District of Columbia Home Loan Protection Act of 2002
Covered loans. There are two "covered loan" tests under the D.C. Home Loan Protection Act of 2002 (the "Act"). The Act can be accessed by clicking here. Implementing regulations can be viewed here. Which test applies depends largely on the status of the maker or purchaser of the loan. For our purposes, we ignore the more lenient test, and instead make only one covered loan determination.
The D.C. covered loan test applies to the following loans:
- first and subordinate liens
- consumer purpose (i.e., not commercial, business vacant land)
- one- to four-family, owner-occupied dwelling
- principal amount not exceeding Fannie Mae/Freddie Mac conforming limits for comparable dwellings
- closed-end and open-end (i.e., HELOC)
Excluded from coverage are:
- any loan insured or guaranteed by a state or local authority, the District of Columbia Housing Finance Agency, FHA or VA
- purchase money loans
- construction loans
- commercial loans
- multifamily loans
A "covered loan" is a loan that is defined as a loan that satisfies either of the following tests:
- APR Test: the APR exceeds by more than 6% (for first liens) or 7% (for subordinate liens), the yield on Treasury securities having comparable periods of maturity as of the 15th day of the month immediately preceding the month in which the application is received by the creditor; or
- Points and Fees Test: the origination/discount points and fees payable by the borrower at or before loan closing exceed five percent (5%) of the total loan amount.
The definition of "APR" is the same as under the Truth in Lending Act.
The term "origination/discount points and fees" is defined to mean the same thing as points and fees under Section 32. However, the phrase "total loan amount" is not defined. For purposes of the D.C. covered loan determination, we assume that "total loan amount" has the same meaning as under Section 32.
Required Disclosures
- Red Flag Warning - in form promulgated by Mayor; must be received by the borrower at least 3 business days prior to closing the loan.
- Notice of Assignee Liability - if a covered loan is sold or assigned, the seller or assignee shall include a notice of assignee liability in a form similar to the sample provided by the Department
- Filing Documents - 14 days after a loan is closed, a lender must submit copies of certain documents to the Mayor; these documents are: the note, the HUD-1 settlement statement, the final TIL, and form FP-7 filed with the Recorder of Deeds.
The more lenient D.C. covered loan test applies to loans that will be made or purchased by Fannie Mae, Freddie Mac, a bank, trust company, savings and loan association, or savings bank that is regulated and supervised by a supervising federal agency, including the finance and operating subsidiaries of those entities that are regulated and supervised by a federal agency. With respect to these loans, a "covered loan" is defined the same as a Section 32 loan. In many cases it is unclear who will ultimately purchase the loan and whether or not the purchasing entity is one whose purchase will exclude the loan from coverage under this more lenient test. Rather than have two D.C. specific predatory loan displays, we include information about this more lenient D.C. test in the disclaimer in the software, and simply refer our customer to the analysis and determination under Section 32.
Fannie Mae/Freddie Mac conforming limits vary depending on the number of units (SFR, 2-family, 3- family or 4- family). While we distinguish between SFR and 2-4 family properties, within the 2-4 family category, we do not distinguish on the basis of the actual number of units. Unless and until we do so, in the case of a 2-4 family dwelling, we should default to the highest conforming limit (which invariably is the conforming limit for 4-family dwellings) - this approach will result in determinations being made for 2- and 3-family dwellings that would normally fall outside the scope of the Act, but is the most conservative approach.
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