Kentucky High-Cost Home Loan Law

The DocMagic Kentucky high-cost test has been revised to conform to the requirements of emergency legislation signed into law on April 25, 2008.  The changes include: (i) lowering the total points and fees threshold to the greater of $3,000 or six percent (6%) of the amount financed shown on the final Truth-in-Lending disclosure statement; (ii) the exclusion of mortgage insurance premiums paid to government entities such as HUD and VA from the definition of total points and fees; and (iii) treating yield spread premiums paid by the creditor to the broker as a point and fee.  We will update this memorandum in the near future to more fully describe the changes made by the emergency legislation.  To view a copy of the new law, click here.  For additional guidance from the Kentucky Department of Financial Institutions, click here. 

Kentucky has adopted a high cost home loan statute (KRS Chapter 360.100 (the "Act")) that became effect on June 24, 2003. A copy of the Act can be accessed here.

Loans applicable to: The Act applies to the following loans:

1. First-lien and junior-lien closed-end loans (excludes HELOC, reverse mortgages and commercial loans) - this includes purchase money, refinances and construction loans
2. Loan amount greater than $15,000, but less than or equal to $200,000
3. Owner-occupied

If the loan meets the above requirements, it is a high cost home loan if it also meets either the APR or Points and Fees thresholds under Section 32; however, note that unlike Section 32 which is limited to refinance transactions, the Kentucky law would also apply to purchase money and construction loans.

If a loan is a Kentucky high cost home loan, there are a number of prohibitions; they include the following:

1. There is a special disclosure that must be given at the same time as the Section 32 disclosures. The disclosure reads as follows:

   NOTICE TO BORROWER

   IF YOU OBTAIN THIS LOAN, THE LENDER WILL HAVE A MORTGAGE ON YOUR HOME. YOU COULD LOSE YOUR HOME AND ANY MONEY YOU PUT INTO IT IF YOU DO NOT MEET YOUR OBLIGATIONS UNDER THE LOAN.

   MORTGAGE LOAN RATES AND CLOSING COSTS AND FEES VARY BASED ON MANY FACTORS, INCLUDING YOUR PARTICULAR CREDIT AND FINANCIAL CIRCUMSTANCES, YOUR EMPLOYMENT HISTORY, THE LOAN-TO-VALUE REQUESTED AND THE TYPE OF PROPERTY THAT WILL SECURE YOUR LOAN. THE LOAN RATE AND FEES COULD ALSO VARY BASED ON WHICH LENDER OR BROKER YOU SELECT. YOU SHOULD SHOP AROUND AND COMPARE LOAN RATES AND FEES.

   YOU SHOULD ALSO CONSIDER CONSULTING A QUALIFIED INDEPENDENT CREDIT COUNSELOR OR OTHER EXPERIENCED FINANCIAL ADVISOR REGARDING THE RATE, FEES AND PROVISIONS OF THIS MORTGAGE LOAN BEFORE YOU PROCEED. YOU SHOULD CONTACT THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FOR A LIST OF CREDIT COUNSELORS AVAILABLE IN YOUR AREA.

   YOU ARE NOT REQUIRED TO COMPLETE THIS LOAN AGREEMENT MERELY BECAUSE YOU HAVE RECEIVED THESE DISCLOSURES OR HAVE SIGNED A LOAN APPLICATION.

   REMEMBER, PROPERTY TAXES AND HOMEOWNER'S INSURANCE ARE YOUR RESPONSIBILITY. NOT ALL LENDERS PROVIDE ESCROW SERVICES FOR THESE PAYMENTS. YOU SHOULD ASK YOUR LENDER ABOUT THESE SERVICES.

   ALSO, YOUR PAYMENTS ON EXISTING DEBTS CONTRIBUTE TO YOUR CREDIT RATINGS. YOU SHOULD NOT ACCEPT ANY ADVICE TO IGNORE YOUR REGULAR PAYMENTS TO YOUR EXISTING CREDITORS.

2. A special prepayment rule applies - limited to 36 months, and 3% of the amount prepaid in year one, 2% in year two, and 1% in year three.
3. Finally, the late charge period must be 15 days or more, and the amount of the late charge may not exceed the greater of 5% of the amount of the payment past due or $10.