anti predatory lending toolkit - housing rights

March 2002 – Second Edition

Anti Predatory Lending Toolkit

National Community Reinvestment Coalition Anti Predatory Lending Toolkit -

NATIONAL COMMUNITY REINVESTMENT COALITION

“We strongly support the anti-predatory bills introduced in Congress. These bills providecomprehensive protections against predatory lenders by prohibiting abusive practices such assingle premium credit insurance, prepayment penalties, balloon payments on high cost loans,and lending without regard of the borrower’s ability to repay. At the same time, NCRC urgesmembers of Congress to avoid reform efforts that only end up aiding and abetting predatory

lenders.”

- John Taylor, President & CEO, National Community Reinvestment Coalition

The mission of the National Community Reinvestment Coalition (NCRC) is to increase fair and equal accessto credit, capital, and banking services and products because discrimination is illegal, unjust, and detrimentalto the economic growth and well-being of our society. NCRC seeks to support long-term solutions whichprovide resources, knowledge and skills to build community and individual net wealth.

More importantly, NCRC is at the vanguard of a growing economic justice movement in which communityleaders across the nation, in urban and rural areas, are becoming educated about, and active in, efforts toaffect the flow of capital and the provision of fair housing and fair lending services in their neighborhoods.NCRC has worked to make fair housing prevalent in all communities, to increase the capacity ofneighborhood-based organizations, and to promote community-lender partnerships.

The Board of Directors would like to express their appreciation to the NCRC professional staff whocontributed to this publication and serve as a resource to all of us in the public and private sector who are

committed to responsible lending. For more information please contact::

John Taylor, President & CEODavid Berenbaum, Senior V.P. - Program & Director of Civil Rights

Joshua Silver, V.P. Policy & ResearchLynn King, Director of Legislative & RegulatoryAffairs

Samir Parikh, Policy AnalystSoyong Cho, Research Analyst

Mark Treskon, Research AnalystZorana Hudnell, Fair Housing AssistantLloyd London, Fair Lending Specialist

Robert Levenson, Esq., Law Extern

2002 by the National Community Reinvestment Coalition.

Reproduction of this document is permitted and encouraged, with credit given to theNational Community Reinvestment Coalition.

NATIONAL COMMUNITY REINVESTMENT COALITION733 15th Street, NW, Suite 540, Washington, D.C. 20005 - (202) 628-8866 - www.NCRC.org


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Sub Prime & Predatory Lending Defined_________________________________________________ 4

Predatory Lending Scams – A Primer ____________________________________________________5

Building Consensus__________________________________________________________________6

National Anti-Predatory Lending Policy Is Good For America________________________________7

Best Practices & Responsible Lending___________________________________________________13

The Legal Tool Box _________________________________________________________________14

NCRC HOEPA Fact Sheet____________________________________________________________17

Casenotes__________________________________________________________________________19

CRA & Predatory lending ____________________________________________________________28

Who Are The Regulators and How Do They Enforce Anti-Discrimination Laws?________________29

The NCRC Fair Lending Consumer Rescue Fund_________________________________________31

Legislative Developments _____________________________________________________________32

NCRC Model Legislation ____________________________________________________________33

Legislative Analysis _________________________________________________________________35

Glossary of Legislative Terms_________________________________________________________187

NCRC Anti-Predatory Lending Model Bill _____________________________________________189

NCRC Board of Directors ___________________________________________________________204


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Sub-prime Lending:

A sub-prime loan is a loan to a borrower with less than perfect credit. In order tocompensate for the added risk associated with sub-prime loans, lending institutionscharge higher interest rates. In contrast, a prime loan is a loan made to a creditworthyborrower at prevailing interest rates. Loans are classified as A, A-, B, C and D loans.“A” loans are prime loans that are made at the going rate while A- loans are loans madeat slightly higher interest rates to borrowers with only a few blemishes on their creditreport. So called B, C, and D loans are made to borrowers with significantimperfections in their credit history. “D” loans carry the highest interest rate becausethey are made to borrowers with the worst credit histories that include bankruptcy.

Predatory Lending

A predatory loan is an unsuitable loan designed to exploit vulnerable andunsophisticated borrowers. Predatory loans are a subset of sub-prime loans. Apredatory loan has one or more of the following features: 1) charges more in interest andfees than is required to cover the added risk of lending to borrowers with creditimperfections, 2) contains abusive terms and conditions that trap borrowers and lead toincreased indebtedness, 3) does not take into account the borrower’s ability to repay theloan, and 4), often violates fair lending laws by targeting women, minorities andcommunities of color.


PPPPrrrreeeeddddaaaattttoooorrrryyyy LLLLeeeennnnddddiiiinnnngggg SSSSccccaaaammmmssss –––– AAAA PPPPrrrriiiimmmmeeeerrrr"It is clear that we need to focus a spotlight on predatory lenders whose sole purpose is to hijack the

American dream from unsuspecting borrowers. We should leave no stone unturned to find and crack downon predatory lenders and Congress must pass the strongest legislation possible to end this pernicious

practice."

• Senator Charles Schumer

Marketing:

• Aggressive solicitations to targeted neighborhoods• Home improvement scams• Kickbacks to mortgage brokers (Yield Spread Premiums)• Racial steering to high rate lenders

Sales:

• Purposely structuring loans with payments the borrower can not afford• Falsifying loan applications (particularly income level)• Adding insincere co-signers• Making loans to mentally incapacitated homeowners• Forging signatures on loan documents (i.e., required disclosure)• Paying off lower income mortgages• Shifting unsecured debt into mortgages• Loans in excess of 100% LTV• Changing the loan terms at closing

The loan itself:

• High annual interest rates• High points or padded closing costs• Balloon payments• Negative amortization• Inflated appraisal costs• Padded recording fees• Bogus broker fees• Unbundling (itemizing duplicate services and charging separately for then)• Required credit insurance• Falsely identifying loans as lines of credit or open end mortgages• Forced placed homeowners insurance• Mandatory arbitration clauses

After closing:

• Flipping (repeated refinancing, often after high-pressure sales)• Daily interest when loan payments are late• Abusive collection practices• Excessive prepayment penalties• Foreclosure abuses• Failure to report good payment on borrower’s credit reports• Failure to provide accurate loan balance and payoff amounti


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sleazy sales practices. They deserve better legal protection.

- Editorial, The New York Times, March 18, 2000

Advocates for economic justice, consumer issues, regulators and legislators alike have begun a private andpublic sector colloquy of great importance to our nations communities and homeowners. In a recent HUD-Treasury Task Force on Predatory Lending report entitled Curbing Predatory Home Mortgage Lending, theauthors suggested a four point approach to the problem, including:

• Improving consumer literacy and disclosures. For example, suggesting that creditors should be required torecommend that high-cost loan applicants avail themselves of home mortgage counseling, disclose creditscores to all borrowers upon request and give borrowers more timely and more accurate information as toloan costs and terms.

• Prohibiting harmful sales practices in the mortgage market. For example, banning practices such as loan"flipping" and lending to borrowers without regard to their ability to repay. Suggesting new requirementsthat should be imposed on mortgage brokers to document the appropriateness of a loan for high-costloan applicants, and requiring lenders who report to credit bureaus should be required to provide "full-file"payment history for their mortgage customers.

- Restricting abusive terms and conditions on high-cost loans. For example, recommending that Congressincrease the number of borrowers in the sub-prime market covered by legislative protections; furtherrestricting balloon payments on high-cost loans; restricting prepayment penalties and the financing ofpoints and fees; prohibiting mandatory arbitration agreements on high-cost loans; and banning lump-sumcredit life insurance and similar products.

- Improving market structure. By awarding Community Reinvestment Act (CRA) credit to banks andthrifts that promote borrowers from the sub-prime to prime mortgage market, and by denying CRAcredit to banks and thrifts for the origination or purchase of loans that violate applicable lending laws.

This was an important first step to examine the issue. However, it is only a first step. Subsequent inquiries bySenator Sarbanes and the Senate Committee on Banking, Housing & Urban Affairs have continued thedialogue. Questions abound concerning definitions, evidence, the role of Wall Street, regulators and theGSE’s, and the expanded use of existing law plus the creation of new Federal State and local protections.How can we leverage greater accountability and protect those currently being victimized by predatory lendersin our society while celebrating good business practices, financial institution profitability and communityinvestment?

The legislation enacted North Carolina and Chicago, Illinois establish State and local models for discussion.The purpose of this tool kit is to affirmatively further the dialogue in order to provide support for thoseconsidering new or existing policy, research, consumer action, civil rights initiatives and to move us all to apro-active position where the community, individual consumer and corporation alike all celebrate a healthylending market were everyone treated fairly and has equal access.


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"We must target not just the predators themselves, but the conditions that allow them to flourish. That meansencouraging responsible competition in the same markets in which the predators operate. It means helping low

and moderate-income Americans to gain a better understanding of their financial obligations and options."

- John D. Hawke, Jr., Comptroller of the Currency

Regulating Sub-prime Lending Prevents Abuses and Would Not Cut Off the American Dream ofHomeownership

In recent years, sub-prime and predatory lending has exploded. Sub-prime lending specialists are not new;sub-prime lending has been a part of consumer and automobile finance for decades. Sub-prime lenders,however, have reoriented their focus towards home refinance lending. Sub-prime lenders convince consumersto take out home equity or home refinance loans to consolidate consumer debts by using the tax advantagesassociated with home loans.

While some maintain that sub-prime lending has been responsible for the surge in homeownership amongminorities and low- and moderate-income borrowers, NCRC believes that increased prime lending by CRA-covered banks has played the major role in the increase in homeownership. Proponents of sub-prime lendingcaution against aggressive anti-predatory lending regulation and legislation, saying that such efforts willchoke-off credit in under served communities. NCRC, in contrast, asserts that anti-predatory legislation andregulation will not constrain home mortgage lending to traditionally under served communities and is neededto protect communities from unscrupulous actors.

This position paper distinguishes sub-prime from predatory lending and outlines NCRC’s proposed policyresponses to the scourge of predatory lending.

Sub-prime and Predatory Lending Defined

Sub-prime Lending: A sub-prime loan is a loan to a borrower with less than perfect credit. In order tocompensate for the added risk associated with sub-prime loans, lending institutions charge higher interestrates. In contrast, a prime loan is a loan made to a creditworthy borrower at prevailing interest rates. Loansare classified as A, A-, B, C and D loans. “A” loans are prime loans that are made at the going rate while A-loans are loans made at slightly higher interest rates to borrowers with only a few blemishes on their creditreport. So called B, C, and D loans are made to borrowers with significant imperfections in their credithistory. “D” loans carry the highest interest rate because they are made to borrowers with the worst credithistories that include bankruptcies.

Predatory Lending: A predatory loan is an unsuitable loan designed to exploit vulnerable and unsophisticatedborrowers. Predatory loans are a subset of sub-prime loans. A predatory loan has one or more of thefollowing features: 1) charges more in interest and fees than is required to cover the added risk of lending toborrowers with credit imperfections, 2) contains abusive terms and conditions that trap borrowers and lead toincreased indebtedness, 3) does not take into account the borrower’s ability to repay the loan, and 4), oftenviolates fair lending laws by targeting women, minorities and communities of color.


Sub-prime Lending Trends

According to the Department of Housing and Urban Development’s (HUD) recent study, Unequal Burden:Income and Racial Disparities in Sub-prime Lending in America, sub-prime refinance lending, whichconstitutes 80 percent of all sub-prime lending, increased almost 1000 percent from 1993 to 1998. In 1993,sub-prime lenders made 80,000 refinance loans; by 1998, they made 790,000 loans!ii

Given the huge increase in sub-prime lending, the next question is whether minority communities receive adisproportionate amount of sub-prime lending. The same HUD study found that borrowers in blackneighborhoods were five times more likely to receive sub-prime refinance lending than those living in whiteneighborhoods. NCRC research has found similar disparities. For example, major sub-prime andmanufactured home lenders made 47 percent of the refinance loans in predominantly African American andHispanic neighborhoods in the District of Columbia in 2000, a significant increase from 39 percent of theloans in 1999 and 25 percent of the loans in 1994. In contrast, sub-prime and manufactured home lendersmade less than 4 percent of the loans in predominantly white neighborhoods in the three years of thestudy.iii

Substantial evidence suggests that sub-prime borrowers in minority communities experience pricediscrimination. Over the last several years, HMDA (Home Mortgage Disclosure Act) data has indicated thatBlack applicants are denied twice as often as whites. NCRC believes that it does not necessarily follow thatBlacks are twice as likely to have bad credit. But given that Blacks are denied twice as often forconventional loans as whites, it does not follow that minority communities should be five times as likely toreceive sub-prime loans. And in some geographical areas, the disparity is much greater than five to one.

The major secondary market institutions have found pricing inefficiencies in sub-prime loans. Freddie Macstates that up to 30 percent of sub-prime borrowers were creditworthy for prime loans. Fannie Mae’s CEO,Franklin Raines, is quoted as saying that half of all sub-prime borrowers could have received prime loans.iv

A study by the Research Institute for Housing America (RIHA) concludes that minority borrowers are morelikely to receive sub-prime loans after controlling for credit risk factors. RIHA cautions against a conclusionthat price discrimination alone explains this since minority borrowers may have different techniques ofsearching for lenders. However, when one considers the totality of the research by NCRC, HUD, FannieMae, Freddie Mac, RIHA, and others, it seems fair to say that the burden of proof lies with those who assertthat discrimination does not occur in the sub-prime market.v

How Necessary is Sub-prime Lending in Serving Minority and Low- and Moderate-Income Borrowers?

In late October of 2000, the incoming chairman of America’s Community Bankers told an American Bankerreporter that “We need to be very careful that sub-prime lending, which has a useful place, does not getconfused with predatory lending…” because lending to borrowers with imperfect credit history “… is one ofthe reasons we’ve increased homeownership to record levels in the U.S.”vi

The home mortgage lending data does not support the contention that sub-prime lending has driven the surgein homeownership for traditionally under served populations. NCRC calculates that in 1990 low- andmoderate-income borrowers (LMI borrowers have up to 80 percent of area median income) received 18.5percent of all home mortgage loans made in the country. By 1995, LMI borrowers received 26.9 percent ofall home mortgage loans, or 8.4 percentage points more than they had in 1990. By 2000, LMI loan sharehad increased to 29.6 percent or only 2.7 more percentage points than in 1995. The surge in sub-primelending occurred from 1995 to 1999, yet LMI borrowers experienced the largest gains in home mortgagelending from 1990 to 1995. The first part of the decade witnessed a tremendous increase in conventionaland affordable prime loans as depository institutions worked in partnership with community organizations tomake CRA-related home mortgage loans.


The story is similar for home mortgage lending trends to Blacks and Hispanics. Blacks and Hispanicsreceived 9.7 percent of the home mortgage loans in 1990 made to Blacks, Hispanics, Whites, AmericanIndians, and Asians. The Black and Hispanic loan share climbed to 13.9 percent in 1995 and to 16.6 percentin 2000. The share of home mortgage loans made to Blacks and Hispanics increased by 4.2 percentagepoints from 1990 to 1995, but only 2.7 percentage points from 1995 to 2000. Pundits and proponents ofsub-prime lending talk about how it has made homeownership accessible, but the statistics show the biggestgains for Blacks and Hispanics occurred in the first part of the decade when CRA-related lending surged - asopposed to the second part of the decade when sub-prime lending soared.

NCRC acknowledges that responsible sub-prime lenders play a role in the marketplace. However, theselenders are primarily consumer lenders and should not be confused with CRA-covered lenders that have donethe most work in making the American Dream of homeownership possible. In addition, a portion of sub-prime lending is predatory since it involves price discrimination, or charging higher interest rates than isnecessary to cover risk.

Abusive Terms and Conditions in Predatory Loans

While price discrimination is insidious, it is often combined with abusive terms and conditions that compoundthe evils of predatory lending. Overpriced loans with abusive terms and conditions strip equity out ofborrowers’ homes and often lead to foreclosure. This following list is not meant to be exhaustive; it includesthe major abuses associated with predatory lending.

Prepayment Penalties – A lender assesses prepayment penalties when a borrower either pays the remainingloan balance before the end of the loan term or refinances with another bank. In the case of prime loans,borrowers sometimes agree to prepayment penalties in exchange for a lower interest rate or lower loan fees.In the case of predatory loans, prepayment penalties become a trap, preventing many borrowers fromshedding a high interest loan in favor of a prime loan and/or a lower interest loan. NCRC recentlyrepresented a couple in the District of Columbia who was almost unable to sell their home and nearly sufferedforeclosure due to a prepayment penalty of several thousand dollars. According to the HUD and Departmentof Treasury Task Force report on sub-prime lending, about 70 percent of sub-prime loans containprepayment penalties. Only one to two percent of prime loans includes prepayment penalties.vii

Balloon Payments – A balloon payment is a loan payment that can equal all of the remaining loan balanceor a large fraction of the remaining balance. In prime lending, balloon payments can be used on secondmortgages and other instruments to help finance the loan by making monthly payments lower. It isanticipated that a borrower’s income will increase, making it feasible for the borrower to pay the balloonwhen it is due or to refinance the loan. In predatory lending, a balloon payment is another type of trap.Borrowers with high cost loans cannot pay the balloon when it is due and usually end up refinancing theirloans. Predatory lenders will then often increase their interest rates and fees on the refinanced loans.

Flipping – Flipping refers to the practice of repeated loan refinancings with little or no benefit to theborrower. NCRC’s Consumer Rescue Fund program assisted a borrower who originally obtained a homeimprovement loan in 1995. Different lenders convinced the borrower to refinance his loan twice within sixmonths during 1997. One lender charged more than $5,600 in fees. After the second flip, the borrower waspaying almost 60 percent of his monthly income on mortgage payments.viii

Credit Insurance – If a borrower dies or becomes unemployed, credit insurance pays the outstanding loanbalance. Borrowers of prime loans sometimes decide to obtain credit insurance after they close on theirloans, and may or may not obtain credit insurance through their lender. Borrowers of prime loans alsousually pay for credit insurance on a monthly basis. In contrast, predatory lenders persuade borrowers to payfor all of their credit insurance up-front via a single premium payment. In other words, the premium forcredit insurance is added to the loan amount. Credit insurance is much more expensive when it is added tothe loan amount than when a consumer pays for it on a monthly basis outside of the loan. For instance, a


$10,000 policy paid for on a monthly basis would cost a consumer $37,000 when financed into a thirty-yearloan with a 12 percent interest rate.

Fee Packing – Predatory lenders will pack loans with unnecessary fees. In the case of Delta Funding, theAttorney General of the State of New York found that the lender paid brokers fees that added 10 percent tothe loan amount simply for inducing borrowers to accept “excessive, above-market interest rates.ix” Inindustry parlance, the practice of paying brokers kickback fees to induce borrowers to accept higher interestrates than the lender would normally offer is called “yield spread premiums.”

In the summer of 2001, Senator Paul Sarbanes, Chairman of the U.S. Senate Committee on Banking,Housing, and Urban Affairs, held a hearing on predatory lending, which featured testimony from victims.One victim testified that she was persuaded to refinance a $74,000 loan at an interest rate of 7.5 percentinto a new $100,750 loan at an interest rate of 12.85 percent. She paid fees of $8,105 for a loan thatamounted to only $18,645 in additional funds. The fees are 43 percent of the additional funds.

Sum Total of Abuses - The abusive terms and conditions on predatory loans can be so harmful that afterseveral years of paying on time, the borrower still owes almost the entire principal on the loan. This issystematic equity stripping in its most perfect and insidious form. For example, the Federal TradeCommission documents in their suit against the Associates that the entire principal on $24,000 home equityloans remained after ten years of borrowers’ payments.x

Why Stronger Regulation and Legislation is Needed

Opponents of additional regulation and legislation of sub-prime lending state that these steps will turn-off theflow of credit to minorities and low- and moderate-income borrowers. As demonstrated above, however, sub-prime lending has not been a major factor expanding homeownership opportunities for traditionally underserved populations. In addition, opponents of tighter control of sub-prime lending suggest that improveddisclosure of terms and conditions of loans will provide the needed protections against predatory lending.This argument brushes aside the fact that a loan transaction is an exceedingly complex transaction, making itdifficult for sophisticated borrowers to understand loan terms, let alone borrowers that are not familiar withfinancial institutions.

Comparing lending trends in states with and without anti-predatory laws effectively refutes the notion thatanti-predatory statutes choke off credit. The first state to pass an anti-predatory law was North Carolina.The law was passed in the summer of 1999 and became effective in the summer of 2000. An NCRC analysisof the time period before and after the law from 1998 through 2000 reveals that lending trends in NorthCarolina closely resemble those in states, like Ohio, where anti-predatory laws were not discussed and debatedduring the same time period. In both Ohio and North Carolina total single family lending (especiallyrefinance lending) declined over the three years because of higher interest rates in 2000 than in 1998.xi InOhio, prime and sub-prime single family lending declined 41 percent and 20 percent, respectively, from 1998through 2000. In North Carolina, prime and sub-prime lending decreased 38 and 21 percent, respectively,during the three years. In contrast to refinance lending, sub-prime home purchase lending even increased inNorth Carolina by 31 percent over the time period. The specter of credit constriction in the wake of ananti-predatory law remains a figment of imagination and a scare tactic only, not a reality.

NCRC believes that current law and regulation are weak and err on the side of allowing exploitative practicesthat are not economically justified in terms of being necessary to make loans profitable. Steep prepaymentpenalties on high interest loans, high balloon payments, repeated flipping, credit insurance, and fee packingwere not necessary for profitable home mortgage loans made to first time homebuyers during the tremendoushomeownership expansion in the 1990’s, especially in the first half of the decade. Instead, these abusiveterms and conditions trap and exploit unsophisticated borrowers. Their unsuitability to the borrower andlender is demonstrated by higher foreclosures associated with predatory lending as documented by NCRC andother research.xii Indeed, the FDIC has found that although sub-prime lenders constitute about 1 percent of


all insured financial institutions, they account for 20 percent of depository institutions that have safety andsoundness problems.xiii

In order to protect consumers and the lending industry from unsafe and predatory practices, NCRC favorsfederal anti-predatory legislation that builds upon the Homeownership and Equity Protection Act of 1994(HOEPA). HOEPA defines loans that exceed a certain interest rate and fee threshold as high cost loans. Itthen outlaws various terms and conditions on high cost loans. The shortcoming with HOEPA is not itsstructure but its high interest rate and fee thresholds. The current interest rate threshold, for example, is 10percentage points above Treasury bill rates which currently translates into interest rates of 16 percent andhigher (the Federal Reserve Board lowered the threshold to 8 percentage points above Treasury securities;this change becomes effective in October 2002). The HUD/Treasury Task Force on Predatory Lendingestimates that the current HOEPA interest rate threshold covers only about 1 percent of sub-prime loans.xiv

Tighten Up HOEPA

NCRC believes that HOEPA should be changed in the following manner. Local and state bills should alsocontain the following:

• Coverage – HOEPA should be expanded to cover home mortgage lending, reverse mortgage lending, andopen-ended transactions secured by real estate. Currently, HOEPA applies only to closed-endedconsumer transactions secured by a borrower’s home. In order for HOEPA’s protections to becomprehensive, it is time to extend it to all lending secured by a borrower’s principal dwelling.

• Interest Rate Threshold – The interest rate threshold should be lowered from 10 percentage pointsabove Treasury bill rates to 4 percentage points above Treasury rates. Using the figures in theHUD/Treasury report, NCRC estimates that this would cover about 70 percent of all sub-prime lending,or the percentage of sub-prime lending which is estimated to contain prepayment penalties.

• Fees – NCRC believes that the HOEPA fee threshold should be lowered from 8 percent of the loanamount to 3 percent of the loan amount. Fannie Mae has indicated that it will not purchase loans withfees exceeding five percent of the loan amount. This is a significant policy statement from a majorsecondary market player indicating that Fannie Mae does not believe that fees above five percent areeconomically justified from a profitability point of view.xv The rationale for NCRC’s suggested triggerof 3 percent of loan amount is that fees are usually only 1 percent of prime loans; we are thus allowingfees to be three times the average prime amount before the fee trigger is crossed. In addition, NCRCmaintains that “yield-spread” premiums should be included in the calculation of the fee threshold.NCRC also agrees with the HUD/Treasury recommendation that for high cost loans, a ceiling should beestablished on the percentage of fees that are financed and added to the loan amount instead of being paidup-front. The HUD/Treasury recommendation is that fees exceeding more than 3 percent of the loanamount must not be financed.

• Flipping – NCRC agrees with the HUD/Treasury recommendation that refinances of high cost loans thatoccur within 18 months of the original loan should be prohibited unless a tangible net benefit accrues tothe borrower. Such a benefit should include a reduction in the loan interest rate. NCRC’s model billprohibits the refinancing of a high cost loan into another high cost loan when the lender finances pointsand fees into the new high cost loan.

• Prepayment penalties – HOEPA currently allows prepayment penalties in the first five years. HOEPAmust be changed to shorten the time period during which prepayment penalties can be assessed on loansthat exceed the interest rate and fee threshold. The NCRC model bill includes a time period of threeyears; advocates and policymakers should assess economic conditions in their localities in decidingappropriate time periods.


• Balloon payments – HOEPA prohibits balloon payments on high cost loans within the first five years oforigination. NCRC agrees with the HUD/Treasury recommendation that balloon loans must beprohibited until 15 years after the issuance of high cost loans. A shorter time frame invites flipping aspredatory lenders convince borrowers facing steep balloon payments to refinance, usually at higherinterest rates and added fees. NCRC’s model bill actually prohibits all balloons on high cost loans; insome localities, however, NCRC is realistic that a straight-out prohibition will not be attainable.

• Single premium credit insurance – This is an abuse that must be ended on all loans. Fannie Mae andFreddie Mac have indicated that they will not purchase loans with single premium credit insurance.xvi

Congress should follow their lead and prohibit single premium insurance. If financial institutions wish tosell credit insurance, it should be on a monthly basis and must allow the borrower to cancel it at any time.On their part, many of the largest sub-prime lenders have stopped adding single premium credit insuranceto their loans.

This list of HOEPA changes is not intended to be comprehensive (NCRC’s model bill contains moreprovisions). For example, additional reforms would be to outlaw mandatory arbitration clauses and prohibithigh cost loans with negative amortization and/or with debt-to-income ratios that exceed 50 percent of theborrower’s income. Instead, this list of NCRC recommendations is intended to illustrate how public policyshould respond to the pervasive abuses occurring in the marketplace that cannot be addressed solely throughimproved disclosures or more extensive financial literacy counseling.

The protections in a strengthened HOEPA statute or in a local statute ultimately aim at creating a bankingsystem in which loans are made that meet the “tangible net benefit” standard. In other words, anti-predatorystatutes would create a system in which loans are appropriately priced, affordably priced, and meet housingneeds as well as urgent consumer needs such as financing a medical emergency. While this seems to be astraightforward proposition, it is in fact the anti-thesis of predatory lending, whose sole purpose is to harm,not benefit, the consumer.

In conclusion, stronger legislation and regulation is needed to end the scourge of predatory lending. Nobleattempts have been made at the state and local level to implement legislative and regulatory protectionsagainst predatory lending. NCRC applauds these initiatives and supports them. However, a comprehensiveHOEPA statute, accompanied by stronger regulations, is needed to establish uniformity and preventpredators from preying upon borrowers in states with weak laws. A uniform national framework willpromote competition from prime lenders and responsible sub-prime lenders. It will benefit communities andlenders alike by prohibiting unsafe and unsound lending that is designed to exploit borrowers andneighborhoods and strip them of their wealth.

How this Paper Was Written

The Board of Directors and the Legislative/Regulatory Affairs Committee (Leg/Reg Committee) establishNCRC’s policy positions. The Leg/Reg Committee is chaired by two NCRC Board members, and consists ofany NCRC member willing to participate in conference calls and policy development discussions. Typically,thirty to forty NCRC member organizations participate in conference calls five to six times a year. Inbetween the conference calls, NCRC shares drafts of policy papers, Congressional testimony, and commentletters to members via an e-mail bulletin board or listserv for edits and suggestions. The listserv contains thee-mails of over 200 member organizations. NCRC also mails out important policy papers to all 800 NCRCmember organizations for their input, consideration, and action. Thus, this position paper on predatorylending is a dynamic and fluid policy paper that represents the input and collective wisdom of NCRC memberorganizations. It is subject to change as NCRC and its member organizations learn more about predatorylending and its devastating impact on communities.


BBBBeeeesssstttt PPPPrrrraaaaccccttttiiiicccceeeessss &&&& RRRReeeessssppppoooonnnnssssiiiibbbblllleeee LLLLeeeennnnddddiiiinnnngggg"I have no illusions that the task of breaking down barriers that have produced disparities in income and

wealth will be simple… Although we have achieved much in this regard, more remains to be done. ...Discrimination is against the interests of business - yet business people too often practice it."

- Alan Greenspan, Chairman, Federal Reserve

Fair lending is an integral part of a financial institution’s legal responsibility to society. Although overtdiscrimination in mortgage lending is rare in today’s market, unintentional or unauthorized discriminationmay be found due to a continuation of “standard practices of loan underwriting or appraisals.” Challengesfacing lending institutions may arise from review of the latest Home Mortgage Disclosure Act data or reviewof those “standard practices” which may be contrary to equal opportunity goals set by the institution.

Check to see if the financial institution you are dealing with has adopted a mission statement pledging tomake fair lending and responsible a significant goal of the company. If there is a goal established, thestrategy to accomplish said goal should be in writing, available for the consumer to review. For example, it is(name of bank or mortgage company)’s goal to eliminate discrimination based upon a characteristic of theapplicant (race, color, national origin, marital status, sex, age, familial status, handicap, religion) and uponthe racial composition of the community in which the property is located (redlining)? While best practicesare not a substitute for sorely needed new consumer protections, they do expand access to credit andcelebrate fair lending as a profitable business practice. Question the lender as to:

• Do they train the staff (including contracted appraisers and brokers) in the area of fair lending and equalcredit opportunity laws?

• Do they have a review policy to ensure detection of discrimination?• Is their advertising in compliance with federal, state and local fair housing laws?• Are all loan products presented to prospective clients?• Are products equally suited to majority and minority communities?• Are there loan officers who speak foreign languages or sign language?• Are offices and branches located equally in all communities—and do they offer equal services, hours and

types of facilities?• Are there minorities at all levels of employment in the institution and on the Board of Directors?• Do they have written and established underwriting standards and criteria with specific and objective

terminology?• If exceptions are made in the underwriting decision, what are the circumstances for the exceptions?• Do they apply the same standards for all?• Are debt-to-income ratios flexible underwriting tools or fixed standards?• In the “Neighborhood Analysis” section of the appraisal report, are there references to the “desirability”

of a neighborhood?• Does the lender celebrate Responsible Lending and have a meaningful anti-predatory or responsible

lending policy?


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If a consumer feels that they have been a victim of predatory lending and/or lending discrimination, here aresome legal tools to redress the situation.

The Federal Fair Housing Act: Title VIII is our nations primary civil rights law designed to ensure equalhousing opportunity and fair lending. Congress intended this law to ensure equal access and non-discrimination in lending on the basis of race, national origin, sex, disability, religion and familial status. It isunlawful for any person who engages in the lending, purchasing, selling, brokering, or appraising of residentialreal property to discriminate on the basis of the protected classes listed.

Home Mortgage Disclosure Act (Regulation C): The intention of this Congressional Act enacted in1975 and amended from 1988-1991 is for lending institutions to provide the public with data to determine ifthe institution is serving the housing needs of all community residents. It was enacted to assist in identifyingpossible discriminatory practices in lending and to assist public officials in distributing public sectorinvestments. HMDA requires most lenders to report the sex, race and income of mortgage applicants andborrowers. Regulation C requires lenders to report data regarding loan applications, including information onorigination and purchases.

Equal Credit Opportunity Act (Regulation B): ECOA was enacted to promote credit to applicantswithout regard to sex, race, color, religion, national origin, marital status, age, receipt of public assistancefunds, or the exercise of any right under the Consumer Credit Protection Act in 1974. Under ECOA,Regulation B prohibits creditor practices that discriminate on the basis of these protected classes.

