Article 8-A of the Maine Consumer Credit Code (Me. Rev. Stat. Ann. tit. 9-A, §8-506) provides for enhanced restrictions on creditors who make “higher-priced mortgage loans”. The most recent revisions to these restrictions were enacted as Public Law, Chapter 427, LD 1338 with an effective date of September 27, 2011.
Maine Higher-Priced Mortgage Loans Defined
Me. Rev. Stat. Ann. tit. 9-A, §8-506(1)(I) provides the following definition of a “higher-priced mortgage loan”:
“Higher-priced mortgage loan” has the same meaning as set forth in the Federal Truth in Lending Act and its implementing regulation, Regulation Z, 12 Code of Federal Regulations, Section 226.35(a). Higher-priced mortgage loan also includes a residential mortgage loan that is a nontraditional mortgage as described in the “Interagency Guidance on Nontraditional Mortgage Product Risks”, except that “higher-priced mortgage loan” does not include a mortgage that does not allow a borrower to defer the payment of principal or interest.”
“Creditor” means a person who both:
- Regularly extends consumer credit that is payable by agreement in more than 4 or more installments or for which the payment of a finance charge is or may be required; and
- Is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness, or if there is no such evidence of indebtedness, by agreement. For purposes of §8-506, “creditor” could also include a broker if the broker falls under the definition of “lender” under Regulation X.
The restrictions do not apply to any supervised financial organization as defined in Me. Rev. Stat. Ann. tit. 9-A, §1-301(38-A). Generally speaking, this exemption applies to:
A financial institution, as defined in Me. Rev. Stat. Ann. tit. 9-B, §131, or
A person, other than an insurance company, that is subject to supervision by a state or the United States and is either a state- or federally-chartered depository institution or a state- or federally-chartered nondepository trust company.
Applicability and Coverage
A loan is considered a higher-priced mortgage loan if:
- The loan is an HPML under federal law; or
- The loan meets the Maine definition of “residential mortgage loan” and has a feature that defers the payment of principal or interest.
These separate definitions have an impact on the applicability of the higher priced mortgage loan test.
The process by which a higher-priced mortgage loan determination is made is described below:
- If the loan is determined to be a higher-priced mortgage loan under federal law, it will also be considered a higher-priced mortgage loan under Maine law. Under federal law, a "higher-priced mortgage loan" is defined as a consumer credit transaction secured by the consumer's principal dwelling for which the loan APR exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by either:
(i) 1.5% or more (for a loan secured by a first lien); or
(ii) 3.5% or more (for a loan secured by a subordinate lien)
To review our prior discussion of Federal HPML regulations and DocMagic's process for determining whether a loan is a Federal HPML, please click here.
- If the loan is not a higher-priced mortgage loan under federal law, a determination must be made as to whether the loan is a Maine “residential mortgage loan” that is also a “non-traditional mortgage” as described in the Interagency Guidance on Nontraditional Mortgage Product Risks. A “residential mortgage loan” is a closed-end or open-end loan that meets the definition of “federally related mortgage loan” under RESPA and also meets the following criteria:
Loan Amount. The loan amount is less than or equal to the Freddie Mac conforming loan limit.
Occupancy. The loan is secured by the borrower’s principal dwelling.
Loan Purpose. The loan purpose is either purchase or refinance. Although the definition of “residential mortgage loan” excludes loans made primarily for business, agricultural, or commercial purchases, the DocMagic system assumes that any loan secured by the borrower’s principal dwelling is a consumer credit transaction for the purpose of making a higher-priced mortgage loan determination.
Lien Position. The Maine definition of “residential mortgage loan” applies to all lien positions.
Loan Type. The loan type is not equal to “construction” or “construction to permanent”. (The statute also excludes reverse mortgage loans, which are not supported by DocMagic.)
If the loan meets the definition of residential mortgage loan, the determination must include a consideration of whether or not the loan program meets the definition of “non-traditional mortgage” as described in the Interagency Guidance. This would include loans that allow the borrower to defer repayment of principal or interest, including all interest-only and negative amortization mortgage products, except HELOCs.
Restrictions
Maine higher-priced mortgage loans are subject to a number of restrictions and prohibitions, including but not limited to the following:
- A creditor may not extend a higher-priced mortgage loan to a consumer based on the value of the consumer’s collateral without regard to the consumer’s repayment ability as of consummation, including the consumer’s current and reasonably expected income, employment, assets other than the collateral, credit history, debt-to-income ratio, current obligations and mortgage-related obligations. This provision does not apply to a temporary or so-called “bridge” loan with a term of 12 months or less, such as a loan to purchase a new dwelling when the consumer plans to sell a current dwelling within 12 months.
- A creditor or mortgage broker may not knowingly or intentionally engage in the act or practice of flipping a residential mortgage loan when making a higher-priced mortgage loan. “Flipping a residential mortgage loan” means the making of a residential mortgage loan to a borrower that refinances an existing residential mortgage loan when the new loan does not have reasonable, tangible net benefit to the borrower considering all the circumstances.
Maine Higher-Priced Mortgage Loan Audits
If a loan meets the definition of a Maine higher-priced mortgage loan, then a warning displays substantially as follows:
WARNING: This is a Maine Higher-Priced Mortgage Loan. (9-A MRSA, §8-A-506(1)(I).)
To establish whether or not a loan is covered by Maine HPML, it will be necessary to determine if the interest rate set exceeds the average prime offer rate as of the date the interest rate is set for the comparable type of loan (fixed or ARM) and loan term. In order to make that determination, a rate lock date must be entered in the worksheet, and if absent, then a warning will display substantially as follows:
WARNING: Rate lock date is missing; DocMagic has defaulted to the Document Date of ___ to run the ME HPML audit.
NOTE: If the Rate Lock Date has not yet been established, we suggest that you simply enter the date on which you are running the audit until such time as the Rate Lock Date is established. If the Rate Lock Date is missing, the DocMagic system will default to the document date.
If a loan meets the definition of a Maine HPML, and has a term of more than 12 months, then a warning displays substantially as follows:
WARNING: This is a Maine Higher Priced Mortgage Loan. The lender must demonstrate that the borrower has the ability to repay the loan. (9-A MRSA, §8-A-506(4).)
If the loan meets the definition of a Maine HPML and is a refinance transaction, then a warning displays substantially as follows:
WARNING: This is a Maine Higher Priced Mortgage Loan. The lender may not refinance an existing residential mortgage loan when the new loan does not have a reasonable, tangible net benefit to the borrower. (9-A MRSA, §8-A-506(5).)
The information in this article supersedes the information found in the articles listed below, which have been archived for your reference:
June 2009: Maine Higher Priced Mortgage Loan (Archived 9/26/11)
January 2008: Maine Rate Spread Home Loan (Archived 6/10/09)
The Maine Consumer Credit Code does not provide a definition of “mortgage broker”. A definition of “loan broker” is provided, however, in Me. Rev. Stat. Ann. tit. 9-A §10-102.
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