Arkansas

Arkansas Home Loan Protection Act

Coverage: The Arkansas Home Loan Protection Act (AHLPA) became effective on July 15, 2003. To view a copy of the AHLPA, click here. The AHLPA applies generally to:

  • all closed-end and open-end loans where the "total loan amount" (which is defined exactly as under Section 32) is $150,000 or less
  • secured by a one- to four-family residence
  • occupied as the borrower's principal dwelling

Excluded from coverage are:

  • reverse mortgages
  • construction loans
  • first lien purchase money loans
  • 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 with 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:

  1. the APR threshold is identical to the federal Section 32 threshold (8% for first liens and 10% for junior liens); and
  2. 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.

The APR Test: note that unlike the Section 32 APR Test, which is limited to refinance transaction, the AHLPA APR Test applies to junior lien purchase money transactions.

The Points and Fees Test: Points and Fees are defined to include (or exclude) the following items:

Prepaid Finance Charge - the total amount of prepaid finance charges
-Prepaid Interest - to be deducted from prepaid finance charge
+Other Charges Paid to Creditor/Affiliate - the total amount of all Regulation Z Section 226.4(c)(7) charges not included as a part of the Prepaid Finance Charge but only if paid to the creditor or creditor affiliate and then only the amount by which the charge exceeds the charge otherwise available for a non-affiliate (we include the entire amount of such charges if paid to the creditor or creditor affiliate)
+Other Mortgage Broker Compensation - the total amount of all non-prepaid finance charges paid directly or indirectly by a borrower to a mortgage broker
+Maximum Prepayment Fees Permitted Under the Loan Documents Excluding Amount Excludable - only that amount of the prepayment charge greater than 3% of the loan amount if prepaid in the first 12 months after the date the loan was made, 2% within the second 12 months, and 1% within the third 12 months. For purposes of our high-cost home loan determination, we assume that, if the loan provides for a prepayment penalty, the prepayment fee does not exceed the prepayment fee excludable under the ARLPA as set forth in the preceding sentence.
-Other Excludable Charges - the following charges are expressly excluded from the definition of points and fees:
  • taxes, filing fees, recording and other charges and fees paid or to be paid to public officials to determined the existence of or to perfect, release or satisfy a security interest;
  • the following charges and fees provided they are not paid to the creditor, a creditor affiliate, a mortgage broker or a mortgage broker affiliate:
    • tax services
    • attorneys' fees (if the borrower has the right to select the attorney from an approved list or otherwise)
    • title insurance premiums
    • fire insurance and flood insurance premiums
-Bona Fide Discount Points - The AHLPA permits the following discount points to be excluded from points and fees: (i) up to two (2) bona fide loan discount points payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan's interest rate will be discounted does not exceed by more than one percentage point (1%) the required net yield for a ninety-day standard mandatory delivery commitment for a reasonably comparable loan from either Fannie Mae or the Federal Home Loan Mortgage Corporation, whichever is greater; and (ii) up to one (1) bona fide loan discount point payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan's interest rate will be discounted does not exceed by more than two (2) percentage points the required net yield for a ninety-day standard mandatory delivery commitment for a reasonably comparable loan from either Fannie Mae or the Federal Home Loan Mortgage Corporation, whichever is greater. "Bona fide loan discount points" means loan discount points knowingly paid by the borrower for the purpose of reducing, and which in fact result in a bona fide reduction of the interest rate or time price differential applicable to the loan, provided the amount of the interest rate reduction purchased by the discount points is reasonably consistent with established industry norms and practices for secondary mortgage market transactions. It is up to the DocMagic software user to determine whether or not discount points can excluded from the calculation. Within the DocMagic software, if the "Bona Fide" box after "Loan Discount Points" is checked, all of the discount points paid to the Lender so designated will be treated as bona fide and will be excluded from points and fees up to the maximum amount permissible. If the box is left blank, the loan discount points will not be treated as bona fide and none of the discount points will be excluded from points and fees. For additional information, click here.
+/-Creditor Requested Adjustments - the total amount of all customer requested overrides

Prohibitions: The AHLPA contains a laundry list of prohibitions, including the following:

  • no financing 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
  • not lending without home ownership counseling
  • no lending without due regard to repayment ability
  • no financing of prepayment fees paid to same lender or an affiliate
  • restrictions on payments to contractors under home-improvement contracts
  • no modification or deferral fees

Disclaimer in Software Products: The following disclaimer appears in our software products:

Arkansas Home Loan Protection Act ("AHLPA") Analysis Assumptions and Limitations:

1. Applicability: There are many potential exemptions from the AHLPA. Some of these exemptions include 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 with 60 days after loan closing. For purposes of our analysis and determination, we assume that these exemptions do not apply.

2. Assume Prepayment Terms Maximum Permitted Under AHLPA: For purposes of our high-cost home loan analysis and determination, we assume that, if the loan provides for a prepayment penalty, the prepayment fee does not exceed the prepayment fee excludable under the AHLPA (3% of the loan amount if prepaid in the first 12 months after the date the loan was made, 2% within the second 12 months, and 1% within the third 12 months).

3. Assume Total Amount of Other Charges Paid to Creditor/Affiliate Exceeds Charges Available for Non-affiliate: Under the AHLPA, the total amount of all Regulation Z Section 226.4(c)(7) charges not included as a part of the Prepaid Finance Charge are included in the Points and Fees Test if paid to the creditor or creditor affiliate, but only in the amount by which the charge exceeds the charge otherwise available for a non-affiliate. For purposes of our high-cost home loan analysis and determination, we assume that the entire amount of any such charge paid to the creditor or creditor affiliate exceeds the charge otherwise available for a non-affiliate.

Please contact a DSI customer service representative at (800) 649-1362 if you have any questions.

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