Wisconsin Responsible High Cost Mortgage Lending Law

The Wisconsin Responsible High Cost Mortgage Lending law (Wis. Stats. 428.202 et seq.) (the "Act") became effective for loans the applications for which are received by the lender on or after February 1, 2005. To view a copy of the Act, click here. The Wisconsin Department of Financial Institutions has also promulgated rules effective February 1, 2005 relating to the Act. To view a copy of the rules, click here.

The loans covered by and excluded under the Act are exactly the same as under Section 32, with the exception that unlike Section 32, purchase money (Loan Purpose = P or PMJ) and construction and construction to perm loans (Loan Type = CON or CONTP) are covered by the Act.

In addition, the APR Test and Points and Fees Test (including the calculation of the Total Loan Amount) under the Act are calculated in exactly the same manner as under Section 32, with the exception that the Points and Fees Threshold is reduced from 8% to 6% of the Total Loan Amount.

What Happens If a Loan Is a Covered Loan?

The following substantive limitations apply if a loan is found to be a covered loan:

• No balloon loan (excludes loans where payments adjust based on consumer's seasonal or irregular income, and bridge loans of less than one year obtained for purpose of financing acquisition or construction of borrower's principal dwelling)
• No call/demand provision (excludes demands based on non payment, due on sale, or fraud or material misrepresentation
• No negative amortization
• No increased interest rate after default
• No more than two periodic advance payments
• Lender must verify and document customer's ability to repay
• No refinancing within 1 year unless refinancing is in the interest of the borrower (anti-flipping)
• Payments under a home improvement contract must be made directly to customer, or jointly to customer and contractor, or if customer consents, made by third party pursuant to written agreement signed by customer, lender and contractor
• No financing of single premium optional credit insurance/related products
• No refinancing of subsidized low-rate loans
• May not make, propose or solicit fraudulent, false or misleading statements on any document relating to a covered loan
• No recommending/encouraging default

• No prepay if covered loan is held by refinancing lender; otherwise, prepayment penalty limited to 36 months and lender offers borrower the option of a loan product without a prepay penalty in writing and initialed by the borrower; the offer must include the following clear and conspicuous disclosure:

  LOAN PRODUCT CHOICE DISCLOSURE

  I was provided with an offer to accept a product both with and without a prepayment penalty provision. I have chosen to accept the product with a prepayment penalty.

  The prepayment may not exceed 60 days' interest at the contract rate for fixed rate loans over $25,000 if the borrower prepays more than 20% of the original loan amount with 36 months following loan consummation. No prepay is permitted on fixed rate loans of $25,000 or less, or on ARMS.

• The following notice to borrower must be given in writing in a clear and conspicuous format at least 3 business days prior to making a covered loan:

  DISCLOSURE TO BORROWER

  1. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home and any money that you have put into it if you do not meet your obligations under this loan. Mortgage loan rates and closing costs and fees vary based on many factors, including your particular credit and financial circumstances, your earnings history, your employment status, the loan-to-value ratio of the requested loan, and the type of property that will secure your loan. The loan rate and fees could also vary based on which lender you select.
  2. As a consumer you should shop around and compare loan rates and fees. You should also consider consulting a qualified independent credit counselor or other experienced financial adviser regarding the rate, fees, and provisions of this mortgage loan before you proceed.
  3. You are not required to complete this loan agreement merely because you have received these disclosures or have signed a loan application. If you proceed with this mortgage loan, you should also remember that you may face serious financial risks if you use this loan to pay off credit card debts or other debts in connection with this transaction and then subsequently incur significant new debt. If you continue to accumulate debt after this loan is made and then experience financial difficulties, you could lose your home and any equity that you have in it if you do not meet your mortgage loan obligations.
  4. Property taxes and homeowner's insurance are your responsibility. Some lenders may require you to escrow money for these payments. However, not all lenders provide escrow services for these payments. You should ask your lender about these services.
  5. 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.
     

• Pursuant to rules promulgated by the Wisconsin Department of Financial Institutions (DFI-Bkg 46.03), each of the above disclosures:

  • shall be designed to call attention to the nature and significance of the information provided, and shall use a typeface and type size that are easy to read
  • shall contain an acknowledgment provision indicating that the borrower has read and understood the terms of the disclosure, and the acknowledgment must be initialed or signed and dated by the borrower
  • shall include the following statement: "A list of adjustment services companies (companies that help consumers budget money) licensed to do business in the state of Wisconsin is available at the Wisconsin Department of Financial Institutions' website, www.wdfi.org."

  In addition, the lender must also provide a copy of the completed disclosure to the borrower.