Community Reinvestment Act: In 1977 the CRA was enacted to obligate depository institutions to meetthe credit needs of low and moderate income neighborhoods.

Truth In Lending Act (TILA): The liability of assignees is addressed under Section 131 of the Truth InLending Act. 15 U.S.C. section 1641. Under this section, assignees are not immune from liability. Anassignee will be liable for actual and statutory damages to the same extent as the originating lender if theTruth In lending violations is apparent on the face of the disclosure statement. 15 U.S.C. section 1641 (s).A Truth In Lending violation would include failure to properly designate a loan as a Section 32 high cost loanand make the relevant disclosure required by Regulation Z, section 226.32 and the Home Ownership andEquity Protection Act of 1994 (HOEPA). Because of the exposure to assignee liability, assignees mustexercise due diligence in purchasing loans. The Truth In Lending Act sets for the required level of duediligence. In the case of a mortgage loan, the assignee must review and compare the disclosure statement,any itemization of the amount financed, the note and any other disclosure of disbursements (such as theHUD - 1 Settlement Statement) to determine whether any errors were made by the originating lender. Theassignee must also make certain that the disclosure statement follows the format and contains theterminology required by the Truth In Lending Act. Errors that are discoverable through due diligence aredeemed apparent on the face of the disclosure statement. 16 U.S.C. section 1641 (e). Even if the Truth inLending violation is not apparent on the face of the disclosure statement, a consumer who is entitled to anextended right of rescission under Section 125 of the Truth In Lending Act may assert that right against andassignee. 15 U.S.C. section 1641 c A servicer will not be subject to liability for a disclosure errors unless theservicer is or was the owner of the loan. 15 U.S.C. section 1641 (f)(1). Lenders should seek the advise ofcounsel with regard to potential assignee liability under those state high-cost loans laws which have beenpassed and become effective as of the date of this paper.


Other protections include the Home Ownership and Equity Protection Act (HOEPA), the Fair DebtCollection Practices Act (FDCPA), and the Real Estate Settlement Procedures Act (RESPA),which are discussed extensively both earlier and later in this document.

Factors to examine in assessing the merits of a consumer complaint:

While price discrimination alone is insidious, it is often combined with abusive terms and conditions thatcompound the evils of predatory lending. Overpriced loans with abusive terms and conditions strip equityout of borrowers homes and often lead to foreclosure. Repeated direct mail solicitation, telephone marketingcalls, adding requirements for co-signers, pre-payment penalties, inflated appraisal costs, to more technicalissues such as negative amortization and even forging documents are all warning signs for a potentialpredatory loan. The following list is not meant to be exhaustive; it includes the major abuses associated withpredatory lending.

Prepayment Penalties – A lender assesses prepayment penalties when a borrower either pays the remainingloan balance before the end of the loan term or refinances with another bank. In the case of prime loans,borrowers sometimes agree to prepayment penalties in exchange for a lower interest rate or lower loan fees.In the case of predatory loans, prepayment penalties become a trap, preventing many borrowers fromshedding a high interest loan in favor of a prime loan and/or a lower interest loan. According to the recentHUD and Department of Treasury Task Force report on sub-prime lending, about 70 percent of sub-primeloans contain prepayment penalties.

Balloon Payments – A balloon payment is a loan payment that can equal all of the remaining loan balanceor a large fraction of the initial balance. In prime lending, balloon payments can be used on secondmortgages and other instruments to help finance the loan by making monthly payments lower. It isanticipated that a borrower’s income will increase, making it feasible for the borrower to pay the balloonwhen it is due or to refinance the loan. In predatory lending, a balloon payment is another type of trap.Borrowers with high interest loans cannot pay the balloon when it is due and usually end up refinancing theirloans. Predatory lenders will then often increase their interest rates and fees on the refinanced loans.

Flipping – Flipping refers to the practice of repeated loan refinancing with little or no benefit to theborrower. In a recent case, for example, a lender flipped a consumers loan five times in eight years, chargingfees and points of about 10 percent on each refinancing. As a result, the loan amount increased from$26,000 in 1987 to $51,793 in 1995. Despite paying more than $100,000 over the life of the loan, theloan principal had increased, the lender commenced foreclosure proceedings against the homeowner.

Credit Insurance – If a borrower dies or becomes unemployed, credit insurance pays the outstanding loanbalance. Borrowers of prime loans usually decide to obtain credit insurance after they close on their loans,and may or may not obtain credit insurance through their lender. Borrowers of prime loans also usually payfor credit insurance on a monthly basis. In contrast, predatory lenders persuade borrowers to pay for all oftheir credit insurance up-front via a single premium payment. Usually, the premium for credit insurance isadded to the loan amount. Single premium credit insurance can equal as much as 20 percent of the loanamount.

Fee Packing – Predatory lenders will pack loans with unnecessary fees. In a recent case, the AttorneyGeneral of the State of New York found that the lender paid brokers fees that added 10 percent to the loanamount simply for inducing borrowers to accept “excessive, above-market interest rates.” In industryparlance, the practice of paying brokers kickback fees to induce borrowers to accept higher interest ratesthan the lender would normally offer is called “yield spread premiums.”

Advocates and consumers should also be wary of shifting unsecured debt into mortgages, loans in excess ofa loan-to-value of 100%, forced place insurance ,compounding daily interest when payments are made after


the due date, and after the borrower has closed on the loan, abusive collection practices. All loans shouldhave a tangible net benefit to the consumer.

David Medine, Associate Director for Financial Practices of the Federal Trade Commission’s (FTC) Bureauof Consumer Protection testified before the House Committee on Banking and Financial Services regardingpredatory lending practices affecting home equity borrowers. He described the practices that concern theCommission, including equity stripping, packing and flipping. “Equity stripping occurs when a loan is madebased on the equity in a property rather than on a borrower’s ability to repay the loan.” Such loans are oftendesigned to fail and result in the lender acquiring the borrower’s home and any equity the borrower had in thehome. “Packing is the practice of adding credit insurance or other” often unnecessary or not useful services“to increase the lender’s profit on a loan” such as credit insurance. “Flipping occurs when a lender induces aborrower to repeatedly refinance a loan, often within a short time frame, charging high points and fees eachtime.”

According to the testimony, sometimes these practices constitute unfair or deceptive practices and mayviolate one or more federal or state statutes such as the Federal Trade Commission Act (FTC Act), Truth inLending Act (TILA) or the Home Ownership and Equity Protection Act (HOEPA), an amendment to TILA,the Equal Credit Opportunity Act (ECOA), the Fair Debt Collection Practices Act (FDCPA), and the RealEstate Settlement Procedures Act (RESPA).

The growth of the sub-prime mortgage industry has been accompanied by a rise in predatory lendingpractices. Therefore, the FTC urged the Committee to consider expansion of HOEPA protections in fourspecific ways: “(A) prohibit the financing of single-premium, or ‘lump-sum,’ credit insurance premiums (aswell as other loan ‘extras’) in loans covered by HOEPA; (B) count lump-sum financed credit insurancepremiums (and other extras) toward HOEPA’s fees-based trigger; (C) provide the Commission and other lawenforcers with the power to impose civil penalties for HOEPA violations; and (D) prohibit mandatoryarbitration clauses in loans covered by HOEPA.”


NNNNCCCCRRRRCCCC HHHHOOOOEEEEPPPPAAAA FFFFaaaacccctttt SSSShhhheeeeeeeettttAmending the Truth in Lending Act (TILA), the Home Ownership and Equity Protection Act of 1994(HOEPA) defines high-cost loans based on interest rate and point and fee thresholds. It then prohibits orlimits various practices that are often abusive and trap borrowers into high-cost loans. HOEPA, however,does not cover many loans at this point due to the high interest rate thresholds and its restricted coverage (itdoes not apply to home mortgage lending, for example). In December of 2001, the Federal Reserve Boardadopted changes to its “Regulation Z” that implements HOEPA and TILA. Lending institutions mustcomply with these changes on October 1, 2002 (the regulatory changes are indicated below).

• Annual Percentage Rate (APR) and Points and Fees Triggers: HOEPA applies to loans with anAPR of 10 percentage points above Treasury rates, or with points and fees that are greater than 8percent of the loan amount or $400, whichever is greater. The $400 limit is adjusted annually forinflation. For 2002, the amount is $480. The Federal Reserve Board has the authority to lower theAPR trigger to 8 percentage points above Treasury rates, as well as to prohibit or restrict mortgagelending practices it deems unfair and deceptive. In December of 2001, the Federal Reserve lowered theAPR trigger to 8 percentage points for first mortgages and 10 percentage points above Treasurysecurities with comparable maturities for second mortgages.

• Coverage: HOEPA applies to all consumer credit transactions secured by a borrower’s principaldwelling, other than purchase money mortgages, reverse mortgages, or open-end credit transactions.

• Definition of Points and Fees: Points and fees include all items included in the finance charge, allcompensation paid to mortgage brokers, and other charges that the Board determines to be appropriatethrough regulation. In December of 2001, the Federal Reserve required the inclusion of credit insuranceand other debt-cancellation coverage in the points and fees trigger. Credit insurance pays the mortgagein the event of death, accident, health problems or unemployment.

• Financing of Points and Fees: There is no restriction on the financing of points and fees underHOEPA.

• Disclosures: HOEPA requires additional disclosures three days before closing to ensure that borrowersare aware that loans covered by HOEPA are high cost loans. These key disclosures include the APR, themonthly payment, the amount of any balloon payment, and the total amount borrowed including anypremiums for credit insurance. Under TILA, a borrower can rescind and cancel a loan three days afterclosing. If a borrower has a high cost loan covered by HOEPA, the borrower thus has six days tocarefully consider the loan and decide whether to cancel it.

• Due on Demand Clause or Call Provision: In December of 2001, the Federal Reserve Boardprohibited the use of due on demand clauses on HOEPA loans. Due on demand clauses allow the lender torequire payment on the entire outstanding balance of the loan at any time.

• Flipping: Predatory lenders encourage borrowers to refinance often and then add points and fees to theloan with each refinance. In December of 2001, the Federal Reserve Board prohibited the refinancing ofa HOEPA loan within one year by the lender that made the original loan, but not other third partylenders. The anti-flipping prohibition also applies to a purchaser of a HOEPA loan, or an “assignee,” orservicer of the loan within one year of the original loan. Affiliates of the lender are exempt unless thelender engages in a pattern or practice of the affiliate flipping loans in order to evade the anti-flippingrule. A lender, however, can refinance a loan within a year if doing so is in the “borrower’s interest.”


The Federal Reserve did not specify borrower interest except to indicate in commentary to theregulation that the amount of fees should be commensurate to the amount of new funds loaned.

• Prepayment Penalties: Prepayment penalties are allowed in the first five years of a HOEPA loan, butonly if the loan is refinanced by a lender other than the originator or one of its affiliates, and theborrower’s monthly debts do not exceed 50% of his or her monthly gross income.

• Balloon Payments: Balloon payments are allowed on HOEPA loans after 5 years. A balloon paymentrequires significant outstanding balances to be paid at a certain date. On high-cost loans, borrowers areoften forced to finance before the balloon due date.

• Negative Amortization: Negative amortization is prohibited on all HOEPA loans. Negativeamortization refers to a payment schedule under which payments are not even sufficient to cover themonthly interest payments, let alone the principal. Therefore, the principal actually increases.

• Ability to Repay: Lenders are prohibited from engaging in a “pattern and practice” of extendingHOEPA loans without considering the borrower’s ability to repay based on income rather than assets. InDecember of 2001, the Federal Reserve Board amended HOEPA to stipulate that lenders are presumednot to consider repayment ability if they do not verify and document borrowers’ incomes.

• Interest Rate Increases After Default: Increasing the interest rate of a HOEPA loan as a result ofdefault is prohibited.

• Prepaid or Advance Payments: HOEPA loans may not include terms requiring more than 2 loaninstallment payments to be consolidated and paid in advance from the proceeds of the loan.

• Payments to a Home Improvement Contractor: HOEPA prohibits direct payment to a contractorfrom the proceeds of a high-cost loan. This is designed to prevent home improvement contractors frombeing paid directly by a high-cost lender for work that is never done.

Purchaser Liability: An investor that purchases a HOEPA loan from a lending institution is liable to allclaims and defenses with respect to the loan. In December of 2001, the Federal Reserve Board added staffcommentary to Regulation Z clarifying that the phrase “claims and defenses” are not limited to violations ofHOEPA.


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Associates Home Equity Services v. Troup

In what appears to be the first appellate court decision recognizing that predatory lending can violate federaland state civil rights laws, the New Jersey Appellate Division handed down a significant decision on July 25,2001 in the case of Associates Home Equity Services v. Troup. In it's decision, the court: (1) definedpredatory lending and set forth the standards by which a civil rights claim my be established in the predatorylending context, (2) determined that, even after traditional affirmative civil rights statutes of limitationshave expired, a predatory lending victim may raise civil rights claims in foreclosure proceedings by way ofequitable recoupment, and (3) concluded tat the FTC Holder Rule should be applied despite a range oftechnical defenses, such as the failure to include the requisite language in the loan documents.

This case stems from foreclosure proceedings initiated by Associates Home Equity Services against BeatriceTroup, a 74 year old African-American woman, who had lived in her home in Newark for over forty years.She had owned her home free and clear when she was targeted by a home repair contractor who convincedher to undertake home repairs that she eventually financed in an amount exceeding $46,000. Although sheinitially made several interim payments to the home repair contractor arranged for the financing throughEast Coast Mortgage which almost record, the terms of Ms. Troup's loan were excessive: the initial interestrate was 11.65% adjustable after 6 months with a margin of 8.15, the term of the loan was 15 years with aballoon payment of over $41,000, and the Troups were charged four points. In addition, the Associates paidEast Coast Mortgage a yield spread premium of $2600.

Associates initiated foreclosure proceedings two years and a week after the closing date. Ultimately, Ms.Troup raised in her defense civil rights claims against the Associates under the Fair Housing Act, Section1981, and New Jersey's Law Against Discrimination. In addition, based on expert testimony that the homerepair work actually performed on her home was significantly deficient and worth only a fraction of what shehad paid, she sought to hold East Coast Mortgage liable for any consumer law violations undertaken by thecontractor pursuant to the FTC's Holder Rule. The cancery judge ultimately refused to allow these claims togo forward, dismissing both East Coast Mortgage and the Associates from the case. He dismissed the civilrights claims against the Associates because the two year affirmative statute of limitations had expired, andfailed to address East Coast Mortgage's potential liability for the contractor's alleged wrongdoing under theHolder Rule.

In this decision, the Appellate Division reinstated the claim against both the Associates and East CoastMortgage. The Court first discussed the phenomenon of predatory lending, citing both the Troup's expertCalvin Bradford and the amicus' expert, Elvin Wyly, who had submitted a declaration regarding the dualhousing market that exists in New Jersey., The court adopted standards used by several trial courts, includingthe federal district court in Hargraves v. Capitol City Mortgages (summarized hereunder), and found that acivil rights violation may be established by demonstrating that defendants' lending practices were "unfair andpredatory" and that defendants either targeted on the basis of race or that there was a disparate impact onthe basis of race. This appears to be the first time an appellate court anywhere in the country has adoptedthese standards.

In the ruling that is a matter of first impression in New Jersey and perhaps elsewhere, the Court then went onthe rejected the Associates' arguments that Ms. Troup was precluded from raising the civil rights claims herdefense because the two year statute of limitations had expired. In the chancery court, Ms. Troup sought toraise these claims by way of the common law theory of equitable recoupment - that any amount she mightowe should be offset by any claims she was due from the Associates' due to their violations of her civil rights.


The Court rejected the Associates' assertion that such a claim was inappropriate in a foreclosure proceeding.Particularly given that many victims of predatory lending are unaware of the problems with their loan untillong after two years have expired, this ruling significantly recognizes the importance of making civil rightsremedies available to predatory lending victims.

The Court similarly concluded that East Coast Mortgages should not be dismissed given its potential liabilityunder the Holder Rule. As with the civil rights statutes, the court concluded that the Holder rule needed to beread and applied broadly to fulfill its remedial intent. In this instance, this meant that the Rule should beapplied even though some payments were initially made to the contractor, the bold-type notice required bythe Rule was not included, and the loan was subsequently assigned . To do otherwise, the Court concluded,would allow "ECM and Ahrens (the contractor) to evade the remedial reach of the Holder Rule." At least assignificant as the equitable recoupment finding, this holding recognizes that a lender with the requisiterelationship with a home repair contractor who engages in deceptive or fraudulent practices will not be ableto rely upon technical defenses to escape liability for the contractor's actions.

Based on these findings, the case was remanded back to the chancery court to allow the Troops to proceedwith discovery on their claims against the Associates and East Coast Mortgage. The decision is not beingappealed to the New Jersey Supreme Court and has now been published at 3N3 N.J. Super.254(App.Div.2001)

Hargraves et al v. Capital City Mortgage et al:

In this lawsuit against Capital City Mortgage Corp. and its president and Thomas Nash, private plaintiffscontend that the company targeted minorities for loans that were designed to fail, due to unfair paymentterms and income levels of the borrowers that would not sustain the loan payments. In their complaint, theplaintiffs claim that Capital City's lending practices violated several federal laws, including the Fair Housingand the Equal Credit Opportunity Acts by engaging in a pattern or practice of targeting African Americancommunities, a practice known as "reverse redlining," for abusive or predatory lending practices. Specifically,to quote the complaint:

“Cap Cities Mortgage, is responsible for a pattern or practice of predatory and racially discriminatorylending by defendants in the Washington, D.C. metropolitan area. While they masquerade as bankers,defendants systematically defraud innocent individuals out of their money and property. They accomplishtheir illicit purposes by means of fraudulent loans obtained through unscrupulous methods. Using these loans,defendants extract unconscionable and illegal fees from their victims until there is no money left to extract;then they expropriate their victims' business properties, churches, and homes through foreclosures which theloans were specifically designed to facilitate.”

The mechanisms identified in the litigation to further defendants' predatory lending activitieswere consistent with other predators throughout the nation. They included:

• targeting property owners with substantial equity in their property and/orthe ability to make a substantial payment at closing;

• misrepresenting loan terms;• establishing impossible repayment terms;• inducing borrowers to obtain loans that defendants know or should know

that borrowers will be unable to repay;- charging undisclosed and/or improper fees;- failing to satisfy their obligations under loan agreements;- foreclosing on loans to obtain properties at a discount;- rigging or manipulating auctions on foreclosed properties; and- selling foreclosed properties at a substantial profit.


The complaint, also filed under Federal ECOA and Racketeering protections, alleged that Defendants have‘directed their racketeering activities at African Americans in the Washington, D.C. metropolitan area,specifically targeting African American borrowers for residential and commercial loans. Defendants havedirected their marketing and lending efforts toward African Americans, believing them to be unsophisticatedor financially desperate and therefore most susceptible and vulnerable to these unconscionable and fraudulentlending practices. Defendants accomplish this targeting, in part, by cultivating a network of real estate agentsand loan brokers in predominantly African American neighborhoods who, at the direction of defendants,steer borrowers to defendants’ office with promises of quick, no questions asked loan approvals.”

The Plaintiff’s also alleged in this matter that the Defendant made no effort to ascertain or verify thefinancial capabilities of borrowers to repay their loans. Defendants failed or refused to explain to borrowerseven the most basic terms of their loans, such as interest-only balloon payments, and did not explain thenumerous and excessive fees, penalties, and default clauses buried in the complex and confusing verbiage oftheir notes and deeds of trust. Unlike reputable financial institutions whose commercial interest is in havingperforming, interest-paying loans, one aspect of defendants' scheme is to obtain the borrower’s equity in theproperty through default or foreclosure.

To that end, Cap Cities customarily limited their loans to no more than 60 percent of the value of theproperty, leaving the remaining 40 percent available to satisfy their unconscionable and fraudulent fees andother charges piled onto the loan, and to provide for additional profits if they were able to obtain theproperty through foreclosure.

The defendants filed a motion for summary judgment on the grounds that reverse redlining does not violateeither law because they have provided credit to African Americans, and on the same terms that they wouldprovide to whites. The DOJ filed a crucial amicus brief, which supported the view that lending practicesdesigned to induce minorities into loans destined to fail could violate the fair lending laws.

The Justice brief argued that by targeting minorities for predatory loans, a lender discriminates in the termsand conditions of home financing, even if it makes all or most of its loans in minority areas. The fact that alender does business only in minority neighborhoods does not shield its business from scrutiny under federalfair lending laws. In addition, racially targeted loans that are designed to fail make housing unavailablebecause of race since the borrowers are likely to lose their homes through foreclosure.

In a memorandum opinion and order filed on September 29th, 2000, Judge Green denied the Defendant’smotion for judgement on the pleadings and in the alternative, for summary judgement. The court acceptedplaintiffs contention that The Federal Fair Housing Act, the Equal Credit Opportunity Act and even theRICO protections all permitted an action in this matter. The court specifically recognized the disparateimpact and “targeting” associated with a reverse redlining claim and denied the Defendants motion.

The Federal Trade Commission has filed a separate action charging the same defendants with violating anumber of federal consumer protection laws. FTC v. Capital City Mortgage Corp., No. 98-237 (JHG/AK)(D.D.C. filed Jan. 29, 1998). On September 29th, 2000 The US District Court for the District of Columbiaissued a memorandum decision denying the defendants motion and affirming the plaintiffs and DOJ theoryof law.

The Federal Trade Commission:

Seven sub-prime mortgage lenders from across the country have agreed to pay redress or be banned frommaking certain loans to settle Federal Trade Commission (FTC) charges that their lending practices violatedvarious laws enforced by the agency. The agreements were part of the FTC’s Operation Home Inequity,” alaw enforcement and consumer education campaign that seeks to curb abusive practices in the sub-primemortgage lending industry.”


Named in the FTC settlements were Barry Cooper Properties, Encino California; Capitol MortgageCorporation, Provo, Utah; CLS Financial Services, Lynnwood, Washington; Granite Mortgage, LLC,Lexington, Kentucky; Interstate Resource Corp., Newburgh, New York; LAP Financial Services, Louisville,Kentucky, and Wasatch Credit Corp, in Salt Lake City, Utah.

The defendants in six of the cases have agreed to pay $572,500 for consumer redress, which amounts to anaverage of about $2,100 to borrowers in about 275 HOEPA loan transactions. In addition, where thedefendant still wholly or partially owns the loan, the proposed orders would require them to reform the noteor contract by nullifying loan terms that HOEPA prohibits, including prohibited balloon payments (those duein less than five years), increased interest rates, and/or prepayment penalties.

According to the complaints, violations included: (1) prohibited prepayment penalties; (2) asset-basedlending practives; (3) falsely labeling loans as “open-end” or revolving credit in an attempt to evadeHOEPA; (4) failure to give required notices; (5) failure to give required TILA disclosures; (6) failing toprovide material credit information; (7) making direct payments to home improvement contractors; (8)engaging in recission-related violations which improperly deprived consumers of the three-day HOEPAwaiting period; directing borrowers to falsely characterize consumer loans as business loans;

The remedies proposed included: (1) barring defendants from participating in any activity related to certainhigh-cost loans secured by consumers’ principal dwellings; (2) reformation of contracts to eliminateprohibited terms; (3) reducing interest rates; (4) barring defendants from offering consumer credit unless theyobtain a five year, $250,000 performance bond.

FTC vs. FAMCO:

As part of the Federal Trade Commission (FTC) ongoing enforcement effort to curb abusive and predatorypractices in the sub-prime mortgage industry, “[t]he FTC has filed a seven count complaint in federal courtagainst “sub-prime” lender First Alliance Mortgage Company (“FAMCO”) and two affiliated companiesalleging violations of the Federal Trade Commission Act (FTCA) and the Truth in Lending Act’s (TILA)implementing Regulation Z. The complaint seeks an order prohibiting future violations and providingredress to consumers.

“According to the FTC complaint, [they] target – through telemarketing and direct mail solicitations –homeowners with poor credit histories who might experience difficulty securing conventional home equityfinancing. Loan officers … use a lengthy, 13-step sales presentation, known as “the Track,” to sell loans.The complaint alleges that, through the use of the Track, the First Alliance Companies mislead consumersabout the existence and amount of origination fees for its laons (which are typically 10% to 25% of theloan) and the interest rate and monthly payments of their adjustable rate mortgage (ARM) loans. As aresult, according to the complaint, consumers believe they are borrowing less money at lower interest ratesthan they actually are.

Specifically, FAMCO presentations systematically contain false or misleading statements that causeconsumers to be deceived about the material terms of the loan, such as the amount borrowed (financed) andfees. Furthermore, they misrepresent that the consumer will save money yet fail to substantiate costsavings, they misrepresent the terms of the ARM loans; they misrepresent that the monthly payment willnot increase unless LIBOR increases; they misrepresent the prepaid finance charges. In addition, in violationof TILA, for borrowers who have loans (a) with a term greater than one year, (b) secured by the borrowers’principal dwelling and (c) for which the APR may increase after consummation, they fail to provideconsumers with the booklet titled Consumer Handbook on Adjustable Rate Mortgages or a suitable substitute.


In the Matter of FirstPlus Financial Group, Inc.

This document orders that FirstPlus Financial Group not to misrepresent the saving to be achieved inconsolidating existing credit card balances into a FirstPlus loan, either monthly or over the extended life ofthe loan nor to misrepresent other terms conditions or costs of a FirstPlus loan. Further, they must notmisrepresent an individual’s eligibility, creditworthiness, or prior approval to receive a loan, nor shallFirstPlus misrepresent the amount of loan proceeds, whether disbursed to consumers or to third parties onbehalf of the consumer. No examples of cost savings may be used, actual of hypothetical unless the exampleis based on reasonable assumptions regarding average annual percentage rates and repayment terms forcomparable credit transactions. FirstPlus shall not state the amount or percentage of any downpayment, thenumber of payments or period of repayment, the amount of any payment or the amount of any financecharge, without complying with the Truth-in-Lending Act and Regulations Z including the disclosure,accurately, clearly, and conspicuously, of all the terms required by the Truth-in-Lending Act and RegulationZ.

FirstPlus must maintain records of compliance for five years, share a copy of this order with all current andfuture principals, officers, directors, managers, employees, agents and representatives having responsibilitieswith respect to the subject matter of this order and obtain a signed receipt stating that such statement hasbeen so provided. Finally, this order shall last for twenty years.

United States of America v. Long Beach Mortgage Company

A settlement agreement and Consent Order arising out of complaints filed by the Department of Justice(DOJ) against Long Beach Bank, FSB (Bank), predecessor in interest to Long Beach Mortgage Company(LBMC) alleging violations of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA).The Bank was a significant B/C or sub-prime lender.

The Complaint alleges that during the period January 1991 through June 1994, the Bank engaged in lendingpractices that constituted unlawful discrimination on the basis of race, national origin, gender and age. TheUnited States maintains that evidence, including a statistical analysis, shows (1) that the Bank treatedAfrican American, Hispanic, female or older borrowers differently from younger, white male borrowers bycharging them higher prices for mortgage loans and (2) that there is no non-discriminatory explanation forthis difference in treatment. The United States does not claim that the Bank discriminated in chargingborrowers a risk-related premium, but rather in the additional discretionary amounts that were charged by itsloan officer employees and its wholesale brokers,” for which discriminatory loan pricing the lender remainsresponsible. These discretionary amounts are also called “yield spread premiums.”

Although LMBC, the successor in interest, denies all allegations in the Complaint, they “acknowledge thatsome borrowers may pay higher prices for mortgage loans because of limited credit availability or lack ofborrower sophistication and knowledge of alternative credit sources.” DOJ found that LMBC cooperatedfully during the investigation and, in helping to define a creative solution, has agreed to take a leadership rolein increasing consumer financial literacy and is further commended for its “willingness to commit substantialfunds to an ambitious project that is designed to accomplish the objectives of the fair lending laws.”

In this agreement, LMBC, its officials, employees, and agents, as well as successors, agree, in general, not toengage in any discriminatory act or practice based on age, sex, race or national origin as prohibited by theFHA and the ECOA.

More specifically, LMBC agrees to provide detailed FHA and ECOA training for LMBC retail personnel, aswell as a specific discussion of the “applicability of fair lending laws to mortgage loan pricing” and shallmaintain a file of signed acknowledgements that existing and new employees have received said training.LMBC also agrees to provide similar training to Mortgage Brokers in connection with its wholesale mortgageloan operations.


LMBC also agreed as follows:

• to use its best efforts to “place mortgage loan applicants in appropriate risk classifications based onobjective credit and risk-related criteria;

• to create a retail mortgage loan monitoring system using a statistical model with DOJ oversight whoseresults shall be reviewed at least quarterly by an LMBC Compliance Committee made up of seniormanagement.

• To contribute one million dollars to consumer education programs in conjunction with civil rights groupsto create and distribute informative pamphlets or other workshops designed to educate consumers on,among other things, how to compare pricing differences among competing loan products, theimportance of shopping for credit and useful questions to ask, and options available for borrowers withimpaired credit.

• If LMBC does allow a yield spread premium on the wholesale side, they will ensure that the non-discriminatory reasons for the upsell are documented in the loan file and are periodically reviewed byLMBC for compliance with fair lending laws.

• To create a three million dollar Settlement Agreement Compensation Fund (Fund) to compensate allthose allegedly by the United States to have been injured by the Bank’s past practices, as determined inthe sole discretion of the United States;

• To implement the compensation fund at the direction of the United States by sending the letter set forthin this Settlement Agreement to the last known address of those allegedly injured;

• To keep records and provide reports to the Civil Rights Division of the United States Department ofJustice for three years

FTC v. Associates First Capital Corporation & it’s Successor Citigroup Inc. and CitiFinancial CreditCompany - Court allows claims to go forward with discovery.

In December, 2001, the United States District Court for the Northern District of Georgia denied a motion byCitigroup and CitiFinancial Credit Company to dismiss several claims filed by the Federal Trade Commissionand ordered that the case proceed with discovery. This represents the first case where the issue of successorliability will be tested in this area.

The FTC filed against Associates, Citigroup and CitiFinancial based on the Associates having engaged inwidespread deceptive practices in their originating consumer loans. According to the complaint, they hidessential information from consumers, misrepresented loan terms, flipped loans and packed optional fees toraise the cost of loans, used aggressive marketing tactics including mailing out live checks and, once in theAssociates‚ loan portfolio, customers were aggressively solicited to take out new loans and refinance theirexisting debt using often falso sales pitches alleging that debt consolidation loans would lower consumers‚monthly payments and save them money.

The Associates allegedly violated the Federal Trade Commission Act (FTCA) by falsely representing variousaspects of the transactions including that savings comparisons did not take into account fees and closingcosts, that for certain loans, consumers would owe the entire principal amount in a balloon payment at theend of the loan term, that certain substantial fees, costs, and in some cases, credit insurance premiums wereadded on without consumer knowledge. When the insurance, which was automatically included,was discovered or discussed, it was often misrepresented.

The Associates also employed abusive and unfair tactics in collecting on their loans including disclosingconsumers‚ debts to third parties without the consumer‚s consent; calling consumers at work after beingadvised by the consumer that these calls were inconvenient or not permitted, and making repeated andcontinuous calls to consumers with intent to annoy, abuse or harassment.

The FTC also charges the defendants with violating the Truth in Lending Act (TILA) by splitting homeequity loans into two loans to provide immediate cash to consumers despite TILA requiring a three day right


of rescission which means that consumers cannot get the cash until that time has passed. The Associatesviolated TILA by failing to give Homeowner‚s Express Loan borrowers proper disclosures and giving loanfunds to those consumers.

Their alleged violations of the Equal Credit Opportunity Act (ECOA) was reflected in their failure to retainwritten records relating to consumers‚ loan applications.

Finally, they violated the Fair Credit Reporting Act (FCRA) by using or obtainin consumers‚ credit reportsfor impermissible purposes, to solicit consumers for new or additional loans beyond the loan for which thereport was originally obtained.

