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West Virginia

West Virginian Residential Mortgage Lender, Broker and Service Act

Section 31-17-8 (m) (4) of the West Virginia Code ("Section 31-17-8") places restrictions on the number of combined fees, compensation or points of any kind a licensee under the West Virginia Residential Mortgage Lender, Broker and Service Act may require a borrower to pay. There is no "APR Test" in West Virginia; however, yield spread premiums paid by the lender to the broker are not permitted if the loan APR exceeds 18%.

Coverage: Section 31-17-8 applies to both "primary mortgage loans" and "subordinate mortgage loans." A "primary mortgage loan" is defined as a "consumer loan" made to an individual secured in whole or in part by a first lien on a 1- to 4-family owner-occupied residential dwelling. A "subordinate mortgage loan" is defined the same way, except that there are one or more prior liens. A "consumer loan" is essentially any consumer purpose loan made to a natural person payable in installments or a finance charge is made and secured by an interest in land. Given these rather broad definitions, we interpret Section 31-17-8 to apply to all closed- and open-end loans, regardless of lien position, loan type, and loan purpose, including purchases, refinances and construction loans secured by 1- to 4-family owner-occupied properties; only loans secured by non-owner occupied properties and multifamily properties are excluded.

Maximum Points, Fees and Charges: Section 31-17-8 (m) (4) provides as follows:

"(m) In making any primary or subordinate mortgage loan, no licensee may, and no primary or subordinate mortgage lending transaction may, contain terms which: (4) Require the borrower to pay, in addition to any periodic interest, combined fees, compensation, or points of any kind to the lender and broker to arrange, originate, evaluate, maintain or service a loan secured by any encumbrance on residential property that exceed, in the aggregate, six percent of the loan amount financed, including any yield spread premium paid by the lender to the broker: Provided, That reasonable closing costs, as defined in section one hundred two, article one, chapter forty-six-a of this code, payable to unrelated third parties may not be included within this limitation: Provided, however, That no yield spread premium is permitted for any loan for which the annual percentage rate exceeds eighteen percent per year on the unpaid balance of the amount financed: Provided further, That if no yield spread premium is charged, the aggregate of fees, compensation or points can be no greater than five percent of the loan amount financed..."

Let's attempt to decipher:

  1. Points, fees, and charges include only those borrower is required to pay
  2. Only fees, compensation and points paid to the lender or broker are taken into account
  3. Points, fees, and charges do not include prepaid interest
  4. Points, fees, and charges include YSPs (but see YSPs below)
  5. Reasonable closing costs (defined essentially to mean Reg Z 226.4(c)(7) charges + recording fees) payable to third parties are excluded
  6. YSPs:
    1. Not permitted if the loan's APR exceeds 18%
    2. If a YSP is paid, then the permissible threshold is 6% of the loan amount financed
    3. If no YSP is paid, then the permissible threshold is 5% of the loan amount financed
  7. "Amount financed" is defined as the total of the following1:
    1. The cash price of the goods, services or interest in land, less the amount of any down payment, whether made in cash or in property traded in;
    2. The amount actually paid or to be paid by the seller pursuant to an agreement with the buyer to discharge a security interest in or a lien on property traded in; and
    3. If not included in the cash price:
      1. Any applicable sales, use, privilege, excise or documentary stamp taxes;
      2. Amounts actually paid or to be paid by the seller for registration, certificate of title or license fees; and
      3. Additional charges permitted by this article; "additional charges" is in turn defined to mean "every type of charge arising out of the making or acceptance of a primary or subordinate mortgage loan, except finance charges, including, but not limited to, official fees and taxes, reasonable closing costs and certain documentary charges and insurance premiums and other charges which definition is to be read in conjunction with and permitted by section one hundred nine, article three, chapter forty-six-a of this code."

A. The Maximum Points, Fees and Charges Test: The calculation of maximum points fees and charges is as follows:

+ Total Lender Compensation - the total amount of all charges (excluding interim interest), whether or not they are prepaid finance charges, if paid by the borrower to the lender ("L").
+Broker Compensation - the total amount of all charges, whether or not they are prepaid finance charges, if paid by the borrower to a mortgage broker ("B").
+Yield Spread Premiums to Broker - paid by the lender to the broker; other lender-paid compensation to the broker (e.g., servicing release premium) is not included in Total Broker Compensation).
+/-Originator Requested Adjustments - the total amount of all customer requested overrides such as, for example, reasonable closing costs (defined essentially to mean Reg Z 226.4(c)(7) charges + recording fees) payable to the lender but that are merely third-party pass-throughs

B. The calculation of "loan amount" is as follows:

Amount Financed - as calculated under Regulation Z
+/-Originator Requested Adjustments - the total amount of all customer requested overrides

Threshold:

  1. If a YSP is paid by lender to broker, then the permissible threshold is 6% of the amount financed
  2. If no YSP is paid lender to broker, then the permissible threshold is 5% of the amount financed

DISCLAIMER: WHILE DOCUMENT SYSTEMS, INC. ("DSI") HAS ATTEMPTED TO ENSURE THE ACCURACY OF THE INFORMATION CONTAINED HEREIN, THE INFORMATION HEREIN IS OFFERED "AS IS"AND DSI EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO SUCH INFORMATION. IN NO EVENT SHALL DSI BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO SUCH INFORMATION AND/OR YOUR USE THEREOF.

1 The definition of "amount financed" is particularly convoluted but in application appears to be substantially similar to "amount financed" under Regulation Z (12 CFR Section 226.18(b)). For the sake of simplicity, we calculate "amount financed" exactly the same as under Regulation Z.




*This article is distributed to provide general information about the subject matter covered and should not be utilized as a substitute for professional advice in specific situations. If you require such advice, please consult with your own professional advisers.


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