Issue #15: Preventing “fee-padding”

Into the ask for Public Comment, OCCR identified the growth, or at least the perception of the development, that loan providers had been increasing charges and points to an even just beneath the limit that will qualify that loan as a far more heavily controlled high-rate, high-fee “Section 32” loan. We asked commenters to share with us whether this perception ended up being a reality, and when just what exactly might be done about any of it.

Our conclusion is fee-padding is occurring in Maine, and also as one method to deal with the training our company is suggesting (see proposed bill connected as Appendix no. 1, part 2) that the limit of “points and fees” that produces area 32 therapy, be lowered from 8% of that loan quantity, to 5%.

We base this proposition from the presumption that the method of getting loans in this range (between 5% points and fees, and 8% points and costs) is, in financial terms, “elastic, ” such that developing a fresh, reduced degree will perhaps not end up in an unwillingness regarding the element of loan providers to help make the majority that is vast of loans that currently fall when you look at the range between 5% points-and-fees, and 8%. Put simply, we genuinely believe that loan providers making loans with points and costs totaling 6%, 7% and on occasion even 8%, will reduce costs on a lot of loans to 5%.

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

We believe that installment loans in michigan this proposition, along with stricter enforcement of this requirement that the GFE accurately reveal all costs within 3 times of application, should help reduce any that is“padding of. (See more conversation of the proposal in Issue #16’s opinions, below, on whether loan broker settlement or home loan finance fees ought to be “capped”. )

Issue #16: Finance fee ceilings, and loan broker payment caps

The August 30, 2006 ask for Public Comment asked whether Maine legislation must be amended to impose cost caps on broker settlement, or even establish interest that is maximum on home mortgages. After report on the commentary received, along with trying to other states for model approaches, OCCR recommends against such maximum cost caps or price ceilings. Nevertheless, as previously mentioned when you look at the discussion of problem #15, above, we do advise that the threshold for just what takes its high-rate, high-fee loan under Maine legislation, be lowered from the present 8% for the loan quantity in points and charges, to 5%.

This proposition to cut back the limit level to 5%, which may bring Maine into line with nearby states such as for instance Massachusetts and Connecticut, wouldn’t normally prohibit the generating of financing having a points-and-fees amount more than 5% regarding the loan quantity. Instead, it might simply matter such that loan into the extra consumer defenses found in 9-A MRSA § 8-206-A, including: a) extra notices to consumers; b) limits on prepayment charges; c) debt-to-income ratio tests before particular conditions is contained in the loan terms; d) limitations on default interest levels; e) a prohibition against negative amortization; and f) a prohibition against making loans entirely regarding the worth associated with the security.

According to our expertise in managing the lending industry in Maine, we believe reducing the limit from an 8% points-and-fees trigger, to 5per cent, will likely not bring about a significant lowering of the loans accessible to Maine customers. Instead, we think that 1 of 2 things may happen. Either 1) loans will still be manufactured in the 5% – 8% points-and-fees range, and people loans will likely to be susceptible to the high-rate, high-fee protections; or 2) the points-and-fees amount will soon be lowered on numerous loans, so that they’ve been fashioned with terms at or underneath the brand brand new 5% points-and-fees limit.

Issue #17: Regulating settlement agents

OCCR asked commenters whether or perhaps not settlement that is independent must be managed, because of the essential part they perform when you look at the closing procedure. The attached proposed bill (Appendix #1) does not contain such a provision although a majority of commenters favored the concept. Into the time that is relatively short because of this research, OCCR have not had a chance to figure out 1) exactly how many settlement agents practice their trade in Maine; 2) associated with the total, just how many already are managed expertly (as an example, many such agents are solicitors or workers of attorneys, answerable towards the Bar Overseers with regards to their closing-related tasks); or 3) the fee towards the State of developing this kind of regulatory system, nor just how that price could be recovered.

In the event that Legislature thinks that extra resources ought to 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 an application to regulate settlement agents.

As a apart, we remember that the Legislature has started to recognize the necessity of settlement agents, as well as the requirement 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 section calls for settlement agents to immediately disburse funds and 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, these are typically 1) “net tangible benefits” and 2) obligation regarding the additional market. The second problem is addressed in Issue #19, below, although we address the previous in this part.

When you look at the abstract, a web benefit that is tangible seems an easy task to figure out and simply enforced. Conceptually, this kind of supply forbids the creating of that loan unless, considering all aspects associated with expenses and terms of that loan, and considering all of the monetary circumstances of this debtor, the creating of the loan would bring about a web concrete advantage to the debtor.

Nevertheless, this particular test would add a known level of subjectivity towards the financing process, and both loan providers and loan agents are united in strong opposition to this kind of measure. They believe that this type of standard will give discretion that is too much regulators, or even personal solicitors when you look at the example of civil legal actions or class actions, and therefore the dedication of web concrete advantage could possibly be determined by information not at all times easily obtainable into the loan providers or agents, including the particular used to that the funds may be placed, or even monetary circumstances regarding the customer that the buyer might not have revealed towards the loan provider or loan broker through the application procedure.

Proponents can draw support through the proven fact that net concrete advantages tests had been incorporated into several multi-state that is recent (begin to see the Ameriquest and domestic international settlements), and that a few states have enacted web concrete benefit conditions. Nonetheless, it’s important to keep in mind that the defendants within the settlements that are multi-state have already been amenable to such proposals simply because they had been resolving a huge number of complaints and spending huge amount of money in restitution and charges, despite doubting any wrongdoing. And overview of their state rules working with the supply reveals that most of the time its application is restricted to refinances, usually just those refinances shut an additional time with all the same loan provider.

Finally, it is essential to remember that tools already occur to deal with habits of unconscionable financing behavior. Loan providers and loan brokers may retain their licenses just as long as they run their companies “fairly” (9-A M.R.S.A. §§ 2-302(2), 10-201). Further, the administrator may,

By legislation or purchase,… Prohibit acts or methods regarding the:

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

B. Refinancing of home loans that the administrator discovers are related to abusive lending techniques or which are otherwise perhaps not within the interest of this borrowing public.

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, that may have a harmful impact on the additional market valuations of Maine loans.

Problem #19: Secondary market accountability