This year the Tennessee General Assembly enacted the Tennessee Home Protection Act of 2006. The provisions of this legislation offer a comprehensive and meaningful approach to address the issue of predatory lending. The legislation is a result of the combined efforts and perseverance of legislators, consumer advocates and industry representatives, including the Tennessee Association of Mortgage Brokers.
This bill is modeled after the North Carolina law, which was adopted in 1999. Since then, more than 20 states have adopted variations of that statute. The Tennessee version of the law draws upon the best features of the various state laws. Tennessee’s version applies only to high-cost loans.
The provisions of this law, which was signed by the Governor on May 26, 2006, include:
• No loans are to be made without first establishing affordability of payments for the customer.
• Lender must provide a “Notice to Borrower” before closing with various warnings and suggesting they shop other credit sources, or seek credit counseling advice before signing.
• Lender must provide the borrower information on available counseling opportunities from third-party nonprofit organizations approved by the United States Department of Housing and Urban Development, a housing financing agency of this state, or the regulatory agency which has jurisdiction over the creditor.
• No “bait and switch” change in terms at closing. Lender may not present a borrower with a high-cost home loan at closing with a materially different interest rate, term, type of loan, or settlement charges from the last disclosure. Closing must wait at least 24 hours for borrower to review.
• New limitations on refinancing for 2½ years. Borrowers must receive a reasonable benefit when refinancing.
- Must meet a test for providing a benefit to the borrower.
- No fees can be charged to refinance the old loan only on new additional funds for borrower.
• No single premium credit insurance can be financed over $50,000.
• Closing must occur in official business or lawyer offices.
• No incomplete documents at closing. Prohibition on any person soliciting, encouraging or conspiring to have a borrower to sign a closing document if any material terms of the loan or transaction, including but not limited to, the duration, interest rate, or fees, are omitted or incomplete. Prohibition on borrowers from signing incomplete documents.
• Interest rate threshold trigger tracks federal law (HOEPA).
• Limits points and fees that may be charged to a borrower. Limits financing points and fees.
- Points and fees threshold trigger is lower than federal law (HOEPA). The threshold is defined as the total points and fees payable by the borrower at or before the loan closing exceed: the GREATER of 5% of the total loan amount or $2400 if the total loan amount is more than $30,000, or 8% of the total loan amount if the total loan amount is $30,000 or less.
- Even lower caps on financing points and fees in high-cost loans.
- Lender may not finance more than two (2) Bona Fide Loan Discount Points.
- No pre-payment fees or penalties which exceed (2%) of the loan amount prepaid in the 24 months following the loan closing.
- No pre-payment penalties after 24 months.
- No pre-payment fees or penalties are permitted if the lender is refinancing its own high-cost home loan.
• No balloon notes.
• No negative amortization.
• Lender must: 1) provide two (2) free pay-off requests annually; and 2) respond to pay-off request from a borrower within five (5) business days.
• Prohibits lenders from evading the protections of the high-cost loan law through false loan structures or trickery with terms.
• Commissioner of Financial Institutions has specific powers of examination, cease and desist orders, civil penalties of up to $10,000 per violation and license revocation.
• Private rights of action could include penalties of actual damages, statutory damages for willful and intentional violations, punitive damages for malicious or reckless violations and reasonable attorney’s fee.
• Receives actual notice of foreclosure.
Sincerely,
Andrew S. Voyles, CRMS
President, TNAMB