The breakthrough came when the court decided to allow the case to proceed to discovery against Citigroupand Citifinancial, before making a judgment on successor liability, because that question is “heavily fact-specific” and the court could use the benefit of a well-developed record to help them make this decision.

Further the cases could proceed under the TILA cause of action by alleging three detailed types of prohibitedconduct: loan splitting, failure to make required advertising disclosures clearly and conspicuously, and failureto keep required records. The FTC also could proceed against the defendants under the Fair Credit ReportingAct for improper use of consumer reports.

Illinois Association of Mortgage Brokers v. Office of Banks and Real Estate, Dec 4, 2001

This important case, decided in December, discusses the statutory interpretation of two federal laws and theirrelationship to a state regulation dealing with predatory lending. Specifically where a federal law and a stateregulation are established to regulate the same thing (whether environmental, financial, retirement funding orotherwise) does the federal law preempt the state rule making it null and void? This issue, based on theSupremacy Clause of the U.S. Constitution, is called preemption, i.e., whether the federal law preempts thestate law.

Several well-established rules of statutory construction apply to preemption cases: (1) As between generaland specific, the more specific law will control, regardless of which was passed later. (2) Where there is adirect conflict between the state and federal law, “is it impossible to comply with both state and federal law”or whether “the state law stands as an obstacle to the accomplishment of the full purposes and objectives” ofthe federal law. (3) Where there is no direct conflict did the Congress express an intent to preempt statelaw?

The first federal law, the Alternative Mortgage Transaction Parity Act of 1982, (AMPTA), is the mostgeneral and it made it easier for homeowners to obtain “alternative home loans.” An alternative home loanis a loan against the equity in a person’s home for purposes other than the initial purchase and today iscommonly called a home equity loan. At the time of AMPTA’s passage, interest rates were at all-time highsand many state’s banned anything except fixed rate mortgages.

The second federal law, Home Ownership and Equity Protection Act, (HOEPA), passed in 1994 as anamendment to the Truth in Lending Act (TILA) represents a congressional response to abusive home equityloan practices. The regulations establish a threshold which can trigger a set of restrictions on lendingpractices where lenders charged an annual percentage rate (APR) more than 10 percentage points above theyield on Treasury Securities or fees in excess of eight percent of the total loan amount or $400.

The local regulations promulgated by the Office of Banks and Real Estate (OBRE), like HOEPA, are aimedat preventing predatory lending. The OBRE regulations are triggered at lower thresholds than the HOEPArestrictions.


The court found that the HOEPA is more specific and therefore is the law that would control and, if any,that would be the preempting law vis-à-vis the OBRE regulations. The court decided that the OBREregulations do not conflict with the general policies of AMPTA and that one could readily comply with theconditions set forth in the new OBRE regulations as well as the HOEPA regulations. Finally, since the newregulations do not provide an impediment to the accomplishment of the full purposes and objectives ofHOEPA, the new OBRE regulations are consistent with HOEPA and are valid.

American Financial Services Association v. Dekalb County and Michael J. Bell,Superior Court of Dekalb County, GA, Nov 2, 2001

In this important case, decided in November, the American Financial Services Association (AFSA) challengesan ordinance enacted by DeKalb County, Georgia as ultra vires or beyond the scope of the County’s legalauthority and as unconstitutional. Put another way, the question is whether the area of commerce thatDeKalb County seeks to regulate, residential mortgage lending, preempted by an agency at the state level.

The stated purpose of the Ordinance is to “discourage predatory lending practices by prohibiting [DeKalb]County’s contracts from being awarded to entities or their affiliates defined by the Ordinance as “high costlender[s]” or “predatory lender[s]”. The Ordinance requires any entity seeking to transact business withDeKlab County to certify that neither it nor any of its affiliates is a predatory or high cost lender, as definedin the Ordinance with respect to residential “home loans.” In addition, any lender with more than five homeloans during the preceding year must submit a report for each of its affiliates containing 13 very detailedpieces of information about each loan. Similar information must be filed on each foreclosure.

Since the Ordinance may involve either a lender or borrower or both who does not reside in DeKalb Countyand also may involve a lending transaction that does not occur in the County, the report would need to befiled regardless of whether the underlying properties are in DeKalb County.

AFSA, an association whose members have done business with DeKalb County in the past and are ready,willing and able to do so in the future, brought this case on behalf of it’s members, seeking declaratory reliefthat the County went beyond it’s authority in seeking to regulate residential mortgage lenders and injunctiverelief to permanently prevent the Ordinance from being implemented.

The County seeks to use its contracting and market powers to regulate the behavior of residential mortgagelenders. Those who fail to engage in “responsible lending,” are debarred from obtaining contracts with theCounty.

The court finds that The Georgia Department of Banking and Finance (B&F) has been granted broadenforcement powers by the Georgia General Assembly to oversee the state’s regulation of financialinstitutions. It further finds that B&F “actively and aggressively” enforces numerous mortgage and financialregulations in this area.

They hold that this Ordinance must fall because local municipalities cannot regulate in this area because it“would lead to conflicting and ineffective regulatory schemes which would render state-wide complianceimpossible by banks, financial institutions and residential mortgage lenders and brokers, and greatly increasetheir costs of doing business.” More specifically, the Ordinance defines as “predatory” practices that arealready directly regulated and allowed under the existing state-level regulations. Specifically allowed by thestate, but prohibited by the Ordinance are: (a) financing of points and fees; (b) prepayment fees; (c)financing of credit or other insurance, (d) balloon payments; (e) advance payments, (f) charges for paymentdeferral or for loan modification, renewal, extension, or amendment, and (g) mandatory arbitration clauses.In addition, the Ordinance seeks to regulate interest rates, a matter already covered by stat usury laws.“Since the County is without authority to have enacted the Ordinance under its home rule and policepowers,” the Ordinance is ultra vires, null and void.


Notably, the Superior Court of the State of California in late December denied a request for injunctive reliefin a similar action - American Financial Services Association vs. City of Oakland and RedevelopmentAgency of the City of Oakland. NCRC, in cooperation with the National Lawyers Committee for CivilRights is exploring the filing of Amicus briefs with our members in support of local anti-predatory lendingconsumer protection legislation.


CCCCRRRRAAAA &&&& PPPPrrrreeeeddddaaaattttoooorrrryyyy LLLLeeeennnnddddiiiinnnnggggNCRC believes that the federal banking agencies do not need to wait for new legislation or commence anynew regulatory rule-making process in order to rigorously identify and penalize predatory lending. Apowerful vehicle for punishing predatory lending is CRA exams and fair lending reviews. CRA examinerscan assign a lower CRA rating to a lending institution if the CRA exam or accompanying fair lendingreview finds evidence of discrimination. Price discrimination and the targeting of low- and moderate-income communities with abusive loans must result in lower CRA ratings.

Predatory lending that is targeted to poor and minority communities is the antithesis of the CommunityReinvestment Act (CRA). According to Section 802 of the CRA statute (12 USC 2901), “the purpose ofthis title (is to) require each appropriate Federal financial supervisory agency to use its authority whenexamining financial institutions, to encourage such institutions to help meet the credit needs of the localcommunities in which they are chartered consistent with the safe and sound operation of such institutions.”

Since predatory lending is neither safe nor sound, it is in direct opposition to the goals of CRA. Despite this,a NCRC review of CRA exams reveals little scrutiny of sub-prime lending, especially when the sub-primelending is of a questionable nature. Over the last year, NCRC has detailed these instances when we havecommented to the Office of Thrift Supervision on its Advance Notice concerning changes to its AlternativeMortgage Transactions Parity Act (AMPTA), to the Federal Reserve Board on its proposed changes to theHome Ownership and Equity Protection Act (HOEPA), and to the Federal Deposit Insurance Corporation onits proposed guidance to banks concerning the financing of sub-prime lending.

A common failing among CRA evaluations is the lack of examining loan terms and conditions although CRAmandates that loans be made in a safe and sound manner to low- and moderate-income communities. TheCRA lending test also has qualitative factors relating to flexible and innovative loan practices that could beused to penalize practices that are deceptive. Another common failing is the use of assessment areas thatcapture a very small percentage of the lending activities of large sub-prime lenders. This leaves open thepossibility that abuses can occur in areas that are not scrutinized by CRA and fair lending exams. NCRCbelieves that serious reforms are needed in designating assessment areas. The CRA Modernization Act of2001 (H.R. 865), for example, requires the designation of geographical areas in which the lender has morethan one half of one percent of the market in loans as assessment areas. Even before statutory andregulatory changes, NCRC strongly believes that the agencies can adopt broader definitions of assessmentareas. The Office of Thrift Supervision (OTS) has made tentative steps in this direction, but only on someCRA exams.

Recently, the regulatory agencies promised a clampdown on predatory lending. The federal banking agenciesalso pledged to included Questions and Answers regarding the treatment of abusive loan terms and conditionson CRA exams in the Interagency CRA Q&A document. Communities victimized by predatory lendingeagerly await the implementation of this new Q&A to penalize banks on CRA exams are found to bermaking abusive loans. We believe that these steps can be taken immediately since they do not involvestatutory changes or regulatory rulemaking.


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When a consumer or a community group believes that lending discrimination has occurred, they shouldconsult the federal regulatory agencies. Individuals can file fair housing and fair lending complaints witheither the Department of Housing and Urban Development (HUD) or the Federal Trade Commission (FTC).HUD has a mechanism for investigating and prosecuting violations of the Fair Housing Act, while the FTCprocesses complaints about non-disclosure of key loan terms and conditions, violations in reporting or usingconsumers’ credit histories, and deceptive practices.

If a consumer or community group believes a mortgage company or another type of non-depositoryinstitution has violated anti-discrimination law, HUD or the FTC are the agencies to consult. If a consumeror community group believe that a depository institution (bank or thrift) or an affiliate of a depositoryinstitution has committed fair housing or fair lending violations, they should consult the federal bankingagencies in addition to HUD or the FTC. The federal banking agencies include the Federal Reserve Board,the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office ofThrift Supervision.

Department of Housing and Urban Development & Substantially Equivalent Agencies

HUD has placed special emphasis on combating predatory lending practices, which include charging highinterest rates, padding closing costs with excessive or unearned fees, "flipping" or selling properties for farmore than they are worth, charging prepayment penalties and falsifying loan documents. HUD's focus onpredatory lending practices in Baltimore and across the country has led to impressive results in the areas ofenforcement and prevention. In just the past eight months, HUD's Fraud Prevention Initiative in Baltimorehas netted more than 40 indictments, 27 successful prosecutions and 66 disbarments of individuals andcorporations involved in predatory lending.

To prevent future predatory practices, HUD has:

• Strengthened appraiser licensing and certification requirements.• Modified policies to now require a written report on a property's condition prior to making federally

backed mortgage loans.• Published a rule that will prohibit "flipped" loans from being insured by FHA.• Increased funding by $15 million for housing counseling to educate homebuyers on the lending process

and how to avoid becoming a victim of predatory practices.

The Department of Housing and Urban Development (HUD) has enforcement authority under the FairHousing Act to process fair housing complaints. Regarding mortgage lending, it is illegal for a financialinstitution to refuse to make a loan or to impose different terms and conditions based on religion, race,national origin, gender, familial status, or disability. HUD’s web page (http://www.hud.gov) has complaintforms and contact information for regional offices. When HUD believes discrimination has occurred, it willrepresent a consumer before an administrative law judge. Alternatively, if either the consumer or thefinancial institution wish to use Federal District Court, the Attorney General’s office will represent theconsumer.

Also, on the State & Local Level. complaints can also be filed with a number of government offices includingHuman Relations Commissions, Fair Housing Offices, and Human Rights Commissions. You can call theNational Community Reinvestment Coalition at (202) 628-8866 for more information.


You must file an administrative complaint within one year of the housing discrimination. You have twoyears to file a federal civil court action. If you are able to prove that you have been a victim ofhousing/lending discrimination, the Fair Housing Act may entitle you to receive compensation for actualdamages, including humiliation, pain and suffering and other relief. If you win a federal civil court lawsuit, thelaw may also allow you to receive punitive damages.

Federal Trade Commission

According to its website (http://www.ftc.gov), The Federal Trade Commission (FTC) “enforces federalantitrust and consumer protection laws. The Commission seeks to ensure that the nation's markets functioncompetitively, and are vigorous, efficient, and free of undue restrictions. The Commission also works toenhance the smooth operation of the marketplace by eliminating acts or practices that are unfair ordeceptive.” The FTC has enforcement authority regarding violations of the Truth in Lending Act, the FairCredit Reporting Act, Equal Credit Opportunity Act, Fair Debt Collection Practices Act, and other fairlending laws. If a consumer believes that a financial institution has violated a fair lending law, the consumercan contact one of the FTC’s regional offices or file a complaint on-line. The FTC has the authority totake cases before an administrative judge or a regular judicial proceeding.

The Federal Banking Agencies

The Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), the Office ofThrift Supervision (OTS), and the Federal Deposit Insurance Corporation (FDIC) conduct CommunityReinvestment Act (CRA) examinations. Passed in 1977, CRA is an anti-redlining law designed to ensure thatbanks serve the credit needs of all communities, including low- and moderate-income communities, in whichthey are chartered and from which they take deposits. CRA exams assess the performance of banks andthrifts in making loans, investments, and providing services to low- and moderate-income communities. ACRA rating can also be lowered if a bank or thrift has engaged in discrimination as documented in a fairlending exam (the fair lending exam is conducted at approximately the same time as a CRA exam).Consumers and community groups can make their views known to CRA examiners from the federal agenciesregarding a bank’s CRA performance as well as any possible acts of discrimination.

The FRB (http://www.federalreserve.gov) and the FDIC (http://www.fdic.gov) conduct CRA exams for state-chartered banks; the OCC (http://www.occ.treas.gov) conducts CRA exams for nationally-chartered banks;and the OTS (http://www.ots.treas.gov) conducts exams for savings and loans or thrifts. The websites of thefederal banking agencies contain CRA ratings, CRA exam schedules for the institutions they evaluate, andcontact information for regional offices. The Federal Financial Institutions Examination Council (FFIEC)coordinates the CRA and fair lending enforcement activities of the four federal banking agencies as well asthe National Credit Union Administration. The FFIEC’s website is http://www.ffiec.gov.

National Credit Union Administration

The National Credit Union Administration (NCUA) provides deposit insurance and regulates federally-chartered credit unions in the United States. The NCUA enforces anti-discrimination laws and ensures creditunion compliance with consumer protection regulations. The website is http://www.ncua.gov; the website hascontact information for the regional offices. The NCUA website also has links to state supervisoryauthorities that ensure that state-chartered credit unions comply with consumer protection laws.


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In the Private Sector, The National Community Reinvestment Coalition and it's members can investigateyour complaint, send testers, if appropriate, and determine whether a violation of your fair housing rightshas occurred. The National Community Reinvestment Coalition will assist you in pursuing youradministrative and civil court remedies, or if appropriate, refer you to a local organization who can assistyou.

The National Community Reinvestment Coalition and over thirty participating NCRC memberorganizations in Arizona, New York and Ohio have launched an exciting new Fair Lending Consumer RescueFund (CRF) initiative. Designed to help refinance predatory loans secured by real estate, the CRF permitsconsumers to have a “fresh start” while NCRC fair lending staff evaluate their civil rights or consumercomplaints as appropriate and NCRC members provide comprehensive counseling in conjunction withongoing financial education.

The Consumer Rescue Fund targets consumers who are in “high risk” mortgages, consumers who have madegood faith efforts to pay their loans but are unable to do so due to a change in circumstances, and seniorcitizens who have recently refinanced their home and exhibit loan at risk parameters.

All Consumer Rescue Fund loans will be conventional loans with prime-like interest rates, with no fees, nopoints, and no insurance or ancillary product sales or offerings, and are intended to "rescue" CRF participantsfrom problematic loans. CRF Loans will not have any pre-payment penalties and NCRC will be involved withportfolio management, fair lending enforcement and related consumer follow-up.

If appropriate, the CRF will act to provide assistance to eliminate past due arrears, etc. in order to maketheir monthly real estate mortgage payments affordable. By design, NCRC has not placed a limitation on theamount of financial assistance to be provided to a fund beneficiary in order to permit maximum flexibility ona case by case basis in offering this remedial loan product.

The program is initially made possible by a multi-million dollar fund & underwriting commitment fromHousehold. Further, NCRC and it’s members are currently seeking underwriting support to facilitate anational expansion of this important consumer education and protection initiative in the coming year.

The National Community Reinvestment Coalition Consumer Rescue Fund can be contacted toll free byconsumers or by housing counseling professionals by calling Mr. Lloyd London at 1-800-475-NCRC or [email protected]. NCRC professional staff will initiate Fund intake and refer qualified applicants for localconsumer counseling as appropriate. NCRC Fair Housing staff will also cooperate with our members onrelevant private and public enforcement of the consumer’s rights and responsibilities and overall FinancialEducation efforts.


LLLLeeeeggggiiiissssllllaaaattttiiiivvvveeee DDDDeeeevvvveeeellllooooppppmmmmeeeennnnttttssss“We should all recognize that the best defense against predatory lending is a thorough knowledge on the part

of consumers of their credit options and resources. Educated borrowers who understand their rights underlending contracts and know how to exercise those rights can thwart predatory lenders. As the knowledge base

of consumers grows, the market for credit-at-any-cost diminishes. Unfortunately, as is usually the case, thebest solutions are often the most difficult to implement.”

- Edward M. Gramlich, The Federal Reserve Board

Legislative Analysis

This Toolkit presents information on federal, state and local anti-predatory lending legislation introducedduring the 2001 – 2002 legislative sessions. It is designed to empower NCRC membership organizationsto developing legislation their own jurisdiction as serve to support the work being done to eradicatepredatory lending in every neighborhood and community across the country.

While the Toolkit is comprehensive in terms of review of 2001 – 2002 legislative sessions, it is conceptualwhen it comes to prohibited acts and practices and does not does not divulge into detail. Instead, the Toolkitsynthesizes the concepts and encourages users to go to the actual federal, state or local legislation forspecifics.

It is important to recognize that only a small number of the introduced and or enacted “anti-predatorylending” measures actually define “predatory lending.” NCRC encourages users of this Toolkit to considerour definition of “predatory lending” and encourage its incorporation into introduced legislation.

“Predatory loans” are unsuitable loans designed to exploit vulnerable and unsophisticatedborrowers. “Predatory loans” are a subset of sub-prime lending and include loans that have oneor more of the following features: 1) charges more in interest and fees than is required to cover theadded risk of lending to borrowers with credit imperfections; 2) contains abusive terms andconditions that trap borrowers and lead to increased indebtedness; 3) does not take into accountthe borrower’s ability to repay the loan; and 4) violates fair lending laws by targeting women,senior citizens, minorities and communities of color.”

Toolkit users should also note that only a small number of the measures profiled include language specific tomortgage brokers. NCRC also advocates that ideal anti-predatory lending legislation should deal with theissue of mortgage brokers and that the legislation should require uniform licensing of all mortgage brokers andfee limitations with steep penalties for any brokers who violate HOEPA, TILA & RESPA as amended.

Finally, there are concepts and terms that are plentiful throughout the Toolkit, but lack definitions (i.e.“tangible net benefit,” “flipping,” and “repayment ability”). The reason is that in most cases, thedefinitions vary too much from state to state, city to city, and in some cases, are major diversions fromNCRC’s position. For example, NCRC defines “flipping” as the making of a home loan to a borrower whichrefinances an existing consumer home loan when the new loan does not have a tangible benefit to theborrower considering all of the circumstances, including the terms of both the new and refinanced loans, thecost of the new loan, and the borrower’s circumstances. Home loan refinancings are presumed to be flippingsif the primary tangible benefit to the borrower is an interest rate lower than the interest rate on debtssatisfied or refinanced in connection with the home loan, and it will take more than four (4) years for theborrower to recoup the costs of the points and fees and other closing costs through savings resulting from thelower interest rate.


Arkansas HB 1545 (2001 Session) defines “flipping” as the making of a home loan to a borrower thatrefinances an existing home loan when the new loan does not have a reasonable tangible net benefit to theborrower when all the circumstances are considered, including the terms of both the new and refinancedloans, the cost of the new loan, and the borrowers circumstances.

And Chicago’s 2000 Anti-Predatory Lending Ordinance defines “flipping as the refinancing and charging ofadditional points, charges and other costs on a threshold (high cost) loan within a 24 month period after therefinanced loan was made, unless the refinancing results in a tangible benefit to the borrower.

The Toolkit Appendix includes NCRC’s 2002 anti-predatory lending model legislation, which was updated toaddress practices that we have seen proliferate since our earlier model. For example, NCRC’s Civil RightsDepartment reports increases product steering, structuring loans for the sole purpose of evading HOEPA and“unbundling” (itemizing duplicate services and charging borrowers separately for each item.

Finally, the Toolkit Appendix includes full text of a few state and local measures that NCRC has identified asgood examples of introduced and or enacted anti-predatory lending legislation.

For additional details on the state measures, please call NCRC’s Public Policy Department at (202) 628-8866or visit us on the web at www.NCRC.org .

Model Bill

Three years ago, at the request of our membership organizations, NCRC drafted, with the assistance oflegislative exerts, a model anti-predatory lending bill. During the 2000-2001 legislative session, our countryexperienced (and continues to experience) a great proliferation of federal, state and local legislation, most ofwhich were inconsistent in terms of definitions, triggers and prohibitions. NCRC’s Public Policy Departmentwas not only being asked by our membership organizations to weigh in on introduced anti-predatory lendinglegislation, but also for assistance in drafting consumer protections for introducing in their state and/orlocality.

NCRC re-examined our 1999 model bill and determined that more innovative and comprehensiveprotections were necessary to combat the evolving abusive lending practices instigated by predatory lenders.The result is our model "Homeowner Protections from Predatory Lending Act of 2002." This model bill isdrafted for use and reference at the federal, state and local level. It is intended to initiate discussion withlegislators, provide guidance and a point of reference when drafting legislation at the various governinglevels.

NCRC would like to acknowledge the invaluable input to our model bill by our membership organizations,especially our Board of Directors and Chairs of the NCRC Legislative/Regulatory Affairs Committee. Wewould also like to recognize the expert contributions and tremendous support for our model bill offered bycommunity group leaders and national consumer advocates throughout the country.


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National Community Reinvestment Coalition Anti Predatory Lending Toolkit - Page 35

CoverageExcludes:• Reverse mortgagesIncludes:• Open-end credit plans• Same as HOEPA

“High Cost Loans” Interest Rate and Fee Threshold• The APR exceeds by more than 6 points the yield on comparable

Treasury securities for first mortgage, or by more that 8 points forjunior mortgages.

OR• Points and fees exceed 5% or $1,000, whichever is greater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits prepayment penalties in the 1st and 2nd year of the loan if

more that 3% of points and fees were financed.• Prohibits prepayment penalties beyond 2nd year.• Prohibits balloon payment.• Prohibits lending without due regard for repayment ability.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits direct or indirect financing of any points and fees or other

charges payable to third parties in excess of 3% of total loan amount or$600, whichever is greater.

• Prohibits direct or indirect financing of prepayment penalties and feeson a loan that is to refinance an existing loan held by same lender oraffiliate.

• Prohibits direct or indirect financing of points and fees on a loan that isto refinance an existing loan held by any lender or affiliate.

• Prohibits direct or indirect financing of points and fees on a loan that isto refinance an existing loan held by the same lender or affiliate.

• Requires detailed disclosures and counseling recommendation,including providing names and addresses of approved counselors.

• Prohibits call provisions.• Prohibits default recommendations.• Prohibits modification or deferral fees, except where such

modification is for the benefit of the borrower and cost of fee does notexceed 0.5% of the total loan amount, or for loans less than $60,000,the cost of the fee does not exceed $300.

• Prohibits mandatory arbitration clauses.• Prohibits structuring a high cost mortgage loan for the purposes of

circumventing borrower protections.

Other Definitions and Inclusions• “Points and fees” includes mortgage broker fees, financed credit

insurance premiums and prepayment penalties and fees in connectionwith refinancing a loan.

U.S. Congress

HR 1051, 107th Congress2001-2002

“Predatory LendingConsumer Protection Act”(LaFalce)

Status: Introduced on3/15/2001 and referred toCommittee on FinancialServices.

Note: This bill is identicalto S 2415 from the 106th

Congress, introduced bySenator Sarbanes. There isno anti-predatory billintroduced in the Senate,107th Congress.


• “Creditor” any person, creditor or affiliated party that has within the previous 12 month period: 1)originated 2 or more covered loans; or 2) originated 1 or more covered loans through a mortgagebroker; or 3) acted as a broker on more than 5 covered mortgage loans.

Enforcement and Civil Remedies• Increases civil penalty to a maximum of $10,000.• Increases exposure in class actions to an amount equal to 2% of the net worth of the lender.

Other• Provides that assignees of high cost home improvement contract loans are subject to the same claims

and defenses as the borrower may have against the seller, contractor, broker or creditor.• Requires lenders to report payment history (favorable and unfavorable) of borrower to a nationally

recognized consumer credit reporting agency.


CoverageExcludes:• Reverse mortgages• Loans that exceed Fannie Mae’s conforming size limitIncludes:• Open-end credit plans• Same as HOEPA

“High Cost Loans” Interest Rate and Fee Threshold• The APR exceeds by 5 points or more the yield on comparable

Treasury securities.• Includes variable rate loans that can reasonably be expected to

increase beyond the threshold or that are not tied to a publiclyavailable index.

OR• Points and fees exceed 3% or $1,000, whichever is greater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits balloon payment.• Prohibits call provisions.• Prohibits modification or deferral fees.• Prohibits lending without home loan counseling by a HUD approved

counselor and subsequent notice that borrower understands the loantransaction and appropriateness of loan.

• Prohibits mandatory arbitration clauses.• Prohibits prepayment penalties.• Prohibits negative amortization.• Prohibits lending without due regard for repayment ability.• Prohibits flipping.• Prohibits default recommendations.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits direct or indirect financing of any points and fees or other

charges payable to third parties in excess of 3% of total loan amount or$600, whichever is greater.

• Prohibits direct or indirect financing of prepayment penalties and feeson a loan that is to refinance an existing loan held by same lender oraffiliate.

• Prohibits direct or indirect financing of points and fees on a loan that isto refinance an existing loan held by any lender or affiliate.

• Prohibits direct or indirect financing of points and fees on a loan that isto refinance an existing loan held by the same lender or affiliate.

• Prohibits lenders from leaving open blanks in loan contracts to befilled in after the contract is signed.

• Prohibits structuring a high cost mortgage loan for the purposes ofcircumventing borrower protections.

• Requires that if loan transaction discussions are conducted primarily ina language other than English, lender must, prior to closing, provideborrower written disclosures in the language in which discussionswere conducted.

U.S. Congress

HR 2531, 107th Congress2001-2002

“Save our Homes Act of2001” (Schakowsky)

Status: Introduced on07/21/2001 and referredto Committee onFinancial Services.


Other Definitions and Inclusions• “Points and fees” includes mortgage broker fees, financed credit insurance premiums and prepayment

penalties and fees in connection with refinancing a loan.• “Creditor” is any person, creditor or affiliated party that has within the previous 12 month period: 1)

originated 2 or more covered loans; or 2) originated 1 or more covered loans through a mortgagebroker; or 3) acted as a broker on more than 5 covered mortgage loans.

Terms and Conditions Prohibited or Limited on Home Loans• Prohibits attempts to influence appraisers (applies to loans under Fannie Mae’s conforming size limit,

excludes open-end credit plans and reverse mortgages).

Enforcement and Civil Remedies• Allows for civil penalties (individual and class actions) to include the total amount of the principal

and finance charge.

Other• Provides corrections for unintentional violations as it applies to good faith.• Prevents issuance of securities backed by any mortgage loans that violate provisions of this Act.


CoverageExcludes:• No exclusions specified.Includes:• Consumer credit secured by the borrower’s dwelling.

“High Cost Loans” Interest Rate and Fee Threshold• The APR exceeds by 4 or more points the yield on comparable

Treasury securities.OR• Points and fees exceed 3% or $1,000, whichever is greater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits default recommendations.• Prohibits lending without home loan counseling by a HUD-approved


• Prohibits lending without due regard for repayment ability.• Prohibits modification or deferral fees.



Terms and Conditions Prohibited or Limited on Home Loans• Prohibits prepayment penalties.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits flipping.• Prohibits charging fees for services or products not provided to the

borrower.• Restricts lender from making payments directly to home improvement

contractors.• Prohibits creditor from influencing appraisal of consumer’s dwelling.• Requires creditor to disclose the calculation of borrower’s credit score

and the methodology used to obtain the score.• Prohibits lenders from leaving open blanks in loan contracts to be

filled in after the contract is signed.• Prohibits mandatory arbitration clauses.• Prohibits steering borrowers to mortgage loan products with less

favorable terms when the borrower may qualify for conventional loanproducts.

U.S. Congress

HR 3607, 107th Congress2001-2002

Protecting OurCommunities FromPredatory LendingPractices Act”(Waters)

Status: Introduced on12/20/2001 and referredto Committee onFinancial Services.


CoverageExcludes:• Reverse mortgages• Open-end credit plansIncludes:• Same as HOEPA


Treasury securities.OR• Points and fees exceed 4% of the total loan amount if the loan is

greater than or equal to $20,000, or lesser of 5% of total loan amountor $800 if total loan amount is less than $20,000 (excludes certaindiscount points).

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits balloon payment when scheduled payment is more than

twice as large as the average earlier scheduled payments.• Prohibits negative amortization.• Prohibits advance payments.• Prohibits lending without home loan counseling by a HUD approved


• Restricts lender from making payments directly to home improvementcontractor.

• Prohibits call provisions.• Prohibits modification or deferral fees.• Prohibits mandatory arbitration clauses.• Prohibits direct or indirect financing of prepayment penalties and fees

on a loan that is to refinance an existing loan held by same lender oraffiliate.

• Prohibits direct or indirect financing of any points and fees or othercharges payable to third parties.

• Prohibits lender from charging points and fees on a loan that is torefinance an existing loan held by the same lender or affiliate.

• Prohibits lending without due regard for repayment ability.



Terms and Conditions Prohibited or Limited on Home Loans• Prohibits prepayment penalties.• Prohibits default recommendations.• Prohibits increased interest rate after default.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits flipping.

U.S. Congress

S 2405, 106th Congress1999-2000

“Predatory LendingDeterrence Act”(Schumer)

Status: Died uponadjournment of the 106th

Congress (December2000).


Enforcement and Civil Remedies• Provides that violators are subject to penalties set forth in the Bank Holding Company Act.

Other• Purchasers of covered loans shall exercise due diligence before such purchase to determine if

requirements provided for in Act have been met.• Specifies that a lender is deemed to have engaged in unfair or deceptive practices if the covered loan

is structured as an open-end loan, if the lender provides misleading fraudulent information, ormisrepresents terms and conditions.

• Prohibits covered loans from being considered for CRA compliance.


CoverageExcludes:• Reverse mortgages

Includes:• Open-end credit plans• Same as HOEPA


Treasury securities for first mortgage, or by more than 9 points forjunior mortgages.

OR• Points and fees exceed 6% for first mortgage, or 7% for junior

mortgages.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits prepayment penalties of more than 3% in 1st year, 2% in 2nd

year, or 1% in 3rd year, or any prepayment penalties beyond 3rd year.• Prohibits advance payments.• Requires that if lender refinances a covered loan in the first year of the

mortgage, that the refinance transaction may only include points andfees based on new funds, unless refinance rate is 2 points lower thanoriginal APR.

• Prohibits default recommendations.

Other• Requires lenders who make high cost loans to report payment history

(favorable and unfavorable) of borrower to a nationally recognizedconsumer credit reporting agency.

• Prohibits lender from directly or indirectly profiting from foreclosureon property securing mortgage loan.

• Requires lender to provide written statement of payoff amount forcovered loans within 3 days of receipt of a written or oral request.

• Includes preemptory language.• Modifies “Special Information Booklet” (RESPA) to explain that

brokers may be compensated for their services by direct borrowerpayments or payments made by the lender that reflect the present valueof interest yielded, or a combination of both.

