with one or more mortgage brokers or loan originators also listed.

Signed by the Governor.

AB 279 Home Ownership Security Act

“New Jersey Home Ownership Security Act of 2002”

ALL LOANS:

Various revision to existing predatory lending law including removing “covered home loan category”, and the “reasonable tangible net benefits” test from the law.  Go to the bill for more detail or contact us.

http://legis.state.nm.us/Sessions/03%20Regular/bills/senate/SB0449.html

1. Part 41 of the General Regulations of the Banking Board

Law covers loans up to $300,000.

1. SB 1149

·          No “flipping”, where a lender repeatedly refinances an existing home loan with upfront fees.

·          No financing of upfront, single premium insurance. Monthly payment insurance is still permitted.

·          Separat  section dealing with high cost home loans, residential home loans of $300,000 or less with either:

·          High fees: Loans where the borrower is charged more than 5% of the loan amount in upfront points, fees, or other charges. This 5%:

·          Does not include escrows collected at closing or fees for appraisal, attorney, credit report, etc. that are paid to third parties.

·          Does include fees paid directly by borrower to mortgage brokers, but does not include the back end payments to brokers by lenders (yield spread premium).

·          Does include any prepayment penalty in excess of 1%,

·          High interest rate: Loans where the borrower is charged an interest rate that is 10% (dropping to 8% in October 2002) more than the comparable Treasury bond rate. The current threshold rate is less than 16%, and will change as market interest rates fluctuate, or

·          Prepayment penalty longer than 30 months or more than 2% of amount prepaid.

Restrict the terms of high cost home loans to protect consumers:

·          No financing of upfront fees and insurance premiums

·         Requires counseling for high cost home loan borrowers prior to loan closing.

·          No balloon payments, where the borrower owes a large lump sum at some point during the loan.

·          No loans with negative amortization, where the loan amount increases because the monthly payments do not cover the loan costs.

 No lending without consideration of consumer’s ability to repay.

- - - 

1. Lowers “points and fees” threshold for loans over $25,000.

2. Applies to open-end credit plans (this means HELOC’s)

3. Mortgage Origination Disclosure must include Good Faith Estimate of fees.  Borrower must sign disclosure.  Any changes require broker to give a revised disclosure and explain why the changes occurred with 24 hours. 

4. RESPA GFE must disclose nature of relationship in at least 10-point type, when the agreement will terminate, the signing of the GFE does not obligate the borrower and is not a loan commitment.  Must disclose on the GFE is not a rate lock and borrower not to sign until has read it.  Must disclose if closing costs increase by more than 10% borrower will receive a new disclosure.  If loan is 90% or more of value must put new legend regarding difficulty of refinancing.

5. Must give notice of material changes to loan such as fixed to variable,  or change in terms, etc.

6. Prepayment penalties changed to 2% if first year prepay and 1% if second year prepay.

7. No prepayment penalties on loans less than $75,000 if arranged by a broker.

8. New trigger for HOEPA type loans. If loan is over $25,000 anti-predatory laws apply if points and fees exceed 5% of loan. This includes money received from any source except that one percent is excluded when points and fees from outside of loan source.  Applies to open end credit plans including access fees and maximum limit fees.

9. Does not apply to purchase money or reverse mortgages.

 The act is very extensive and this is but a “brief” summary. If you do loans in Ohio, read the bill carefully.  If you are a client of this firm we will e-mail you a copy if you do not have one and cannot download from the Ohio website.

Home Ownership and Equity Protection Act

Amends 59 O.S. 2001, Sections 2085, 2086, 2088 and 2089, as amended by sections 3, 4, 5 and 6, Chapter 469, O.S.L. 2002, and Section 8, Chapter 469, O.S.L. 2002 (59 O.S. Supp. 2002, Sections 2085, 2086, 2088. 2089. 2092), relating to the Mortgage Broker Licensure Act.  Sections 1-5 of this Act are effective July 1, 2003; Acts 6-14 are effective January 1, 2004..

