Coverage: The Arkansas Home Loan Protection Act (AHLPA) became effective on July 15, 2003. The AHLPA applies generally to all closed-end and open-end loans secured by one- to four-family owner occupied dwellings where the total loan amount is $150,000 or less. Loans excluded from coverage include reverse mortgages, construction loans, and first-lien purchase money loans. The AHLPA does not apply to loans that will be, or in good faith are intended to be, insured by, securitized for, or sold to HUD, VA, Fannie Mae, Freddie Mac, the Arkansas Development Finance Authority and the U.S. Department of Agriculture within 60 days after loan closing.

Thresholds: Under the AHLPA, a loan is a high-cost home loan if it meets or exceeds either of two thresholds: (i) the APR threshold is identical to the federal Section 32 threshold (8% for first liens and 10% for junior liens); or (ii) the points and fees threshold is 5% of the total loan amount if the loan amount is $75,000 or more, 6% of the total loan amount if the total loan amount is more than $20,000 but less than $75,000, and 8% of the total loan amount if the total loan amount is $20,000 or less.

Prohibitions: The AHLPA contains a laundry list of prohibitions, including the following: no financing of single-premium credit-related insurance and debt cancellation agreements; no loan flipping; no recommending default; no call provisions; no payoff balance or release fees of more than $20; no balloon payments on loans with terms of less than 10 years; no negative amortization; no default rates of interest; no collection of more than two (2) periodic payments in advance; no mandatory arbitration clause; no lending without homeownership counseling; no lending without due regard to repayment ability; no financing of prepayment fees paid to the same lender or an affiliate; restrictions on payments to contractors under home-improvement contracts; and no modification or deferral fees.

Prepayment Charges: The AHLPA does not expressly limit the imposition of a prepayment charge in connection with high-cost home loans. However, under the AHLPA, points and fees include, among other things, the maximum prepayment fees that may be charged or collected under the terms of the loan documents but only if the prepayment fees exceed 3% of the principal loan amount remaining on the date of the prepayment, if the prepayment is made within the first 12-month period immediately following the date the loan was made; 2% within the second 12-month period, and 1% within the third 12-month period. In connection with the Arkansas high-cost home loan determination performed within the DocMagic software, we assume that, if the loan provides for a prepayment penalty and falls within the ambit of the AHLPA, the maximum prepayment fee is equal to the maximum excludable prepayment fee permitted under the AHLPA as set forth above. For additional information regarding prepayment penalties in general, please visit OTS Says: Parity Act No Longer Preempts Prepayment Penalties.

The following article is reprinted from Basis Points® , Vol. 2, Issue 7, Copyright © 2003, with the permission of CounselorLibrary.com, LLC. All Rights Reserved. Further reproduction is prohibited without permission.

For several years, we have cautioned against trying to use an arbitration agreement that is anything less than completely friendly to consumers. The theory is that courts will seize upon anti-consumer provisions in arbitration agreements as an excuse not to enforce them. One such provision we have been particularly concerned about is one that takes away the consumer's right to obtain exemplary or punitive damages in arbitration. Well, it's a good thing that whoever drafted the arbitration agreement involved in this case didn't listen to us.