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Maine.gov > PFR Home > Bureau of Financial Institutions > FAQ > Maine Mortgage Lending

Frequently Asked Questions - Maine Mortgage Lending

Compiled by the Bureau of Consumer Credit Protection and the Bureau of Financial Institutions

 

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INTRODUCTION

New laws to protect Maine consumers from predatory mortgage lending practices took effect January 1, 2008.  This comprehensive revision of lending statutes applies to “residential mortgage loans,” including home equity lines of credit, entered into after that date.

These questions and answers are designed to provide guidance for borrowers, lenders and loan brokers, in order to better understand and comply with the new state laws.

 

1)  RESIDENTIAL MORTGAGE LOANS

 

The new law applies to “residential mortgage loans”:  A residential mortgage loan can mean a first or subordinate lien on residential real property.  A residential mortgage loan may include purchase-money loans, refinancing, and home equity lines of credit.   The term does not include construction loans or temporary financings, (i.e., bridge loans), reverse mortgage transactions or loans made primarily for business, agricultural or commercial purposes.

Are “bridge” loans considered to be subprime mortgage loans? 

  • No.  Bridge loans do not fall within the definition of a federally-related mortgage loan and thus are not considered residential mortgage loans.  Because they are not residential mortgage loans, they cannot be considered subprime mortgage loans.

 

Do these laws apply to rental properties or second homes?

  • No.  The law only applies to residential mortgage loans in which the loan is secured by the borrower’s principal dwelling.

 

Is a loan for a manufactured home that is placed on leased or rented land, such as a lot in a mobile home park, a "residential mortgage loan"?

  • No.  In order for a loan to be a "residential mortgage loan," it must be a "federally-related mortgage loan." A "federally-related mortgage loan" is a loan that is secured by a first or subordinate lien on residential real property.  However, the Bureaus wish to emphasize that, if a loan for a manufactured home is secured by residential real property, the loan may meet the definition of a "federally-related mortgage loan" and therefore, may be a "residential mortgage loan."

 

The new law uses the phrase “conventional rate,” which serves as the baseline when determining whether a loan is a subprime loan or a high-rate, high-fee loan.  What date should be used when determining conventional rate?

  • Use the 15th day of the month prior to the application date. The “conventional mortgage rate” means the most recently-published annual yield on conventional mortgages published by the Board of Governors of the Federal Reserve System. Federal rules provide that the date to be used is the fifteenth day of the month preceding the month in which the application for the extension of credit is received by the creditor.

 

2)  SUBPRIME LOANS VS. HIGH RATE HIGH FEE LOANS

 

Certain restrictions and protections in the new law apply to “subprime” loans.  What is a subprime mortgage loan? 

  • A subprime loan means either a nontraditional mortgage as defined in 9-A MRSA § 8-103 (1-A), paragraph T, or a rate spread home loan as defined in paragraph V of that subsection.

 

Are Home Equity Lines of Credit (HELOCs) included in the definition of a subprime mortgage loan?

  • Only those simultaneous second lien HELOCs that permit the borrower to defer the payment of interest or principal, as well as any HELOC that meets the applicable high-rate high-fee thresholds set forth in 8-103 (1-A)(FF) of the new law, are included in the definition of a “subprime mortgage loan.”  As a result of P.L. 2007 chapter 471, "An Act Relating to Mortgage Lending and Credit Availability" this answer modifies Advisory Ruling #111 (As See AR #111, Exclusion of HELOCs from definition of “sub-prime loan”.)

    Simultaneous second HELOCs that are “convenience” HELOCs as described in Advisory Ruling #116 are not subprime mortgage loans if a) the convenience HELOC is not drawn at closing to satisfy first mortgage lender’s equity requirement, or to avoid payment of PMI and b) the combined LTV of first and second lien is 90% or less.

 

Are prime rate, stated-income loans restricted by the new law? 

  • No.  The restrictions against stated-income loans (namely, that the file must contain evidence of ability to repay the loan), extends only to subprime mortgage loans and high-rate, high-fee loans.

 

Are all adjustable rate mortgage loans subprime mortgage loans?

  • No.  Adjustable rates do not automatically make a loan a subprime mortgage loan.  Subprime mortgage loans are either Rate spread home loans that must be reported under the law, loans that permits the deferral or principal or interest (such as an interest-only 2/28 ARM or 3/27 ARM), or high-rate high-fee loans.