1. SB 377
Mortgage Bankers And Brokers And Consumer Equity Protection Act

2. House Bill 967 

Predatory Lending-specific provisions (§5):

• Covered loans = consumer home loans that are mortgages under TILA for less than $100,000.00 -- this includes bridge loans

• Pre-empts all local regulations/ordinances regarding predatory lending and brokerage

• No balloon payments

• No call provision

• No negative amortization

• No interest rate increase on default

• No more than two regular loan payments made from proceeds

• Prepayment penalties extremely limited

• Statutory notice must be given to borrowers on refis of loans owned by the refinancing lender

• Must establish borrower ability to repay -- no strictly equity-based loans

• No points, fees, or other charges allowed in connection with a refi of an existing covered loan with a new covered loan if the proceeds are to be used to pay off the old loan

• No refis with covered loans of certain low-rate (subsidized/special benefits to borrower) loans

• No direct payments by lender to contractors from loan proceeds

• Tight restrictions on the sale/financing of credit life and other single-premium insurances in connection with the covered loan

Entire act effective 180 days from enactment -- high-cost loan provisions effective immediately upon enactment.

House Bill 967 will repeal the Mortgage Bankers and Brokers and Consumer Equity Protection Act and enact the “Home Ownership Protection Act.” The Bill proposes limitations on loan terms and lending practices in connection with “home loans” and “high cost home loans.”

A “home loan” is a loan, including an open-end loan, other than a reverse mortgage, secured by either of the following: (i) a mortgage or deed of trust on real estate upon which there is located, or there is to be located, a one- to four-family dwelling occupied by the borrower as the borrower’s principal residence; or (ii) a security interest in a manufactured home that is or will be occupied by the borrower as the borrower’s principal residence.  A “high cost home loan” is a home loan in which the terms of the loan meet or exceed one or more thresholds.  The rate threshold for a first lien mortgage home loan is a rate equal to six (6) percentage points over the weekly average yield on five-year United States Treasury securities on the 15^th day of the month immediately preceding the month in which the loan is made, or for a subordinate mortgage lien or a loan secured solely by a security interest in a manufactured home, a rate equal to eight (8) percentage points over the weekly average yield on five-year United States Treasury securities on the 15^th day of the month immediately preceding the month in which the loan is made.  Total points and fees threshold means one of the following: (a) for a home loan in which the total loan amount is $20,000 or more, the total points and fees exceed 5% of the total loan amount; (b) for a loan in which the total loan amount is less than $20,000, the total points and fees exceed the lesser of $1,000 or 6% of the total loan amount.

The bill will prohibit a creditor making a home loan from: financing directly or indirectly, any credit life, credit disability, credit employment, or credit property insurance or any other life or health insurance; flipping, encouraging default, including call provisions, charging prepayment fees and penalties, originating loans that exceed the appraised value of the property.

SB 2851 
Effective December 31, 2006

The Act prohibits certain acts and practices as they relate to home loans and high cost home loans  including open-end credit but excluding reverse mortgages, secured by an owner-occupied one-to-four family residential property or manufactured home. A high cost home loan is a home loan meeting or exceeding one of the following thresholds: (a) for first lien loans, an interest rate of 8 percentage points over the yield on comparable United States treasury securities; (b) for subordinate lien loans, an interest rate of 9 percentage points over the yield on comparable United States treasury securities; (c) for loans in a total loan amount of $50,000 or more, the total defined points and fees payable exceed 5% of the total loan amount; (d) for loans in a total loan amount under $50,000, the total defined points and fees payable exceed 8% of the total loan amount.

The Act restricts certain activities as they relate to home loans, as follows:

• May not finance, directly or indirectly, credit insurance.

• May not “flip” a home loan. Flipping a home loan is defined as making a home loan to a borrower that refinances an existing home loan that was consummated within the prior 60 months, when the new loan does not have a reasonable, tangible net benefit.

• May not encourage default on an existing debt to be refinanced.

• May not accelerate the indebtedness in its sole discretion.

The following acts and practices for high cost home loans, among others, are prohibited:

• Financing points and fees in excess of 5% of the total loan amount or $800, whichever is greater; 

• Prepayment penalties; 

• Balloon payments;  

• Negative amortization; 

• Default interest rate;  

• Making a loan without the creditor having a reasonable belief in the borrower’s ability to repay; 

• Assessing a late payment fee in excess of 3% of the payment past due; 

• Making a loan without first receiving certification that the borrower has obtained credit counseling.

South Carolina High- Cost and Consumer Home Loans Act 

The law requires mandatory counseling for high-cost loans, for which the interest rate threshold is set at 8% above the corresponding treasury bill, the same as the federal Home Ownership and Equity Protection Act standard. The points and fees threshold for a high cost loan is 5% of the loan amount. The law also prohibits prepayment penalties for loans of less than $150,000, requires extra disclosure to the borrower concerning points and fees, and pre-empts local legislation on the issue.  

