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Kentucky

UPDATED: August 22, 2011 (Revisions are highlighted in yellow.)

Kentucky High-Cost Home Loan Law

Kentucky adopted a high cost home loan statute (KRS Chapter 360.100 (the "Act")) that became effective on June 24, 2003. A copy of the Act can be accessed here. On April 25, 2008, the Kentucky high-cost test was revised to conform to the requirements of emergency legislation.  The changes included: (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.  To view a copy of the 2008 law, click here.  For additional guidance from the Kentucky Department of Financial Institutions, click here.

Coverage: 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

When is a Loan a “High-Cost Home Loan”? A high-cost home loan is defined as a 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: The total points and fees payable by the borrower at or before closing exceed the greater of $3,000 or six percent (6%) of the Amount Financed shown on the final Truth-in-Lending disclosure statement.

In order to determine which yield on Treasury securities to use, an "Application Date" must be entered in the worksheet.  If the Application Date is missing, the DocMagic system will default to the document date and a warning will display substantially as follows:

WARNING: APPLICATION DATE IS MISSING; DOCMAGIC HAS DEFAULTED TO THE DOCUMENT DATE OF ___ TO RUN THE KY HIGH COST LOAN LAW APR TEST.

The Points and Fees Test: "Points and fees" are defined substantially similar as under Section 32 to include (or exclude) the following:

Prepaid Finance Charge - the total amount of prepaid finance charges
- Prepaid Interest - to be deducted from prepaid finance charge
+ Other Mortgage Broker Compensation - the total amount of all non-prepaid finance charges paid directly or indirectly by a borrower to a mortgage broker, including any yield spread premiums paid by a creditor to a mortgage broker
+ Other Charges Paid to Creditor/Affiliate - the total amount of all Regulation Z Section 226.4(c)(7) charges not otherwise included as a part of the Prepaid Finance Charge if paid to the creditor or creditor affiliate
+ Optional Credit Insurance/Related Products Paid at or Before Closing -(optional credit life/accident/health/loss of income/debt cancellation coverage costs, regardless of how named or paid (in cash or financed) and regardless if a single premium or initial payment)
- Other Excludable Charges - the total amount of all Regulation Z Section 226.4(c)(7) charges provided they are not paid to the creditor or creditor affiliate; Mortgage insurance premiums paid to government entities such as HUD, VA and USDA
+/- Creditor Requested Adjustments - the total amount of all customer requested overrides

Total Loan Amount: "Total Loan Amount" is defined the same as under Section 32:

  Amount Financed (loan amount - prepaid finance charges)
- Other Charges Paid to Creditor/Affiliate and Financed (the total amount of all Regulation Z Section 226.4(c)(7) charges not included as a part of the Prepaid Finance Charge if paid to the creditor or creditor affiliate and financed)
- Optional Credit Insurance/Related Products Finance by Creditor (optional credit life/accident/health/loss of income/debt cancellation coverage costs if financed (i.e., excludes paid amounts)
+/-     Creditor Requested Adjustments - the total amount of all customer requested overrides

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

  • 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. A prepayment penalty may not be charged following the third anniversary date of the mortgage or sixty (60) days prior to the date of the first interest rate reset, whichever is sooner.
  • 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.
  • May not contain a provision which permits the lender, in its sole discretion, to accelerate the indebtedness.
  • No scheduled payment that is more than twice as large as the average of earlier scheduled payments.
  • No negative amortization loans permitted.
  • No increased interest rate after default permitted.
  • No more than two periodic payments may be consolidated and paid in advance from the loan proceeds.
  • No fees may be charged to modify, renew, extend, amend, or defer any payment, unless the fees are less than one-half (1/2) of any fees that would be charged for a refinance or unless the borrower is in default and it is in the borrower's best interest.
  • No lending without regard to borrower ability to repay.
  • If proceeds are used to refinance an existing high-cost home loan, a lender may not directly or indirectly finance:
    • Any prepayment fees or penalties payable by the borrower;
    • Points and fees exceeding 4% of the total amount financed.
  • No points and fees may be charged in connection with a high-cost home loan if the proceeds are used to refinance an existing high-cost home loan with the same creditor.
  • Lender may not pay a home improvement contractor other than by an instrument payable to the borrower or jointly to the borrower and contractor, or at the election of the borrower, through a third party escrow pursuant to written agreement between the borrower, contractor and lender.
  • Limitation on refinancing zero-interest or other low interest loans by governmental or nonprofit creditors
  • No financing of single premium credit insurance and related products.
  • Lender must make available to the borrower a videotape, or other similar audio-video media format, which explains the borrower’s rights and responsibilities with regard to high-cost home loans.
  • No mandatory arbitration provisions that are oppressive, unfair, unconscionable or substantially in derogation of the rights of the borrower.
  • No charge for payoff calculation for first request of each calendar year; Charge for subsequent requests in a calendar year may not exceeds $10 or actual costs.
  • No initiating a foreclosure or other judicial process without first providing the borrower, at least 30 days prior to the initiation of any process, written notice of default and the borrower’s right to cure.
  • No recommending or encouraging default.
  • Making a high-cost home loan without establishing an escrow account for the payment of property taxes and insurance.
  • May not allow borrower to make payments that are applied only to interest and not to principal.
  • Lender must provide timely notice to the borrower of any material change after an applicant has been taken but before loan closing.
  • If the loan proceeds will be used to repay the principal of an existing loan that is not a high-cost home loan, the lender may not process the loan application without first requiring the borrower to obtain housing counseling by a HUD-approved counselor.

Notice: The following notice to borrower must be given in writing, not later than the Section 32 disclosures:

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.



*This article is distributed to provide general information about the subject matter covered and should not be utilized as a substitute for professional advice in specific situations. If you require such advice, please consult with your own professional advisers.


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