 

How do I determine if a loan is subprime?

  • You can determine if the loan you’re making is subprime by the following method: 

 

Method for Determining if a Mortgage is Subprime

1. Is the loan secured by the borrower’s principal dwelling?

    • YES:  Continue with Question 2.
    • NO:  This is not a subprime loan.  DONE

2. Does the loan amount exceed the FNMA/FHLMC conforming loan limit?

    • NO:  Continue with Question 3.
    • YES:  This is not a subprime loan.  DONE

3. Is the loan a reverse mortgage?

    • NO:  Continue with Question 4.
    • YES:  This is not a subprime loan.  DONE

4. Is the loan made primarily for business, agricultural or commercial purposes?

    • NO:  Continue with Question 5.
    • YES:  This is not a subprime loan.  DONE

5. Is the loan a construction loan?

    • NO:  Continue with Question 6.
    • YES:  This is not a subprime loan.  DONE

6. Is the loan a home equity line of credit (HELOC)?

    • NO:  Continue with Question 7.
    • YES:  Is the loan being executed simultaneously with a first-lien mortgage?
      • YES:  Continue with Question 7.
      • NO:  Does the loan meet the criteria of a “high rate, high fee” loan (HOEPA/Section 32 mortgage)?
        • YES:  This IS a subprime loan.  DONE
        • NO:  This is not a subprime loan.  DONE

7. Does the loan allow a borrower to defer repayment of principal or interest (for example, payment option ARM or interest-only mortgage)?

    • NO:  Continue with Question 8.
    • YES:  This IS a subprime loan.  DONE

8. Is the loan a subordinate-lien mortgage?

    • NO:  Continue with Question 9.
    • YES:  Is the rate spread between the APR and the applicable Treasury security yield equal to or greater than 5 percentage points (see note below)*
      • YES:  This IS a subprime loan.  DONE
      • NO:  This is not a subprime loan.  DONE

9. Is the rate spread between the APR and the applicable Treasury security yield equal to or greater than 3 percentage points (see note below)*

    • YES:  This IS a subprime loan.  DONE
    • NO:  This is not a subprime loan.  DONE

 

*NOTE:  To determine the rate spread between the APR and the applicable Treasury security yield, use the rate spread calculator on the FFIEC’s website (http://www.ffiec.gov/ratespread/default.aspx).  If the rate spread meets or exceeds the value required to classify the loan as a subprime loan, the calculator will return the calculated rate spread.  If the rate spread does not meet or exceed the value required to classify the loan as a subprime loan, the calculator will return the value “N/A.”

*NOTE: Advisory Ruling #116 indicates that simultaneous second HELOCs, known as "convenience HELOCs" are not subprime loans.


NOTICE TO USERS:  The tool above is designed to permit lenders to determine whether a loan is a “subprime” loan subject to the Tangible Net Benefit rule and the “ability to pay” standard.  It does not determine whether a subprime loan is also a high-rate, high fee loan.

 

What is a High-Rate High-Fee Mortgage

  • “High-rate, high-fee mortgage" means a residential mortgage loan in which the terms of the loan meet or exceed one or more of the following thresholds: 

1) Rate threshold, which is, for a residential mortgage loan, the point at which the annual percentage rate equals or exceeds the rate set forth in 12 Code of Federal Regulations, Section 226.32(a)(1)(i), without regard to whether the residential mortgage loan may be considered a “residential mortgage transaction” or an extension of “open-end credit” as those terms are set forth in 12 Code of Federal Regulations, Section 226.2; or
(2) The total points and fees threshold, which is:
(a) For loans in which the total loan amount is $40,000 or more, the point at which the total points and fees payable in connection with the residential mortgage loan less any excluded points and fees exceed 5% of the total loan amount; and
(b) For loans in which the total loan amount is less than $40,000, the point at which the total points and fees payable in connection with the residential mortgage loan less any excluded points and fees exceed 6% of the total loan amount.


3) ASSIGNEE LIABILITY

 

Assignees can be liable if certain violations are “apparent in the face of the disclosure statement;” 9-A MRSA §8-209(5).  Please explain what is meant by the phrase “disclosure statement.”

  • The phrase “disclosure statement” refers to the final Truth-in-Lending disclosure form contained in the ultimate closing package that is provided before the credit is extended. See 8-206(1).

