New Mexico Home Loan Protection Act
Coverage: The New Mexico Home Loan Protection Act (the "Act") became effective January 1, 2004. Click here to view the Act. The Act was extensively amended effective July 31, 2009. Click here to view the Act amendments (the sections dealing with the Act begin on page 75). The New Mexico Regulation & Licensing Department - Financial Institutions Division (the "NMFIB") has adopted a series of regulations implementing the Act's provisions, which regulations are part of the New Mexico Administrative Code (the "NMAC"). The applicable NMAC regulations can be viewed here. The Act applies to "home loans." A home loan means any closed or open-end loan secured by an owner-occupied, 1-4 family property (which may be a manufactured home) that does not exceed the Fannie Mae conforming limit for a single-family dwelling, regardless of lien position and regardless of whether the loan is a purchase money, construction, or refinance loan.
Loans excluded from coverage are multifamily properties, non-owner occupied properties and second homes.
Prohibitions and Restrictions Applicable to "Home Loans": The Act, as amended, contains a number of prohibitions and restrictions applicable to home loans. Prior to amendment, many of the Act's prohibitions and restrictions applied to high-cost home loans only; after the amendment, many of these prohibitions and restrictions (in bold below) were made applicable to home loans generally and not merely high-cost home loans. The prohibitions and restrictions now imposed on home loans generally include the following:
Financing of single-premium credit insurance is prohibited
"Flipping" (refinancing one home loan with another home loan without a reasonable, tangible net benefit to the borrower) is prohibited
Making a home loan without documenting and considering the borrower's reasonable ability to repay the loan (excludes government streamline loans and loss mitigation efforts provided the borrower receives a reasonable, tangible net benefit) is prohibited Making a home loan without determining the borrower's reasonable ability to pay the costs of the loan (based on a fully-indexed rate and full amortization) is prohibited; costs include principal, interest, real estate taxes and assessments, property insurance, mortgage insurance premiums and other scheduled long-term monthly debt payments
Negative amortization is prohibited
No more than two periodic payments may be consolidated and paid in advance from the loan proceeds
Payments to a contractor under a home improvement contract are permitted only after creditor receives a signed and dated completion certificate, and must be payable jointly to the borrower and the contractor or through a third-party escrow
No deferral, renewal, extension or amendment charges may be charged to a borrower other than those that are bona fide, reasonable and actual
Payment deferral fee in excess of $75 are prohibited
Encouraging default on existing loan or prior debt is prohibited
Late fee in excess of 5% of the payment past due after 15 days is prohibited; only one late fee per single late payment;
Acceleration provision at creditor's sole discretion is prohibited; inapplicable if borrower has failed to abide by material terms of the loan
Prepayment penalty is prohibited
The following lending practices are prohibited:
Making a home loan primarily based on foreclosure or liquidation value
With respect to ARM loans (excluding HELOCs): interest rate and payment changes may not occur more frequently than annually; first interest rate changes may not increase by more than 2% (for loans with less than 5-year initial interest rate periods) or 6% (for loans with 5-year or greater initial interest rate periods); periodic interest rate changes may not exceed 2% per period; lifetime caps cannot exceed 6%
Advertising loan terms unless creditor able to make advertised terms available to a reasonable number of qualified applicants
Misrepresenting a borrower's credit rating
Misrepresenting, inflating or fabricating, or encouraging borrower to do same, source or amount of borrower's actual income or assets
Making a home loan with an LTV of 80% or greater without establishing an escrow account for the payment of property taxes and insurance
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:
- The Rate Threshold Test: the "contract rate" exceeds the "rates threshold"; "rate threshold" means an interest rate equal to either 7% (for first liens) or 9% (for subordinate liens) over the yield on Treasury securities having comparable periods of maturity as of the 15th day of the month immediately preceding the month in which the loan is made; or
- Total Points and Fees Threshold (Points and Fees Test): Total Points and Fees payable by the borrower at or before closing exceed:
- five percent (5%) of the total principal loan amount if the total principal loan amount is $20,000 or more; or
- the lesser of eight percent (8%) of the total principal loan amount or $1000 if the total principal loan amount is less than $20,000.
The Rate Threshold Test: A couple of points about the Rate Threshold Test:
- The Act ties the Rate Threshold to a loan's "contract rate." The term "contract rate" is undefined in the Act but an official with the NMFIB has advised us that the contract rate is based on a loan's interest rate and not the loan APR.
- Fixed Rate: When the loan provides for a fixed interest rate, the contract rate is equal to the interest rate.
