Source: http://www.state.me.us/pfr/financialinstitutions/regulations/reg44_partialrepeal.htm
Timestamp: 2015-03-01 03:12:42
Document Index: 650719493

Matched Legal Cases: ['§ 1', '§ 6', '§ 8', 'art 226', '§ 8', '§ 8', '§ 8', '§ 8', '§ 215', '§6', '§ 1', '§ 3500', '§ 1', '§ 8', '§ 8', '§ 8', '§ 1', '§ 8', '§ 8', '§ 3500']

> Regulations > Regulation # 38
030 BUREAU OF CONSUMER CREDIT PROTECTION Chapter 550 Mortgage Lending: Guidelines for Determining Reasonable, Tangible Net Benefit The Bureau of Consumer Credit Protection and the Bureau of Financial Institutions adopted this Chapter in 2007 to delineate the concepts of “reasonable, tangible net benefit” and “ability to pay” set forth in the “Act to Protect Maine Homeowners from Predatory Lending,” Chapter 273 of the Public Laws of 2007.
In 2011, the Maine Legislature passed Public Law 2011, Chapter 427, “An Act to Amend the Maine Consumer Credit Code To Conform with Federal Law.” As a result of this new law, supervised financial organizations and the Maine State Housing Authority are exempt from section 8-506 of the Code, which sets forth enhanced restrictions for certain creditors. One of the enhanced restrictions set forth in section 8-506 is the prohibition against knowingly or intentionally engaging in the act or practice of flipping a residential mortgage loan when making a high-cost mortgage loan or higher-priced mortgage loan. Because supervised financial organizations are no longer subject to this enhanced restriction, the Bureaus are repealing and replacing the rule with this proposed rule that will not apply to supervised financial organizations or the Maine State Housing Authority. For this reason, the proposed rule, when it becomes effective, will no longer be a joint rule administered by both Bureaus; rather, it will be a rule administered by the Bureau of Consumer Credit Protection only. This proposed rule also changes statutory cross-references as a result of the passage of Public Law 2011, Chapter 427. The Bureaus are not proposing any other substantive changes to the rule.
SECTION 2: Authority 1. Title 9-A M.R.S. § 1-102(2), which sets forth the underlying purposes and policies of the Code and which includes simplifying and clarifying the law governing consumer credit.
2. Title 9-A, M.R.S. § 6-104(1)(E), which permits the Administrator to adopt, amend, and repeal rules to carry out the specific provisions of the Consumer Credit Code.
3. Title 9-A M.R.S. § 8-504, which gives the administrator authority to adopt rules substantially similar to or that afford more protection for consumers than those codified in 12 C.F.R., Part 226.
4. Title 9-A M.R.S. § 8-506(5), which permits the administrator to adopt rules defining with reasonable specificity the requirements for complying with the prohibition against knowingly or intentionally engaging in the act or practice of flipping a residential mortgage loan when making a high-cost mortgage loan or a higher-priced mortgage loan.
5. Title 9-A M.R.S. § 8-506(7), which exempts supervised financial organizations and the Maine State Housing Authority from the provisions of § 8-506.
6. Title 9-A M.R.S. § 8-508, which grants rulemaking authority to the administrator to prohibit acts or practices in connection with the refinancing of a residential mortgage loan that the administrator finds is associated with abusive lending practices or that is otherwise not in the interest of the borrowing public.
7. Title 9-B M.R.S. § 215, which permits the Superintendent of the Bureau of Financial Institutions to implement rules relating to the supervision of financial institutions or their subsidiaries, or financial institution holding companies or their subsidiaries.
This promulgation repeals and replaces the joint rule, Bureau of Consumer Credit Protection Chapter 550 and Bureau of Financial Institutions Chapter 144, with one rule, administered solely by the Bureau of Consumer Credit Protection, Chapter 550. Accordingly, its scope is limited to creditors other than supervised financial organizations or the Maine State Housing Authority, pursuant to Public Law 2011, Chapter 427, “An Act To Amend the Maine Consumer Credit Code To Conform with Federal Law” as codified in section 8-506(7) of the Maine Consumer Credit Code. This promulgation also reflects that the prohibition against flipping applies when a high-cost mortgage loan or higher-priced mortgage loan is made, as set forth in section 8-506(5) of the Maine Consumer Credit Code.
1. “Administrator” has the same meaning as set forth in 9-A M.R.S. §6-103; 2. “Borrower” means any natural person obligated to repay a loan including a co-borrower, cosigner or guarantor; 3. “Creditor” has the same meaning as set forth in 9-A M.R.S. § 1-301(17) and also includes an entity defined as a lender as set forth in 24 C.F.R., § 3500.2 (September 1, 2011 edition), including a mortgage broker. The term does not include a supervised financial organization as defined in 9-A M.R.S. § 1-301(38-A) or the Maine State Housing Authority;
4. “Flipping a residential mortgage loan” has the same meaning as set forth in 9-A M.R.S. § 8-506(5); 5. “Fully indexed rate” means the index rate prevailing at origination plus the margin* that will apply after the expiration of an introductory interest rate.