 

Is the right of rescission available to borrowers of subprime mortgage loans?

  • The right of rescission is available for all residential mortgage loans that are refinances or subordinate mortgages, including subprime mortgage loans and high-rate, high-fee loans.  See 9-A MRSA 8-206(E)(4).

 

Does the new law create liability for assignees of mortgages other than high-rate, high-fee mortgages?

  • The new law excludes general assignee liability for mortgage loans that are not high-rate, high fee loans.  This exclusion represents the Legislature’s intent to free purchasers and assignees of loans other than high-rate, high-fee loans from most secondary market liability concerns. 

 

Does 9-A §8-206-E(5), which states that the remedies found in §8-206-E (the high rate, high fee loan section) are not intended to be exclusive remedies for the borrower, create an argument that §8-209(5) could be used to create assignee liability other than that specifically provided in § 8-206-E?

  • The Legislature’s intent was to avoid creating additional assignee liability other than with respect to high-rate, high-fee loans.  It is the view of the Bureaus that the language in §8-206-E(5) does not apply the penalties of §8-206-E to assignees through §8-209(5).  Assignee liability under section §8-209(5) is limited only to that arising from violations apparent on the face of the disclosure statement.

 

4) INTEREST/POINTS & FEES

How is the “total loan amount” to be computed, pursuant to 9-A MRSA §8-103 (1-A), paragraphs (O) (“Excludable points and fees”), (FF) (“Threshold”) and (GG) (total loan amount”)?

  • Assuming the loan documents do not contradict this characterization, loan proceeds are applied first to the transaction being financed; second, to any points and fees; third, to any excludable costs; and fourth, to cash out to the borrower.  (See AR #112 Computation of “Total Loan Amount”)

 

Are the seller-paid broker fees included in the points and fees calculation?

  • No. Under the tangible net benefit rule, when determining whether or not the borrower is receiving cash in excess of fees, the only costs and fees to be taken into account are those costs and fees paid by the borrower.

 

Are the following exclusions from points and fees allowed: (a) up to 1 point of the FHA mortgage insurance and VA funding fee; and (2) up to 2 bona fide discount points?

  • Excluded points and fees in connection with a residential mortgage loan are 1% of the total loan amount attributable to bona fide fees paid to a federal or state government agency that insures payment of some portion of a residential mortgage loan, plus an amount not to exceed 2% of the total loan amount attributable to bona fide discount points or a conventional prepayment penalty.

 

Is there a “bright line” test for bona fide discount fees?

  • The new law does not provide for a specific percent that the rate must drop for the discount to be considered bona fide.  Bona fide discount points mean an amount knowingly paid by a borrower for the express purpose of reducing, and which in fact does result in a bona fide reduction of, the interest rate applicable to a residential mortgage loan, as long as the undiscounted interest rate for the residential mortgage loan does not exceed the Conventional Mortgage Rate by more than 2 percentage points for a residential mortgage loan secured by a first lien or by 3.5 percentage points for a residential mortgage loan secured by a subordinated lien.

 

Attorney’s fees are excluded from the definition of “points and fees.”  Is it correct to assume this exclusion would also include title company fees?

  • Yes. The charges specifically excluded are fees for title examination, abstract of title, or similar purposes.  If these services are not done by an attorney, then an assessment (closing agent charges) may be appropriate.  Settlement charges are finance charges only if the creditor requires the service, requires the charge, or retains a portion of the third-party charge.

 

Should “per diem” or odd days’ interest be included when calculating points and fees?

  • No. (See 9-A MRSA §8-103 1-A (U), final two paragraphs.)

 

5) TANGIBLE NET BENEFIT

 

Must a borrower’s monthly payments to third parties be fully-indexed when determining the borrower’s debt-to-income ratio?

  • The Tangible Net Benefit/Ability to Pay rule requires a creditor to consider both secured an unsecured debt payments in calculating ability to pay, but permits that creditor to rely on reported monthly payments to other creditors.  Creditors are not required to attempt to fully index payments that may be due to other creditors and that may adjust upwards in the future.  (See also Advisory Ruling #113.)

 

What loans are now subject to the tangible net benefit test set forth in the Bureaus’ tangible net benefit/ability to pay rule?

