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MAMB
Legislative Center > New
Maryland Law More Strict Than HOEPA
New
Maryland Law More Strict Than HOEPA
 Marjorie
A. Corwin
The Federal Reserve Board’s amended regulations
for HOEPA (Home Ownership
Equity Protection Act of 1994) loans go into effect
October 1, 2002. These regulations
will cause more residential mortgage loans to
be covered by this consumer protection law because
the measures for HOEPA coverage - known as “rate
trigger” and “fees trigger” - are
made more expansive.
At the same time, a new
Maryland law will go into effect that
imposes additional obligations and restrictions
on residential lenders making “covered loans.”
“Covered loans”, for purposes of this
new Maryland law, closely track HOEPA-coverage
rules except Maryland’s law includes more
loans because bothe the rate and fees triggers
for “covered loans” in the state are
1% lower than the comparable HOEPA triggers.
Highlights of the HOEPA changes focus on a residential
mortgage loan needing to be covered by HOEPA if
it has a high annual percentage rate or has high
points and fees. HOEPA applies only to non-purchase
money closed-end consumer loans secured by the
borrower’s principal dwelling.
Whether the APR or fees are “high” are
tested by a “rate trigger” and a “fee
trigger”. The “rate trigger” test
requires a loan to be covered by HOEPA if the
annual percentage rate on the loan at consummation
exceeds by more than a specified percentage the
yield on U.S. Treasury securities having comparable
periods to the loan maturity. The “fee trigger”
test, requires a loan to be covered by HOEPA if
the total “points and fees” payable
by the consumer at or before loan consummation
exceeds 8 percent of the “total loan amount.”
“Points and fees” include all prepaid
finance charge except for interest, plus - as
changed effective October 1, 2002 - premiums for
optional credit insurance and costs for other
debt cancellation products paid at or before consummation.
Beginning October 1, 2002, HOEPA’s coverage
enlarges because 1) the rate trigger is lowered
from 10% to 8% for the first mortgage loans; and
2) the fee trigger calculation includes optional
credit insurance premiums and costs of other debt
protection products paid at closing.
In addition to all existing disclosure requirements,
loan limitations, and lender prohibition applicable
to HOEPA-covered loans, beginning October 1, 2002,
creditors must disclose, for refinancing loans,
the total amount the consumer will borrow as reflected
in the promissory note, and if the amount borrowed
includes premiums for credit insurance or debt
cancellation coverage, a statement of that fact.
Additionally, the loan may not include a “due
on demand” feature, and creditors (and assignees)
may not refinance a HOEPA loan with a new HOEPA
loan within 12 months of the time that the original
HOEPA loan was made, unless the new HOEPA loan
is in the borrower’s interest. This prohibition
only applies to the original creditor and any
assignees of the original loan.
Creditors also may not structure a loan as an
open-end loan to evade the requirements of HOEPA.
If a lender who has never become familiar with
HOEPA loan requirements believes it now may be
subject to this law, that lender must seek additional
information about HOEPA compliance immediately.
MARYLAND
HIGHLIGHTS
Maryland’s
new law (introduced as House
Bill 649) imposes obligations and
restriction on certain “covered loans.”
“Covered loans” are the same types of
loans subject to HOEPA, but both the rate trigger
and fee trigger for determining coverage under
Maryland’s law are 1% lower than those in
HOEPA. For example, the “fee trigger”
to determine coverage under Maryland’s law
is 7% rather than 8%.
Thus, more loans will be covered by Maryland’s
law than are covered by HOEPA.
Beginning October 1, 2002, if a lender makes a
Maryland “covered loan,” three new obligations
and restrictions apply.
First, creditors may not finance as a part of
a “covered loan” the cost of single
premium credit life, health, or involuntary unemployment
benefits insurances.
Second, at the time an applicant completes a loan
application for a “covered loan,” the
creditor must provide the applicant with both
a written recommendation that the applicant seek
home buyer education or housing counseling and
a list of organizations approved to provide such
education or counseling by the county where the
real property is located. (A list will soon be
provided the members of the Maryland Association
of Mortgage Brokers via the association web site
www.mamb.org).
Lastly, creditors may not make a “covered
loan” to a borrower whose income is equal
to or less than 120% of the median family income
for the MSA in which the real property is located
without giving “due regard” to the borrower’s
ability to repay the loan in accordance with its
terms. A borrow is presumed to be able to repay
a loan if the borrower’s total schedule of
monthly payment obligations do not exceed 45%
of the borrower’s monthly gross income.
Ms Corwin is a partner with the law firm of
Gordon, Feinblatt, Rothman, Hoffberger & Hollander
in Baltimore. She is a frequent speaker for MAMB
education programs. To contact Ms. Corwin re.
legal counsel, call 410-576-4041 or mcorwin@gfrlaw.com.
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