New Jersey Home Ownership Security Act of 2002

Coverage: The New Jersey Home Ownership Security Act of 2002 (N.J.S.A. 46:10B-22 et seq.), as amended by SB 279 on July 6, 2004 (the "Act") applies to "home loans," defined generally as all closed- and open-end loans (including purchase, construction and refinance loans, and regardless of lien position) secured by 1-6 family, owner-occupied properties (including a manufactured home) where the principal amount of the loan does not exceed a designated amount that is adjusted on an annual basis.  (Note: For 2007, only loans that do not exceed $400,001.50 may be subject to the Act.) Loans excluded from coverage are reverse mortgages and loans not made primarily for personal, family or household purposes (i.e., business, agricultural or commercial purpose loans).  The New Jersey Department of Banking and Insurance (NJDOBI) also has a website devoted to predatory lending issues; the website is located here.

When is a home loan a "High-Cost Home Loan"? A high-cost home loan is defined as a home loan that exceeds one or more of the following thresholds:

1. Rate Threshold (APR Test): The same as under Section 32, that is, 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. Total Points and Fees Threshold (Points and Fees Test): Total Points and Fees payable by the borrower at or before closing exceed:

   1. four and one/half percent (4.5%) of the total loan amount if the total loan amount is $40,000 or more;
   2. six percent (6%) of the total loan amount if the total loan amount is $20,000 or more but less than $40,000; or
   3. the lesser of (6%) of the total loan amount or $1000 if the total loan amount is less than $20,000.

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

	Prepaid Finance Charge - the total amount of prepaid finance charges excluding mortgage insurance premiums.
-	Prepaid Interest - odd days interest is deducted from prepaid finance charge.
+	Other Includable Charges - includes the following charges if not included as a part of the Prepaid Finance Charge: (1) document preparation charges, regardless of to whom paid; and (2) the total amount of the following fees if paid to the creditor, the broker or an affiliate (note: any of these fees paid to broker are reflected in the Other Mortgage Broker Compensation area; the list below includes more than just Regulation Z Section 226.4(c)(7) charges): Tax service Flood certification/determination Pest inspection/other prior to closing inspections Appraisal fees Credit report fees Survey fees Attorneys' fees Notary fees Escrow charges Fire (hazard) and/or flood insurance premiums
+	Other Mortgage Broker Compensation - the total amount of all non-prepaid finance charges paid directly or indirectly to a mortgage broker regardless of the source of payment, i.e., includes all back-end compensation paid by lender to broker
+	Optional Credit Insurance/Related Products Financed by the Creditor - while premiums that are calculated on a monthly basis are excluded, our default is to include all such amounts regardless if paid monthly or otherwise
+	Maximum Prepayment Fees Permitted Under the Loan Documents - The Act itself neither expressly authorizes nor restricts prepayment fees. Prepayment penalties are generally prohibited in New Jersey. Certain entities may nonetheless be able to assess a prepayment penalty. The Act permits a "conventional prepayment penalty" to be excluded from the total points and fees. A "conventional prepayment penalty" is limited to two percent (2%) of the amount prepaid.1 For purposes of completing this analysis, if the loan has a prepayment provision, we multiply the principal amount of the loan by 2%.
+	Any Prepayment Fee Assessed on Refinanced Loan Made/Held by Creditor or Affiliate - if the new loan is refinancing a preexisting loan that was made or is currently held by the creditor or an affiliate of the creditor, and a prepayment penalty is assessed on the payoff of the preexisting loan; however, this provision does not apply to a loan which refinances a previous loan made by the same broker and funded by another creditor.
-	Other Excludable Charges - if included as a part of the Prepaid Finance Charge, the total amount of the following charges may be excluded so long as they are not paid to the creditor, broker or affiliate (the list below includes more than just 226.4(c)(7) charges): Title insurance premiums and fees Taxes/recording fees/etc. paid to public officials The following reasonable fees: Tax service Flood certification/determination Pest inspection/other prior to closing inspections Appraisal fees Credit report fees Survey fees Attorneys' fees Notary fees Escrow charges Fire (hazard) and/or flood insurance premiums
-	Conventional Prepayment Penalty/Bona Fide Discount Points - the Act permits the deduction of either a "conventional prepayment penalty," or up to two (2) "bona fide discount points"2; the selection appears to be left up to the creditor to make. Accordingly, because we assume that any assessed prepayment penalty meets the definition of a "conventional prepayment penalty," and because we assume that all discount points are bona fide, I would propose the following solution: if the loan has a prepayment penalty (regardless whether there are or are not discount points charged), we multiply the principal amount of the loan by 2% and exclude 2% (see prepayment penalty discussion in footnote 1); and if the loan has no prepayment penalty but has discount points, we deduct the actual amount of bona fide discount points up to a maximum of two (2) discount points (see bona fide discount point discussion in footnote 2).
+/-	Creditor Requested Adjustments - the total amount of all customer requested overrides