• Amends RESPA disclosure requirement stating it should not beconstrued to require disclosure of YSP.

• Requires Good Faith Estimate warning borrowers “you could loseyour home and any money you have put into it, if you do not meetyour obligations under the loan.”

U.S. Congress

HR 4213, 106th Congress1999-2000

“Consumer MortgageProtection Act of2000”(Ney)

Status: Died uponadjournment of the 106th

Congress (December2000).


CoverageExcludes:• Open-end credit plans• Reverse mortgages• Loans that exceed Fannie Mae’s conforming size limit or $300,000,

whichever is less.Includes:• Single family, owner occupant



$20,000 or more, or lesser of 8% or $1,000 of the total loan if loan lessthan $20,000.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits call provisions.• Prohibits balloon payment when scheduled payment is more than

twice as large as the average earlier scheduled payments.• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits modification or deferral fees.• Prohibits lending without home loan counseling by a State Banking

Department approved counselor and subsequent notice that borrowerunderstands the loan transaction and appropriateness of loan.

• Prohibits lending without due regard for repayment ability.• Prohibits direct or indirect financing of points, fees or other charges in

connection with refinancing a high cost loan.• Prohibits flipping.• Restricts lender from making payments directly to home improvement

contractor.

Other Definitions and Inclusions• “Points and fees” includes mortgage broker fees.

Terms and Conditions Prohibited or Limited on Home Loans• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits flipping.• Prohibits default recommendations.• Prohibits unfair and deceptive acts.

Enforcement and Civil Remedies• Provides civil remedies for victims.

Other• Requires legislative study.

Jurisdiction

Alabama

Bill Number

HB 206, 2002 Session

“Alabama PredatoryLenders Act”

Status: Introduced01/10/2002 and referredto Committee onBanking and Insurance.


CoverageExcludes:• Loans that exceed Fannie Mae’s conforming size limitIncludes:• Open-end credit plans• Reverse mortgages• Single family, owner occupant


Treasury securities.OR• Points and fees exceed 5% of the total loan amount (excludes certain

discount points)


twice as large as the average earlier scheduled payments.• Prohibits advance payments.• Prohibits increased interest rate after default.• Prohibits call provisions.• Prohibits modification or deferral fees.• Prohibits lending without home loan counseling by a HUD approved


• Prohibits mandatory arbitration clauses.• Restricts lender from making payments directly to home improvement

contractors.• Prohibits negative amortization.• Prohibits flipping.• Prohibits lending without due regard for repayment ability.• Prohibits financing points and fees equal to or more than 3% of the

loan amount or $600, whichever is less.


Terms and Conditions Prohibited or Limited on Home Loans• Prohibits prepayment penalties of more than 3% in 1st year, 2% in 2nd

year, or 1% in 3rd year, or any prepayment penalties beyond 3rd year.• Prohibits late fees/charges in excess of 4% the amount past due; or late

charges for any payment which is less than 15 days last due; or morethan one assessment of late fees to any single payment.

• Prohibits default recommendations.• Prohibits lenders from charging a fee for a product or service where

the product or service is not actually provided.• Prohibits unfair and deceptive acts.• Prohibits lenders from influencing appraisers.• Prohibits lenders from leaving open blanks in loan contracts to be

filled in after the contract is signed.

Jurisdiction

Arkansas

Bill Number


An act to prohibitpredatory lending in thehome mortgage market.

Status: Bill died uponadjournment oflegislature. Cannot becarried over to nextsession.



Other• Prohibits lenders from making investments that are backed by loans procured via prohibited acts and

practices.• Requires lenders to report to the State Bank Commissioner the average APR for mortgage and

improvement loans originated and grouped by census tract, income level, racial characteristics andgender.

• Requires lenders currently exempt from reporting under HMDA to report to state agency, the sameinformation outlined in HMDA.

• Defines attempted evasion as it applies to bad faith.• Provides corrections for unintentional violations as it applies to good faith.


CoverageExcludes:• Loans that exceed $250,000• Open-end credit plans• Reverse mortgages• Bridge loans with maturity of less than 1 year of the purpose of the

loan or a bridge loan connected with the acquisition or construction ofa dwelling intended to become borrower’s principle dwelling.

Includes:• Single family, owner occupant

Note: language uses “covered loan” not “high cost.”

“Covered Loans” Interest Rate and Fee Threshold• The APR exceeds by more than 8 points the yield on comparable

Treasury securities.OR• Points and fees exceed 6% of the total loan amount.

“Covered Loans” Terms and Conditions Prohibited or Limited• Prohibits prepayment penalties beyond the 3rd year of the loan. Limits

prepayment penalties in first 3 years of loan.• Prohibits prepayment penalties for loans accelerated as a result of

default.• Prohibits financing prepayment penalties through a new loan that is

originated by the same lender.• Prohibits balloon payment on loans that come due less than 60 months

from origination.• Prohibits lender from adjusting a payment schedule to account for

irregular income of borrower in which the total installments in anyyear exceed the amount of one year’s worth of payments.

• Prohibits negative amortization.• Prohibits advance payments.• Prohibits increased interest rate after default.• Prohibits lending without due regard for repayment ability.• Restricts lender from making payments directly to home improvement

contractor.• Prohibits default recommendations.• Prohibits call provisions unless certain terms are agreed to and detailed

in loan documents.• Requires detailed disclosures recommending counseling

(“CONSUMER CAUTION AND HOME OWNERSHIPCOUNSELING NOTICE”).

• Prohibits steering borrowers toward a covered loan when they couldqualify for a prime product.

• Prohibits financing points and fees in excess of 6%, or $1,000,whichever is less.


Jurisdiction

California

Bill Number

AB 489

Imposes variousrequirements onconsumer loans securedby specified realproperty, defined as‘‘covered” loans.

Status: Enacted10/10/01 Chapter No.732. Effective07/01/2002.


Terms and Conditions Prohibited or Limited on Home Loans• Prohibits SPCLI and financing of other credit insurance directly or indirectly into the cost of the loan.

Enforcement and Civil Remedies• Provides for penalties, including fines, for violations.• Provides civil remedies for victims.

Other• Outlines evasion as manipulating (including dividing or structuring) loan transaction to avoid any part

of legislative provision.


CoverageExcludes:• Loans that exceed Fannie Mae’s conforming size limitIncludes:• Open-end credit plans• Line of credit• Single family, owner occupant

“High Cost Loans” Interest Rate and Fee Threshold• The APR exceeds the rate for a 90-day standard mandatory delivery

commitment from either Fannie Mae or Freddie Mac (whichever isgreater) by more than 3 points for a first mortgage, or by 5 or morepoints for junior mortgages.

OR• The total points and fees on the loan equals or exceeds 5% of the total

loan amount, or $800, whichever is greater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits lending without home loan counseling by a HUD or State

approved counselor and subsequent notice that borrower understandsthe loan transaction and appropriateness of loan. (Note: borrower canelect to waive counseling).

• Prohibits lending without due regard for repayment ability.• Prohibits financing points and fees in excess of either 5% of the total

loan amount or $800, whichever is greater.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits prepayment penalties.• Prohibits call provisions.• Prohibits increasing the interest rate after default.• Prohibits flipping.• Prohibits refinancing of subsidized or special guaranteed loan (via

state, local, tribal or non-profit) that has either a below-market APR(by at least 2 points), or nonstandard pro-borrower payment terms andwhere refinancing will result in loss of beneficial considerations ofspecial mortgage.

Other Definitions and Inclusions• “Points and fees” includes mortgage broker fees and financed credit

insurance premiums.


year, or 1% in 3rd year, or any prepayment penalties beyond 3rd year.• Prohibits charging borrower prepayment penalties on a loan that is to

refinance an existing loan held by same lender.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits default recommendations.• Prohibits originating loans that violate terms and conditions of TILA,

HOEPA, or RESPA.

Jurisdiction

Oakland, California

Bill Number

Ordinance No. 12361.

“Anti-Predatory LendingOrdinance”

Status: Enacted10/02/2001. Chapter No.5.33. Effective11/01/2001.

AdditionalDevelopments: AFSAfiled suit to stay effectivedate. Court deniedAFSA’s motion, butruled to temporarily stayeffective date pendingappeal.



Other• Provides that lenders may not make investments that are backed by any loan in violation of

Ordinance.• Lenders excluded from the Ordinance are those chartered under the National Bank Act, Credit Union

Act, and the Home Owners’ Loan Act. This exclusion does not extend to the affiliates of theselenders.


Enacted OrdinanceNote: thresholds defined in Ordinance No. 12361 “Anti-PredatoryLending Ordinance.”

• Prohibits banks and other financial institutions from being Citydepositories if they or any of their affiliates participate in predatorylending practices.

• Prohibits the investment of City funds in the stocks and securities ofany “predatory lender” or its affiliates. Does not apply to obligationsin effect prior to effective date of measure.

Defines “predatory loan” as one that exhibits one or more of the followingcharacteristics:• Fraudulent, high-pressure, or misleading marketing and sales efforts.• Misrepresenting or withholding information.• Failure to offer full range of loan products.• Steering borrowers to high cost loans.• Quoting different terms based on race, age, or income.• Leaving open blanks in loan contracts to be filled in after the contract

is signed.• Influencing appraisers.• Making loans for more than the value of the secured property.• Lending without due regard for repayment ability.• Advising borrowers to misstate income for the purposes of obtaining

loan.• Charging excessive points and fees.• Charging a fee for a product or service where the product or service is

not actually provided.• Misrepresenting amounts charged by third parties.• Financing of SPCLI and other credit insurance directly or indirectly

into the cost of the loan.• Paying contractor loan proceeds without consent of borrower.• Flipping.• Offering bill consolidation home equity loans that trade short term

debt for long term debt, and that do not result in any tangible netbenefit to the borrower.

• Recommending or encouraging default.• Loan servicing abuses such as charging unwarranted late fees,

attorneys’ fees and other costs.• Offering to help borrower find new financing on the condition that the

borrower deed over subject property prior to loan application beingprocessed.

• Preventing or deterring borrowers from refinancing to a lower costloan.

• High cost lending without home loan counseling by a HUD approvedcounselor and subsequent notice that borrower understands the loantransaction and appropriateness of loan.

• Charging borrower points and fees and other charges on a high costloan that is to refinance an existing loan held by same lender.

Jurisdiction

Oakland, California

Bill Number

Ordinance No. 12362

Amends the “LinkedBanking ServicesOrdinance” to requirelenders to certify thatneither they nor theiraffiliates engage inpredatory lendingpractices.

Status: Signed by CityClerk 10/02/2001.Chapter No. 5.33.Effective 11/01/2001.

AdditionalDevelopments: AFSAfiled suit to stay effectivedate. Court deniedAFSA’s motion, butruled to temporarily stayeffective date pendingappeal.


• Modification or deferral fees on high cost loans.• Negative amortization on high cost loans.• Balloon payment on high cost loans that comes due less than 60 months from origination.• Advance payments on high cost loans.• Financing points and fees or other costs on high cost loans.• Call provisions on high cost loans.• Refinancing a loan into a high cost loan where existing loan is a subsidized or special guaranteed loan

(via state, local, tribal or non-profit) that has either a below-market APR, or nonstandard pro-borrower payment terms and where refinancing will result in loss of beneficial considerations ofspecial mortgage.

• Prepayment fees on high cost loans.• Increasing interest rate after default on high cost loans.• Mandatory arbitration clause as a term of high cost loans.

Other Definitions and Inclusions• “Predatory lender” is a lender that has, within the previous 24 month period, either made 10

individual predatory loans or 5% of the total annual number of loans made by that lender werepredatory loans, whichever is less. Does not include a financial institution or its affiliates that hassubmitted to the City a plan to discontinue the practice of making predatory loans.

• Predatory loan” is any loan that violated Oakland Municipal Code Chapter 5.33 (“Anti-PredatoryLending Ordinance”).

Other• Requires that financial institutions that do business with the City of Oakland for banking services

provide City Manager with information to establish whether they have provided sufficient levels ofCommunity Credit Lending.

• Requires financial institutions seeking City of Oakland business, seeking to participate as a lender inany development project financed by City loans or grants, or seeking to participate in City sponsoredmortgage programs to certify that neither they nor their affiliates are engaged in predatory lendingpractices.

• Provides that depositories will not receive credit toward Fair Share Goals for predatory loans.• Includes preemptory and severability language.


CoverageExcludes:• Reverse mortgages• Loans that exceed Fannie Mae’s conforming size limitIncludes:• Open-end credit plans• Single family, owner occupant


commitment from either Fannie Mae or Freddie Mac (whichever isgreater) by more than 3 points for a first mortgage, or by 5 or morepoints for a junior mortgage.

OR• Total points and fees exceed 4% of the total loan amount if the loan is

$16,000 or greater, or $800 if the loan amount is less than $16,000.

Proposed Ordinance• Prohibits banks and other financial institutions from being City

depositories if they or any of their affiliates participate in predatorylending practices.

• Prohibits the investment of City funds in the stocks and securities ofany “predatory lender” or its affiliates. Does not apply to obligationsin effect prior to effective date of measure.

Defines “predatory loan” as one that exhibits one or more of the followingcharacteristics:• Fraudulent, high-pressure, or misleading marketing and sales efforts.• Misrepresenting or withholding information.• Failure to offer full range of loan products.• “Steering” borrowers to high cost loans.• Quoting different terms based on race, age, or income.• Leaving open blanks in loan contracts to be filled in after the contract

is signed.• Influencing appraisers.• Making loans for more than the value of the secured property.• Lending without due regard for repayment ability.• Advising borrowers to misstate income for the purposes of obtaining

loan.• Charging excessive points and fees.• Charging a fee for a product or service where the product or service is

not actually provided.• Misrepresenting amounts charged by third parties.• Financing of SPCLI and other credit insurance directly or indirectly

into the cost of the loan.• Paying contractor loan proceeds without consent of borrower.• Flipping.• Offering bill consolidation home equity loans that trade short term

debt for long term debt, and that do not result in any tangible netbenefit to the borrower.

• Recommending or encouraging default.• Loan servicing abuses such as charging unwarranted late fees,

attorneys’ fees and other costs.

Jurisdiction

Sacramento, California

Bill Number

Ordinance No. ______

To discourage predatorylenders from doingbusiness within the Cityand to ensure that Cityresources are not used tosupport lenders engagedin predatory lendingpractices.

Status: Measure is indraft only.


• Offering to help borrower find new financing on the condition that the borrower deed over subjectproperty prior to loan application being processed.

• Preventing or deterring borrowers from refinancing to a lower cost loan.• High cost lending without home loan counseling by a HUD approved counselor and subsequent

notice that borrower understands the loan transaction and appropriateness of loan.• Charging borrower points and fees and other charges on a high cost loan that is to refinance an

existing loan held by same lender.• Modification or deferral fees on high cost loans.• Negative amortization on high cost loans.• Balloon payment on high cost loans that come due less than 60 months from origination.• Advance payments on high cost loans.• Financing points and fees or other costs on high cost loans.• Call provisions on high cost loans.• Refinancing a loan into a high cost loan where existing loan is a subsidized or special guaranteed loan

(via state, local, tribal or non-profit) that has either a below-market APR, or nonstandard pro-borrower payment terms and where refinancing will result in loss of beneficial considerations ofspecial mortgage.

• Prepayment fees on high cost loans.• Increasing interest rate after default on high cost loans.• Mandatory arbitration clauses as a term of high cost loans.

Other Definitions and Inclusions• “Points and fees” includes mortgage broker fees.• “Predatory lender” is a lender that has, within any 12 month period, made 5% or more of the total

annual number of loans that were predatory loans. Does not include a financial institution or itsaffiliates that has submitted to the City a plan to discontinue the practice of making predatory loans.

• “Predatory loan” is a loan including but not limited to a loan for a home purchase, refinance andhome equity loan, that was made under circumstances that are abusive (as identified in Ordinance).These circumstances include unfair or abusive loan terms, high pressure lending tactics that limitinformation or choices available to a borrower, or any combination thereof.

Other• City Treasurer can waive prohibitions of doing business with lender considered to be predatory.• Requires City Treasurer to reduce by 1/2 the value of all deposits and investments of City funds in

“predatory lenders” or their affiliates. Requires complete divestiture within 2 years of enactment.• Requires all City contractors to certify (via affidavit) that neither they nor their affiliates are engaged

in or will engage in predatory lending practices. Does not apply to obligations in effect prior toeffective date of measure.

• Requires the implementation of a predatory lending consumer education program by the CityTreasurer.

• Includes preemptory and severability language.


CoverageExcludes:• Loans that exceed Fannie Mae’s conforming size limitIncludes:• Line of credit• Open-end credit plans• Single family, owner occupant


commitment from either Fannie Mae or Freddie Mac (whichever isgreater) by more than 3 points for a first mortgage, or by 5 or morepoints for a junior mortgage.

OR• The total points and fees on the loan equals or exceeds 5% of the total

loan amount, or $800, whichever is greater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits lending without home loan counseling by a HUD, State or

City approved counselor and subsequent notice that borrowerunderstands the loan transaction and appropriateness of loan. (Note:borrower can elect to waive counseling).

• Prohibits lending without due regard for repayment ability.• Prohibits financing points and fees in excess of either 5% of the total

loan amount or $800, whichever is greater.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits prepayment penalties.• Prohibits call provisions.• Prohibits increasing the interest rate after default.• Prohibits flipping.• Prohibits refinancing of subsidized or special guaranteed loan (via

state, local, tribal or non-profit) that has either a below-market APR(by at least 2 points), or nonstandard pro-borrower payment terms andwhere refinancing will result in loss of beneficial considerations ofspecial mortgage.


insurance premiums.


year, or 1% in 3rd year, or any prepayment penalties beyond 3rd year.• Prohibits charging borrower prepayment penalties on a loan that is to

refinance an existing loan held by same lender.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits default recommendations.• Prohibits originating loans that violate terms and conditions of TILA,

HOEPA, or RESPA.

Jurisdiction

San Francisco, California

Bill Number

Ordinance No. 012005,2001 Session

To prohibit homemortgage lenders frommaking predatorymortgage home loans.

Status: Introduced11/05/2001 and referredto Committee onNeighborhood Servicesand Parks.



Other• Includes language that predatory lending significantly threatens the well-being and general prosperity

of City residents and that the City has the authority to regulate business practices to promote well-being and general prosperity of the City residents.

• Provides corrections for unintentional violations as it applies to good faith.• Provides that lenders may not make investments that are backed by any loan in violation of the

Ordinance.• Includes severability language.




Treasury securities.OR• Total points and fees exceed 3% of the total loan amount if the loan is

$30,000 or greater, or $900 if the loan amount is less than $30,000.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits the direct or indirect financing points and fees of more than

3% of the loan amount.• Prohibits prepayment penalties.• Prohibits direct or indirect financing of prepayment penalties and fees


• Balloon payment when scheduled payment is more than twice as largeas the average earlier scheduled payments. Does not apply whenpayment schedule is adjusted to accommodate borrower’s irregularincome.

• Prohibits negative amortization.• Prohibits flipping.• Prohibits refinancing of subsidized or special guaranteed loan (via

state, local, tribal or non-profit) that has either a nonstandard pro-borrower payment terms or where no payments are required underspecified conditions, and where refinancing will result in loss ofbeneficial considerations of special mortgage.

• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits mandatory arbitration clauses.• Prohibits lending without due regard for repayment ability.• Prohibits lending without home loan counseling by a HUD approved


• Prohibits modification or deferral fees.• Restricts lender from making payments directly to home improvement

contractor.• Prohibits steering borrowers toward a high cost loan when they could

qualify for a prime product.• Prohibits charging borrower a fee for providing the pay off balance or

release upon prepayment of a high cost loan.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.

Jurisdiction

Colorado

Bill Number

SB 02-073, 2002 Session

Protection ofhomeowners againstabusive home loanpractices.

Status: Bill introducedon 01/11/2002 andreferred to Committee onBusiness, Labor andFinance.


Other Definitions and Inclusions• “Points and fees” includes mortgage broker fees, financed credit insurance premiums and maximum

prepayment fees/penalties that may be assessed or collected.

Terms and Conditions Prohibited or Limited on Home Loans• Prohibits default recommendations.• Prohibits call provisions.• Prohibits late fees/charges in excess of 5% the amount past due; or late charges for any payment

which is less than 15 days last due; or more than one assessment of late fees to any single payment.

Enforcement and Civil Remedies• Includes borrower’s rights to cure in the event of default on a high cost loan.• Provides civil remedies for victims.• Provides for penalties for violations.

Other• Provides corrections for unintentional violations as it applies to good faith.• Includes severability language.


Note: Request for Proposal language uses “predatory” not “highcost.”

“Predatory Lending Practices” Definitions and Inclusions• Targeting subprime loans to borrowers who can qualify for prime

products.• Making loans with abusive or misleading conditions.• Balloon payment on a subprime loan that comes due less than 180

months from origination.• A prepayment penalty which exceeds 3% of the loan or extends

beyond 3rd year, or beyond any initial interest rate term of loan.• Financing points and fees in excess of 5% of the loan amount.• “Bait and switch” marketing.• Insurance premium packing.• Flipping.

Other• Request for Proposal states that banking institution receiving City

funds for deposit shall take steps to ensure neither they nor theiraffiliates are: 1) engaged in predatory lending practices; 2) notsupporting predatory lending practices by other financial institutions;and 3) willing to take the initiative to educate citizens about how toprotect themselves from predatory lending practices.

• Bank or banks selected to do business with the City of Denver will berequired to provide an annual certification and disclosure attesting tothe adherence with predatory lending terms of a banking contract.

• Certification will be subject to audit by the City Auditor.

Jurisdiction

Denver, Colorado

Contract Language

Request for Proposallanguage for citybanking services.

Prohibits city from doingbusiness with “predatorylenders”

Status: Request forProposal issued03/26/01. Denver CityCharter stipulates thatselection of institutionsfor the deposit of publicfunds is subject tot heapproval of the Mayorand Auditor.


CoverageExcludes:• Reverse mortgagesIncludes:• Open-end line of credit• Single family, owner occupant


Treasury securities.OR• Points and fees exceed 8% of the total loan amount or $400, whichever

is greater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits balloon payment on loans less than 84 months.• Prohibits negative amortization.• Prohibits advance payments.• Prohibits increased interest rate after default.• Prohibits rebates of interest upon default calculated by any method

less favorable than the actuarial method.• Prohibits prepayment penalties of more than 3% in 1st year, 2% in 2nd

year, or 1% in 3rd year, or any prepayment penalties beyond 3rd year.Exception is if lender verifies that borrowers total monthly debts(including the mortgage) do not exceed 50% of borrowers monthlyincome.

• Prohibits mandatory arbitration clauses.• Prohibits call provisions.• Prohibits lender from making payments directly to home improvement

contractor.• Prohibits prepaid finance charges in excess of 5% or $2,000,

whichever is greater.• Prohibits modification or deferral fees.• Prohibits lending without due regard for repayment ability.• Prohibits advertising that refinancing preexisting debt with a high cost

home loan will reduce borrower’s monthly debt payments without alsodisclosing that the loan may increase the borrower’s total number ofpayments and the total amount the borrower will pay over the term ofthe loan.

• Prohibits default recommendations.• Prohibits flipping.• Prohibits assignment of interest rates that do not consider proper and

reasonable factors.• Prohibits lenders from charging a fee for a product or service where

the product or service is not actually provided.

Enforcement and Civil Remedies• Provides for penalties for violations.• Provides civil remedies for victims.

Jurisdiction

Connecticut

Bill Number


An act concerningabusive home loanlending practices.

Status: Enacted05/31/01Public Law 01-34. Effective10/01/2001.

AdditionalDevelopments: AFSAfiled suit to stay effectivedate. Court issuedtemporary stay pendingtrial.


Other• Requires detailed disclosures in advance.• Requires lenders who make high cost loans to report payment history (favorable and unfavorable) of

borrower to a nationally recognized consumer credit reporting agency.• Requires lenders that offer SPCLI and other financed credit to also offer option of MOB product.• Requires lenders that offer SPCLI and other financed credit to also provide borrowers with

cancellation and refund of unearned premiums paid provisions.


CoverageExcludes:• Reverse mortgages• Home purchase loans• VA, FHA or other loan insured or guaranteed by a state or local

authority• Loans that exceed Fannie Mae’s conforming size limitIncludes:• Open-end line of credit• Single family, owner occupant


“Covered Loans” Interest Rate and Fee ThresholdFor federally regulated, supervised or insured depository institutions andtheir subsidiaries, FHLMC and FNMA:• The APR trigger as defined by HOEPA; currently, APR exceeds 8

points above the yield on comparable Treasury securities for firstmortgages and 10 points for junior mortgages.

OR• Points and fees trigger as defined by HOEPA; currently, points and

fees exceed 8% of total loan amount or $400, whichever is greater.

For all other lenders:• The APR exceeds by more than 6 points the yield on comparable

Treasury securities for first mortgage, or by more then 7 points forjunior mortgages.

OR• Points and fees exceed 5% of total loan amount.

“Covered Loans” Terms and Conditions Prohibited or Limited• Prohibits lending without due regard for repayment ability.• Restricts SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Restricts financing of origination/discount points and fees.• Prohibits default recommendations.• Prohibits assignment of interest rates that do not consider proper and

reasonable factors.• Restricts lender from making payments directly to home improvement

contractor.• Prohibits increased interest rate after default.• Prohibits lenders from charging a fee for a product or service where

the product or service is not actually provided or performed.• Requires lenders to provide borrowers “Red Flag Warning” within 3

days after the borrower receives loan application.• Prohibits prepayment penalties, fees or charges.• Prohibits balloon payment on loans less than 84 months.• Prohibits call provisions.• Requires lenders who make high cost loans to report favorable

payment history of a borrower to a nationally recognized consumercredit reporting agency.

Jurisdiction

District of Columbia

Bill NumberB14-0515, CouncilPeriod 14, 2001-2002

“Home Loan ProtectionAct of 2002”

Status: Introduced01/08/02. Passed byCity Council 02/18/02.


• Requires lenders to inform borrower of his or her right to home ownership counseling.• Prohibits negative amortization.• Prohibits advance payments.• Prohibits mandatory arbitration clauses.• Prohibits advance waiver of any provisions of the bill.

Other Definitions and Inclusions• Adopts the Home Ownership and Equity Protection Act (HOEPA) as the local law of DC.• Subjects federally regulated, supervised or insured depository institutions, their subsidiaries (does not

include affiliates), FNMA and FHLMC to locally adopted HOEPA prohibitions.

Enforcement and Civil Remedies• Mayor may conduct examinations and investigations and issue orders to enforce the provisions of the

act.• Provides for penalties for violations.• Provides for civil remedies for victims.

Other• Requires the Mayor to maintain a list of licensed mortgage brokers for mortgage lenders.• Requires lenders to file mortgage documents with the Mayor’s office.• Requires the Mayor to maintain a public list of suspect settlement service providers.


Enacted Legislation

• Authorizes the issuance of credit life insurance licenses to lending orfinancial institutions or creditors and authorizes such licensees to sellcredit insurance.

• Provides that if the sale of credit life insurance is solicited orconsummated over the telephone, the creditor must provide writtendisclosures to the borrower within 30 days from the date the coveragetakes effect.

• Provides that borrower must be notified that he/she has 30 days fromthe date the disclosures are received to rescind the insurance coverage.

• Provides that persons offering insurance at the time of the extension ofcredit must disclose in writing that the choice of an insurance productwill not affect the decision to extend credit.

Jurisdiction

Florida

Bill Number

SB 938, 2001 Session

Regulates the sale ofcredit insurance.

Status: Enacted05/31/01 Chapter No.2001-111. Effective July1, 2001.


CoverageExclusions:• No exclusions specifiedIncludes:• Single family, owner occupant

“High Cost Loans” Interest Rate and Fee Threshold• APR as defined by HOEPA; currently, APR exceeds by more than 10

points the yield on comparable Treasury securities.OR• Points and fees as defined by HOEPA; currently, points and fees

exceed 8% of the total loan amount or $480 (for 2002), whichever isgreater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Restricts prepayment penalties.• Prohibits increased interest rate after default.• Prohibits balloon payment on loans that come due less than 60 months

from origination. Does not apply when payment schedule is adjustedto accommodate borrower’s irregular income.

• Prohibits negative amortization.• Prohibits advance payments.• Prohibits lending without due regard for repayment ability.• Restricts lender from making payments directly to home improvement

contractors.• Requires lenders to provide certain notices and disclosures within 3

days prior to closing.

Enforcement and Civil Remedies• Provides that the Department of Banking and Finance is responsible

for administration and enforcement of the Act and provides powers foradministration and enforcement.

Other• Includes preemptory language.• Includes severability language

Jurisdiction

Florida

Bill Number


“Florida Fair LendingAct”

Status: Filed 01/22/02.




points the yield on comparable Treasury securities.OR• Points and fees as defined by HOEPA; currently, points and fees

exceed 8% of the total loan amount or $480 (for 2002), whichever isgreater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Restricts prepayment penalties.• Prohibits increased interest rate after default.• Prohibits balloon payment on loans that come due less than 60 months


• Prohibits negative amortization.• Prohibits advance payments.• Prohibits lending without due regard for repayment ability.• Restricts lender from making payments directly to home improvement

contractors.• Restricts call provision.• Prohibits “flipping” which is defined as a refinancing a loan

within 12 months of origination that does not result in a benefitto the borrower.

• Prohibits lenders from structuring loans as open-ended loans inorder to evade the provisions of the Act.

• Requires lenders to provide borrowers certain notices and disclosureswithin 3 days prior to closing.

• Requires lenders to provide purchasers and assignees notice of liabilityunder the Act.

Enforcement and Civil Remedies• Provides that the Department of Banking and Finance is responsible

for administration and enforcement of the Act and provides powers foradministration and enforcement.

Other• Includes preemptory language.• Includes severability language

Jurisdiction

Florida

Bill Number

H 1471, 2002 Session

“Florida Fair LendingAct”

Status: Introduced02/05/02. Referred toHealth Regulation, FiscalResponsibility Counciland Council for HealthyCommunities 02/06/02.


CoverageExclusions:• No exclusions specifiedIncludes:• Home equity line of credit or other similar agreement• Single family, owner occupant


Treasury securities.OR• Points and fees exceed either 6% of the total loan amount, or $465,

whichever is greater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits default recommendations.• Prohibits charging late fees unless the charge does not exceed 5% of

the past due amount, is not charged more than once, and the borrowerhas agreed to such charges.

• Prohibits prepayment penalties of more than 3% in 1st year, 2% in 2nd

year, or 1% in 3rd year, or any prepayment penalties beyond 3rd year.• Prohibits prepayment penalties unless it offers borrower choice of

similar loan product without prepayment penalties. Any increase inAPR as a result of borrower choosing not to have prepaymentpenalties shall not exceed 1%.

• Prohibits charging borrower prepayment penalties on a loan that is torefinance an existing loan held by same lender.

• Prohibits flipping.• Prohibits call provisions.• Prohibits balloon payment on loans that come due less than 60 months


• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits modification or deferral fees that exceed $100 during 12

month period.• Prohibits lending without due regard for repayment ability.• Prohibits direct or indirect financing of points, fees or other charges.• Restricts mandatory arbitration clauses.• Requires detailed disclosures recommending counseling (“NOTICE

TO BORROWER”).• Restricts lender from making payments directly to home improvement

contractors.• Requires lender to provide a payoff amount within 5 business days of

receipt of written request from borrower.• Requires the disclosure of yield spread premium and other

compensation paid to mortgage brokers no later than 3 days prior toloan closing.

Jurisdiction

Georgia

Bill Number

SB 70, 2001-2002Session

“Georgia Fair LendingAct”

Status: Introduced01/26/2001. PassedSenate as amended03/06/01 and referred toHouse Committee onBanks and Banking.



