State of Maine

Department of professional and financial regulation

Bureau of Financial Institutions

36 state house station

augusta, maine 04333-0036

(207) 624-8570

(207) 624-8590 (FAX)

Lloyd P. LaFountain III

Superintendent

Bureau of Consumer Credit Protection

35 state house station

augusta, maine 04333-0035

(207) 624-8527

(207) 582-7699 (FAX)

William N. Lund

Superintendent

Printed on recycled paper

207) 624-8563 (Hearing Impaired)

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January 17, 2008

Joint Advisory Ruling #114

Re: Changes to the Bureau of Financial Institutions Regulation 44 and Bureau of Consumer Credit Protection Chapter 550, “Mortgage Lending: Guidelines for Determining Reasonable, Tangible Net Benefit and Ability to Pay” and the “tangible net benefit” form as the result of recent amendments to the Act to Protect Maine Homeowners from Predatory Lending

On January 8^th, 2008, the Maine Legislature enacted Public Law 2007, Chapter 471, “An Act Relating to Mortgage Lending and Credit Availability.” The law was effective, retroactively, back to January 1, 2008.

This new statute makes various amendments to the previously enacted mortgage lending law, titled “An Act to Protect Maine Homeowners from Predatory Lending.” Whereas the original law prohibited “flipping” (refinancing without providing a tangible net benefit) on all loans, the amendments limit the prohibition on “flipping” to subprime mortgage loans only. In other words, following the changes, creditors may make prime mortgage loans without undertaking a “tangible net benefit” analysis.

Subprime loans include 1) “non-traditional” loans as described in the federal Interagency Guidance on Nontraditional Mortgage Product Risks; 2) “rate-spread” loans that are reportable under the federal Home Mortgage Disclosure Act; and 3) high-rate, high-fee loans. With respect to non-traditional loans referenced in the Interagency Guidance, the recent amendments to the law make clear that, for purposes of the regulation, the only loans that will be considered non-traditional are those that permit the borrower to defer repayment of principal or interest.

The Bureau of Financial Institutions Regulation 44 and Bureau of Consumer Credit Protection Chapter 550 promulgated in December of 2007 contained a form, appended as Attachment “A”, to guide creditors through the “tangible net benefit” test. That form is still appropriate for use, with the exception that its use is not required with prime loans, but only with subprime loans as indicated above.

Accordingly, references to “residential mortgage loans” subject to the tangible net benefit analysis found in Section 5(1) of the Tangible Net Benefit/Ability to Pay Rule pertain, instead, to a “subprime mortgage loan.” Likewise, the reference to “residential mortgage loan” in the introductory paragraph of the form itself (Appendix A) should be modified to refer to “subprime mortgage loan.”

Joint Advisory Ruling #114

January 17, 2008

Page Two

Please also note that the definitions of the terms “fully indexed rate” and “fully amortizing payment schedule,” initially defined in the regulation, were included in the recent amendments and are therefore now part of Maine law. These definitions are more fully defined in the regulation. In addition, the regulation’s discussion of alternatives to tax and payroll forms for documentation of the borrower’s ability to pay, and the considerations established by the rule for determining the borrower’s ability to pay, have likewise been incorporated in the Consumer Credit Code through the recent amendments.

A new “tangible net benefit form” incorporating the changes is attached.

Sincerely, Sincerely,

/s/Lloyd P. LaFountain III______________ /s/ William N. Lund________________

Lloyd P. LaFountain III, Superintendent William N. Lund, Superintendent

Bureau of Financial Institutions Bureau of Consumer Credit Protection

Attachment “A” to the Reasonable, Tangible Net Benefit and Ability to Pay Rule, AS AMENDED by Public Law 2007, Chapter 471, “An Act Relating to Mortgage Lending and Credit Availability”

STATE OF MAINE – REASONABLE, TANGIBLE NET BENEFIT DISCLOSURE FORM

This disclosure is being provided to you in order to clarify one of the protections required by the “Act to Protect Maine Homeowners from Predatory Lending” enacted in 2007 and amended by “An Act Relating to Mortgage Lending and Credit Availability.” The law protects borrowers from certain loan brokering and lending practices. One of the prohibited practices is known as “flipping a residential mortgage loan when making a subprime mortgage loan.”

WHAT IS FLIPPING? “Flipping” is the making of a subprime mortgage loan (the “new loan”) to a borrower who refinances an existing residential loan when the new loan does not result in a “reasonable, tangible net benefit” to the borrower.

Borrower name(s):

Property address:

BASED UPON THE REVIEW BY THE LENDER, AND THE MORTGAGE BROKER, IF ONE IS USED, OF ALL OF THE CIRCUMSTANCES RELATED TO THE NEW LOAN AND ANY DEBTS TO BE PAID FROM THE PROCEEDS OF THE NEW LOAN, THE NEW LOAN PROVIDES A REASONABLE, TANGIBLE NET BENEFIT TO YOU AS FOLLOWS:

Loan Information

	New Loan	Old Loan
Monthly payment amount
Length of repayment period
Amount of cash out (or paid to others)
Interest rate or weighted average interest rate
Type of loan (Adjustable Rate Loan or Fixed Rate Loan)	Adjustable Fixed (Circle one.)	Adjustable Fixed (Circle one.)
Bona fide personal need, as reasonably determined by the borrower?	Yes No (Circle one.)

CREDITOR TO COMPLETE:

The borrower received the following reasonable, tangible net benefit from the new loan (include bona fide personal need, if applicable):

________________________________________________________________________

After reviewing all relevant information, the lender and mortgage broker, if one was used, confirm that they have performed the analysis of the applicable reasonable, tangible net benefit as identified above and that they have explained the analysis to the borrower. The borrower(s) acknowledge(s) that the lender and mortgage broker, if one was used, have identified and explained the reasonable, tangible net benefit(s).

FOR LENDERS:

I have reviewed and explained this Form and the answers provided therein to the borrower.

_____________________ ________,___________

Agent/Loan Officer’s printed name Title

______________________________ ___________

Agent/Loan Officer’s signature Date

On behalf of: _______________________________

(Name of Lender)

FOR LOAN BROKERS:

I have reviewed and explained this Form and the answers provided therein to the borrower.

_____________________ ______,_____________

Agent/Loan Officer’s printed name Title

______________________________ ___________

Agent/Loan Officer’s signature Date

On behalf of: ________________________________

(Name of Mortgage Broker)

_______________________ __________________________

Borrower’s printed name Co-Borrower’s printed name

_______________________ __________________________

Borrower’s signature Co-Borrower’s signature

Date:__________________ Date:_____________________

* If the terms of the refinancing change after the mortgage broker explains its answers to the borrower and signs this form, the lender shall explain its answers to the borrower and sign a new form.