Issue #15: Preventing “fee-padding”

Into the ask for Public Comment, OCCR identified the growth, or at the least the perception of a development, that loan providers had been increasing charges and points to an even just underneath the limit that could qualify financing as an even more heavily managed high-rate, high-fee “Section 32” loan. We asked commenters to inform us whether this perception had been a real possibility, and when just what exactly might be done about any of it.

Our conclusion is fee-padding is happening in Maine, and also as one method to deal with the training our company is suggesting (see proposed bill connected as Appendix number 1, area 2) that the limit of “points and fees” that produces part 32 treatment, be lowered from 8% of that loan quantity, to 5%.

We base this proposition from the assumption that the method of getting loans in this range (between 5% points and charges, and 8% points and costs) is, in financial terms, “elastic, ” such that developing a brand new, reduced degree will likely not lead to an unwillingness from the section of loan providers to help make the the greater part of these loans that currently fall within the range between 5% points-and-fees, and 8%. Put another way, we think that loan providers loans that are making points and charges totaling 6%, 7% if not 8%, will reduce costs on a lot of those loans to 5%.

We additionally get this proposition because of the knowledge that other states that are nearbysuch as for example Massachusetts and Connecticut) currently have founded the low 5% limit within their state statutes. This modification can also be consistent with proposals advanced by Coastal Enterprises, Inc. (CEI), and also by AARP with its model home loan regulation work.

We feel that this proposition, along with stricter enforcement associated with requirement that the GFE accurately reveal all costs within 3 times of application, should help reduce any “padding” of fees. (See more conversation of the proposal in Issue #16’s reviews, below, on whether loan broker payment or home loan finance fees should always be “capped”. )

Issue #16: Finance cost ceilings, and loan broker settlement caps

The August 30, 2006 ask for Public Comment asked whether Maine legislation should really be amended to impose cost caps on broker payment, or even establish maximum interest levels on home loans. After overview of the reviews received, along with trying to other states for model approaches, OCCR suggests against such maximum charge caps or price ceilings. However, as mentioned into the discussion of problem #15, above, we do advise that the limit for just what is really a high-rate, high-fee loan under Maine legislation, be lowered from the present 8% associated with the loan amount in points and costs, to 5%.

This proposal to lessen the limit level to 5%, which will bring Maine into line with nearby states such as for instance Massachusetts and Connecticut, will never prohibit the generating of that loan by having a points-and-fees sum higher than 5% of this loan quantity. Instead, it could simply matter such that loan towards the consumer that is additional found in 9-A MRSA § 8-206-A, including: a) extra notices to consumers; b) limits on prepayment penalties; c) debt-to-income ratio tests before specific conditions are contained in the loan terms; d) limitations on default interest rates; ag ag e) a prohibition against negative amortization; and f) a prohibition against making loans entirely regarding the value associated with the security.

Centered on our experience with managing the financing industry in Maine, we think that bringing down the limit from an 8% points-and-fees trigger, to 5per cent, will likely not bring about a reduction that is substantial the loans accessible to Maine customers. Instead, we genuinely believe that 1 of 2 things may happen. Either 1) loans will continue to be produced in the 5% – 8% points-and-fees range, and the ones loans will undoubtedly be at the mercy of the high-rate, high-fee defenses; or 2) the points-and-fees amount should be lowered on many loans, so that these are generally made with terms at or underneath the brand brand new 5% points-and-fees limit.

Issue #17: managing settlement agents

OCCR asked commenters whether or otherwise not independent settlement agents ought to be controlled, because of the essential part they perform into the closing procedure. installment loans online in louisiana The attached proposed bill (Appendix #1) does not contain such a provision although a majority of commenters favored the concept. Within the reasonably small amount of time used because of this research, OCCR have not had a chance to figure out 1) just how many settlement agents practice their trade in Maine; 2) regarding the total, just how many are actually managed expertly (as an example, numerous such agents are lawyers or workers of lawyers, answerable towards the Bar Overseers with their closing-related tasks); or 3) the price towards the State of developing this type of regulatory system, nor just exactly just how that price will be restored.

In the event that Legislature thinks that extra resources must certanly be appropriated to handle lending that is predatory, OCCR feels that initial consideration should really be fond of strengthening investigatory or appropriate resources at OCCR (see Issue #26, below), before considering applying a course to modify settlement agents.

Being a apart, we keep in mind that the Legislature has recently started to recognize the necessity of settlement agents, as well as the necessity to bring some legislation to keep on that industry. 33 MRSA § 525, “Duty of Settlement Agent, ” is a component of Maine’s “Funded payment Act” enacted in 1999, c. 145, §1. This area calls for settlement agents to disburse funds and promptly record mortgage papers after shutting.

Issue # 18: “Net tangible advantage”

If there are 2 top hot-button dilemmas within the nationwide debate about predatory lending, they’ve been 1) “net tangible benefits” and 2) obligation associated with secondary market. The issue that is latter addressed in Issue #19, below, although we address the previous in this area.

When you look at the abstract, a web benefit that is tangible seems an easy task to figure out and simply enforced. Conceptually, this type of supply forbids the creating of financing unless, considering all aspects of this expenses and regards to a loan, and considering all of the economic circumstances associated with the debtor, the generating associated with the loan would lead to a web benefit that is tangible the debtor.

But, this kind of test would put in a known amount of subjectivity to the financing procedure, and both loan providers and loan agents are united in strong opposition to this type of measure. They believe that this type of standard would offer discretion that is too much regulators, or even to personal solicitors within the example of civil legal actions or class actions, and therefore the dedication of web concrete advantage might be determined by information never available towards the loan providers or agents, like the certain used to that the funds may be placed, or even monetary circumstances of this customer that the customer might not have revealed into the lender or loan broker through the application procedure.

Proponents can draw help through the proven fact that web concrete advantages tests had been integrated into more than one multi-state that is recent (start to see the Ameriquest and domestic international settlements), and that a few states also have enacted net concrete advantage conditions. Nevertheless, it is critical to understand that the defendants when you look at the settlements that are multi-state have already been amenable to such proposals simply because they had been resolving several thousand complaints and paying huge amount of money in restitution and penalties, despite doubting any wrongdoing. And overview of their state rules working with the supply reveals that more often than not its application is restricted to refinances, frequently just those refinances shut an extra time with all the lender that is same.

Finally, you should keep in mind that tools already occur to handle patterns of unconscionable financing behavior. Loan providers and loan agents may retain their licenses just as long as they run their organizations “fairly” (9-A M.R.S.A. §§ 2-302(2), 10-201). Further, the administrator might,

By legislation or purchase,… Prohibit acts or methods associated with:

A. Home loans that the administrator discovers unfair or misleading…; and

B. Refinancing of home mortgages that the administrator discovers are connected with abusive financing techniques or which are otherwise perhaps not into the interest associated with the public that is borrowing.

9-A MRSA § 8-206-A (16).

Such a method, tailored to particular circumstances or styles found in this State, may show both more versatile and much more effective than statutory modifications, which could have effect that is detrimental the secondary market valuations of Maine loans.

Problem #19: additional market accountability