Other• Includes severability language


CoverageExclusions:• Reverse mortgage• Loans that exceed Fannie Mae’s conforming size limitIncludes:• Open-end credit plans• Single family, owner occupant


points the yield on comparable Treasury securities.OR• Points and fees exceed 5% of the total loan amount if the loan is

$20,000 or more, or the lesser of 8% of the total loan amount or$1,000 for loans less than $20,000.


year, or any prepayment penalties beyond 2nd year.• Prohibits balloon payment that is more than twice as large as the

average of earlier scheduled payments. Does not apply when paymentschedule is adjusted to accommodate borrower’s irregular income.

• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits advance payments of more than two periodic payments.• Prohibits mandatory arbitration clauses.• Prohibits lending without home loan counseling by a HUD approved

or a Georgia Housing and Finance Authority approved counselor andsubsequent notice that borrower understands the loan transaction andappropriateness of loan.

• Prohibits lending without due regard for repayment ability, butprovides for a rebuttable presumption.

• Restricts lender from making payments directly to home improvementcontractors.

• Prohibits modification or deferral fees.• Prohibits call provisions.• Requires all loan agreements contain specified language that indicates

that the loan is subject to the Act and that purchasers or assignees maybe liable.


insurance premiums and maximum prepayment fees/penalties that maybe assessed or collected, and all prepayment fees/penalties resultingfrom a loan that refinances a loan from the same creditor or affiliate.



Jurisdiction

Georgia

Bill Number

HB 1361, 2001-2002Session

“Georgia Fair LendingAct”

Status: Introduced02/12/02.

• Prohibits default recommendations.


• Prohibits charging late fees unless the payment is 10 days or more past due, the charge does notexceed 5% of the past due amount, is not charged more than once, and the borrower has agreed tosuch charges.

• Prohibits fees for a payoff quote, unless the quote is provided via facsimile or is the second requestfor a quote within 60 days, for which lenders may charge up to $5.

• Requires lender to provide a payoff amount within 5 business days of receipt of written request fromborrower.

Enforcement and Civil Remedies• Provides for civil remedies for victims.• Provides for penalties for violations.• Requires lenders to abide by state judicial foreclosure procedures and includes borrower’s rights to

cure in the event of default on a high cost loan.• Provides that the remedies provided in the Act apply to the creditor, any director, officer, employee or

controlling stockholder of or agent for a creditor who personally makes or participated in the makingor approving of a high cost loan.

• Provides that the borrower may assert all affirmative claims and defenses that the borrower may haveagainst the seller or home improvement contractor against the creditor, any assignee, holder orservicer in any capacity.

• Provides that purchasers and assignees are liable to the same capacity of the original creditor.

Other• Prohibits lenders from requiring borrower to waive the right to judicial hearing or any rights afforded

under the 5th and 14th Amendments of the US Constitution.• Provides that any attempted evasion in bad faith of any provision of the Act, including structuring the

loan transaction as an open-credit plan or dividing the loan transaction, is a violation of the Act.• Provides for action under the provisions of the Act up to 48 months after the last payment.• Provides corrections for unintentional violations as it applies to good faith.• Includes severability language.• Includes preemption language.


Proposed LegislationCreates the Council for the Prevention of Predatory LendingThrough Education with the following powers and duties:• Design and approve consumer education programs on predatory

lending.• Work with community based organizations to complete its objectives,

including accepting and reviewing proposals from community basednonprofit organizations to conduct educational programs on a contractbasis.

• Maintain and publish a toll free number to receive consumercomplaints relating to predatory lending, and maintain a list ofnonprofit consumer counselor organizations.

• Refer consumer complaints to the appropriate governmental or otheragency for further investigation.

• Cooperate with legitimate lending institutions to identify and eliminateunscrupulous lending practices.

• Conduct a statewide study of loan defaults and foreclosures.

Jurisdiction

Georgia

Bill Number

SB 435, 2001-2002Session

“Prevention ofPredatory LendingThrough Education Act”

Status: Introduced andreferred to SenateBanking and FinancialInstitutions Committee02/11/02.


CoverageExcludes:• No exclusions specifiedIncludes:• Single family, owner occupant



“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits banks and other financial institutions from being County

depositories if they or any of their affiliates participate in predatorylending practices.

• Prohibits awarding county contracts to predatory lenders.

Defines “predatory loan” as a threshold or high cost loan that exhibits oneor more of the following characteristics:• Fraudulent or deceptive acts.• Direct or indirect financing of any prepayment penalties on a loan that

is to refinance an existing loan held by same lender.• Direct or indirect financing of any points and fees.• Direct or indirect financing of charges payable to third parties.• Charging prepayment penalties.• Negative amortization.• Flipping.• Lending without due regard for repayment ability.• Financing of SPCLI and other credit insurance directly or indirectly

into the cost of the loan.• Prohibits balloon payment when scheduled payment is more than

twice as large as the average earlier scheduled payments. Does notapply when payment schedule is adjusted to accommodate borrower’sirregular income.

• Advance payments.• Increasing interest rate after default.• Call provisions.• Modification or deferral fees.• Mandatory arbitration clauses.• Paying contractor loan proceeds without consent of borrower.• Recommending or encouraging default.• Charging late fees unless the fee does not exceed 5% the amount past

due; the late fees assessed is more than once as a result of a single latepayment; and the borrower agreed to the imposition of late fees in theloan contract.

• Lending without home loan counseling by a HUD approved counselorand subsequent notice that borrower understands the loan transactionand appropriateness of loan.

Jurisdiction

DeKalb County, Georgia

Bill Number

Ordinance No.: ___

“Responsible LendingIncentive Ordinance”

Status: Enacted June 28,2001, Chapter 2, Art. 3,Sec. 2-130. VOID

AdditionalDevelopments: AFSAfiled suit to stay effectivedate. Court grantedAFSA’s motion andruled ordinance“unconstitutional, nulland void.”


• Charging borrower points, fees and other finance charges in connection with refinancing a high costloan held by the same lender or affiliate.

• Refinancing of subsidized or special guaranteed loan (via state, local, tribal or non-profit) that haseither a below-market APR, or nonstandard pro-borrower payment terms and where refinancing willresult in loss of beneficial considerations of special mortgage.

Other Definitions and Inclusions• “Predatory lender” is a lender that has, within any 24 month period, either made 10 individual

predatory loans or 5% of the total annual number of loans made by that lender were predatory loans,whichever is less. Does not include a financial institution or its affiliates that has submitted to theCounty a plan (that is accepted) to discontinue the practice of making predatory loans.

• “High cost lender” is a lender that has, within any 24 month, either made 10 individual high costloans or 5% of the total annual number of loans made by that lender were high cost loans, whicheveris less. Does not include a financial institution or its affiliates that has submitted to the County a plan(that is accepted) to discontinue the practice of making high cost loans.

• “Threshold loan” is a loan with an APR exceeds by 4 points or more, but less than 5 points, the yieldcomparable Treasury securities.

• “Threshold lender” is a lender that has, within any 24 month period, either made 10 individualpredatory loans or 5% of the total annual number of loans made by that lender were predatory loans,whichever is less. Does not include a financial institution or its affiliates that has submitted to theCounty a plan (that is accepted) to discontinue the practice of making predatory loans.

• “Points and fees” includes mortgage broker fees and financed credit insurance premiums.

Other• Requires banks and other financial institutions bidding to be designated as a County depository to

certify (via affidavit) that neither they nor their affiliates are “predatory” or “high cost” lenders.• Requires banks and other financial institutions bidding in a County to certify (via affidavit) that

neither they nor their affiliates are “predatory” or “high cost” lenders.• Requires banks and other financial institutions, including their affiliates who submit certifications that

they are not a “predatory” or “high cost” lender to report to the County Director of Finance thefollowing for each home loan: loan purpose, loan type, APR, points and fees, amount and term ofcredit insurance, prepayment penalties, balloon payment, census tract, income level, racialcharacteristics, gender and age of the borrower.

• Requires lenders who file foreclosure proceedings to report all of the above and the name and addressof the originating lender and the year of loan origination.





“High Cost Loans” and Terms and Conditions Prohibited or Limited• Prohibits a financial institution from being designated as a City

depository if that financial institution or any of its affiliates isdetermined to be a “predatory” or “high cost” lender.

• Prohibits the investment of City monies and funds (including pensionand retirement) in stocks and securities of any business entity that is a“predatory” or “high cost” lender or affiliate.

• Prohibits the investment of City monies and funds (including pensionand retirement) in the securities collateralized by any interest in loansoriginated or purchased by any business entity that is a “predatory” or“high cost” lender or affiliate.

• Prohibits City from awarding contracts to “predatory” or “high cost”lenders or affiliates.

Defines “predatory loan” as a threshold or high cost loan that exhibits oneor more of the following characteristics:• Fraudulent or deceptive acts or practices.• Flipping.• Prohibits balloon payment when scheduled payment is more than

twice as large as the average earlier scheduled payments.• Call provisions.• Negative amortization.• Direct or indirect financing of any points and fees or other charges

payable to third parties.• Direct or indirect financing of prepayment penalties and fees on a loan

that is to refinance an existing loan held by same lender or affiliate.• Increased interest rate after default.• Advance payments.• Modification or deferral fees.• Mandatory arbitration clauses.• Prepayment penalties.• Financing of SPCLI and other credit insurance directly or indirectly

into the cost of the loan.• Lending without home loan counseling by a HUD approved counselor

and subsequent notice that borrower understands the loan transactionand appropriateness of loan.

• Lending without due regard for repayment ability.• Default recommendations.

Jurisdiction

Atlanta, Georgia

Bill Number

Ordinance No. 01-O-0843“Predatory LendingPractices Ordinance”

Status: Enacted09/25/01. Chapter No.58 Art. IV. Effective_______.


• Late fees that exceed 5% the amount past due, or fees that are assessed is more than once as a resultof a single late payment, unless borrower agreed to the imposition of late fees in the loan contract.

• Charging borrower points, fees and other finance charges in connection with refinancing a high costloan held by the same lender or affiliate.

• Refinancing of subsidized or special guaranteed loan (via state, local, tribal or non-profit) that haseither a below-market APR, or nonstandard pro-borrower payment terms and where refinancing willresult in loss of beneficial considerations of special mortgage.

Other Definitions and Inclusions• “Points and fees” includes mortgage broker fees and financed credit insurance premiums.• “Predatory lender” is a lender that has, within any 12 month period, either made 10 individual

predatory loans or 5% of the total annual number of loans made by that lender were predatory loans,whichever is less. Does not include a financial institution or its affiliates that has submitted to theCity a plan (that is accepted) to discontinue the practice of making predatory loans.

• “High cost lender” is a lender that has, within any 12 month, either made 10 individual high costloans or 5% of the total annual number of loans made by that lender were high cost loans, whicheveris less. Does not include a financial institution or its affiliates that has submitted to the City a plan(that is accepted) to discontinue the practice of making high cost loans.

• “Threshold loan” is a loan with an APR exceeds by 4 points or more, but less than 5 points, the yieldcomparable Treasury securities.

Other• Requires City depositories to certify (via affidavit) that neither they nor their affiliates is a

“predatory” or “high cost” lender.• Requires City depositories to permit City access to documents and records to verify affidavit.• Provides that the Director for the City Office of Contract Compliance can debar a contractor if that

contractor is determined to be a “predatory” or “high cost” lender or affiliate.• Requires all City contracts, POs and COs to contain a provision requiring that the person or business

entity or its affiliates certify it is not a “predatory” or “high cost” lender.• Includes preemptory and severability language.


CoverageExclusions:• Reverse mortgageIncludes:• Open-end credit plans• Single family, owner occupant

“High Cost Loans” Interest Rate and Fee Threshold• The APR exceeds by 6 points or more the yield on 5-year Treasury

securities for first mortgage, or by 8 points or more for juniormortgages.

OR• Points and fees exceed 3% of the total loan amount if the loan is

$30,000 or more, or the lesser of $900 or 6% of the total loan amountif the loan is less than $30,000 (excludes up to 2 bona fide discountpoints)

OR• The prepayment penalties included in the loan terms that permit the

collection of prepayment penalties more than 30 months after the loanclosing or that exceed 2% of the amount prepaid.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits financing, directly or indirectly, any fee or charge included

in points and fees.• Prohibits prepayment penalties of more than 2% in 1st year, 1% in 2nd

year, or any prepayment penalties beyond 2nd year.• Prohibits balloon payment that is more than twice as large as the

average of earlier scheduled payments. Does not apply when paymentschedule is adjusted to accommodate borrower’s irregular income.

• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits advance payments of more than two periodic payments.• Prohibits mandatory arbitration clauses.• Prohibits lending without home loan counseling by a HUD, State or

regulatory agency approved counselor and subsequent notice thatborrower understands the loan transaction and appropriateness of loan.



• Prohibits modification and deferral fees.




indirectly into the cost of the loan.• Prohibits flipping.• Prohibits default recommendations.

Jurisdiction

Hawaii

Bill Number

HB 2642, 21st Session,2002

“Hawaii Home LoanProtection Act”

Status: Introduced01/24/02. Referred toHuman Services andHousing Committee,01/30/02. Passed secondread as amended.02/12/02.


• Prohibits late fees/charges in excess of 4% the amount past due; or late charges for any paymentwhich is less than 15 days last due; or more than one assessment of late fees to any single payment; orlate charges without notice to the borrower that a late charge has been assessed.

• Prohibits call provisions.• Prohibits fees for a payoff quote and requires lenders to provide payoff amount within 7 days of

receipt of request.• Prohibits lenders from charging a fee for a product or service where the product or service is not

actually provided.• Prohibits mortgage companies from misrepresent facts or making false promises intended to

influence, persuade or induce a borrower.• Prohibits lenders from leaving open blanks in loan contracts to be filled in after the contract is signed.

Enforcement and Civil Remedies• Requires creditors to abide by state judicial foreclosure procedures and provides certain affirmative

defenses to a mortgage foreclosure action. Also includes borrower’s rights to cure in the event ofdefault on a high cost loan.


• Provides that purchasers and assignees are liable to the same capacity of the original creditor.• Provides that violations of the Act renders the home loan agreement null and void whereby the

creditor has no right to collect, receive or retain any principal, interest or other charges and theborrower may recover any payments made under the agreement.

• Provides for civil remedies for victims.• Provides for penalties for violations.

Other• Includes severability language and preemption language.


CoverageExcludes:• Open-end credit plans• Reverse mortgages• Loans that exceed Fannie Mae’s conforming size limitIncludes:• Single family, owner occupant

Note: language uses “high risk home loan” in place of “high cost.”

“High Risk Home Loans” Interest Rate and Fee Threshold• The APR exceeds by more than 6 points the yield on comparable

Treasury securities for first mortgage, or by more that 8 points forjunior mortgage.

OR• Points and fees exceed 5% or $800, whichever is greater.

“High Risk Home Loans” Terms and Conditions Prohibited orLimited• Prohibits lending without due regard for repayment ability.• Prohibits unfair and deceptive acts.• Prohibits prepayment penalties of more than 3% in 1st year, 2% in 2nd

year, or 1% in 3rd year, or any prepayment penalties beyond 3rd year.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits flipping.• Prohibits balloon payment when scheduled payment is more than

twice as large as the average earlier scheduled payments.• Prohibits financing points and fees in excess of 3% of the loan amount.• Restricts lender from making payments directly to home improvement

contractors.• Prohibits negative amortization.• Prohibits negative equity.• Requires lender to verify borrower’s ability to repay.• Requires lender to suggest financial counseling prior to foreclosure

proceedings.


insurance premiums.

Other• Establishes a “Mortgage Awareness Program” at the state level.

Jurisdiction

Illinois

Bill Number

HB 47 Amendment No.2, 2001-2002 Session

Provides for theregulation of high riskhome loans.

Status: Amendmentoffered 01/10/2001. Re-referred to Committee onRules on 05/18/2001.


CoverageExcludes:• Loans that exceed $250,000Includes:• Single family, owner occupant

Note: language uses the term “threshold loan” in place of “high cost”

“Threshold Loans” Interest Rate and Fee Threshold• The APR exceeds by more than 6 points the yield on comparable

Treasury securities for first mortgage, or by more that 8 points forjunior mortgage.


$16,000 or more, or $800 if the total loan amount is less than $16,000.

“Threshold Loans” Terms and Conditions Prohibited or Limited• Prohibits a financial institution from being designated as a County

depository if that financial institution or any of its affiliates isdetermined to be “predatory” lender.

• Prohibits County from awarding contracts to “predatory” lenders.

Defines “predatory loan” as a threshold loan that exhibits one or more ofthe following characteristics:• Fraudulent or deceptive acts or practices.• Prepayment penalties of more than 3% in 1st year, 2% in 2nd year, or

1% in 3rd year, or any prepayment penalties beyond 3rd year.• Balloon payment, except for certain bridge loans, and except for loans

with a final balloon payment that have a term of not less than 180months provided such balloon payment is disclosed to the borrower,and except for home equity loans.

• Flipping.• Negative amortization.• Financing of points and fees in excess of 6% of the loan amount.• Financing of SPCLI and other credit insurance directly or indirectly

into the cost of the loan, unless separate, detailed written disclosuresare provided to the consumer 3 days before loan agreement isexecuted.

• Lending without due regard for repayment ability.• Paying contractor loan proceeds without consent of borrower; or

paying a contractor who has on more than 2 occasions within 24months been determined to be in violation of any law or ordinanceprohibiting deceptive practices, unless the lender did not know of suchdetermination or unless the lender has received written certificationfrom the contractor that there are no such determinations.


insurance premiums.

Jurisdiction

Cook County, Illinois

Bill Number

Ordinance No. 240684

“Cook County PredatoryLending Ordinance”

Status: Adopted04/17/01. Effective (onor about) 06/16/2001.


• “Predatory lender” a lender that has, within the 12 month period prior to submission of bid, eithermade 25 individual predatory loans or 5% of the total annual number of loans made by that lenderwere predatory loans, whichever is less. Does not include a financial institution or its affiliates thathas submitted to the CFO a plan (that is accepted) to discontinue the practice of making predatoryloans.

Other• Gives authority to County CFO to make the determination if a financial institution seeking a County

contract or designation as a County depository is a “predatory” lender.• Requires banks and other financial institutions seeking designation as a County depository to pledge

that neither they nor their affiliates are or will become “predatory” lenders.• Requires banks and other financial institutions bidding on a County contract to pledge that neither

they nor their affiliates are a “predatory” lenders.• Includes severability language.



Note: language uses the term “threshold loan” in place of “high cost.”

“Threshold Loans” Interest Rate and Fee Threshold• The APR exceeds by more than 6 points the yield on comparable

Treasury securities for first mortgage, or by more that 8 points forjunior mortgages.


$16,000 or more, or $800 if the total loan amount is less than $16,000.

“Threshold Loans” Terms and Conditions Prohibited or Limited• Prohibits a financial institution from being designated as a City

depository if that financial institution or any of its affiliates isdetermined to be “predatory” lender.

• Prohibits City from awarding contracts to “predatory” lenders.

Defines “predatory loan” as a threshold loan that exhibits one or more ofthe following characteristics:• Fraudulent or deceptive acts or practices.• Prepayment penalties of more than 3% in 1st year, 2% in 2nd year, or

1% in 3rd year, or any prepayment penalties beyond 3rd year.• Balloon payment, except for certain bridge loans, and except for loans

with a final balloon payment that have a term of not less than 180months provided such balloon payment is disclosed to the borrower,and except for home equity loans.

• Flipping.• Negative amortization.• Financing of points and fees in excess of 6% of the loan amount.• Financing of SPCLI and other credit insurance directly or indirectly

into the cost of the loan, unless separate, detailed written disclosuresare provided to the consumer 3 days before loan agreement isexecuted.

• Lending without due regard for repayment ability.• Paying contractor loan proceeds without consent of borrower; or

paying a contractor who has on more than 2 occasions within 24months been determined to be in violation of any law or ordinanceprohibiting deceptive practices, unless the lender did not know of suchdetermination or unless the lender has received written certificationfrom the contractor that there are no such determinations.


insurance premiums.

Jurisdiction

Chicago, Illinois

Bill Number

Ordinance _____

“Predatory LenderOrdinance”

Status: Enacted08/30/01 Chapter No. 2-23-455. EffectiveNovember 13, 2001.


• “Predatory lender” a lender that has, within the previous 12 month period, either made 25 individualpredatory loans or 5% of the total annual number of loans made by that lender were predatory loans,whichever is less. Does not include a financial institution or its affiliates that has submitted to theCity a plan to discontinue the practice of making predatory loans.

Other• Requires City depositories to pledge that neither they nor their affiliates are or will become a

“predatory” lenders.• Requires banks and other financial institutions bidding on a City contract to pledge that neither they

nor their affiliates are “predatory” lenders.• Requires lenders who wish to bid on interest for City and school funds provide some detailed

information about their residential mortgage loans.• Prohibits licensed home repair contractor from acting as an agent for, advertise, promote or

recommend the services of a “predatory” lender.• The City of Chicago also passed a resolution that accompanies the Ordinance that calls upon the U.S.

Congress and the Illinois Assembly to “recognize the evils of predatory lending, and to act promptlyto prohibit predatory lending and to regulate mortgage lenders more strictly.”

• Includes severability language.




Treasury securities for a first mortgage or by 8 points or more forjunior mortgages.

OR• The total points and fees exceed 3% of the total loan amount if the

loan is greater than or equal to $30,000, or the lesser of 6% of the totalloan amount or $900 if the total loan amount is less than $30,000(excludes certain discount points).

OR• The prepayment penalties included in the loan terms that permit the

collection of prepayment penalties more than 30 months after the loanclosing or that exceed 2% of the amount prepaid.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits financing points and fees.• Prohibits prepayment penalties of more than 2% in 1st year, 1% in 2nd

year, or any prepayment penalties beyond 2nd year.• Prohibits balloon payment when scheduled payment is more than


• Prohibits increased interest rate after default.• Prohibits negative amortization.• Prohibits advance payments.• Prohibits mandatory arbitration clauses.• Prohibits lending without home loan counseling by a HUD approved


• Prohibits lending without due regard for repayment ability.• Restricts lender from making payments directly to home improvement

contractors.• Prohibits modification or deferral fees.


insurance premiums, maximum prepayment fees/penalties that may beassessed or collected and prepayment penalties charged in connectionwith refinancing a loan held by the same lender or affiliate.

Jurisdiction

Indiana

Bill Number

HB 1142, 2001-2002Session

“Home Loan ProtectionAct”

Status: Introduced on01/09/2002 and referredto Committee onFinancial Institutions.


Terms and Conditions Prohibited or Limited on Home Loans• Prohibits SPCLI and financing of other credit insurance directly or indirectly into the cost of the loan.• Prohibits flipping.• Prohibits default recommendations.• Prohibits late fees/charges in excess of 4% the amount past due; or late charges for any payment

which is less than 15 days past due; or more than one assessment of late fees to any single payment.• Prohibits call provisions.• Prohibits charging borrower a fee for providing the payoff balance or release upon prepayment of a

home loan.• Requires lender to provide payoff amount for home loans within 7 days of receipt of borrower’s

request.

Enforcement and Civil Remedies• Includes borrower’s rights to cure in the event of default on a high cost loan.• Provides civil remedies for victims.• Provides for penalties for violations.

Other• Provides corrections for unintentional violations as it applies to good faith.


CoverageExcludes:• Reverse mortgagesIncludes:• Single-family, owner-occupant• Open-end line of credit

“High Cost Loans” Interest Rate and Fee Threshold• The APR exceeds the yield of Treasury securities by more than the

number of percentage points specified in HOEPA’s implementingregulation (in 12 CFR sec. 226.32).

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits balloon payment in the first 7 years of the loan.• Prohibits negative amortization.• Prohibits advance payments.• Prohibits increased interest rate after default or default charges in

excess of 5% of the amount in default.• Limits prepayment penalties to the first three years following loan

origination. The penalty cannot exceed 3% of the prepaid amount oneyear after loan origination; 2% of the prepaid amount between one andtwo years after loan origination; 1% of the prepaid amount between 2and 3 years after loan origination.

• Prohibits charging of prepayment penalties when original lender oraffiliate refinances loan.

• Prohibits mandatory arbitration clauses.• Prohibits call provisions.• Restricts lender from making payments directly to home improvement

contractor.• Prohibits modification or deferral fees.• Prohibits lending without due regard for repayment ability.• Prohibits default recommendations.• Prohibits flipping.• Prohibits unconscionable interest rates or rates not related to risk

factors.• Prohibit charging fees for services not performed.

Other Definitions and Inclusions• Prepaid finance charge means any charge payable by the borrower at

or before closing. Limits prepaid finance charges, including a limit ofthe greater of 5% of the loan amount or $2,000.

Terms and Conditions Prohibited and Limited on Home Loans• No institution licensed by Kentucky shall exceed limits on prepaid

finance charges.

Jurisdiction

Kentucky

Bill Number

SB 145

Status: Introduced onJanuary 29, 2002 andsent to Banking andInsurance Committee onFebruary 1.


Enforcement and Civil Remedies• Commissioner of the Department of Financial Institutions can suspend or revoke license of lender for

knowing and willful violations of this Act.• A provision in a loan contract that violates this Act is unenforcable. A court may issue an order to

reform a high-cost loan to conform to this Act. In addition, the court may award punitive damages tothe consumer.

Other• Requires lender making a high-cost loan to report both favorable and unfavorable payment history to

a nationally recognized credit reporting agency at least annually.• Requires certain disclosures regarding cost of high-cost loans.• Requires offering choice of single-premium credit insurance or credit insurance paid for on a monthly

basis.





$20,000 or more, or 4% of the loan amount if the total loan is $20,000or more and guaranteed by FHA or VA, or the lesser of 5% of the totalloan amount or $800 for loans less than $20,000.


twice as large as the average earlier scheduled payments.• Prohibits advance payments.• Prohibits increased interest rate after default.• Prohibits call provisions.• Prohibits modification or deferral fees.• Prohibits lending without home loan counseling by a State approved

counselor and subsequent certification that borrower understands theloan transaction and appropriateness of loan.


contractor.


Terms and Conditions Prohibited or Limited on Home Loans• Prohibits prepayment penalties or fees.• Prohibits negative amortization.• Prohibits flipping.• Prohibits default recommendations.• Prohibits lending without due regard for repayment ability.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits lenders from leaving open blanks in loan contracts to be

filled in after the contract is signed.• If loan transaction discussions are conducted primarily in a language

other than English, lender must, prior to closing, provide borrowerwritten disclosures in the language in which discussions wereconducted.

Jurisdiction

Louisiana

Bill Number


An act prohibitingpredatory lendingpractices.




Other• Defines attempted evasion as it applies to bad faith.• Provides corrections for unintentional violations as it applies to good faith.







twice as large as the average earlier scheduled payments.• Prohibits advance payments.• Prohibits increased interest rate after default.• Prohibits call provisions.• Prohibits modification or deferral fees.• Prohibits mandatory arbitration clauses.• Restricts lender from making payments directly to home improvement

contractors.• Prohibits lending without home loan counseling by an accredited

credit counseling program.


Terms and Conditions Prohibited and Limited on Home Loans• Prohibits prepayment penalties or fees.• Prohibits negative amortization.• Prohibits lending without due regard for repayment ability.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits lenders from influencing appraisers.• Prohibits lenders from leaving open blanks in loan contracts to be

filled in after the contract is signed.• Prohibits an APR that exceeds 6% above Treasury securities.

Enforcement and Civil Remedies• Provides for penalties for violations.

Jurisdiction

Massachusetts

Bill Number

SB 18, 2001-2002Session

An act establishingprotections againstlending in the homelending market.

Status: Introduced01/03/01 and referred toCommittee on Banks andBanking.


Other• Requires “high cost” lenders to report to the state as part of its annual report the following: APR of

each high cost home loan; term of each high cost home loan; total amount owed by each high costhome loan borrower; points, fees and other costs associated with each high cost home loan; country,state, municipality or district where the high cost home loan borrower of high cost home loan isplaced; racial or ethnic status of each high cost home loan borrower (where information is provided);annual income, age, education level and primary language of each high cost home loan borrower.

• Prohibits Commonwealth from depositing or investing funds in stocks and securities to/in businessentity that derives more than 5% of its revenues from predatory loans.

• Requires divestiture of public pension funds from stocks and securities of any business entity thatderives more than 10% of its revenues from predatory loans.



CoverageExcludes:• Reverse mortgages• Loans that exceed Fannie Mae’s conforming size limit or $300,000,

whichever is less.Includes:• Open-end credit plans• Single family, owner occupant


Treasury securities for first mortgage, or by more than 9 points forjunior mortgages.

OR• Points and fees exceed 5% of the total loan amount.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits lending without due regard for repayment ability.• Prohibits charging points and fees that exceed 5% of the loan amount.• Prohibits charging borrower points, fees and other finance charges in

connection with refinancing a high cost loan and the last financing waswithin 2 years of current loan transaction.

• Prohibits prepayment penalties on loans less than $300,000.• Prohibits increased interest rate after default.• Prohibits negative amortization.• Prohibits balloon payment on loans less than 84 months.• Prohibits call provisions.• Prohibits mandatory arbitration clauses.• Prohibits advance payments.• Prohibits modification or deferral fees.• Restricts lender from making payments directly to home improvement

contractor.


Other• Requires lenders to report annually to the Commonwealth, number and

rate of defaults and foreclosures relating to high cost home loansoriginated by that lender.

Jurisdiction

Massachusetts

Bill Number

HB 3035, 2001-2002Session

An act prohibitingabusive practices in highcost home mortgagelending.



Proposed LegislationIn the case of any borrower 60 years or older, a creditor shall not make ahigh cost home loan, as such loan is defined by the BankingCommissioner, unless the creditor complies with the following:

• An applicant for any such loan shall not be bound for at least 7 daysafter the applicant’s acceptance, in writing, of the lender’s writtencommitment to make the loan;

• The creditor obtains a written statement signed by the borroweracknowledging receipt of disclosure of all contractual contingenciessigned by the borrower of all contractual contingencies which couldforce a sale of the mortgage real estate;

• A provision is included in the loan document, contract or agreementpermitting prepayment of the loan without penalties at any time priorto said loan becoming due and payable; and

• No such loan document, contract or agreement shall contain amandatory arbitration clause or any other such clause as theCommissioner may prohibit consistent with this act.

Jurisdiction

Massachusetts

Bill Number

HB 2830, 2001-2002Session

Protections for seniorcitizens from predatorylending practices.



CoverageExcludes:• Reverse mortgages• Loans that exceed Fannie Mae’s conforming size limitIncludes:• Single family, owner occupant

“High Cost Loans” Interest Rate and Fee Threshold• The APR exceeds by 6.5 points or more the yield on comparable


“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits prepayment penalties.• Prohibits balloon payment when scheduled payment is more than


• Prohibits advance payments.• Prohibits direct or indirect financing of points, fees and other finance

charges in connection with refinancing a high cost loan held by thesame lender or affiliate.

• Prohibits flipping.• Prohibits lending without due regard for repayment ability.• Prohibits financing points and fees equal to or more than 3%, or $600,

whichever is less.• Prohibits call provisions.• Prohibits modification or deferral fees.• Prohibits mandatory arbitration clauses.• Restricts lender from making payments directly to home improvement

contractor.• Prohibits negative amortization.• Prohibits increasing the interest rate after default.• Requires lenders to provide detailed disclosure form at least 3 days

prior to closing.• Requires lenders to provide detailed information about the value of

loan counseling and include list of mortgage counseling agencies inarea approved by HUD.



year, or 1% in 3rd year, or any prepayment penalties beyond 3rd year.• Prohibits prepayment penalties that extends beyond any initial interest

rate term of loan.• Prohibits charging borrower prepayment penalties on a loan that is to

refinance an existing loan held by same lender.

Jurisdiction

Michigan

Bill Number

SB 708, (HB 5424companion) 2001-2002Session

“Michigan PredatoryLending Practices Act”

Status: Introduced10/16/01 and referred toCommittee on Bankingand FinancialInstitutions. HB 5424introduced 11/01/2001and referred toCommittee onCommerce.


