Issue #27: Other associated proposals
The bill that is attachedAppendix number 1) contains three proposals maybe maybe not especially addressed in the ask for Public Comment, but which are relevant towards the dilemma of regulation of home loan financing. The foremost is found in area one of the bill. This area would allow ( not need) Maine to participate in a significant multi-state home loan business certification project this is certainly presently underway in lot of states. Exactly just exactly What started as an endeavor to look at consistent permit application types has resulted in a proposition, sponsored by two split state regulatory associations (the Conference of State Bank Supervisors, or CSBS, while the United states Association of Residential Mortgage Regulators, or AARMR), to operate a centralized certification system that may accommodate the requirements of loan providers, specially big home loan organizations with operations in lots of states. Patterned following the nationwide registration procedure that regulates the securities industry, this technique was created to lower the burden on candidates as well as on participating states. Although some concerns stay to be answered, OCCR believes it wise to include position the legislation essential to enable Maine to become listed on this work, if as soon as it’s about time for this kind of move.
The next brand new problem is situated in Section 4 associated with bill, also it proposes to broaden protection of Article 9 regarding the credit rating Code to encompass a kind of loan that few regulators knew existed until recently; specifically, a second-lien purchase-money loan. Mostly occurring when a loan provider splits within the purchase that is total as a first-lien loan and a higher-rate, second-lien loan, this sort of loan is wholly unregulated under present law as a result of the verbiage of 9-A MRSA § 9-101, “Scope, ” which indicates that the content covers only first-lien loans. OCCR is associated with the opinion that such loans deserve at the least the protection granted first-lien purchase cash or refinancing loans, or even the defenses associated with complete Code applicable to second-mortgage, non-purchase, non-refinance loans.
The next and final “new” proposition can be found in Section 8 of this bill connected as Appendix # 1. It entails that loan agents disclose to customers quantities compensated to those agents by loan providers in the shape of yield spread premiums. Yield spread premiums enhance while the rate of interest on that loan increases, causing a reason for the loan broker to set up a loan that is high-cost in the event that customer may like it be eligible for a a lowered price. We try not to propose to limit the payment of these premiums; and then need it be disclosed towards the debtor. We feel it is a step that is important the purpose of economic transparency within the consumer-broker relationship.
We have the above actions, as further modified or supplemented through the legislative procedure, will play a crucial role in helping to fight predatory home loan financing in Maine. We have been additionally conscious that the so-called CEI bill will additionally be considered by the Legislature during its future session, most likely because of the exact exact same committee, and also at or just around the time that is same. As the OCCR proposals are far more moderate compared to those proposed by CEI, we believe that the OCCR conditions are well-suited towards the particular problems that have actually arisen in this State, as well as Maine’s market that is limited for mortgages and its concomitant restricted capability to influence major nationwide financing forces. Nevertheless, we also feel highly that CEI’s bill deserves severe debate, since Maine customers will in the long run reap the benefits of a energetic conversation of most viable methods to the process of preventing mortgage lending that is predatory.
William N. Lund, Director
Workplace of Credit Regulation
Problem #19: additional market accountability
Pertaining to specific proposals, this report concludes that the people of the financing industry can soak up modifications imposed onto it because in those areas there is certainly a sum of freedom or elasticity of supply. But, when you look at the aspects of “net tangible benefit” (see Issue #18, above), and obligation for the secondary market (talked about in this area), we believe that imposition of strict conditions could drastically and adversely impact the willingness of loan providers as well as the additional market in order to make loans or even to buy them as opportunities, aided by the impact that less home loan cash is offered to Maine borrowers, or that the expense of borrowing those funds would significantly increase.
The personal financial circumstances of the borrower) can be used to rescind a transaction or even to recover damages since the secondary market (referred to as “assignees” in the Consumer Credit Code) is historically liable for rectifying errors made by the original lender only if the violations are “apparent on the face of the disclosure statement” (see 9-A MRSA § 8-209, “Liability of assignees”), that secondary market becomes reluctant to invest in loans if elements that are out of their control or knowledge (for example.
