Georgia Fair Lending Act

Georgia: The Georgia Fair Lending Act (the "GFLA") became effective on October 1, 2002. Significant changes were made to the GFLA effective March 7, 2003. The GFLA (O.C.G.A. Title 7, Chapter 6A) can be accessed here. In addition, the Georgia Department of Banking and Finance has published a massive Q&A regarding the GFLA that is available here.

Coverage: The GFLA applies to any loan meeting the definition of a "home loan." A home loan is defined as any open- and closed-end, purchase and refinance loan, regardless of lien position, less than or equal to the Fannie Mae conforming loan limit for a single family dwelling in Georgia that is secured by any one- to four-family dwelling (which may be a manufactured home) that is the borrower's principal dwelling. Among the types of loans expressly excluded from the definition of a home loan are reverse mortgages, construction loans, multifamily (5+ units) loans, bridge loans and loans primarily for business, agricultural or commercial purposes.

When is a "Home Loan" a "High-Cost Home Loan"? A high-cost home loan is defined as a home loan that satisfies either or both of the following tests:

1. APR Test: The same as under Section 32: either 8% (for first liens) or 10% (for subordinate liens) over the yield on Treasury securities having comparable periods of maturity on the 15th day of the month immediately preceding the month in which the application is received by the creditor; or
2. Points and Fees Test: Total Points and Fees exceeds (i) five percent (5%) of the total loan amount if the total loan amount is $20,000 or more, or (ii) the lesser of eight percent (8%) of the total loan amount or $1,000 if the total loan amount is less than $20,000.

The APR Test: The determination of APR under the GFLA is the same as under TILA and Regulation Z.

The Points and Fees Test: Points and Fees are defined to include (or exclude) the following items:

	Prepaid Finance Charge - the total amount of prepaid finance charges
-	Prepaid Interest - to be deducted from prepaid finance charge
-	Other Excludable Charges - to the extent they have been included in prepaid finance charges, the following fees: tax service fees and attorneys' fees provided they are not paid to the creditor or a creditor affiliate; and bona fide fees paid to FHA, VA, Dept. of Agriculture and the Georgia Housing Finance Authority ("GHFA")
+	Other Charges Paid to Creditor/Affiliate - the total amount of all Regulation Z Section 226.4(c)(7) charges not included as a part of the Prepaid Finance Charge (other than title insurance premiums) if paid to the creditor or creditor affiliate
+	Other Mortgage Broker Compensation - all compensation paid to a mortgage broker regardless of the source of payment, including lender-paid compensation (i.e., YSPs)1
+	Optional Credit Insurance/Related Products Paid At or Before Closing - regardless of how named or paid (in cash or financed) and regardless if a single premium or initial payment
+	Maximum Prepayment Fees Permitted Under the Loan Documents - a prepayment penalty under a high-cost home loan is permitted only during the first 24 months after closing and may not exceed: (i) two percent (2%) of the amount prepaid in the first 12 months; or (ii) one percent (1%) of the amount prepaid in the second 12 months.2
+	Any Prepayment Fee Assessed on Refinanced Loan Made or Held by the Creditor or Affiliate - if the new loan is refinancing a preexisting loan that was made or is currently being held by the creditor or a creditor affiliate, and a prepayment penalty is assessed on the payoff of the preexisting loan. We have created a field within DocMagic where customers can input this amount.
-	Bona Fide Discount Points - up to two (2) bona fide discount points may be deducted. Note: For purposes of the GFLA, a bona discount point is defined generally as points paid for the express purpose of reducing, and which in fact result in a reduction of, the applicable interest rate provided the undiscounted interest rate does not exceed by more than one percent (1%) the required net yield for a 90-day standard mandatory delivery commitment for a home loan having a reasonably comparable term from either Fannie Mae or Freddie Mac, whichever is greater. For purposes of our high-cost home loan analysis and determination, we assume that all discount points paid by the borrower are bona fide; the lender should independently determine whether the discount points are indeed bona fide and otherwise comply with the GFLA.
+/-	Creditor Requested Adjustments - the total amount of all customer requested overrides

Total Loan Amount is defined the same as under TILA and Regulation Z. For open-end loans, the total loan amount is equal to the credit limit.

What Happens If a Loan Is a High-Cost Home Loan? There are many, many substantive limitations imposed for home loans and high-cost home loans. These include the following:

Home loans:

• Creditor may not single-premium finance credit insurance, debt suspension coverage or debt cancellation coverage.
• Creditor may not recommend or encourage default of existing loan.
• Creditor may not charge a late fee unless payment is past due by 10 or more days, and such charge may not exceed 5%. If a late payment is deducted from a payment made on the home loan and the deduction results in a subsequent payment default, a late payment charge may not be imposed on the subsequent default.
• Creditor may not charge a payoff or release fee.
• A $10.00 processing fee may be charged if the information is provided by fax or within 60 days of a previous request.
• Payoffs must be provided within 5 business days after the request.

High-Cost Loans:

• No flipping, defined as a refinance within 5 years when the new loan provides no "reasonable, tangible net benefit" to the borrower; there is a presumption of flipping if the new loan refinances a special mortgage (other than first mortgage loans originated by, purchased by, or assigned to GHFA) bearing a below market rate or special terms beneficial to the borrower.
• Prepayment penalties limited to 2% of the amount prepaid in year one, 1% of the amount prepaid in year 2.
• No balloon loans permitted.
• No negative amortization.
• No increased default interest rate.
• No more than 2 payments may be paid in advance from the loan proceeds.
• Creditor may not require a borrower to assert a claim or defense in a forum that is less convenient, more costly or more dilatory for the resolution of a dispute than a judicial forum.
• Counseling certification required.
• Creditor must have reasonable belief that borrower has ability to repay the loan. A rebuttable presumption of ability to repay exists if debt to income ratio is 50% or less.
• No modification or deferral fees are permitted.
• Special foreclosure notices and procedures.
• No call provisions are permitted.
• The following disclosure must be placed on the loan documents that create a debt or pledge property (i.e., the note and the security instrument) on the first page in a conspicuous manner:

Notice: This is a mortgage subject to special rules under the "Georgia Fair Lending Act." Purchasers or assignees of this mortgage may be liable for all claims and defenses by the borrower with respect to the mortgage.

Disclosures:

Right to Select an Attorney Disclosure: Attorneys' fees may be excluded from the total points and fees provided the borrower has the right to select the attorney from an approved list or otherwise. Therefore, it is desirable that the borrower receives a notice advising him or her of this right and perhaps indicating their exercise or waiver of this right.

Bona Fide Discount Points: The GFLA requires that a borrower "knowingly" contract for the discount points in order to reduce the rate. Therefore, it is desirable to obtain the borrower's acknowledgment that he or she agrees to pay X number of discount points for the express purpose of reducing the interest rate on the loan from Y% to Z%. It may also be desirable to include the corresponding Fannie Mae/Freddie Mac 90-day net yield amounts to confirm that the undiscounted rate does not exceed the greater of the two by more than one percent (1%).