• Prohibits default recommendations.• Prohibits lenders from charging a fee for a product or service where the product or service is not

actually provided.• Prohibits unfair and deceptive acts.• Prohibits lenders from influencing appraisers.• Prohibits SPCLI and financing of other credit insurance directly or indirectly into the cost of the loan.• Prohibits advance collection of SPCLI or other credit insurance.• Prohibits advance collection of prepayment penalties and fees.• Prohibits lenders from leaving open blanks in loan contracts to be filled in after the contract is signed.• Requires that if loan transaction discussions are conducted primarily in a language other than English,

lender must, prior to closing, provide borrower written disclosures in the language in whichdiscussions were conducted.

Enforcement and Civil Remedies• Provides that violations be considered a misdemeanor and fines not to exceed $10,000.

Other• Provides for corrections of unintentional violations as it applies to good faith.• SB 709 (HB 5429 companion, same as SB 769) requires savings banks to comply with provisions of

the “Michigan Predatory Lending Practices Act” as set forth in SB 708 detailed above.• SB 710 (HB 5427 companion, same as SB 710) requires credit unions to comply with provisions of

the “Michigan Predatory Lending Practices Act” as set forth in SB 708 detailed above.• SB 711 (HB 5430 companion, same as SB 771) requires savings associations to comply with

provisions of the “Michigan Predatory Lending Practices Act” as set forth in SB 708 detailed above.• SB 712 (HB 5426 companion, same as SB 772) requires licensed mortgage brokers, lenders and

servicers to comply with provisions of the “Michigan Predatory Lending Practices Act” as set forth inSB 708 detailed above.

• SB 713 (HB 5425 companion, same as SB 768) requires banks to comply with provisions of the“Michigan Predatory Lending Practices Act” as set forth in SB 708 detailed above.

• SB 714 (HB 5428 companion, same as SB 774) requires secondary mortgage licensees to complywith provisions of the “Michigan Predatory Lending Practices Act” as set forth in SB 708 detailedabove.





greater than or equal to $20,000 or lesser of 5% of total loan amount or$800 if total loan amount is less than $20,000 (excludes certaindiscount points).

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits lending without home loan counseling by a HUD approved


• Prohibits prepayment penalties.• Prohibits balloon payment when scheduled payment is more than


• Prohibits advance payments.• Prohibits direct or indirect financing of any points and fees or other

charges payable to third parties.• Prohibits direct or indirect financing of prepayment penalties and fees


• Prohibits flipping.• Prohibits lending without due regard for repayment ability.• Prohibits call provisions.• Prohibits modification or deferral fees.• Prohibits mandatory arbitration clauses.• Restricts lender from making payments directly to home improvement

contractor.• Prohibits negative amortization.• Prohibits increasing the interest rate after default.• Requires lenders to provide detailed disclosure form at least 3 days

prior to closing.• Prohibits lending without cautionary notice (Statute provides explicit

language).


insurance premiums and prepayment penalties and fees in connectionwith refinancing a loan held by the same lender or affiliate.

Jurisdiction

Michigan

Bill Number

SB 773, 2001-2002Session

“Michigan PredatoryLending Practices Act”

Status: Introduced10/23/2001 and referredto Committee onBanking and FinancialInstitutions.


Terms and Conditions Prohibited or Limited on Home Loans• Prohibits prepayment penalties.• Prohibits default recommendations.• Prohibits lenders from charging a fee for a product or service where the product or service is not

actually provided.• Prohibits unfair and deceptive acts.• Prohibits lenders from influencing appraisers.• Prohibits SPCLI and financing of other credit insurance directly or indirectly into the cost of the loan.• Prohibits advance collection of SPCLI or other credit insurance.• Prohibits advance collection of prepayment penalties and fees.• Prohibits lenders from leaving open blanks in loan contracts to be filled in after the contract is signed.• Requires that if loan transaction discussions are conducted primarily in a language other than English,


• Prohibits lender from charging a late payment fee in excess on 5% of the amount due and as long asthe assessment is only once for any single installment.

Enforcement and Civil Remedies• Provides that violations be considered a misdemeanor and fines not to exceed $10,000.

Other• Provides for corrections of unintentional violations as it applies to good faith.


Proposed Legislation• Prohibits an unlicensed “residential mortgage originator” (a person

who assists another person in obtaining a mortgage loan) fromreceiving directly or indirectly any compensation commission, fee,points, or other remuneration or benefits from a mortgage broker,mortgage lender, or mortgage servicer other than the employer of theresidential mortgage originator.

• Prohibits an unlicensed “residential mortgage originator” from payingdirectly or indirectly any compensation commission, fee, points, orother remuneration or benefits from a mortgage broker, mortgagelender, or mortgage servicer other than an employee of the mortgagebroker, mortgage lender, or mortgage servicer.

Jurisdiction

Michigan

Bill Number

HB 5553, 2001-2002Session

“Mortgage Brokers,Lenders, and ServicersLicensing Act”

Status: Introduced on12/21/2001 and referredto Committee onCommerce.





is greater.


year, or 1% in 3rd year, or any prepayment penalties beyond 3rd year.• Prohibits increased interest rate after default.• Prohibits call provisions.• Prohibits lending without home loan counseling by a State approved

counselor and subsequent certification that borrower understands theloan transaction and appropriateness of loan.

• Prohibits mandatory arbitration clauses.• Prohibits flipping.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits financing points and fees on high cost loans that amount to

3% or more or the loan amount, or $600, whichever is greater.• Restricts lender from making payments directly to home improvement

contractor.


insurance premiums.

Terms and Conditions Prohibited and Limited on Home Loans• Prohibits default recommendations.• Prohibits lending without due regard for repayment ability.• Prohibits lenders from leaving open blanks in loan contracts to be

filled in after the contract is signed.• Requires that if loan transaction discussions are conducted primarily in

a language other than English, lender must, prior to closing, provideborrower written disclosures in the language in which discussionswere conducted.


Jurisdiction

Minnesota

Bill Number

HB 2213 (SB 2348companion), 2001–2002Session

An act against predatorylending in the homemortgage market.

Status: Introduced03/26/2001 andCommittee onCommerce, Jobs andEconomic Development.


Other• Requires lenders who are exempt from reporting HMDA data to their federal regulatory agency to

report that data to the State Commissioner of Commerce.• Requires lenders to report to the State Commissioner of Commerce the average APR for mortgage

and improvement loans originated and grouped by census tract, income level, racial characteristicsand gender.



Proposed Legislation• Prohibits prepayment penalties on conventional and other certain

regulated loans.• Prohibits mortgage originator or serivcer from misleading a borrower

into accepting a higher cost residential mortgage loan bymisrepresenting or omitting information about borrower’s eligibilityfor a lower cost loan offered by that originator.

Other• Regulates private mortgage insurance.

Jurisdiction

Minnesota

Bill Number

HB 1066 (SB 1587companion) 2001–2002Session

And act relating toprepayment penaltiesand lending practices.

Status: Introduced02/22/2001 and referredto Committee onCommerce, Jobs andEconomic Development.


Proposed Legislation• Prohibits financing of points, fees or other charges in excess of 3% of

the loan amount.• Restricts prepayment penalties.• Requires written and spoken notice of prepayment penalties to

prospective borrowers of loans containing prepayment penalties.


Other• Exempts banks, savings banks, savings associations and credit unions

from the prohibitions of the Act, but subjects them to the penalties forviolations of prepayment penalty provisions.

Jurisdiction

Minnesota

Bill Number

SF 2988, 2001–2002Session

Regulates financecharges and fees.

Status: Introduced andreferred to CommerceCommittee 02/11/02.





OR• Points and fees exceed 5% of the loan or $800, whichever is greater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits lending without due regard for repayment ability.• Prohibits flipping.• Prohibits negative amortization.• Restricts refinancing of subsidized or special guaranteed loan (via

state, local, tribal or non-profit) that has non-standard payment termsbeneficial to borrower.

• Requires the commissioner to develop a disclosure form that thelenders must provide to borrowers.


insurance premiums.

Other• Includes severability language.

Jurisdiction

Minnesota

Bill Number

SF 3030, 2001–2002Session

Responsible Lending Actof 2002.

Status: Introduced andreferred to CommerceCommittee 02/11/02.


Proposed LegislationNote: “mortgage company/companies” include persons or entities.

• Prohibits individuals from directly or indirectly transacting business asa mortgage company unless they are licensed by the State.

• Sets forth specific mortgage company licensure requirements.• Prohibits mortgage companies from misrepresenting facts or making

false promises intended to influence, persuade or induce a borrower.• Prohibits mortgage companies from misrepresenting or withholding

terms and conditions of a loan.• Prohibits mortgage companies from withholding funds to make a

mortgage loan.• Prohibits mortgage companies from improperly refusing to issue a

loan satisfaction.• Prohibits mortgage companies from failing to account for or deliver to

borrower personal property obtained in connection with a mortgageloan (i.e. funds, checks, deposits, loan documents, etc.)

• Prohibits mortgage companies from engaging in fraudulent acts,including underwriting practices, in connection with a mortgage loan.

• Prohibits mortgage companies from leaving open blanks in loancontracts to be filled in after the contract is signed.

• Prohibits mortgage companies from directly or indirectly making aloan with the intent to foreclose.

• Prohibits mortgage companies from charging or collecting any directpayment, compensation or advance fee from borrower unless/until aloan is actually closed for that borrower.

• Prohibits mortgage companies from charging any direct payment,compensation or advance fee that is more than 7.95% of the originalprinciple amount of the loan.

• Establishes mortgage loan advertising guidelines.• Outlines the documents and disclosures that a borrower’s loan file

must contain.• Provides for penalties, including fines, for violations.

Jurisdiction

Mississippi

Bill Number


“Mississippi MortgageConsumer ProtectionLaw”

Status: Introduced on01/08/2002 and referredto Committee on Banksand Banking.






“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits prepayment penalties.• Prohibits negative amortization.• Prohibits lending without due regard for repayment ability.• Prohibits lenders from leaving open blanks in loan contracts to be

filled in after the contract is signed.• Prohibits balloon payment when scheduled payment is more than


• Prohibits advance payments.• Prohibits increased interest rate after default.• Prohibits call provisions.• Prohibits modification or deferral fees.• Prohibits lending without home loan counseling by a HUD approved



contractors.


Terms and Conditions Prohibited and Limited on Home Loans• Prohibits flipping.• Prohibits default recommendations.• Prohibits lenders from charging a fee for a product or service where

the product or service is not actually provided.• Prohibits unfair and deceptive acts.• Prohibits lenders from influencing appraisers.• Prohibits SPCLI and financing of other credit insurance directly or


Jurisdiction

Missouri

Bill Number


Regulates high costhome mortgage lendingpractices.



• Requires that if loan transaction discussions are conducted primarily in a language other than English,lender must, prior to closing, provide borrower written disclosures in the language in whichdiscussions were conducted.

Other• Prohibits lenders from making investments that are backed by loans containing prohibited acts and

practices.• Requires lenders currently exempt from reporting under HMDA to report to state agency, the same

information outlined in HMDA.• Requires lenders to report to the State Division of Finance the average APR for mortgage and








“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits negative amortization.• Prohibits prepayment penalties.• Prohibits lending without due regard for repayment ability.• Prohibits lenders from leaving open blanks in loan contracts to be

filled in after the contract is signed.• Prohibits balloon payment when scheduled payment is more than


• Prohibits advance payments.• Prohibits increased interest rate after default.• Prohibits call provisions.• Prohibits modification or deferral fees.• Prohibits lending without home loan counseling by a HUD approved



contractors.


Terms and Conditions Prohibited and Limited on Home Loans• Prohibits flipping.• Prohibits default recommendations.• Prohibits lenders from charging a fee for a product or service where

the product or service is not actually provided.• Prohibits unfair and deceptive acts.• Prohibits lenders from influencing appraisers.• Prohibits SPCLI and financing of other credit insurance directly or


Jurisdiction

Missouri

Bill Number

S 839, 2002 Session

Regulates high costhome mortgage lendingpractices.

Status: Introduced on01/09/2002.


• Requires that if loan transaction discussions are conducted primarily in a language other than English,lender must, prior to closing, provide borrower written disclosures in the language in whichdiscussions were conducted.

Enforcement and Civil Remedies• Provides civil remedies for victims.• Provides for penalties for violations.


practices.• Requires lenders currently exempt from reporting under HMDA to report to state agency, the same

information outlined in HMDA.• Requires lenders to report to the State Division of Finance the average APR for mortgage and




Proposed Legislation

Considers the following unfair or deceptive and deemed unlawful:

• Making home improvement loans without due regard for repaymentability.

• Making home improvement loans without the express writtenauthority and consent of the consumer.

• Selling or assigning of certain mortgages without the provision of anotice stating that the mortgage is subject to any special laws.

• Exonerates third parties from liabilities unless there was knowledge ofor participation in the unfair or deceptive act.

• Provides for penalties for violations.

Jurisdiction

Missouri

Bill Number


“Unfair HomeImprovement Loan Act”




Note: no thresholds specified.

Terms and Conditions Prohibited and Limited on Home LoansSets forth the following prohibitions as “unfair lending practices” inconnection with home mortgage lending practices:

• Prohibits a lender from requiring borrower, as a condition of obtaininga home loan, to provide property insurance on improvements to theproperty in an amount that exceeds the reasonable replacement value.

• Prohibits lending without due regard for repayment ability.• Prohibits direct or indirect financing of prepayment penalties and fees


• Prohibits financing of SPCLI and other credit insurance directly orindirectly into the cost of the loan, unless lender and borrower executea detailed disclosure notice (sample notice provided in introducedbill).

Enforcement and Civil Remedies• Provides for enforcement and oversight of “unfair lending practices”

by Nevada Attorney General.• Provides that violations amount to a misdemeanor and establishes

fines to be imposed.

Jurisdiction

Nevada

Bill Number

AB 447, 2001 Session

Relates to “unfairlending practices” inconnection with homeloans.




whichever is lessIncludes:• Single family, owner occupant



greater than or equal to $20,000, or the lesser of 8% of total loanamount or $1,000 if total loan amount is less than $20,000.



• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits lending without home loan counseling by a HUD approved


• Prohibits lending without due regard for repayment ability.• Prohibits direct or indirect financing of any points and fees or other

charges payable to third parties.• Prohibits charging borrower points, fees and other finance charges in

connection with refinancing a high cost loan held by the same lender.• Restricts lender from making payments directly to home improvement

contractors.



indirectly into the cost of the loan.• Prohibits flipping.• Prohibits default recommendations.• Prohibits third parties from charging or receiving unreasonable

compensation for loan-related goods, products or services.• Restricts deferral fees.

Jurisdiction

New Jersey

Bill Number

AB 671 (SB 198companion), 2002Session

“Consumer Protectionfrom Predatory LendingPractices Act”

Status: AB 671introduced 01/8/02 andreferred to Committee onBanking and Insurance.SB 198 introduced01/08/02 and referredCommittee onCommerce.



Other• Prohibits lenders from requiring collateral in excess of that required to pay off the principal of a home

loan that is less than $300,000.• Defines attempted evasion as it applies to bad faith.• Provides corrections for unintentional violations as it applies to good faith.• Requires State Director of Division of Banking in consultation with State Director of Division of

Consumer Affairs to develop and implement a consumer counseling and awareness program designedto inform the public about predatory lending.




commitment from either Fannie Mae or Freddie Mac (whichever isgreater) by more than 3 points for a first mortgage, or by 5 or morepoints for a mortgage.

OR• The total points and fees equal or exceed 4% of the total loan amount

or $800, whichever is greater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits flipping.• Prohibits lending without due regard for repayment ability.• Prohibits financing points and fees in excess of either 4% of the total

loan amount or $800, whichever is greater.• Prohibits lending without home loan counseling by a HUD, State or

City approved counselor and subsequent notice that borrowerunderstands the loan transaction and appropriateness of loan.

• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits prepayment penalties.• Prohibits balloon payment when scheduled payment is more than

twice as large as the average earlier scheduled payments.• Prohibits fraudulent or deceptive acts.• Prohibits call provisions.• Prohibits refinancing of subsidized or special guaranteed loan (via

state, local, tribal or non-profit) that has a low APR (by at least 2points) or has non-standard payment terms beneficial to borrower,where refinancing will cause borrower to lose one or more of thebenefits. This restriction will not apply if an independent housingcounselor has reviewed the terms of the refinance and has determinedthat the refinance is in the best interest of the borrower.



insurance premiums.

Jurisdiction

Albuquerque, NM

Bill Number

Council Bill No. 0-01-6,2001 Session

An act to prohibit certainpredatory lendingpractices and discouragepredatory lenders fromdoing business within theCity.

Status: Introduced11/29/01. On01/14/2002 Committeeon Finance andGovernment Operationsvoted favorably torecommend Ordinance tofull Council forconsideration.


• “Predatory lender” is a lender that has within any 12 month period either made 10 individualpredatory loans or 5% of the total annual number of loans made by that lender were predatory loans,whichever is less. Does not include a financial institution or its affiliates that has submitted to the Citya plan to discontinue the practice of making predatory loans.

• “Predatory loan” is any home loan which violates provisions of this chapter prohibiting certain termsin connection with all home loans, or a high cost home loan which violates those provisions whichprohibit certain terms and practices in connection with high cost loans.

Terms and Conditions Prohibited and Limited on Home Loans• Prohibits SPCLI and financing of other credit insurance directly or indirectly into the cost of the loan.

Enforcement and Civil Remedies• Provides civil remedies for victims.• Provides for penalties, including fines, for violations.


practices.• Prohibits City from awarding contracts to “predatory” lenders or their affiliates. City contractors

must certify (via affidavit) that neither the business nor its affiliates is a “predatory” lender.• Prohibits a financial institution from being designated as a City depository if it or any of its affiliates

is determined to be a “predatory” lender. City depositories must certify (via affidavit) that neither thebusiness nor its affiliates is a “predatory” lender.

• Designates that all funds recovered from the enforcement of this Ordinance shall be dedicated tofunding a comprehensive program of neighborhood-based and city-wide anti-predatory lendingeducation.

• Includes severability language.




Treasury securities for a first mortgage or by 7 points or more forjunior mortgages.


loan is greater than or equal to $20,000, or exceed 6% of the total loanamount if the loan is greater than $20,000 and guaranteed by FHA orVA, or the lesser of 6% of the total loan amount or $800 if the totalloan amount is less than $20,000.

“High Cost Loans” Terms and Conditions Prohibited or LimitedGeneral Prohibitions:• Prohibits any state agency from conducting business with a financial

institution that has not certified that neither it nor its affiliates is or willbecome a “predatory” lender.

• Requires that a financial institution making high cost loans mustcertify it has considered the loan suitability for the borrower andconducted due diligence on non-originated loans, including borrower’sability to repay the loan.

• Prohibits state and local governments from issuing any bonds througha financial institution that has not certified that neither it nor itsaffiliates is or will become a “predatory” lender.

• Prohibits depositing state and local government funds in anyinstitution that has not certified that neither it nor its affiliates is or willbecome a “predatory” lender.

Prohibitions on high cost loans:• Prohibits call provisions.• Prohibits balloon payment when scheduled payment is more than


• Prohibits negative amortization.• Prohibits increasing the interest rate after default.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits prepayment penalties.• Prohibits mandatory arbitration clauses.• Prohibits SPCLI and financing of other credit insurance directly or


Jurisdiction

New York

Bill Number


Prohibits the state, itspublic authorities, itspolitical subdivisionsand districts fromparticipating in businesswith financialinstitutions that engagein predatory lending orthat facilitate predatorylending through thepurchase, sale,securization orunderwriting ofpredatory loans.

Status: Introduced06/18/2001 and referredto Committee on Rules.No action during 2001session. Re-referred toCommittee on Rules01/09/2002.


• Prohibits lending without due regard for repayment ability.• Prohibits refinancing unsecured debt into a home loan that the borrower will not be able to repay.• Prohibits lending without home loan counseling by a HUD approved counselor and subsequent notice

that the borrower understands the loan transaction and appropriateness of loan.• Prohibits the financing of points and fees.• Restricts lender from making payments directly to home improvement contractors.• Prohibits default recommendations.• Prohibits kickbacks to mortgage brokers.• Prohibits charging points and fees when refinancing an existing high cost loan with a new high cost

home loan.

Other Definitions and Inclusions• “Predatory lender” is a lender that has, within any 12 month period, either made 25 individual

predatory loans or 5% of the total annual number of loans made by that lender were predatory loans,whichever is less.

• “Points and fees” includes mortgage broker fees, financed credit insurance premiums and prepaymentpenalties and fees in connection with refinancing a loan held by the same lender or affiliate.

Enforcement and Civil Remedies• Allows Attorney General to enforce all provisions of the bill.

Other• Defines attempted evasion as it applies to bad faith.• Provides corrections for unintentional violations as it applies to good faith.• Requires State Department of Banking to maintain a registry of financial institutions that originate,

purchase, securitize, etc. high cost loans. Registry shall list institutions that violate high cost lendingrequirements and fail to adopt due diligence standards.




Treasury securities for a first mortgage or by 7 points or more forsecondary mortgage.






indirectly into the cost of the loan.• Prohibits flipping.• Prohibits lending without due regard for repayment ability.• Prohibits refinancing unsecured debt into a home loan that the

borrower will not be able to repay.• Prohibits lending without home loan counseling by a HUD approved


• Prohibits the financing of points and fees.• Restricts lender from making payments directly to home improvement

contractors.• Prohibits default recommendations.• Prohibits kickbacks to mortgage brokers.• Prohibits charging points and fees when refinancing an existing high

cost loan with a new high cost home loan.

Jurisdiction

New York

Bill Number

AB 7828

Regulates the makingand foreclosure of highcost home loans andimposes variousprohibitions andlimitations.

Status: Bill passedAssembly 07/17/2001and was transmitted tothe Senate with a referralto Committee onBanking. Died in Senateupon adjournment oflegislature. Returned toHouse 01/09/2002 andreferred to Committee onRules.



penalties and fees in connection with refinancing a loan held by the same lender or affiliate.

Enforcement and Civil Remedies• Provides for penalties for violations.• Provides civil remedies for victims.• Subjects holders of high cost home loans to affirmative defenses.

Other• Defines attempted evasion as it applies to bad faith.• Provides corrections for unintentional violations as it applies to good faith.• Includes severability language.• Prohibits kickbacks to a home improvement contractor for placing a home improvement loan with a

bank unless such relation is disclosed to the customer and the customer’s approval is obtained for thetransaction.

• Requires notice to mortgagors or homeowners in all foreclosure proceedings.• Requires that a plaintiff in a foreclosure action affirmatively plead compliance with all the provisions

of the banking law (see above). It also creates certain affirmative defenses to a mortgage foreclosureaction.


Terms and Conditions Prohibited or Limited on Home Loans• Prohibits balloon payment.• Prohibits negative amortization.• Prohibits increasing the interest rate after default.

Proposed Legislation• Requires that mortgage bankers and brokers disclose their affiliation

with home improvement contractors, and limits the fees they cancharge for their services rendered in connection with the financing orrefinancing of home equity loans.

• Restricts flipping.• Requires bankers and brokers to disclose whether the loan will be sold

and if so, to whom it will be sold and thereafter prohibits any sale ofthe loan until 30 days after such disclosures are made.

• Requires bankers and brokers to give all borrowers a notice settingforth their right to designate a third party to receive copies of allwritten communications regarding the loan.

• Prohibits licensed lenders from accepting any money from homeimprovement contractors without fully disclosing their relationshipand getting the customer’s permission.

• Requires that all defendants in foreclosure actions be served with anotice stating clearly that the action may result in the loss of theirhome and listing certain defenses that may be available.

• Requires that a plaintiff in a foreclosure action affirmatively pleadcompliance with all the provisions of the banking law (see above). Italso creates certain affirmative defenses to a mortgage foreclosureaction.

• Provides that consumer/homeowner shall have 15 days to cancel ahome improvement contract.

• Prohibits kickbacks to a home improvement contractor for placing ahome improvement loan with a bank unless such relation is disclosedto the customer and the customer’s approval is obtained for thetransaction.

Jurisdiction

New York

Bill Number


“Home Equity FraudAct”

Status: Introduced02/25/2001 and referredto Committee on Banks.No action during 2001session. Re-referred toCommittee on Banks on01/09/2002.




Treasury securities for a first mortgage or by 7 points or more forsecondary mortgage.






indirectly into the cost of the loan.• Prohibits flipping.• Prohibits lending without due regard for repayment ability.• Prohibits refinancing unsecured debt into a home loan that the

borrower will not be able to repay.• Prohibits lending without home loan counseling by a HUD approved


• Prohibits the financing of points and fees.• Restricts lender from making payments directly to home improvement

contractors.• Prohibits default recommendations.• Prohibits kickbacks to mortgage brokers.• Prohibits charging points and fees when refinancing an existing high

cost loan with a new high cost home loan.

Jurisdiction

New York

Bill Number


Regulates the makingand foreclosure of highcost home loans andimposes variousprohibitions andlimitations.

Status: Introduced04/17/2001 and referredto Committee on Banks.No action during 2001session. Re-referred toCommittee on Banks on01/09/2002.



penalties and fees in connection with refinancing a loan held by the same lender or affiliate.

Enforcement and Civil Remedies• Provides for penalties for violations.• Provides civil remedies for victims.• Subjects holders of high cost home loans to affirmative defenses.

Other• Defines attempted evasion as it applies to bad faith.• Provides corrections for unintentional violations as it applies to good faith.• Includes severability language.• Prohibits kickbacks to a home improvement contractor for placing a home improvement loan with a

bank unless such relation is disclosed to the customer and the customer’s approval is obtained for thetransaction.

• Requires notice to mortgagors or homeowners in all foreclosure proceedings.• Requires that a plaintiff in a foreclosure action affirmatively plead compliance with all the provisions

of the banking law (see above). It also creates certain affirmative defenses to a mortgage foreclosureaction.






$20,000 or more, or lesser of 8% of the total loan amount or $1,000 forloans less than $20,000. Limits are placed on the number of pointsallowable for each type of fee.



• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits lending without home loan counseling by a counselor

approved by the North Carolina Housing Finance Agency andsubsequent certification that borrower understands the loan transactionand appropriateness of loan.

• Prohibits lending without due regard for repayment ability.• Prohibits direct or indirect financing of points, fees or other charges in

connection with making a high cost loan.• Prohibits charging borrower prepayment penalties on a loan that is to

refinance an existing loan held by same lender.• Prohibits flipping.• Restricts lender from making payments directly to home improvement

contractor.• Prohibits unfair and deceptive acts.


Terms and Conditions Prohibited and Limited on Home Loans• Prohibits prepayment fees on all loans in which principal amount

borrowed is $150,000 or less.• Prohibits flipping.• Prohibits lenders from charging a fee for a product or service where

the product or service is not actually provided.

Jurisdiction

North Carolina

Bill Number


An act to prohibitpredatory lending.

Status: Enacted07/21/99 Session Law99-0332. Effective07/01/2000.


• Prohibits SPCLI and financing of other credit insurance directly or indirectly into the cost of the loan.• Prohibits default recommendations.• Limits the allowable assessment for lender fees and charges (i.e. late fees, modification or deferral

fees, points, etc.)


Other• Required legislative study.• Defines attempted evasion as it applies to bad faith.• Provides corrections for unintentional violations as it applies to good faith.• Includes severability language.• Applies to any home loan obligation issued on or after June 13,1977.• Applies to out-of-state lenders issuing loans to residents of the state of North Carolina.


Enacted Legislation• Establishes specific mortgage broker licensing qualifications and

requirements.• Requires brokers to attend a mortgage-lending course, take continuing

education courses approved by the state and achieve experiencerequirements.

• Requires brokers and bankers to display their licenses.• Establishes heavier penalties for mortgage lending offenses.• Increases licensing filing and annual fees.• Requires licensees to post surety bonds -- $50,000 for brokers and

$150,000 for bankers, unless they have proof of a net worth of at least$250,000.

• Prohibits prepayment fees on all loans in which principal amountborrowed is $150,000 or less.

• Requires prompt payment for services rendered by appraisers.• Provides new licensing exemptions from banks, farm credit bureaus,

savings institutions and credit unions if they file a form claiming theirexemption by October 1, 2002. Jurisdiction

North Carolina

Bill Number

SB 904, 2001-2002Session

“Mortgage Lending Act”

Status: Enacted08/29/2001 Session Law2001-393. Effective July1, 2002.


CoverageExcludes:• Open-end credit plansIncludes:• Single family, owner occupant


Treasury securities.OR• Points and fees exceed 8% of the total loan amount.OR• Consumer’s monthly debt payments exceed 60% of monthly gross

income.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits prepayment penalties, except creditor can require payment of

not more than one month’s interest if prepaid within 90 days oforigination.

• Prohibits balloon payment loans.• Prohibits negative amortization.• Prohibits advance payments.• Prohibits points, fees or finance charges on portion refinanced.


Other• Requires detailed disclosure statement including APR, amount of

monthly variable maximum amount.

Jurisdiction

Ohio

Bill Number

HB 43 and HB 218,2001-2002 Session

An act to regulate highcost mortgagetransactions.

Status: Referred toHouse FinancialInstitutions Committee.


Proposed Legislation• Specifies that the state solely is to regulate the business of originating,

granting, servicing, and collecting loans and other forms of credit inOhio and the manner in which any such business is conducted. Itfurther provides that this regulation is in lieu of all other regulation ofsuch activities by any municipal corporation or other politicalsubdivision.

• Specifies that any ordinance, resolution, regulation, or other action bya municipal corporation or other political subdivision regulating,directly or indirectly, the origination, granting, servicing, or collectionof loans or other forms of credit, constitutes a conflict with the OhioRevised Code and with the uniform operation throughout the state oflending and other credit provisions. Such ordinances, resolutions,regulations, and other actions are preempted.

• Creates the Predatory Lending Study Committee to conduct a thoroughinvestigation of the impact of predatory lending practices on thecitizens and communities of Ohio. interpreting it.

Jurisdiction

Ohio

Bill Number

HB 386, 2001-2002Session

State and local loanlaws, regulationrelationship –preemption.

Status: Introduced10/02/2001. PassedHouse 10/18/01 andreferred to SenateCommittee on Financialand FinancialInstitutions. Committeeheld a hearing on HB386 on 01/29/2002,during which asubstitute, HB 386, wasoffered for consideration.


CoverageExcludes:• Same as HOEPAIncludes:• Same as HOEPA• Property located in Ohio


“Covered Loans” Interest Rate and Fee Threshold• The APR exceeds by more than 10 points the yield on comparable

Treasury securities.OR• Points and fees exceed 8% of total loan amount, or $400, whichever is

greater. The $400 figure is adjusted annually by the annual percentagechange in the Consumer Price Index.

Terms and Conditions Prohibited or Limited on “Covered Loans”• Prohibits prepayment penalties beyond fifth year; applies other

HOEPA restrictions on prepayment penalties.• Prohibits balloon payment in first five years of loan.• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits lending without due regard for repayment ability.• Restricts lender from making payments directly to home improvement

contractor.• Prohibits call provisions on loans after October 1, 2002.• Prohibits flipping within one year of making a covered loan unless the

refinancing is in borrower’s interest. Applies other aspects of newHOEPA anti-flipping provision that is effective October 1, 2002.

Additional Prohibitions on “Covered Loans” that are beyond HOEPA• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Replacing a zero interest or other low-rate loan made by a

governmental or nonprofit lender with a covered loan within the firstten years of the low-rate loan unless the borrower consents in writingto the refinancing.

Enforcement and Civil Remedies• The Ohio Superintendent of Financial Institutions can issue cease and

desist orders and can fine state-chartered institutions. In the case offederally-chartered institutions and their operating subsidiaries, theSuperintendent recommends specific sanctions to federal regulatoryauthorities for violations of the bill.

Other• Provides corrections for unintentional violations as it applies to good

faith• The consumer has the right to rescind the loan transaction in

accordance with HOEPA.

Jurisdiction

Ohio

Bill Number

HB 386

Conforms Ohio law withthe Federal HOEPA; thestate is the sole regulatorof lending in lieu of anyregulation by a politicalsubdivision.