Therefore, increasing assignee liability isn’t among OCCR’s guidelines included in the draft legislation that is attached. We believe the State’s initial efforts at reform must certanly be directed toward the front-line loan officers of loan agents and loan providers, and therefore secondary market obligation problems must certanly be addressed later on if required, and just after getting input that is specific after reviewing the end result of assignee liability guidelines enacted in other states.
Problem #20: Increased regulation of servicers
Although OCCR identified servicing problems as being a major reason for customer complaints, we’ve maybe maybe not included particular servicing-related conditions into the draft legislation mounted on this report.
In preparing this report, we reviewed the present appropriate responsibilities of servicers, such as the requirement to give you toll-free customer figures (9-A MRSA § 9-304); to pay for interest on escrow (§ 9-305); to cover fees and insurance coverage from escrow on time (§ 9-305-A); to react immediately to demands for payoff numbers (§ 9-305-B); also to offer a totally free accounting of most payments built in the last 15 months (§ 9-307(2)). As opposed to impose extra needs, OCCR is going to make every work, with or without extra allotted resources, to more vigorously pursue any information that is complaint-generated loan servicing, to be able to wow upon servicers the necessity of compliance in most such areas.
Issue #21: Effective notice of prepayment penalties
This dilemma is talked about with respect to Issues #13 and #14, above. Conditions relating to prepayment charges have already been integrated in to the draft legislation connected as Appendix #1; see area 3 and part 7 of the proposed legislation.
Problem #22: needing that “unpaid balance” figures reflect extra funds needed as prepayment penalties
Because a lot of customers have actually told OCCR which they didn’t understand these people were susceptible to a prepayment penalty until they attempted to cover down their loan early, this proposition could have needed that every time the lending company notified the debtor regarding the unpaid stability on the loan (for instance, upon demand, or with every month-to-month declaration, or at year-end), the financial institution will be expected to add into that stability the prepayment penalty, to give you an exact image of the particular buck amount required to pay back the mortgage.
We felt that the proposition had been an easy and revolutionary solution to avoid “payoff shock. ” Nonetheless, we’ve plumped for not to ever add it within our proposed legislation. This proposal would likely prove too difficult for lenders’ billing computers to accommodate, at least just for borrowers in the State of Maine like so many seemingly simple solutions to complex issues. We continue steadily to believe that the style has merit, so we also note the actions other states have actually taken up to deal with, and indirectly discourage, such charges (Massachusetts, for instance, calls for loan providers to add prepayment charges when you look at the “points-and-fees” calculation to ascertain whether extra “Section 32”-type defenses must certanly be imposed). Nonetheless, until or unless other states or regulators that are federal the idea, we believe it might be impracticable to need such calculations entirely for Maine loans.
Problem #23: High attorney’s fees when you look at the initial states of pre-foreclosure or foreclosure
The request Public Comment raised the problem of high very very early appropriate charges, because inside our experience assisting customers that are delinquent inside their re re payments it frequently seemed that loan providers incurred significant appropriate costs right after files had been delivered to solicitors with directions to start property foreclosure. The imposition of these fees that are high the talents of all of the events to “unwind” the situation and acquire the consumer straight straight straight back on track, because as well as gathering all delinquent re re re payments, interest and belated charges, loan providers also demanded reimbursement of legal costs incurred up to now.
Just as much as we think this particular incident deserves scrutiny, we’re now associated with viewpoint that the problem ought to be addressed by 1) needing lenders to acquire certain information from their solicitors to show precisely how reported charges had been incurred very quickly; and, if required, 2) interacting with the lawyers and/or because of the Bar Overseers in egregious or duplicated instances. As a result, the connected legislation will not include measures to deal with appropriate charges incurred during the pre-foreclosure phase.