Late last year, the State of Nevada amended its predatory lending law (commonly referred to as the "Unfair Lending Practices Act" (ULPA)).  The ULPA is set forth in NRS 598D.010 through 598D.150, inclusive, and is available here.  A copy of AB 440, which amended the ULPA, is available here.  The 2007 amendments to the ULPA, among other things, expand greatly the scope of loans covered by the ULPA's unfair lending restrictions and penalties, so much so as to render DocMagic's Nevada high cost loan test unnecessary for the reasons stated in this article.

Prior to the 2007 ULPA amendments, a loan was a "home loan" subject to the restrictions and penalties imposed on lenders engaging in the unfair lending practices described in the ULPA if, and only if, the loan was a high cost loan under applicable federal law (i.e., the Home Ownership and Equity Protection Act of 1994 (HOEPA) and regulations promulgated thereunder, including without limitation, Regulation Z Section 226.32 (Section 32)).  Thus, the DocMagic Nevada high cost test was exactly the same as under the HOEPA/Section 32 test and no additional calculations were required.

However, the 2007 amendments to the ULPA have redefined "home loan" to mean any consumer credit transaction secured by a mortgage on Nevada real property, including but not limited to high cost loans under HOEPA and Section 32.  This definitional change has made DocMagic's Nevada high cost test unnecessary simply because the determination of whether or not a Nevada home loan is subject to the ULPA is no longer tied directly to the HOEPA/Section 32 high cost test or, for that matter, any other computational test.   Rather, the ULPA now covers all consumer credit transactions secured by one to four family residential dwellings; high cost loans under HOEPA/Section 32 constitute a mere (and most likely very limited) subset of home loans subject to the ULPA.

Accordingly, we are removing the Nevada-specific high cost calculation and display from all versions of the DocMagic software.  Instead, DocMagic has created a new warning audit specifically to identify if a loan is a "home loan."  If a Nevada property, regardless of loan purpose or loan type, is either owner-occupied or a second home and it is not either a multifamily dwelling (5+ units) or a commercial property, then a warning substantially similar to the following will display:

THIS IS A HOME LOAN SUBJECT TO RESTRICTIONS UNDER THE NEVADA UNFAIR LENDING PRACTICES ACT (NRS 598D.010 - 598D.150).

What exactly are the restrictions imposed by the ULPA with respect to home loans?  The four activities identified as unfair lending practices by the ULPA are:

• Requiring a borrower, as a condition of obtaining or maintaining a home loan, to provide property insurance on improvements in excess of the reasonable replacement value of the improvements.
• Knowingly or intentionally making a home loan, other than a reverse mortgage, to a borrower, including, without limitation, a low-document home loan, no-document home loan or stated-document home loan without determining, using any commercially reasonable means or mechanism, that the borrower has the ability to repay the home loan.
• Financing a prepayment penalty in connection with the refinancing by the original borrower of a home loan owned by the lender or an affiliate of the lender.
• Financing any credit insurance directly or indirectly in connection with a home loan.

These restrictions were unchanged by the 2007 amendments to the Act, with the exception of the second bullet point where a "commercially reasonable means or mechanism" requirement for determining ability to repay has been added.  Both the Nevada Legislative Counsel Bureau and the Commissioner of the Nevada Mortgage Banking Division have provided guidance on what this language means here and here.  The Nevada Mortgage Banking Division has also published a "Commercially Reasonable Means and Mechanism" worksheet available here.  We previously wrote about the worksheet in an article available here.

A lender who willfully engages in an unfair lending practice is guilty of a misdemeanor.  In addition, a lender engaging in an unfair lending practice is liable to the borrower for treble actual damages, plus costs and reasonable attorney's fees.

One final note of interest: The 2007 amendments to the ULPA created some uncertainty regarding the requirement in NRS 598D.130 that a security instrument encumbering property securing repayment of a home loan contain a notice in 14-point bold type on the front page that the loan is a home loan under NRS 598D.040 and HOEPA and Section 32.  Clearly, because of the definitional expansion of the term "home loan" pursuant to the 2007 amendments, not all home loans are also HOEPA/Section high cost loans.  However, the Nevada Division of Banking has clarified the ambiguity by interpreting the notice requirement of NRS 598D.130 to apply only when the home loan is both a home loan and a HOEPA/Section 32 loan.  The Nevada Division of Banking letter making this clarification is available here.

Please contact the DocMagic Compliance Department if you have any questions or comments regarding the above matters.