Status: Passed House inOctober 2001 and Senatein February 2002.


• If HOEPA or any regulation adopted by the Federal Reserve Board under HOEPA is amended afterthe effective date of this bill, the Ohio Superintendent of Financial Institutions is authorized to adoptsimilar provisions by rule.

• The state solely is to regulate the business of originating, granting, servicing, and collecting loans.This statute and regulation is in lieu of all other regulation of such activities by any other politicalsubdivision in Ohio.


Proposed Ordinance• Requires mortgage broker contract to include, among other things,

broker fees expressed as both dollars and as a percent of the amount ofany prospective loan.

• Prohibits broker from commencing any service pursuant to thecontract until 5 days after the contract has been signed by both parties,and a completed copy of the contract has been given to consumer.

• Prohibits broker from making or assisting in making any falsestatements on an application for credit or in other documents.

• Prohibits broker from charging or receiving fees in excess of 2% of thetotal loan amount.

• Prohibits broker from misrepresenting material facts or making falsepromises likely to influence consumer.

• Prohibits broker from misrepresenting or concealing material factors,terms, or conditions of a transaction involving a consumer.

• Prohibits broker from accepting compensation from a lender inexchange for arranging a loan on terms less favorable to the consumerthan would otherwise be available.

• Prohibits broker from not accounting/transferring/delivering moniesobtained in connection with a loan of which the broker is not entitledto retain.

• Prohibits broker from not securing the most advantageous loan ratesand terms for the consumer.

• Prohibits broker from directly or indirectly arranging any mortgageloan with the intent or likelihood that the lender or holder willforeclose on the property.

• Prohibits broker from not considering repayment ability of borrower.• Prohibits broker from discrimination in connection with a mortgage

loan on the basis of race, sex, age, national origin, religion orhandicap.

• Prohibits broker from misrepresenting in advertising or in directcontact, the terms, conditions or charges in connection with amortgage loan.

• Prohibits broker from representing that broker is a bank.

Other• Includes preemptory and severability language.• Provides that first violation be considered a second degree

misdemeanor and subsequent violation(s) be considered a first degreemisdemeanor.

Jurisdiction

Cincinnati, Ohio

Bill Number

Ordinance 2001-3854

Governs standards formortgage brokers.

Status: Proposed onSeptember 6, 2001.Remains inactive.




Treasury securities.OR• Points and fees exceed 4% of the total loan amount (excludes certain

discount points).

“High Cost Loans” Terms and Conditions Prohibited or LimitedThe following apply to the definition of “predatory lending practices” asprohibited by those financial institutions and contractors doing businesswith the City of Cleveland:• Prohibits unfair and deceptive acts.• Prohibits financing of points and fees in excess of 4% as well as fees

for unreasonably high priced or unnecessary products into loans.• Prohibits prepayment penalties beyond the expiration of the 2nd year of

the loan, or penalties fees that are more than 2% of the loan.• Prohibits balloon payment loans.• Prohibits flipping.• Prohibits negative amortization.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits lending without due regard for repayment ability.• Restricts lender from making payments directly to home improvement

contractors.

Other Definitions and Inclusions• “Points and fees” includes mortgage broker fees.• “Predatory lender” is a lender that has, within the previous 12 month

period, either made 1 individual predatory loan OR 1% of the totalannual number of loans made by that lender was predatory loans,whichever is less.

• “Predatory lending practices” see above.

Jurisdiction

Cleveland, Ohio

Bill Number

Ordinance 1053-2000,2000 Session

Prohibits city from doingbusiness with “predatorylenders.”

Status: Re-working text;waiting to be introduced.



“High Cost Loans” Interest Rate and Fee Threshold• Interest rate exceeds by more than 9 points, or HOEPA APR defined

limitations, whichever is less.OR• Points and fees exceed 5% of the total loan amount, or 6% of the loan

amount if the loan is guaranteed by FHA or VA, or HOEPA definedlimitations, whichever is less.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits loan terms substantially unfavorable to borrower’s inability

to protect interest due to physical or mental disabilities or illiteracy.• Prohibits lender from negotiating terms which are less favorable to

borrower than could otherwise have been obtained in Dayton.• Prohibits fees in excess of 20%.• Prohibits charging borrower points, fees and other finance charges on

a loan that is to refinance an existing loan held by same lender.• Prohibits false statements, misrepresentation and procurement of

overstated appraisals.• Prohibits flipping.• Prohibits balloon payment (unless borrower agrees prior to closing).• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits mandatory arbitration clauses.• Prohibits prepayment penalties after 60 months.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits lending without due regard for repayment ability.• Restricts lender from making payments directly to home improvement

contractors.

“High Cost Loans” Other Definitions and Inclusions• “Points and fees” includes mortgage broker fees and financed credit

insurance premiums.• “Predatory lender” is lender that has made (including affiliates)

predatory loans that comprise either 5% total annual number of loansmade or assisted others in making, or 25% individual loans whicheveris less.

Enforcement and Civil Remedies• Provides for penalties for violations.• Provides civil remedies for victims.

Other• Bars City of Dayton from doing business with a “predatory lender.”

Jurisdiction

Dayton, Ohio

Bill Number

Ordinance No. 29990-01, 2001 Session

“Predatory LendingOrdinance”

Status: Signed by Mayor07/11/2001. RevisedCode of GeneralOrdinances 112.40 to112.44. EffectiveAugust 10, 2001.

AdditionalDevelopments: AFSAfiled suit to stay effectivedate. Court issuedtemporary stay pendingtrial (March 2002).





$20,000 or more, or 4% of the loan amount if the total loan is $20,000or more and guaranteed by FHA or VA, or the lesser of 5% of the totalloan amount or $800 for loans less than $20,000 (excluding certaindiscount points).


twice as large as the average earlier scheduled payments.• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits mandatory arbitration clauses.• Prohibits lending without home loan counseling by a HUD approved


• Prohibits lending without due regard for repayment ability.• Prohibits direct or indirect financing of any points and fees or other

charges payable to third parties.• Prohibits direct or indirect financing of prepayment penalties and fees


• Prohibits charging borrower points, fees and other finance charges inconnection with refinancing a high cost loan held by the same lenderor affiliate.

• Restricts lender from making payments directly to home improvementcontractor.


insurance premiums.

Terms and Conditions Prohibited and Limited on Home Loans• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits prepayment penalties or fees.• Prohibits flipping.• Prohibits default recommendations.

Jurisdiction

Oklahoma

Bill Number


An act relating toconsumer credit homeloans, limiting andprohibiting certainpractices on certainloans and limitingcertain investments bylenders.

Status: Introduced02/05/2002 and referredto Committee onBanking and Finance.


Enforcement and Civil Remedies• Provides for enforcement by Oklahoma Attorney General and Commissioner of Banks.

Other• Includes preemptory and severability language.• Prohibits lenders from making investments that are backed by loans containing prohibited acts and

practices.• Defines attempted evasion as it applies to bad faith.• Provides corrections for unintentional violations as it applies to good faith.


CoverageExcludes:• Open-end credit plans• Reverse mortgages• Loans that exceed $300,000Includes:• Single family, owner occupant


Treasury securities.OR• Points and fees exceed 5% of the total loan amount if the loan is more

than $20,000, or the lesser of 8% of the total loan amount, or $1,000for loans $20,000 or less.


twice as large as the average earlier scheduled payments.• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits prepayment penalties.• Prohibits lending without due regard for repayment ability.• Prohibits lending without home loan counseling by a HUD approved


• Prohibits direct or indirect financing points and fees in excess of 5% ofthe total loan amount if loan is more than $20,000, or the lesser of 8%of the total loan amount or $1,000 for loans $20,000 or less.



Terms and Conditions Prohibited and Limited on Home Loans• Prohibits flipping.• Prohibits default recommendations.


Jurisdiction

Oregon

Bill Number


An act to regulate highcost mortgagetransactions.



Other• Includes preemptory and severability language.• Prohibits lenders from making investments that are backed by loans containing prohibited acts and

practices.• Defines attempted evasion as it applies to bad faith.• Provides corrections for unintentional violations as it applies to good faith.




“Covered” Interest Rate and Fee Threshold• The APR exceeds by more than 8 points the yield on comparable

Treasury securities.OR• Total points and fees exceed 8% of the total loan amount or $400,

whichever is greater.

“Covered” Terms and Conditions Prohibited or Limited• Balloon payment on a subprime loan that comes due less than 120

months from origination. Does not apply when payment schedule isadjusted to accommodate borrower’s irregular income.

• Prohibits call provisions.• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits prepayment penalties beyond 5th year.• Prohibits lender from including prepayment penalties unless a loan

product is also made available without prepayment penalties.• Prohibits prepayment penalties on a covered loan that is to refinance

an existing loan held by same lender or affiliate.• Prohibits lending without cautionary notice (Statute provides explicit

language).• Prohibits lending without due regard for repayment ability.• Prohibits charging borrower points in connection with refinancing a

covered loan held by the same lender and the last refinancing waswithin one year of the current refinancing.

• Prohibits refinancing of subsidized or special guaranteed loan (viastate, local, tribal or non-profit) that has a zero or low APR (by at least2 points) within the first 10 years of the special interest rate.


• Restricts SCPLI on covered loans.• Requires lenders to report payment history (favorable and

unfavorable) of borrower to a nationally recognized consumer creditreporting agency.

• Requires lenders to verify that each mortgage broker that doesbusiness in connection with covered loans holds a license or otherauthorization to do business in Pennsylvania.


Jurisdiction

Pennsylvania

Bill Number


Includes amendmentsfrom HB1703,“Consumer EquityProtection Act”

Status: Enacted06/25/2001. Public ActNo. 55. Effectiveimmediately.


Other• Explicitly prohibits political subdivisions and municipalities from enacting and enforcing ordinances,

resolutions and regulations pertaining to financial or lending activities.• Includes preemptory language.




Treasury securities for first mortgage, or by 8 points or more for ajunior mortgages.

OR• Points and fees equal or exceed 4% of the total loan amount less the

amount of such points and fees if the loan is $16,000 or greater or$800 if the loan amount is less than $16,000.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits fraudulent or deceptive practices.• Prohibits flipping.• Prohibits balloon payment when scheduled payment is more than

twice as large as the average earlier scheduled payments.• Prohibits negative amortization.• Prohibits financing points and fees in excess of 4% of the loan amount

less the amount of such points and fees if the loan amount is $16,000or greater, or $800 if the loan amount is less than $16,000.

• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits mandatory arbitration clauses.• Prohibits prepayment penalties.• Prohibits financing of SPCLI and other credit insurance directly or

indirectly into the cost of the loan.• Prohibits lending without loan counseling by a Office of Housing and

Community Development approved counselor and subsequent noticethat borrower understands the loan transaction and appropriateness ofloan.

• Prohibits lending without due regard for repayment ability.• Restricts lender from making payments directly to home improvement

contractors.

“High Cost Loans” Other Definitions and Inclusions• “Predatory loan” is a threshold or high cost loan that was made under

circumstances that involve any of the above prohibited acts.• “Threshold loan” is a loan where the APR at any time over the life of

the loan equals or exceeds 4.5 points up to 6.5 points above the yieldon comparable Treasury securities for a first mortgage, or by 6.5points up to 8 points above comparable Treasury securities for juniormortgages.

Jurisdiction

Philadelphia, PA

Bill Number

Bill No. 000715-A, 2001Session

“Prohibition AgainstPredatory LendingOrdinance”

Status: Enacted April19, 2001, Chapter 9-2400. Effective July 19,2001.

AdditionalDevelopments: AFSAfiled suit to stay effectivedate. While Court wasconsidering AFSA’smotion, PennsylvaniaLegislature enacted SB377 which preempts billand thus, makesOrdinance null and void.


• “High cost lender” is a lender that has, within the previous 12 month period, either made 10individual predatory loans or 5% of the total annual number of loans made by that lender werepredatory loans, whichever is less. Does not include a financial institution or its affiliates that hassubmitted to the City a plan to discontinue the practice of making predatory loans.

• “Points and fees” includes mortgage broker fees and financed credit insurance premiums.• “Predatory lender” is a lender that has, within the previous 12 month period, either made 10

individual predatory loans or 5% of the total annual number of loans made by that lender werepredatory loans, whichever is less. Does not include a financial institution or its affiliates that hassubmitted to the City a plan to discontinue the practice of making predatory loans.

Enforcement and Civil Remedies• Provides civil remedies for victims.• Provides for penalties for violations.

Other• Provides corrections for unintentional violations as it applies to good faith.• Includes severability language.• Requires each City depository to certify (via affidavit) that neither it nor its affiliates is or will

become a “predatory” or “high cost” lender.• Requires each City depository to disclose to the City “predatory lending information,” including

refinanced loans in minority census tracts and related information.• Requires divestiture of public pension funds from stocks and securities of any business entity or its

affiliates that is a “predatory” or “high cost” lender. This divestiture shall be completed within 6months of notice by Office of Housing and Community Development.






“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits City from awarding contracts to “predatory” lenders or their

affiliates. City contractors must certify (via affidavit) that neither thebusiness nor its affiliates is a “predatory” lender.

Defines “predatory loan” as a high cost loan made under circumstancesthat are abusive, including one or more of the following characteristics:• Fraudulent or deceptive acts.• Excessive fees and exorbitant interest rates that are well beyond levels

appropriate or necessary to cover risk and a profitable return.• Financing excessive origination fees as well as excessively priced or

unnecessary products into high cost loans.• Prepayments penalties that force borrowers to keep an unfavorable or

unaffordable high cost loan.• Short-term balloon payment.• Flipping.• Negative amortization.• Financing of SPCLI and other credit insurance directly or indirectly

into the cost of the loan.• Lending without due regard for repayment ability.• Paying contractor loan proceeds without consent of borrower.

Other Definitions and Inclusions• “Predatory lender” is a lender that has, within the previous 24 month

period, either made 25 individual predatory loans or 5% of the totalannual number of loans made by that lender were predatory loans,whichever is less. Does not include a financial institution or itsaffiliates that has discontinued the practice of making predatory loansand has taken steps to ensure that it does not make such loans in thefuture.

Jurisdiction

Pittsburgh, PA

Bill Number

Ordinance No. 1676,2001 Session

Prohibits county fromdoing business with“predatory lenders.”

Status: Introduced April17, 2001. Null and voidfollowing PennsylvaniaLegislature’s enactmentof SB 377 whichincludes specificincludes preemptorylanguage.


CoverageExcludes:• Open-end credit plan• Reverse mortgage• Loans that exceed Fannie Mae’s conforming size limitIncludes:• Single family, owner occupant

Terms and Conditions Prohibited or Limited• Prohibits flipping.• Prohibits default recommendations.• Restricts lender from making payments directly to home improvement

contractors.• Limits points and fees to 4% of total loan amount.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits prepayment penalties on loans up to $150,000.• Imposes finance charge limits on certain loans.


insurance premiums.• Outlines “unconscionable” lending to include lending that does not

consider the borrower’s repayment ability and lending that does notprovide substantial benefit for the borrower. Provides that the Courtmay use these provisions in deeming a loan “unconscionable.”

Jurisdiction

South Carolina

Bill Number

S 994, 2001-2002Legislative Session

Amendments that requirecertain disclosures andprohibit certain acts onhome loans.

Status: Introduced02/07/02 and referred toBanking and InsuranceCommittee.






$20,000 or more, or the lesser of 8% of the total loan amount or $1000for loans less than $20,000.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits prepayment penalties and fees after 30 months or amounts in

excess of 2% of the prepaid amount.• Prohibits call provisions.• Prohibits balloon payment when scheduled payment is as large as the

average earlier scheduled payments. Does not apply when paymentschedule is adjusted to accommodate borrower’s irregular income.

• Prohibits negative amortization.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits lending without due regard for repayment ability.• Prohibits direct or indirect financing of points and fees on a loan that is

to refinance an existing loan held by same lender or affiliate.• Prohibits direct or indirect financing of prepayment fees on a loan that

is to refinance an existing loan held by same lender or affiliate.• Restricts lender from making payments directly to home improvement

contractors.

Other Definitions and Inclusions• A mortgage banker or mortgage broker who originates a loan in a

table-funded loan transaction in which the broker or banker isidentified as the original payee of the note would be considered alender for purposes of this bill.

Terms and Conditions Prohibited and Limited on Home Loans• Restricts late payment fees and charges.• Limits modification or deferral fees.• Prohibits prepayment penalties or fees for a loan in which: (1) The

loan’s principal is $150,000 or less; (2) The borrower is a naturalperson; (3) The borrower incurs the debt for personal, family, orhousehold purposes; and (4) The loan’s collateral is a first mortgage ordeed of trust on real estate where there is, or will be, a structuredesigned for occupancy of one to four families where the borrowerwill reside.

Jurisdiction

Tennessee

Bill Number

SB 1158 (CompanionHB 1445), 2001-2002Session

Imposes restrictions onhigh cost mortgages,restricts fees, points, andinterest on mortgagesand limits unfairpractices by mortgagebrokers and lenders.

Status: SB 1158introduced 02/01/2001and referred toCommittee onCommerce, Labor andAgriculture. HB 1445introduced 02/14/2001and referred toCommittee onJudiciary/Subcommitteeon Civil Procedure andPractice. Can beconsidered in 2002session.


• Prohibits SPCLI and financing of other credit insurance directly or indirectly into the cost of the loan.• Prohibits flipping.• Prohibits default recommendations.

Enforcement and Civil Remedies• Classifies violations of prohibited acts or practices as usury.

Other• Authorizes parties to a home loan to contract for APR as follows: loans $10,000 or more, parties can

contract for interest as they agree; and loans under $10,000, parties can contract for interest up to 16%per year.

• Prohibits lenders from requiring collateral in excess of that required to pay off the principal of a homeloan that is less than $300,000.


Proposed Legislation• Provides that lenders reissue credit on a title insurance policy when the

lender is refinancing a loan within 5 years of a loan it originallyissued.

• Restricts mortgage or home equity closings from being conducted atthe borrower’s residence.

• Provides powers to the commissioner of financial institutions forimplementation and enforcement of provisions.

• Provides for penalties, including fines, for violations.• Requires all third party fees be fully disclosed to the borrower on the

settlement statement. Jurisdiction

Tennessee

Bill Number

HB 3178 (CompanionSB 3143), 2001-2002Session

An Act to amend theTennessee code relativeto certain lendingpractices.

Status: Introduced01/31/02. Referred toCommerce Committee02/07/02 and assigned tosubcommittee onUtilities and Banking02/11/02.



“High Cost Loans” Interest Rate and Fee Threshold• The APR exceeds by more than 6.5 points the yield on comparable




• Prohibits advance payments.• Prohibits direct or indirect financing of points, fees or other charges on

a loan that is to refinance an existing loan held by same lender oraffiliate.

• Prohibits direct or indirect financing of points, fees or other charges inconnection with refinancing a high cost loan.

• Prohibits flipping.• Prohibits lending without due regard for repayment ability.• Prohibits financing points and fees equal to or more than 3%, or $600,

whichever is less.• Prohibits call provisions.• Prohibits modification or deferral fees.• Prohibits mandatory arbitration clauses.• Restricts lender from making payments directly to home improvement

contractors.• Prohibits negative amortization.• Requires detailed disclosures in advance.• Prohibits lending without home loan counseling by a HUD approved



Terms and Conditions Prohibited and Limited on Home Loans• Prohibits prepayment penalties beyond any initial interest rate term of

loan.• Prohibits prepayment penalties and fees on a loan that is to refinance

an existing loan held by same lender or affiliate.• Prohibits default recommendations.• Prohibits lenders from charging a fee for a product or service where

the product or service is not actually provided, or misrepresentingamounts charged by third parties.

Jurisdiction

Texas

Bill Number


An act relating to certainpractices in connectionwith a home loan.

Status: Bill died uponadjournment oflegislature. Cannot becarried over to nextsession (2003).


• Prohibits unfair and deceptive acts.• Prohibits lenders from influencing appraisers.• Prohibits SPCLI and financing of other credit insurance directly or indirectly into the cost of the loan.• Prohibits lenders from leaving open blanks in loan contracts to be filled in after the contract is signed.• Requires that if loan transaction discussions are conducted primarily in a language other than English,


Other• Requires lenders currently exempt from reporting under HMDA to report to Texas Finance

Commission, the same information outlined in HMDA.• Requires lenders to report to the Texas Finance Commission the average APR for mortgage and




Proposed Legislation• HB 3238 prohibits unfair and deceptive acts by a lender, appraiser or

real estate agent in connection with a home loan.• HB 3239 invalidates a loan document that has blanks to be filled in

after borrower’s signature.• HB 3240 prohibits lenders from charging a fee for a product or service

where the product or service is not actually provided, ormisrepresenting amounts charged by third parties.

• HB 3241 prohibits SPCLI financing of other credit insurance directlyor indirectly into the cost of the loan. Also prohibits advancecollection of prepayment penalties and fees (financed or otherwise).

Jurisdiction

Texas

Bill Number

HB 3238, 3239, 3240,3241, 2001 Session

Prohibits certain actsand practices inconnection with a homeloan.

Status: Bills died uponadjournment oflegislature. Cannot becarried over to nextsession (2003).


CoverageExcludes:• Open-end credit plans• Reverse mortgages• Loans that are more than one half the maximum amount of Fannie

Mae’s conforming size limitIncludes:• Single family, owner occupant



is greater.

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits balloon payment on loans that come due less than 60 months


• Prohibits advance payments.• Prohibits lending without due regard for repayment ability.• Prohibits prepayment penalties.

Terms and Conditions Prohibited and Limited on Home Loans• Prohibits refinancing of subsidized or special guaranteed loan (via

state, local, tribal or non-profit) that has a low APR (by at least 2points) within the first 7 years of the special interest rate unless thenew loan has a lower interest rate and requires payment of a lesseramount of points and fees than the original special loan or is arestructure to avoid foreclosure.

• Requires detailed disclosures for loans with annual APR of 12% ormore.

• Restricts SPCLI and financing of other credit insurance (bill includessample disclosure notice).

Enforcement and Civil Remedies• Sets fines for disclosure violations.

Jurisdiction

Texas

Bill Number


Prohibits certain actsand practices inconnection with a homeloan.

Status: Enacted.06/11/01 Chapter No.343. Effective 09/01/01.


CoverageExcludes:• Open-end credit plans• Reverse mortgages• Loans that are more than one half the maximum amount of Fannie

Mae’s conforming size limitIncludes:• Single family, owner occupant



“High Cost Loans” Terms and Conditions Prohibited or LimitedLenders are prohibited from making high cost loans unless the followingdisclosures are provided at least 3 days prior to closing and are clearlywritten and understandable:• Disclose if loan terms contain prepayment penalties or fees.• Disclose the amount of the borrower’s monthly payments.• Disclose if APR is variable and how a variable APR will affect future

payments.• Disclose loan fees paid by borrower.• Disclose information regarding payments made to third parties from

loan proceeds.• Disclose information about the value of loan counseling and include

list of mortgage counseling agencies in area approved by HUD.


Terms and Conditions Prohibited and Limited on Home Loans• Requires that if before closing, the total amount of fees disclosed to

borrower exceeds the lesser of 5% or $400 of the loan amount, lendermust provide borrower notice of revised amount at least 3 days prior toclosing.

• Provides that borrower can waive fee modification disclosurerequirements if loan is to meet a personal financial emergency.

Enforcement and Civil Remedies• Sets fines for disclosure violations.

Jurisdiction

Texas

Bill Number


An act relating tocounseling in connectionwith high cost loans.

Status: Bill died uponadjournment oflegislature. Cannot becarried over to nextsession (2003).


CoverageExcludes:• Loans less than 2 years• Loans that exceed $75,000Includes:• Single family, owner occupant

Proposed Legislation

• Prohibits contractors and real estate brokers from offering financialincentives to a borrower to steer the borrower to use a specific lenderfor a residential mortgage loan.

• Prohibits mortgage loan brokers from brokering or arranging for loanswhich would result in total indebtedness secured by a dwelling,excluding federally insured loans, exceeding the fair market value ofthe dwelling.

• Prohibits the financing of mortgage life or disability insurance as partof a residential mortgage loan and requires a separate disclosure to theborrower regarding mortgage life and disability insurance.

• Prohibits prepayment penalties, unless fee is less than sum of 6 monthsof interest on the outstanding balance, or the interest rate of the loan isdiscounted below what the lender’s published rate was at the closing,or borrower agrees to in prepayment penalties in advance via signeddisclosure.

• Prohibits lender or broker from charging or accepting a fee in excessof 7% of the original loan principal amount, unless borrower provideslender or broker a written document certifying that the borrower hascompleted a home buyer’s education class given by a person that is notan affiliate of either the mortgage lender or the broker.

Jurisdiction

Utah

Bill Number


An act relating to certainacts and practices inconnection with a homeloan by mortgagelenders and brokers

Status: Prefiled12/17/2001.


Chapter No. 510Enacted Legislation

• Prohibits “flipping” which is defined as refinancing a loanwithin 12 months of origination that does not result in a benefitto the borrower.

• Excludes mortgage loans in which the borrower has contactedthe lender, and the lender has not communicated with theborrower except through a general medium such as television,radio or print media.

Chapter No. 511Enacted Legislation

• Prohibits default recommendations.• Increases the fine for violating the provisions on predatory

lending from $1,000 to $2,500.

Note: Existing VA statute prohibits the following predatorypractices by mortgage brokers and lenders:• Leaving open blanks in loan contracts to be filled in after the

contract is signed.• Taking an interest in collateral other than the real estate or

residential property securing the mortgage loan.• Obtaining any exclusive dealing or exclusive agency agreement

from borrower.• Delaying closing of any mortgage loan for the purpose of

increasing interest, costs, fees or other charges payable to theborrower.

• Call provisions.• Failure to provide borrower with disclosure documentation prior

to closing.

Jurisdiction

Virginia

Bill Number


Prohibits flipping.

Status: Enacted03/22/01 Chapter No.510. Effective July 1,2001.

And


Relating to prohibitedactivities by mortgagelenders and brokers

Status: Enacted03/22/01 Chapter No.511. Effective July 1,2001.


CoverageExcludes:• Open-end credit plans• Reverse mortgages• Loans that exceed $150,000Includes:• Single family, owner occupant

“High Cost Loans” Interest Rate and Fee Threshold• The APR exceeds by more than 4.5 points but less than 6.5 points the

yield on comparable Treasury securities for first mortgage, or by 6.5points but less than 8 points the yield on comparable Treasurysecurities for junior mortgages.



“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits fraudulent or deceptive acts.• Prohibits flipping.• Prohibits refinancing of subsidized or special guaranteed loan (via

state, local, tribal or non-profit) that has a below-market APR or hasnon-standard payment terms beneficial to borrower, where refinancingwill cause borrower to lose one or more of the benefits.

• Prohibits balloon payment when scheduled payment is more thantwice as large as the average earlier scheduled payments.

• Prohibits negative amortization.• Prohibits financing points and fees in excess of 4% of the loan amount

less the amount of such points and fees if the loan amount is $16,000or greater, or $800 if the loan amount is less than $16,000.

• Prohibits increased interest rate after default.• Prohibits advance payments.• Prohibits modification or deferral fees.• Prohibits mandatory arbitration clauses.• Prohibits prepayment penalties.• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits lending without due regard for repayment ability.

Other Definitions and Inclusions• “Predatory lender” is a lender that has, within any 12 month period,

either made 10 individual predatory loans or 5% of the total annualnumber of loans made by that lender were predatory loans, whicheveris less. Does not include a financial institution or its affiliates that hassubmitted to the State a plan to discontinue the practice of makingpredatory loans.

Jurisdiction

Vermont

Bill Number

SB 230, 2001-2002Session

An act relating topredatory lending.

Status: Introduced01/10/2002 and referredto Committee onFinance.



Other• Defines attempted evasion as it applies to bad faith.• Provides corrections for unintentional violations as it applies to good faith.


CoverageExcludes:• Reverse mortgagesIncludes:• Single family, owner occupant• Open-end credit plans




$30,000 or more, or the lesser of $900 or 6% of the total loan amountif the loan is less than $30,000 (excludes up to 2 bona fide discountpoints)

“High Cost Loans” Terms and Conditions Prohibited or Limited• Prohibits financing, directly or indirectly, any points and fees.• Prohibits prepayment penalties of more than 2% in 1st year, 1% in 2nd

year, or any prepayment penalties beyond 2nd year.• Prohibits balloon payment when scheduled payment is more than


• Prohibits negative amortization.• Prohibits increased interest rate after default.• Prohibits advance payments of more than two periodic payments.• Prohibits mandatory arbitration clauses.• Prohibits lending without home loan counseling by a HUD, State or

regulatory agency approved counselor and subsequent notice thatborrower understands the loan transaction and appropriateness of loan.



• Prohibits modification or deferral fees.



Terms and Conditions Prohibited and Limited on Home Loans• Prohibits SPCLI and financing of other credit insurance directly or

indirectly into the cost of the loan.• Prohibits late fees/charges in excess of 4% the amount past due; or late

charges for any payment which is less than 15 days last due; or morethan one assessment of late fees to any single payment; or late chargeswithout notice to the borrower that a late charge has been assessed.

Jurisdiction

Washington

Bill Number

S-3774.1, 2002 RegularSession

Home Loan ProtectionAct.

Status: Introduced01/31/02 and referred toCommittee on Labor,Commerce and FinancialInstitutions.


• Prohibits call provisions.• Prohibits fees for a payoff quote and requires lenders to provide payoff amount within 7 days of

receipt of request.

Enforcement and Civil Remedies• Provides civil remedies for victims.• Provides for penalties for violations.• Provides that the intentional violation of the Act renders the home loan agreement null and void

whereby the creditor has no right to collect, receive or retain any principal, interest or other chargesand the borrower may recover any payments made under the agreement.

• Requires creditors to abide by state judicial foreclosure procedures and provides certain affirmativedefenses to a mortgage foreclosure action. Also includes borrower’s rights to cure in the event ofdefault on a high cost loan.


• Provides that the remedies provided in the Act apply to the creditor, any director, officer, employee orcontrolling stockholder of or agent for a creditor who personally makes or participated in the makingor approving of a high cost loan.

Other• Provides corrections for unintentional violations as it applies to good faith.• Includes severability language.


AB Assembly bill

AFSA American Financial Services Association

APR annual percentage rate

CFR Code of Federal Regulations

ECOA Equal Credit Opportunity Act

FDCPA Fair Debt Collection Practices Act

FHA Federal Housing Administration

FHLMC Federal Home Loan Mortgage Corporation (Freddie Mac)

FNMA Federal National Mortgage Association (Fannie Mae)

FTC Federal Trade Commission

GFE good faith estimate

HB House bill

HMDA Home Mortgage Disclosure Act

HOEPA Home Ownership and Equity Protection Act

HR House resolution

HUD Department of Housing and Development

MOB monthly outstanding balance

RESPA Real Estate Settlement Procedures Act

SB Senate bill

SPCLI single premium credit life insurance

TILA Truth in Lending Act

USC United States Code

VA Department of Veterans Affairs

YSP yield spread premium

Glossary of Terms


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NCRC Model Anti-Predatory Lending LegislationFor use and reference at the federal, state and local level.

Section 1. Title.

This Chapter shall be known as the Homeowner Protections from Predatory Lending Act of2002.

Section 2. Legislative findings.

The Legislature finds and declares that unscrupulous mortgage lenders often engage in“predatory lending,” practices in which lenders make unsuitable loans designed to exploitvulnerable unsophisticated borrowers. These “predatory loans” are a subset of sub-primelending and loans and have one or more of the following features:

(a) Charges more in interest and fees than is required to cover the added risk of lending toborrowers with credit imperfections;

(b) Contains abusive terms and conditions that trap borrowers and lead to increasedindebtedness;

(c) Does not take into account that borrowers ability to repay the loan; or

(d) Violates fair lending laws by targeting women, senior citizens, minorities andcommunities of color.

Section 3. Definitions

(1) “Affiliate” means any company that controls, is controlled by, or is under common controlwith another company, pursuant to the federal “Bank Holding Company Act of 1956” (12U.S.C. §1841 et seq.).

