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

Utah High Cost Home Loan Act

The Utah High Cost Home Loan Act (the "Act") became effective on May 3, 2004. The Act applies to "high-cost mortgages" (defined below) made or originated through a person or business required to be licensed under the Utah Residential Mortgage Practices and Licensing Act.

Coverage: The Act applies to any borrower credit transaction secured by the borrower's principal dwelling. The phrase "borrower credit transaction" is undefined. Given this rather broad definition, we interpret the Act to apply to all closed- and open-end loans, regardless of lien position, loan type, loan purpose, and property types, including purchases, refinances and construction loans; only loans secured by non-owner occupied properties appear to be excluded.

Definition of High Cost Mortgage: The Act defines a "high-cost mortgage" substantially similar to Section 32:

1. APR Test: 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.
2. Points and Fees Test: Total points and fees payable by the borrower at or before the closing exceed the greater of eight percent (8%) of the total loan amount or a specified dollar amount that is subject to change annually to match the dollar amount under Section 32. Note: while the points and fees test tracks Section 32 to a large extent, the terms "points and fees" and "total loan amount" are not themselves defined in the Act. For purposes of our analysis, we assume that these terms have the same meaning as under Section 32.

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 UT HIGH COST HOME LOAN ACT APR TEST.

Prohibitions: The Act contains a number of substantive limitations with respect to high-cost home loans:

• Prepayment penalties: A high-cost home loan can provide for a prepayment penalty, but only if the prepayment penalty period does not exceed 36 months after the loan was originally made, and the amount of the penalty does not exceed the total amount of interest paid at 80% of the immediately preceding six (6) scheduled payments. Furthermore, a prepayment penalty may not be assessed if the high-cost mortgage is paid with the proceeds of a new loan by the same lender or an affiliate of that lender, or the penalty is prohibited under other applicable law. Finally, if a prepayment does not pay the full amount owed on the high-cost mortgage when the prepayment is made, the penalty shall be reduced by a percentage equal to the percentage of the balance owed before the prepayment that remains unpaid. A "prepayment" is defined as a payment to a lender that: (a) is more than the amount of the next scheduled payment due; (b) pays more than half of the principal balance of the high-cost mortgage; and (c) is paid more than 24 months before the last scheduled payment according to the terms of the high-cost mortgage when it is made.
• No negative amortization
• Prohibition against financing total points, fees or other charges in excess of 8% without the disclosure set forth below
• Arbitration clauses must comply with the standards set forth in the Utah Arbitration Act or the Federal Arbitration Act
• The offer or sale of single premium credit insurance products is prohibited
• No encouraging default (this applies to all loans, high-cost or not)
• Borrower must be provided with a complete set of documents
• All mortgage forms must be filled in before they are signed
• A lender shall provide any brochure or other document information prepared by a federal or state authority in a form intended to inform consumers about home loans or consumer credit on financing or educational resources on financing. This may include public posting of a notice indicating that educational resources are available; a list of educational opportunities or programs in the surrounding area, including the program name and phone number; a printed brochure or booklet on responsible lending and borrowing available to the borrower at no charge; or information from the Department of Financial Institutions on its responsible consumer financial educational program.

Disclosures. The following disclosures in conspicuous type must be made to a borrower not less than three business days prior to consummation of the high cost loan

YOU ARE NOT REQUIRED TO COMPLETE THIS AGREEMENT MERELY BECAUSE YOU HAVE RECEIVED THESE DISCLOSURES OR HAVE SIGNED THE LOAN APPLICATION.

IF YOU OBTAIN THIS LOAN, THE LENDER WILL HAVE A MORTGAGE ON YOUR HOME. YOU COULD LOSE YOUR HOME OR PROPERTY, AND ANY MONEY YOU HAVE PUT INTO IT, IF YOU DO NOT MEET YOUR OBLIGATIONS UNDER THIS LOAN.

THE TIMING AND AMOUNT OF PAYMENTS ON DEBTS YOU ALREADY ARE CARRYING CONTRIBUTE TO THE CREDIT RATING THAT IS USED TO DETERMINE WHETHER YOU MAY GET A NEW LOAN AND HOW MUCH YOU WILL PAY FOR THAT NEW LOAN. YOU SHOULD NOT ACCEPT ANY ADVICE TO IGNORE OR DELAY MAKING ANY PAYMENT ON LOANS YOU ALREADY HAVE, EVEN IF THOSE LOANS WILL BE PAID OFF WITH THE NEW LOAN.

YOU MAY GET INTO SERIOUS FINANCIAL DIFFICULTIES IF YOU USE THIS LOAN TO PAY OFF OLD DEBTS AND THEN RUN UP OTHER NEW DEBTS.