Maryland Covered Loan Law

Effective October 1, 2002, various provisions of the Maryland Commercial Law were amended for the purpose of, among other things, prohibiting lenders from financing certain single premium insurance as part of certain mortgage loans; prohibiting lenders from making certain loans without giving due regard to a borrowers' ability to repay the loans; and requiring certain borrowers to be provided with home buyer education or housing counseling information under certain circumstances.

Definition of Covered Loan: Maryland law defines a "covered loan" by reference to Section 32 with one change: all applicable thresholds are reduced by one percentage point (1%). Therefore, the APR Test and Points and Fees Test are as follows:

1. APR Test: either 7% (for first liens) or 9% (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.
2. Points and Fees Test: Total Points and Fees payable by the borrower at or before the closing exceed the greater of seven percent (7%) of the total loan amount or a specified dollar amount that is subject to change annually.

The Points and Fees Test: Points and fees are defined as follows:

	Prepaid Finance Charge - the total amount of prepaid finance charges
-	Prepaid Interest - to be deducted from prepaid finance charg
+	Other Mortgage Broker Compensation - the total amount of any non-prepaid finance charge paid to broker by borrower (does not include YSPs and other lender-paid compensation to broker
+	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 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
+/-	Creditor Requested Adjustments - the total amount of all customer requested overrides

Total Loan Amount: Total loan amount is defined in the Federal Reserve Board commentary to Section 32 to mean the following:

	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 Financed 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: With respect to loans that meet the definition of a Covered Loan, a lender is prohibited from doing the following:

• A lender generally may not finance as part of the covered loan transaction single premium coverage for credit health insurance, involuntary unemployment benefit insurance, or credit life insurance;
• A lender may not make a covered loan without giving due regard to the borrower's ability repay the loan in accordance with its terms.

Disclosures: At the time a borrower completes a loan application for a covered loan, a lender must provide the borrower with (1) a written recommendation that the borrower seek home buyer education or housing counseling; and (2) a list of agencies and organizations approved by the county in which the residential real property securing the loan is located to provide home buyer education or housing counseling.