  • The tangible net benefit test applies to subprime mortgage loans, not all residential mortgage loans.  Subprime loans include nontraditional mortgage loans, rate spread home loans and high-rate high-fee loans.  Nontraditional mortgage loans are defined as those that allow a borrower to defer repayment of principal or interest.

 

Does the Tangible Net Benefit rule apply only to loan applications received after the effective date of the Act and rule (January 1, 2008)?

  • Yes, the Tangible Net Benefit standards apply to loans the applications for which were after January 1, 2008.

 

Does the tangible net benefit rule require creditors to determine a payment for the principal loan amount only, and then add the 3-year fee amortization amount?

  • The new rule requires that the “monthly payment” figure for purpose of the tangible net benefit form contain an amount reflecting recoupment of costs and fees during the first 3 years of the loan.  This may result in a small portion of double-counting, since a portion of the underlying payments will also represent recoupment of those fees, but over the full term of the loan.

 

Can a lender “back out” the existing portion of payments representing long-term amortization of costs and fees, before adding in the figure calculated for recoupment over 3 years?

  • Yes, if the lenders can accurately determine the amount of the monthly payment representing payment of costs and fees amortized over the full term of the loan, that amount may be deducted before the figure representing 3-year recoupment is added to the payment for purposes of the tangible net benefit form.

 

What is the appropriate restitution to the borrower and the appropriate adjustment to the loan under the law if a lender wishes to avoid the penalties for failing to comply with the provisions of the law applicable to high rate, high fee mortgages and residential mortgage loans, in cases in which a creditor acted in good faith?

  • Appropriate restitution is restitution that would place the borrower back in the position they would have been in but for the violation.  Appropriate adjustment to the loan means the adjustment made to the loan so that its terms no longer violate the statute.

 

Can the review of the Tangible Net Benefit form with borrowers be done over the telephone, or must the review be face-to-face?

  • The form should be signed in person at the time it is explained to the borrower; otherwise, the import of the form may be lost.  However, neither the law nor the rule requires a face-to-face explanation of the form at the time of signing.

 

Who is responsible for reviewing and/or updating the Tangible Net Benefit form?

  • The responsibility to avoid flipping (refinancing without affording a tangible net benefit to the borrower) accrues both to the loan broker (if one is used) and to the lender.  The form attached as an appendix to the rule contains signature lines for both the broker and the lender.  The form also indicates that, if the terms have changed during the underwriting process, then the lender needs to prepare and sign a new revised form.

 

6)  HAVE THE BUREAUS ISSUED ANY OPINIONS OR ADVISORY RULINGS INTERPRETING THE NEW LAWS?

  • Yes, the Bureau of Consumer Credit Protection and the Bureau of Financial Institutions have issued the following Advisory Rulings:

 

Advisory Ruling (AR) 110 - "Odd Days’” or “Per Diem” Interest
Advisory Ruling (AR) 111 - Exclusion of HELOCs from definition of “sub-prime loan”
Advisory Ruling (AR) 112 - Computation of “Total Loan Amount”
Advisory Ruling (AR) 113 - “Ability to Pay” under Bureaus’ Joint Rule: Guidelines for Determining Reasonable, Tangible Net Benefit and Ability to Pay (Chapters 550 and 144)
Advisory Ruling (AR) 114 - Mortgage Lending: Guidelines for Determining Reasonable, Tangible Net Benefit and Ability to Pay.” and the “tangible net benefit” form. 

Advisory Ruling (AR) 115 – Treatment of Construction to Permanent Loans
Advisory Ruling (AR) 116 – Convenience” HELOCs 


7)  WHERE CAN I FIND A COPY OF THE HOMEOWNERS PROTECTION ACT?

  • A copy of the law can be found by clicking here.

8)  HAVE THERE BEEN ANY LEGISLATIVE AMENDMENTS TO THE HOMEOWNER’S PROTECTION ACT?

  • Answer:  Yes, Maine's predatory lending law was amended January 8, 2008 with provisions retroactive to January 1, 2008.  The primary change exempts prime loans from the anti-flipping, reasonable tangible net benefit test. See the amendments by clicking here.  It is fully incorporated into Article VIII of the Consumer Credit Code and that Article can be found at 9-A MRSA Article VIII

 

9)  WHERE CAN I FIND A COPY OF THE TANGIBLE NET BENEFIT RULE?

 

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Last Updated: November 8, 2018