Now set to the Fannie Mae Conforming Loan Amount.

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Tennessee Home Loan Protection Act (THLPA) imposes lending restrictions on loans that meet the definition of a "high-cost home loan." Under the THLPA, a high-cost home loan is a loan in which either the APR of the loan is such that the loan is considered a "mortgage" pursuant to the federal Home Ownership Equity Protection Act or the total points and fees payable by a borrower exceed the greater of $2,400 or 5% of the total loan amount. If the loan is $30,000 or less, the points and fees threshold is increased to 8% of the total loan amount. The THLPA exempts certain types of loans from the high-cost home loan definition, including FHA-insured and VA-guaranteed loans. The bill also created advertising restrictions and amended the notice of sale requirements in connection with foreclosure proceedings. Effective January 1, 2007.

1. SB 317
   
2. SB 1581
   Predatory Lending Bill

1. Signed By Governor:  6-15-01
   Effective 9-1-01
   
   Requires use of form contract or pre-approval of different form for home loans

2. Signed by Governor:  6-11-01
   Effective 9-1-0
   
   Principal Features:
   
   APPLICABILITY. This chapter does not apply to: (1) a reverse mortgage; or (2) an open-end account, as defined by Section 301.002. Sec. 343.003.  DOES apply to bridge loans.
   
   Provisions for all loans:

• Restricts refinancing of low-rate/special benefit home loans

• 12% or higher rate requires mortgage counseling disclosure, a list of local HUD-approved counseling agencies, a list of other resources where mortgage information can be found, including toll-free telephone numbers and online resources; and an official notice regarding high-cost home loans. [This section expires September 1, 2003]

• A person who knowingly and willfully violates the above disclosure requirements is liable to the aggrieved borrower for: (1) the actual damages caused by the violation; (2) punitive damages not to exceed $10,000 in an action brought by the aggrieved borrower; and (3) court costs.

• Single-premium credit & other insurance severely restricted
  
  Provisions for high-cost home loans:
  

• "High-cost home loan" means a loan that: (A) is made to one or more individuals for personal, family, or household purposes; (B) is secured in whole or part by: (i) a manufactured home, as defined by Section 347.002, used or to be used as the borrower's principal residence; or (ii) real property improved by a dwelling designed for occupancy by four or fewer families and used or to be used as the borrower's principal residence; (C) has a principal amount equal to or less than one-half of the maximum conventional loan amount for first mortgages as established and adjusted by the Federal National Mortgage Association; (D) is not: (i) a reverse mortgage; or (ii) an open-end account, as defined by Section 301.002; and (E) is a credit transaction described by 12 C.F.R. Section 226.32, as amended, except that the term includes a residential mortgage transaction, as defined by 12 C.F.R. Section 226.2, as amended, if the total loan amount is $20,000 or more and: (i) the annual percentage rate exceeds the rate indicated in 12 C.F.R. Section 226.32(a)(1)(i), as amended; or (ii) the total points and fees payable by the consumer at or before loan closing will exceed the amount indicated in 12 C.F.R. Section 226.32(a)(1)(ii), as amended. (2) "Points and fees" has the meaning assigned by 12 C.F.R. Section 226.32(b), as amended. Sec. 343.202.

• No balloon payments in the first 60 months of the loan, generally

• No negative amortization (except on bridge loans and due to forbearance)

• A lender may not engage in a pattern or practice of extending credit to consumers under high-cost home loans based on the consumers' collateral without regard to the obligor's repayment ability, including the obligor's current and expected income, current obligations, employment status, and other financial resources, other than the obligor's equity in the dwelling that secures repayment of the loan

• No prepayment penalties at all

TEXAS LIMITS ABILITY OF MORTGAGE BROKER TO COLLECT DISCOUNT POINTS

Effective June, 2004  a mortgage broker or loan officer may not label a charge or fee payable to the mortgage broker, loan officer as a "discount point" unless: the mortgage broker or loan officer is the lender in the
transaction; or the fee is a reimbursement for sums advanced by the broker or loan officer to the lender to "buy down" the interest rate on the loan.  The discounts points may be retained and charged only if the loan closes. (7 TAC Section 80.10)

Adds a "high-cost dwelling loan" provision to Utah law.