(2) “Annual percentage rate” means the annual percentage rate for a loan calculated pursuant tothe federal “Truth in Lending Act” (15 U.S.C. §1601 et seq.), and the regulationspromulgated by the Federal Reserve Board.

(3) “Bona fide loan discount points” means loan discount points knowingly paid by a borrowerfor the purpose of reducing, and which result in a reduction of, the interest rate or time-price differential applicable to the loan, provided the amount of the interest rate reductionpurchased by the discount points is reasonably consistent with established industrypractices for mortgage market transactions.


(4) “Borrower” means any natural person or persons obligated to repay a loan, includingwithout limitation, a co-borrower, cosigner, or guarantor.

(5) “Credit insurance” means any credit life, credit disability, credit unemployment, accident,health, or loss-of-income insurance or any other line or subline of insurance which maybecome accepted as credit insurance by the insurance and lending industries or any debtcancellation or suspension agreement or contract (whether or not the debt cancellation orsuspension agreement or contract coverage is insurance under applicable law) or anysimilar product.

(6) “Creditor” means a person who extends consumer credit that is subject to a finance chargeor that is payable by written agreement in more than four installments and to whom theobligation is payable.

(7) “High cost home loan” means any loan or extension of credit, including an open-end line ofcredit but excluding a reverse mortgage transaction, as defined in 12 C.F.R. §226.33, asfrom time to time amended:

(a) The principal amount of the loan does not exceed the lesser of the conforming loan sizelimit for a single-family dwelling as established from time to time by the Federal NationalMortgage Association, or $300,000;

(b) The borrower is a natural person;

(c) The debt is incurred by the borrower primarily for personal, family, or householdpurposes;

(d) The loan is secured by a security interest or mortgage on real estate upon which there iserected or to be erected a one-to-four family dwelling; and

(e) The terms of the loan equal or exceed one or more of the “thresholds,” as that term isdefined in this Act.

(8) “Home loan” means a loan or agreement to extend credit made to a natural person, whichloan is secured by a deed to secure debt, security deed, mortgage, security instrument, deedof trust, or other document representing a security interest or lien upon any interest in one-to-four family residential property or a manufactured home located in (specify state, county,city, etc.), regardless of where made, including the renewal or refinancing of any such loan.Without limiting the generality of the foregoing, the term specifically includes a homeequity line of credit, a commercial or small business loan secured by a residential propertyor manufactured home, or other similar agreement.

(9) “Junior mortgage” means a home loan secured by a deed of trust or mortgage on realproperty if the deed of trust or mortgage is junior in priority to another deed of trust ormortgage on the real property.


(10) “Lender” means any person who makes a home loan or acts as a mortgage broker withrespect to a home loan.

(11) “Loan consummation” means the time that a consumer becomes contractually obligated ona credit transaction.

(12) “Mortgage broker” means any person who functions as intermediary for a fee between theborrower and the creditor in the making of a home loan.

(13) “Originate” means to arrange, negotiate, or make a consumer loan.

(14) “Prepayment penalty” means any charge or penalty for paying all or part of the principalbefore the date on which the principal is due and includes computing a refund of unearnedinterest by a method that is less favorable to the borrower than the actuarial method, asdefined by Section 933(d) of the Housing and Community Development Act of 1992, 15U.S.C. §1615(d), as from time to time amended.

(15) “Points and fees” means:

(a) All items required to be disclosed under 12 C.F.R. §§226.4 14 (a) and 226.4 (b), asamended, except interest or the time-price differential;

(b) All charges for items listed under 12 C.F.R. §226.4 (c) (7), as amended, if the creditorreceives direct or indirect compensation in connection with the charge or the charge ispaid to an affiliate of the creditor, or third party or parties;

(c) All compensation paid directly or indirectly to a mortgage broker, including a broker thatoriginates a home loan in its own name through an advance of moneys and subsequentlyassigns the home loan to the person advancing the moneys;

(d) The cost of all premiums financed by the creditor, directly or indirectly, for any credit life,credit disability, credit unemployment, credit property, or other credit life or healthinsurance, or any payments financed by the creditor directly or indirectly for any debtcancellation or suspension agreement or contract; except that insurance premiumscalculated and paid on a monthly basis shall not be considered financed by the creditor;

(e) The maximum prepayment fees or penalties that may be charged or collected under theterms of the loan documents;

(f) All prepayment fees or penalties that are charged to the borrower if the loan refinances aprevious loan made by the same creditor or an affiliate of the creditor;

(g) For open-ended loans, the points and fees are calculated by adding the total fees chargedat closing plus the maximum additional fees that can be charged pursuant to the loandocuments during the term of the loan.

(h) The term “points and fees” does not include any of the following:


i. Taxes, filing fees, recording charges, and other charges and fees paid or to be paid topublic officials for determining the existence of or for perfecting, releasing, orsatisfying a security interest;

ii. Charges paid to a person other than the creditor, an affiliate of the creditor, amortgage broker, or an affiliate of a mortgage broker, as follows: fees for floodcertification; fees for pest infestation and flood determinations; appraisal fees, fees forinspections performed prior to loan closing; credit report fees; survey fees; attorneyfees if the borrower has the right to select the attorney from an approved list orotherwise; notary fees; escrow fees if not otherwise included under paragraph (a) ofthis subsection; title insurance premiums; or fire insurance or flood insurancepremiums if the conditions in section 226.4 (d) (2) of Title 12 of the Code of FederalRegulations are met.

(16) “Rate” means the interest rate charged on the home loan, based on an annual simple interestyield.

(17) “Threshold” means any one of the following:

(a) The annual percentage rate of the loan equals or exceeds:

i. By more than 4 percentage points the yield on Treasury securities having comparableperiods of maturity on the 15th day of the month immediately preceding the month inwhich the application for the extension of credit is received by the creditor, if thehome loan is a first mortgage; or

ii. By more than 5 percentage the yield on Treasury securities having comparableperiods of maturity on the 15th day of the month immediately preceding the month inwhich the application for the extension of credit is received by the creditor, if thehome loan is a junior mortgage.

(b) The total points and fees equals or exceeds 3 percent of the total loan amount or $400,whichever amount is greater; provided, the following discount points shall be excludedfrom the calculation of the total points and fees payable by the borrower:

i. Up to and including two bona fide loan discount points payable by the borrower inconnection with the loan transaction, but only if the interest rate from which theloan’s interest rate will be discounted does not exceed by more than one percentagepoint (1%) the required net yield for a 90-day standard mandatory deliverycommitment for a reasonably comparable loan from either the Federal NationalMortgage Association or the Federal Home Loan Mortgage Corporation, whichever isgreater;

ii. Up to and including one bona fide loan discount point payable by the borrower inconnection with the loan transaction, but only if the interest rate from which theloan’s interest rate will be discounted does not exceed by more than two percentagepoints (2%) the required net yield for a 90-day standard mandatory delivery


commitment for a reasonably comparable loan from either the Federal NationalMortgage Association or the Federal Home Loan Mortgage Corporation, whichever isgreater.

If the terms of the home loan provide for an initial or introductory period during which theannual percentage rate is lower than that which will apply after the end of such initial orintroductory period, then the annual percentage rate to be considered for purposes of thisdefinition is the rate which applies after the initial or introductory period. If the terms of thehome loan provide for an annual percentage rate that varies in accordance with an indexplus a margin, then the annual percentage rate to be considered for purposes of thisdefinition is the rate that is in effect on the date of loan consummation. In the case of ahome loan with a regular interest rate that varies in accordance with an index plus a margin,but with an initial or introductory interest rate established in some other manner, the annualpercentage rate to be considered is the rate that would have been in effect on the date ofloan consummation were the regular rate determined by the index plus the margin to apply,that is, the fully-indexed rate on the date of loan consummation

(18) “Total loan amount” means the principal of the loan minus those points and fees as definedin subsection (15) of this section that are included in the principal amount of the loan. Foropen-ended loans, the total loan amount shall be calculated using the total line of creditallowed under the home loan.

Section 4. Limitations on home loans.

A home loans shall be subject to the following limitations:

(1) No financing of credit insurance. No creditor making a home loan may finance, directlyor indirectly, the premiums for any credit life, credit disability, credit property, or creditunemployment insurance, or any other life or health insurance premiums, or any paymentsfor any debt cancellation or suspension agreement or contracts. Insurance premiums thatare not included in the home loan principal and that are calculated and paid on a monthlybasis shall not be considered to have been financed by the creditor for purposes of thissubsection.

(2) No flipping. No creditor shall knowingly or intentionally engage in the unfair act orpractice of flipping a consumer home loan. For the purposes of this section, “flipping” isthe making of a consumer home loan to a borrower which refinances an existing consumerhome loan when the new loan does not have a tangible benefit to the borrower consideringall of the circumstances, including the terms of both the new and refinanced loans, the costof the new loan, and the borrower’s circumstances. Home loan refinancings are presumedto be flippings if the primary tangible benefit to the borrower is an interest rate lower thanthe interest rate on debts satisfied or refinanced in connection with the home loan, and itwill take more than four (4) years for the borrower to recoup the costs of the points and feesand other closing costs through savings resulting from the lower interest rate. Theprovisions of this subsection shall apply regardless of whether the interest rate, points, feesand charges paid or payable by the borrower in connection with the refinancing exceedthose thresholds as defined in subsection (17) of section 3 of this Act.


(3) No default recommendations. No creditor shall recommend or encourage default on anexisting loan or other debt prior to and in connection with the closing or planned closing ofa consumer home loan that refinances all or any portion of that existing loan or debt.

(4) No excessive late fees. A creditor shall not charge a late payment fee except according tothe following rules:

(a) The late payment fee may not be in excess of four percent (4%) of the amount of thepayment past due.

(b) The late payment fee may be assessed only for a payment past due for fifteen (15) days ormore.

(c) The late payment fee may not be charged more than one (1) time with respect to a singlelate payment. If a late payment charge is deducted from a payment made on the loan, andthe deduction causes a subsequent default on a subsequent payment, no late paymentcharge may be imposed for the default. If a late payment charge has been imposed one (1)time with respect to a particular late payment, a late payment fee may not be imposed withrespect to any future payment that would have been timely and sufficient, but for theprevious default.

(d) A late payment fee may not be charged unless the creditor notifies the borrower withinforty-five (45) days following the date the payment was due that a late payment chargehas been imposed for a particular late payment. No late payment charge may be collectedfrom any borrower if the borrower informs the creditor that nonpayment of an installmentis in dispute and presents proof of payment within forty-five (45) days after receipt of thecreditor’s notice of the late charge.

(e) A creditor shall treat each payment as posted on the same date as it was received by thecreditor, servicer, or creditor’s agent, or at the address provided to the borrower by thecreditor, servicer, or the creditor’s agent for making payments.

(5) No refinancing of special mortgages. No creditor may make a home loan if the new loanrefinances an existing home loan that is a special mortgage originated, subsidized, orguaranteed by or through a state, tribal, or local government, or nonprofit organization, thateither bears nonstandard payment terms beneficial to the borrower, such as payments thatvary with income, are limited to a percentage of income, or where no payments are requiredunder specified conditions, and where, as a result of the refinancing, the borrower will loseone or more of the benefits of the mortgage.

(6) No call provisions. A home loan may not contain a provision that permits the creditor, inits sole discretion, to accelerate the indebtedness. This subsection does not prohibitacceleration of the loan in good faith due to the borrower’s failure to abide by the materialterms of the loan.


(7) No fee for balance or payoff. A creditor may not charge a fee for informing ortransmitting to a person the balance due to pay off a home loan or to provide a release uponprepayment. A creditor must provide payoff balance not later than seven (7) business daysafter the request is received by the creditor.

(8) No fee for product where product not provided. A creditor shall not charge a fee for aproduct or service where the product or service is not actually provided, or misrepresent theamount charged by or paid to a third party for a product or service.

(9) No above market charges for services. No third party shall charge or receive anyunreasonable compensation for loan-related goods, products, and services. For the purposeof this section, “unreasonable compensation” is a price for loan-related goods, services, andproducts that is 50 percent higher than the average price in a metropolitan area or the non-metropolitan areas of a state. The average price can be determined by obtaining quotes forservices from three or more third parties. Loan-related goods, products and services includefees for tax payment services, fees for flood certification, fees for pestinfestationdeterminations, mortgage brokers’ fees, appraisal fees, inspection fees, environmentalassessment fees, fees for credit report services, assessments, costs of upkeep, surveys,attorneys’ fees, notary fees, escrow charges and insurance premiums, including, forexample, fire, title, life, accident and health, disability, unemployment, flood and mortgageinsurance.

(10) No false statements or representations. A creditor, appraiser, or real estate agent shallnot make or cause to be made, directly or indirectly, any false, deceptive, or misleadingstatement or representation in connection with a home loan including, without limitation, afalse, deceptive, or misleading statement or representation regarding the borrower’s abilityto qualify for any mortgage product, or regarding the value of the dwelling.

A statement or representation is deceptive or misleading if it has the capacity to deceive ormislead a borrower or potential borrower. The commissioner shall consider the followingfactors in deciding whether a statement or representation is deceptive or misleading:

(a) The overall impression that the statement or representation reasonably creates.

(b) The particular type of audience to which the statement is directed.

(c) Whether it may be reasonably comprehended by the segment of the public to which thestatement is directed.

(11) No influencing appraisers. A creditor shall not directly or indirectly compensate, coerce,or intimidate an appraiser for the purpose of influencing the independent judgment of theappraiser with respect to the value of real estate covered by a home loan or is being offeredas security according to an application for a home loan.

(12) No blanks in loan documents. A home loan document in which blanks are left to be filledin after the contract is signed by the borrower is not enforceable under the law.


(13) Required language accommodation. If the discussions between the creditor and theborrower on a home loan are conducted primarily in a language other than English, thecreditor shall, before closing, provide an additional copy of all information required to bedisclosed to the borrower under the federal Truth in Lending Act, translated into thelanguage in which the discussions were conducted, or make available an objective thirdparty interpreter who can explain the loan transaction and translate the loan documents anddisclosures into the language in which the discussions were conducted.

(14) Required disclosure of yield spread premiums. In the making of a home loan, theamount of yield spread premium and other compensation paid to mortgage brokers shall bedisclosed to the borrower no later than 3 days prior to closing the home loan.

Section 5. Limitations on high cost home loans.

A high cost home loans shall be subject to the following limitations:

(1) No financing of points and fees. No creditor making a high cost home loan shall directlyor indirectly finance:

(a) Any prepayment fees or penalties payable by the borrower in a refinancing transaction ifthe creditor or an affiliate of the creditor is the noteholder of the note being refinanced;

(b) Any points and fees; or

(c) Any other charges payable to third parties.

(2) No benefit from refinancing existing high cost home loan with new high cost homeloan. A creditor may not charge a borrower points, fees, or other charges in connectionwith a high-cost home loan if the proceeds of the high cost home loan are used to refinancean existing high-cost home loan held by the same creditor or an affiliate of the creditor.

(3) Limit on prepayment penalties.

i. A high cost loan shall not include a prepayment fee or penalty after the first 24months after the date of consummation of the loan.

ii. A covered loan may include a prepayment fee or penalty up to the first 24 monthsafter the date of consummation of the loan if:

iii. The person who originates the covered loan has also offered the consumer a choice ofanother product without a prepayment fee or penalty.

iv. The person who originates the covered loan has disclosed in writing to the consumerat least three business days prior to loan consummation the terms of the prepaymentfee or penalty to the consumer for accepting a covered loan with the prepayment


penalty and the rates, points, and fees that would be available to the consumer foraccepting a covered loan without a prepayment penalty.

v. The person who originates the covered loan has limited the amount of the prepaymentfee or penalty to an amount not to exceed the payment of six months’ advanceinterest, at the contract rate of interest then in effect, on the amount prepaid in any 12-month period in excess of 20 percent of the original principal amount.

vi. A covered loan will not impose the prepayment fee or penalty if the covered loan isaccelerated as a result of default.

vii. The person who originates the covered loan will not finance a prepayment penaltythrough a new loan that is originated by the same person.

(4) No balloon payment. No high cost home loan may contain a scheduled payment that ismore than twice as large as the average of earlier scheduled payments. For a paymentschedule that is adjusted to account for the seasonal or irregular income of the consumer,the total installments in any year shall not exceed the amount of one year’s worth ofpayments on the loan. This prohibition does not apply to a bridge loan. For purposes ofthis paragraph, ‘‘bridge loan’’ means a loan with a maturity of less than 18 months thatonly requires payments of interest until the time when the entire unpaid balance is due andpayable.

(5) No steering. No creditor making a high cost home loan may steer a borrower into a loanwith higher costs than the lowest-cost category of loans for which the borrower couldqualify with that creditor or any of its affiliates. No mortgage broker arranging a high costhome loan may steer a borrower into a loan with higher costs than the lowest-cost array ofloans available to that borrower from the creditors with whom the mortgage brokerregularly does business.

(6) No negative amortization. No high cost home loan may contain a payment schedule withregular periodic payments that cause the principal balance to increase at any time over thecourse of the loan because the regular periodic payments do not cover the full amount ofinterest due.

(7) No advance payments. No high cost home loan may include terms under which more thantwo periodic payments required under the loan are consolidated and paid in advance fromthe loan proceeds provided to the borrower.

(8) No increased interest rate upon default. Except with regard to interest rate changes in avariable-rate loan in which the increase is otherwise consistent with the provisions of theloan documents and in which the event of default or the acceleration of the indebtednessdoes not trigger the change in the interest rate, no high cost home loan may contain aprovision that increases the interest rate after default.


(9) No modification or deferral fees. A creditor may not charge a borrower any fees or othercharges to modify, renew, extend, or amend a high cost home loan or to defer any paymentdue under the terms of a high-cost home loan.

(10) No mandatory arbitration clause. No high cost loan may be subject to a mandatoryarbitration clause that limits in any way the right of the borrower to seek relief through thejudicial process. Non-binding arbitration and mediation would be acceptable forms ofattempted dispute or conflict resolution.

(11) No lending without home ownership counseling. A creditor may not make a high costhome loan without first receiving certification from a counselor approved by the UnitedStates Department of Housing and Urban Development or the creditor’s regulatory agencyof jurisdiction that the borrower has received counseling on the advisability of the loantransaction and the appropriate loan for the borrower.

(12) No lending without due regard to repayment ability.

(a) A creditor may not make a high cost home loan unless the creditor reasonably believes atthe time the loan is consummated, the person reasonably believes the consumer, orconsumers, when considered collectively in the case of multiple consumers, will be able tomake the scheduled payments to repay the obligation based upon a consideration of theircurrent and expected income, current obligations, employment status, and other financialresources, other than the consumer’s equity in the dwelling that secures repayment of theloan. In the case of a covered loan that is structured to increase to a specific designatedrate, stated as a number or formula, at a specific predetermined date not exceeding 37months from the date of application, this evaluation shall be based upon the fully indexedrate of the loan calculated at the time of application. In the case of multiple consumers, acreditor shall not include or add a borrower to the high cost loan, unless the individual oradded borrower separately confirms in writing to the creditor that the borrower expectsand commits to substantially contribute to payments.

The consumer shall be presumed to be able to make the scheduled payments to repay theobligation if, at the time the loan is consummated, the consumer’s total monthly debts,including amounts owed under the loan, do not exceed 50 percent of the consumer’smonthly gross income, as verified by the credit application, the consumer’s financialstatement, a credit report, financial information provided to the person originating the loanby or on behalf of the consumer, or any other reasonable means.

(b) No presumption of inability to make the scheduled payments to repay the obligation shallarise solely from the fact that at the time the loan is consummated, the consumer’s totalmonthly debts, including amounts owed under the loan, exceed 50 percent of theconsumer’s monthly gross income.

(c) In the case of a stated income loan, the reasonable belief requirement in paragraph (a)shall apply, however, for stated income loans that belief may be based on the incomestated by the consumer, and other information in the possession of the person originatingthe loan after the solicitation of all information that the person customarily solicits in


connection with loans of this type. A person shall not knowingly or willfully originate acovered loan as a stated income loan with the intent, or effect, of evading the provisions ofthis subdivision.

(13) No attempted evasion. A creditor who originates a high cost loan shall not avoid, orattempt to avoid, the application of this division by doing the following:

(a) Dividing any loan transaction into separate parts for the purpose of evading the provisionsof this Act.

(b) Any other such acts or practices with the intent of evading the provisions of this Act.

(14) Restrictions on home-improvement contracts. A creditor may not pay a contractor undera home-improvement contract from the proceeds of a high cost home loan unless:

(a) The creditor is presented with a completion contract dated and signed by all parties to thehome-improvement contract showing that the home improvements have been completed;and

(b) The instrument is 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 withterms established in a written agreement signed by the borrower, the creditor, and thecontractor prior to the disbursement.

(15) Required notice. A creditor or broker shall not sell, transfer or otherwise assign a high costhome loan without furnishing the following statement to the purchaser or assignee:

“NOTICE: THIS IS A HOME LOAN SUBJECT TO SPECIAL RULES ANDCONDITIONS AS REQUIRED BY LAW. PURCHASERS OR ASSIGNEES OF THISLOAN SHALL BE LIABLE FOR ALL CLAIMS AND DEFENSES WITH RESPECT TOTHE LOAN THAT THE BORROWER COULD ASSERT AGAINST THE CREDITOROR BROKER OF THE LOAN.”

(16) Required reporting of payments. Any lender who makes a high cost home loan shallreport both the favorable and unfavorable payment history of the borrower to a nationallyrecognized consumer credit reporting agency at least annually during such period as thelender holds or services the loan.

Section 6. Right to cure.

(1) Right to reinstate. If a creditor asserts that grounds for acceleration exist and requires thepayment in full of all sums secured by the security instrument, the borrower or anyoneauthorized to act on the borrower’s behalf shall have the right at any time, up to the timetitle is transferred by means of foreclosure, judicial proceeding and sale, or otherwise, tocure the default and reinstate the high cost home loan by tendering the amount orperformance as specified in this section. Cure of default as provided in this section shallreinstate the borrower to the same position as if the default had not occurred and shall


nullify, as of the date of the cure, any acceleration of any obligation under the securityinstrument or note arising from the default.

(2) Grounds for reinstatement. Before any action filed to foreclose upon the property orother action is taken to seize or transfer ownership of the property, a notice of the right tocure the default shall be delivered to the borrower informing the borrower of the following:

(a) The nature of default claimed on the high-cost home loan, and of the borrower’s right tocure the default by paying the sum of money required to cure the default; except that acreditor or servicer shall not refuse to accept any partial payment made or tendered inresponse to such notice. If the amount necessary to cure the default will change during thetwenty-day period after the effective date of the notice due to the application of a dailyinterest rate or the addition of late fees, as allowed by this Act, the notice shall givesufficient information to enable the borrower to calculate the amount at any point duringthe twenty-day period.

(b) The date by which the borrower must cure the default to avoid acceleration and initiationof foreclosure, or other action to seize the property, which date shall not be less thantwenty days after the date the notice is effective, and the name, address, and telephonenumber of a person to whom the payment or tender shall be made;

(c) That if the borrower does not cure the default by the date specified, the creditor may takesteps to terminate the borrower’s ownership in the property by requiring payment in fullof the high-cost home loan and commencing a foreclosure proceeding or other action toseize the property; and

(d) The name and address of the creditor and the telephone number of a representative of thecreditor whom the borrower may contact if the borrower disagrees with the creditor’sassertion that a default has occurred or the correctness of the creditor’s calculation of theamount required to cure the default.

(3) Fees. To cure a default under this section, a borrower shall not be required to pay anycharge, fee, or penalty attributable to the exercise of the right to cure a default as providedfor in this section, other than the fees specifically allowed by this section. The borrowermay be liable for attorney fees that are reasonable and actually incurred by the creditor,based on a reasonable hourly rate and a reasonable number of hours; except that theborrower shall not be liable for any attorney fees relating to the borrower’s default that areincurred by the creditor prior to or during the twenty-day period set forth in this section.

Section 7. Enforcement and remedies.

(1) Any violation of this Act constitutes an unfair or deceptive trade practice.

(2) Any person found by a preponderance of evidence to have violated this Act shall be liableto the borrower for the following:


(a) Actual damages sustained by the borrower as a result of the violation. The borrower shallnot be required to demonstrate reliance in order to receive actual damages.

(b) Statutory damages equal to the finance charges agreed to in the home loan agreement plustwenty percent of the amount financed for all violations;

(c) Punitive damages if the violation was malicious or reckless;

(d) Reasonable costs and attorney fees.

In addition, the court may, as the court deems appropriate, grant injunctive, declaratory, andother equitable relief in an action to enforce compliance.

(3) The intentional violation of this Act, including the absence of acting in good faith, rendersthe home loan agreement void. A creditor intentionally violating any provision in this Actshall have no rights to collect, receive, or retain any principal, interest, or other chargeswhatsoever with respect to the loan, and the borrower may recover any payments madeunder the agreement. Loan terms that violate the protections of Act are unenforceable, andthe courts may issue orders to reform any terms to bring the loan into compliance.

(4) The brokering of a home loan that violates the provisions of this Act shall constitute aviolation of such provisions.

(5) The rights of recission granted under 15 U.S.C. §1601, et seq., for violations of this Act andall other remedies provided in this Act shall be available to a borrower by way ofrecoupment against a party foreclosing on the home loan or collecting on the loan, at anytime during the term of the loan.

(6) A borrower may also assert a violation of this Act as a defense, bar, or counterclaim to anydefault action, collection action, or judicial or nonjudicial foreclosure action in connectionwith a home loan.

(7) The remedies provided under this Act are cumulative. The protections and remediesprovided under this Act are in addition to other protections and remedies that may beotherwise available under law. Nothing in this Act is intended to limit the rights of anyinjured person to recover damages or pursue any other legal or equitable action under anyother applicable law or legal theory.

(8) Any entity that purchases or is otherwise assigned a home loan shall be liable for all claimsand defenses with respect to the loan that the borrower could assert against the creditor orbroker of the loan.

(9) A creditor that makes a home loan and that, when acting in good faith, fails to comply withthe provisions of this Act will not be deemed to have violated this Act if the creditorestablishes that either:


(a) Within thirty days after the loan closing, and prior to receiving any notice from theborrower or any governmental agency of such noncompliance, the creditor madeappropriate restitution to the borrower and made appropriate adjustments to the loan; or

(b) Within sixty days after the loan closing, prior to receiving any notice from the borrower ofsuch noncompliance, and the noncompliance was not intentional and resulted from a bonafide error notwithstanding the maintenance of procedures reasonably adapted to avoidsuch errors, the creditor made appropriate restitution to the borrower and madeappropriate adjustments to the loan. examples of a bona fide error include clerical,calculation, computer malfunction and programming, and printing errors. An error oflegal judgment with respect to a person’s obligations under this section is not a bona fideerror.

(10) Any city, county, city and county, or other appropriate governmental agency may sue onbehalf of the public interest or on behalf of resident damaged by violations of this Act.

(11) High cost home loans shall be governed by this Act notwithstanding any other provision oflaw to the contrary.

Section 8. Severability.

The provisions of this Act shall be severable, and if any phrase, clause, sentence, paragraph, orprovision of this Act, or the application thereof to any person or circumstance, is for any reasonadjudged by a court of competent jurisdiction to be invalid, such judgment shall not affect,impair, or invalidate the remainder of this Act nor the application of such phrase, clause,sentence, paragraph, or provision to other persons or circumstances, but shall be confined in itsoperation to the phrase, clause, sentence, paragraph, or provision thereof and to the persons orcircumstances directly involved in the controversy in which such judgment shall have beenrendered. if any provision of this Act is declared to be inapplicable to any specific category, type,or kind of loan or points and fees, the provisions of this Act shall nonetheless continue to applywith respect to all other loans and points and fees.

Section 9. Effective date and applicability.

(1) Effective date. This Act shall take effect at 12:01 a.m. on the day following the expirationof the ninety-day period after enactment.

(2) Applicability. This Act shall apply to home loans and high cost home loans offered ororiginated or consummated on or after the applicable effective date of this Act.


Endnotes

i William J., Brennan, Jr.’s statement to the US Senate Special Committee on Aging, March 16, 1998)ii Department of Housing and Urban Development, Unequal Burden: Income and Racial Disparities inSubprime Lending in America (April 2000, www.hud.gov/pressrel/pr00-75.html).iii In NCRC’s study, a census tract was predominantly minority if more than 80 percent of its residents wereminority, and a census tract was predominantly white if less than 20 percent of its residents were minority.NCRC calculated the share of loans made by the top 30 lending institutions that were issued by subprime andmanufactured home lenders.iv Freddie Mac web page, http://www.freddiemac.com/corporate/reports/moseley/chap5.htm; “Fannie MaeVows More Minority Lending,” in the Washington Post, March 16, 2000, page E01.v Anthony Pennington-Cross, Anthony Yezer, and Joseph Nichols, Credit Risk and Mortgage Lending: WhoUses Subprime and Why?, Working Paper No. 00-03, published by the Research Institute for HousingAmerica, September 2000.vi New Leader After Year of Upheaval at ACB, American Banker, October 30, 2000.vii Curbing Predatory Home Mortgage Lending: A Joint Report by the Department of Housing and UrbanDevelopment and the Department of Treasury, June 2000, p. 93.viii Designed to help refinance predatory loans secured by real estate, the CRF permits consumers to have a“fresh start” while NCRC fair lending staff evaluate their civil rights or consumer complaints as appropriateand NCRC members provide comprehensive counseling in conjunction with ongoing financial education. AllConsumer Rescue Fund loans are conventional loans with prime-like interest rates, with no fees, no points,and no insurance or ancillary product sales or offerings, and are intended to "rescue" CRF participants fromproblematic loans. CRF Loans do not have any pre-payment penalties and NCRC will be involved withportfolio management, fair lending enforcement and related consumer follow-up. The program is initiallymade possible by a multi-million dollar fund and underwriting commitment from Household.

ix Complaint and Jury Demand of the People of the State of New York against Delta Funding Corporation,Index No. 99, Civ. 4951.x Federal Trade Commission complaint against the Associates and press release of March 6, 2001.xi Total single family lending refers to home purchase, refinance, and home improvement lending to owner-occupants of single family homes (one to four units).xii NCRC found that subprime lenders made 11 percent of the loans in the District of Columbia in 2000 butwere responsible for 16 percent of the foreclosures. The subprime share of foreclosures was 1.5 times theirshare of loans. Abt Associates found similar trends in Atlanta. See Analyzing Trends in SubprimeOriginations and Foreclosures: A Case Study of the Atlanta Metro Area, Abt Associates Inc., February 2000.xiii Department of Treasury, Office of the Comptroller of the Currency, Federal Reserve System, FederalDeposit Insurance Corporation, Proposed Agency Information Collection Activities (Collecting subprimelending information on call reports), Federal Register, May 31, 2000, pages 34801-34819.xiv HUD-Treasury Curbing Predatory Lending report, p. 85.xv Fannie Mae Chairman Announces New Loan Guidelines to Combat Predatory Lending Practices, FannieMae News Release of April 11, 2000.xvi Fannie Mae April 11 press release and letter to the editor of the American Banker by David Andrukonisof Freddie Mac on April 6, 2000.


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Pete Garcia, Chairperson

Marva S. Battle-Bay

Lee Beaulac

Gail Burks

Malcolm Bush

Stephen Fairfield

Alan Fisher

Devorah Fong

Ed J. Gorman, III

F. Barton Harvey, III, Chairperson Emeritus

Irvin Henderson

Alan Jennings

Elbert Jones

Matthew Lee

Maryellen Lewis

Moises Loza

Dean Lovelace

Eugene Lowe

Ernest E. (Gene) Ortega

Rashmi Rangan

Hubert Van Tol

Shelley Sheehy

Cameron Whitman

Morris Williams

Veronica Williams

Ted Wysocki

NATIONAL COMMUNITY REINVESTMENT COALITION733 15th Street, NW, Suite 540

Washington, DC 20005

Telephone: (202) 628-8866Fax: (202) 628-9800

www.NCRC.org

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