Total Loan Amount: is defined as follows:

	Original Principal Balance/Credit Line Available
-	Total Points and Fees Financed
+/-	Creditor Requested Adjustments

However, for HELOCs, Total Loan Amount is defined simply as the amount of the credit line, without any deductions.

What Happens If a Loan Is a High-Cost Home Loan?

There are many, many substantive limitations imposed on lenders and brokers if a loan is found to be a high-cost home loan. These include the following:

• No financing of optional credit insurance/related products
• No recommending/encouraging default
• Late fee limited to 5%/15 days; may only be assessed once with respect to any single late payment; may not assess unless borrower notified within 45 days after due date that late fee has been imposed; may not assess if borrower disputes within such 45 day period
• No provision permitting creditor, in its sole discretion, to accelerate the loan permitted (excludes good faith acceleration due to borrower's breach of material terms of the loan)
• No charging for payoff demands/releases
• No loan shall contain a 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
• Loan agreement may not require that borrower, either individually or on behalf of others similarly situated, assert claim/defense in forum that is less convenient, more costly, more dilatory for dispute resolution than NJ judicial forum - such provisions are unconscionable and void
• Notice requirement - NOTICE TO BORROWER (see below)
• Borrower must receive credit counseling, as certified to creditor by a HUD/NJDOBI-approved counselor
• Payments under a home improvement contract must be made either to the borrower, or jointly to the borrower and the contractor, or to an escrow agent if borrower requests
• No fees may be charged to modify, renew, extend, amend, or defer any payment
• 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
• Must use judicial foreclosure procedures to foreclose
• No financing of points and fees in excess of two percent (2%) of the total loan amount
• The following notice to borrower must be given in writing, acknowledged in writing and signed by the borrower, 3 business days prior to loan closing:

NOTICE TO BORROWER

YOU SHOULD BE AWARE THAT YOU MIGHT BE ABLE TO OBTAIN A LOAN AT A LOWER COST. YOU SHOULD SHOP AROUND AND COMPARE LOAN RATES AND FEES.

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 CREDITOR OR BROKER YOU SELECT.

IF YOU ACCEPT THE TERMS OF THIS LOAN, THE CREDITOR WILL HAVE A MORTGAGE LIEN ON YOUR HOME. YOU COULD LOSE YOUR HOME AND ANY MONEY YOU PUT INTO IT IF YOU DO NOT MEET YOUR PAYMENT OBLIGATIONS UNDER THE LOAN.

YOU SHOULD CONSULT AN ATTORNEY-AT-LAW AND A QUALIFIED INDEPENDENT CREDIT COUNSELOR OR OTHER EXPERIENCED FINANCIAL ADVISOR REGARDING THE RATE, FEES AND PROVISIONS OF THIS MORTGAGE LOAN BEFORE YOU PROCEED.

A LIST OF QUALIFIED COUNSELORS IS AVAILABLE BY CONTACTING THE NEW JERSEY DEPARTMENT OF BANKING AND INSURANCE.

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

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