Utah Consumer Credit Code

On March 16, 2005, amendments to the Utah Consumer Credit Code went into effect. Amendments affect both closed-end and open-end credit loans. 

Amendments change prepayment fee and rebate of prepaid finance charges, address delinquency charges; and amend the minimum charges that creditors can assess to debtors with open-end accounts. 

Debtor may now be subject to a prepayment fee for prepaying a closed-end loan on a dwelling secured by a subordinate lien other than a HOEPA loan. Debtor is subject to a prepayment fee if the creditor offers the option of entering into either a loan with a prepayment fee and a finance charge or a fee that is lower than the finance charge or a fee under a contract without a prepayment fee or a loan without a prepayment fee, and the debtor chooses the loan with the prepayment fee and lower finance charge or fee. 

On a closed-end extension of credit on a dwelling secured by a subordinate lien that is not subject to HOEPA any prepaid finance charge shall be fully earned on the date the credit was extended. 

A delinquency charge may not be assessed on a payment that is a payment in full for the scheduled installment period solely because of an unpaid delinquency charge relating to an earlier installment. 

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1. HB 2708
   An act...relating to mortgage lending practices ("flipping")
   
2. HB 2787
3. SB 1103
   

1. Approved by governor/Chaptered 3-22-01
   Effective 7-1-01
   
   Prohibits mortgage lenders and brokers from flipping mortgage loans. "Flipping" a mortgage loan means refinancing a mortgage loan within 12 months after the refinanced loan was originated, when the new loan does not result in any benefit to the borrower considering all of the circumstances. The Attorney General's office is authorized to enforce the prohibition.
   
2. Approved by governor/Chaptered 3-22-01
   Effective 7-1-01
   
   Increases the maximum penalty for a violation of the Mortgage Lender and Broker Act from $1,000 to $2,500, and increases the amount of the bond that mortgage lenders and brokers are required to post from $5,000 to $25,000. The measure also prohibits a mortgage lender from recommending or encouraging a person to default on an existing loan or other debt, if such default adversely affects such person's credit worthiness, in connection with the solicitation or making of a refinancing mortgage loan.

• No documents signed with blanks
• No collateral beyond real estate securing loan
• No exclusive agency agreements with borrowers
• No call provision
• May not Recommend or encourage a person to default on an existing loan or other debt, if such default adversely affects such person's creditworthiness, in connection with the solicitation or making of a mortgage loan that refinances all or any portion of such existing loan or debt
• Broker may not charge fees in advance of loan commitment (except credit report & appraisal fees to third parties)
• Broker may not receive compensation from a mortgage lender of which he is a principal, partner, trustee, director, officer or employee
• Broker may not receive compensation from a borrower in connection with any mortgage loan transaction in which he is the lender or a principal, partner, trustee, director or officer of the lender
• Broker may not receive compensation for negotiating, placing or finding a mortgage loan where such mortgage broker, or any person affiliated with such mortgage broker, has otherwise acted as a real estate broker, agent or salesman in connection with the sale of the real estate which secures the mortgage loan and such mortgage broker or affiliated person has received or will receive any other compensation or thing of value from the lender, borrower, seller or any other person, unless the borrower is given a prescribed written notice at the time the mortgage broker services are first offered to the borrower

  3.  "Mortgage Lender and Brokers Act; predatory practices" Amends the Virginia Mortgage Lender and Broker Act.  Governor signed this bill March 16, 2003.

2.  Chapter 289. 2003

No single premium insurance in connection with residential mortgage loans of $10,000.00 or more.

2.  Provides Funds to Deter, Investigate and Prosecute Mortgage Lender Fraud.  Effective July 27, 2003.

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The Wisconsin Department of Financial Institutions, Division of Banking has proposed a new rule creating Chapter DFI-BKG 46.  This addresses consumer credit mortgage loan transactions  defined as any loan secured by the borrower’s primary residence, including purchase money mortgage loans. The rule clarifies what a lender should consider when assessing a borrower’s ability to repay a mortgage loan, and sets out how a lender should verify a borrower’s ability to repay a high risk home loan. The rule also specifies the disclosure requirements under Wisconsin’s new high risk home loan statute (2003 Wisconsin Act 257), which becomes effective February 1, 2005.