- ARM: Section 12.15.3.13(D) of the New Mexico Administrative Code (NMAC) provides guidance on how to determine the interest rate with respect to ARM loans: "When calculating the interest rate for adjustable rate loans, the creditor shall not use any introductory rate. The interest rate will be based on the loan's disclosed index plus the margin, which is the fully indexed rate, at the time the loan is made. As an example, if the index is 2% and the margin is 3% for a first lien mortgage, the interest rate is 5% (the fully indexed rate)."
- Unlike Section 32 and all other state predatory lending laws which measure the Treasury security yield as of the 15th day of the month in which the application is received, the Act uses the Treasury security yield as of the 15th of the month immediately prior to the month in which the loan is made. Section 12.15.3.13(D) of the NMAC states that a loan is considered made "when the consumer becomes contractually obligated on a credit transaction."
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 |
| - | Prepaid Interest - to be deducted from prepaid finance charge |
| - | Other Excludable Charges - Tax service fees and attorneys' fees are deducted from prepaid finance charges provided they are not paid to the creditor or a creditor affiliate. In addition, upfront MIP paid to HUD, VA funding fee, rural housing guarantee fee and upfront premium private mortgage insurance are excludable from points and fees. (Note: Pursuant to N.M. Stat. Ann. ยง 58-21A-3(M)(1)(d)(14), the maximum percentage rate for upfront premium private mortgage insurance is set biannually by the Director of the Financial Institutions Division here.) |
| + | 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 (eg. yield spread premiums) |
| + | Optional Credit Insurance/Related Products Financed by the Creditor - other than premiums calculated on a monthly basis; I'm not sure we can distinguish between the two, so our default should be to include all such amounts |
| + | 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 |
| - | Conventional Prepayment Penalty/Bona Fide Discount Points - the Act permits the deduction of the sum of the "conventional prepayment penalty" and "bona fide discount points" up to two percent (2%). "Bona fide discount points" means loan discount points that are knowingly paid by the borrower for the express purpose of reducing, and which in fact do result in a bona fide reduction of, the annual percentage rate otherwise applicable to the home loan; provided, however that discount points are not "bona fide discount points" if the annual percentage rate otherwise applicable to the home loan exceeds the conventional mortgage rate (see footnote 3) by more than: (1) one and one-half percentage points for a home loan secured by a first lien; or (2) three percentage points for a home loan secured by a junior lien. Because of the general prohibition against the assessment of penalties in connection with home loans, we ignore the possibility of excluding a conventional prepayment penalty from points and fees. Discount points up to 2% of the loan amount will be deducted to the extent they are indicated to be bona fide. |
| +/- | Creditor Requested Adjustments - the total amount of all customer requested overrides |
Total Principal Loan Amount: NMAC Section 12.15.3.15 defines total principal loan amount as "the total principal loan amount as stated in the promissory note." For HELOCs, total principal loan amount means simply the amount of the credit line, without any deductions.
| Original Principal Balance/Credit Line Available |
| +/- | Creditor Requested Adjustments |
Prohibitions and Restrictions Applicable to High Cost Loans:
In addition to the many prohibitions and restrictions applicable to home loans generally, there are a handful of substantive limitations imposed on lenders and brokers if a home loan is also a high-cost home loan. These include the following:
- No financing of points and fees in excess of two percent (2%) of the total loan amount
- No increased interest rate after default
- No requirement that borrower assert claim/defense in forum that is less convenient, more costly, more dilatory for dispute resolution than a proper judicial form
- Borrower must receive credit counseling from an approved counselor
- A violation of the Act also constitutes an unfair and deceptive trade practice under the New Mexico Unfair Practices Act.
- Notice requirement - NOTICE TO BORROWER (see below)
Notices: The following notice to borrower must be given in writing, acknowledged in writing and signed by the borrower, not later than the time required under the notice provision in 12 CFR 226.31(c):
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 MEXICO REGULATION AND LICENSING DEPARTMENT.
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.
Interestingly, the amendment removed from the Act in its entirety the prohibition against balloon loans previously applicable to high-cost home loans.
Prior to amendment, the Act provided that a credit must give due regard to the borrower's repayment ability. The creditor would have the benefit of a rebuttable presumption of having given appropriate due regard to repayment ability if the creditor followed the DTI rations and residual guideline ratios established by rule by the NMFIB.
A "conventional prepayment penalty" must be authorized by federal law, and the home loan's APR may not exceed by more than two percent (2%) the "conventional mortgage rate." The "conventional mortgage rate" is defined as the most recently published yield on the conventional mortgages as published by the board of governors of the federal reserve as of the 15th day of the month immediately preceding the month in which the application is received by the creditor.
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