On December 7, the Maine Bureau of Credit Protection (BCCP) and the Maine Bureau of Financial Institutions announced significant amendments to BCCP Chapter 550, the state regulation prohibiting mortgage lenders from “flipping” high cost or higher-priced mortgages. The changes conform to a recently enacted State law. Here are the Top 11 changes.
- The new rule does away with the term “predatory lending” and establishes a prohibition on a lender knowingly or intentionally “flipping” a residential mortgage when the loan is a “high cost” or “higher-priced” mortgage loan. Flipping occurs when a lender leads a borrower to enter into a high cost or higher cost mortgage where there is no “reasonable, tangible net benefit.”
- The new rule establishes a range of factors to determine whether the borrower is receiving a reasonable, tangible net benefit. Factors include whether the new loan is fixed or variable, whether the new rate is higher, the length of the repayment period, a change in monthly payments, and whether the borrower has a bona fide personal need. All factors are to be considered, and no single factor is conclusive.
- Previously, the rules covered supervised financial institutions and the Maine State Housing Authority. Now, due to changes in federal law, both are exempt from the rule. Accordingly, the Bureau of Financial Institutions has repealed Chapter 144, its rule governing predatory lending.
- The new rule clarifies that all other creditors are covered by the rules, including mortgage brokers.
- HELOCs are covered by the rule. They were not given safe harbor treatment.
- The term “refinancing” applies to open-end credit transactions as well.
- The BCCP developed a simplified form for determining “reasonable, tangible net benefit.” The sample form is organized in columns and rows to allow borrowers to compare the terms of the new and old loans. Lenders must use this form, or one that is “substantially similar.” The sample form is contained within Chapter 550. The Bureau will also provide advice to lenders seeking to use a different form.
- Determing whether a borrower has a “bona fide personal need” for a refinancing should be determined by the borrower, unless such need is “patently unreasoanble.”
- Proper completion of tangible net benefit form will not create a “rebuttable presumption” that the new loan provides the borrower with a reasonable, tangible net benefit. Rather, the form will only serve as “evidence of compliance” with the prohibition against flipping.
- Loans should be compared at their “fully indexed rate.” According to the BCCP, this term will prevent creditors from “using so-called teaser rates.”
- The term “costs and fees” only applies to costs paid by the borrower.
The new rule went into effect on December 5, 2011. A copy of the rulemaking can be found here.