6. “High-cost mortgage loan” has the same meaning as set forth in 9-A M.R.S. § 8-506(1)(H);
7. “Higher-priced mortgage loan” has the same meaning as set forth in 9-A M.R.S. § 8-506(1)(I);
“Open-end credit” has the same meaning as set forth in 9-A M.R.S. § 1-301(26);
“Mortgage broker” has the same meaning as set forth in 9-A M.R.S. 8-506(1)(J)
“Points and fees” has the same meaning as set forth in 9-A M.R.S. § 8-506(1)(K);
“Residential mortgage loan” has the same meaning as set forth in 9-A M.R.S. § 8-506(1)(L);
12. “Refinancing” has the same meaning as 12 C.F.R. 226.20(a) (September 1, 2011 edition) but, for purposes of the reasonable, tangible net benefit analysis, includes open-end credit transactions. * DRAFTING NOTE: The “index rate” is a published interest rate to which the interest rate on an adjustable rate mortgage is tied. Some commonly used indices include the 1-Year Constant Maturity Treasury Rate (CMT); the 6-Month London Interbank Offered Rate (LIBOR); the 11th District Cost of Funds (COFI); and the Moving Treasury Average (MTA), a 12-Month moving average of the monthly average yields of U.S. Treasury securities adjusted to a constant maturity of one year. The margin is the number of percentage points a creditor adds to the index value to calculate the adjustable rate mortgage interest rate at each adjustment period.
1. A creditor may not knowingly or intentionally engage in the act or practice of “flipping” a residential mortgage loan when making a high-cost mortgage loan or higher-priced mortgage loan. 2. The factors to be considered by a creditor in determining if a borrower receives a reasonable, tangible net benefit must include, but are not limited to, the following:
A. Whether the borrower’s new monthly payment is lower than the total of all monthly obligations being financed, taking into account the costs and fees as disclosed on the HUD settlement statement, if one is used; (1) If the new or old residential mortgage loan is not a conventional fixed rate residential mortgage loan, the borrower’s monthly payment is the payment that fully amortizes the loan at the fully indexed rate. For open-end credit loans, the new monthly payment must be based on the amount drawn by the borrower at the time the new residential mortgage loan is made; (2) In determining whether or not the borrower’s new monthly payment is lower than the total of all monthly obligations being financed, taking into account the costs and fees as disclosed on the HUD settlement statement, if one is used, the time for recouping the costs and fees as disclosed in the HUD settlement statement, if one is used, shall be calculated over a period of three (3) years and this amount shall be added to the borrower’s new monthly payment. The costs and fees as disclosed on the HUD settlement statement, if one is used, shall include all costs and fees, whether or not they are incorporated into and financed through the new residential mortgage loan(s); B. Whether there is a change that is beneficial to the borrower in the amortization period of the new high-cost mortgage loan or higher-priced mortgage loan; C. Whether the borrower, or a person designated by the borrower, receives a reasonable amount of cash in excess of the costs and fees paid by the borrower as disclosed on the HUD settlement statement, if one is used, as part of the refinancing. The costs and fees paid by the borrower as disclosed on the HUD settlement statement, if one is used, shall include all costs and fees, whether or not they are incorporated into and financed through the new high-cost mortgage loan or higher-priced mortgage loan; D. Whether the borrower’s rate of interest is reduced or, in the event that more than one loan is being refinanced, the weighted average of the rates of interest of the previous loans is reduced; E. Whether there is a change from an adjustable to a fixed rate loan; and
6. A duly completed and signed form that reflects a reasonable, tangible net benefit is evidence of compliance with this subsection.
EFFECTIVE DATE: December 5, 2011. Note: the Bureaus are of the view that supervised financial organizations are not subject to this rule pursuant to Public Law 2011, Chapter 427, “An Act to Amend the Maine Consumer Credit Code To Conform with Federal Law” which became effective on September 28, 2011. Attachment “A” to the Reasonable, Tangible Net Benefit Rule, reflecting changes necessitated by Public Law 2009, Chapter 362, “An Act to Conform State Mortgage Laws with Federal Laws”
3. In June 2009, the Maine Legislature passed “An Act to Conform State Mortgage Laws with Federal Laws” which, among other things, repealed and replaced a provision in Title 9-A M.R.S. with a new “ability to repay” provision, modeled after federal law, containing specific criteria for determining “ability to repay.” The statute accordingly superseded previous rulemaking related to ability to pay. 4. “An Act to Conform State Mortgage Laws with Federal Laws” also repealed the term “subprime mortgage loan” and replaced it with a new term contained in federal law, “higher-priced mortgage loan.” 5. This rule was amended to comport with this law. Specifically, the Bureaus amended the “tangible net benefit” subsection of the rule so that it would apply only when a residential mortgage loan that is “higher-priced mortgage loan” is made to refinance an existing residential mortgage loan. The Bureaus also removed the “ability to pay” subsection of the rule because of the “ability to repay” provision in Maine law that supersedes that former subsection. 6. In 2011, the Maine Legislature passed Public Law 2011, Chapter 427, “An Act to Amend the Maine Consumer Credit Code To Conform with Federal Law.” As a result of this new law, supervised financial organizations and the Maine State Housing Authority are exempt from section 8-506 of the Code, which sets forth enhanced restrictions for certain creditors. One of the enhanced restrictions set forth in section 8-506 is the prohibition against knowingly or intentionally engaging in the act or practice of flipping a residential mortgage loan when making a high-cost mortgage loan or higher-priced mortgage loan. Because supervised financial organizations are no longer subject to this enhanced restriction, the Bureaus are repealing and replacing the rule with this proposed rule that will no longer apply to supervised financial organizations or the Maine State Housing Authority. In other words, this proposed rule updates the rule so that it accurately reflects current law. For this reason, the proposed rule, when it becomes effective, will no longer be a joint rule administered by both Bureaus; rather, it will be a rule administered by the Bureau of Consumer Credit Protection only. This proposed rule also reflects that the flipping prohibition extends to high-cost mortgage loans and higher-priced mortgage loans and further reflects changes in statutory cross-references as a result of the passage of Public Law 2011, Chapter 427. The Bureaus are not proposing any other substantive changes to the rule. 7. When this rule was first promulgated, a hearing was held at which many comments were received. Following the hearing, the Bureaus published their responses to these comments, interpreting and providing further clarification to various aspects of the rule. The Bureaus are of the view that, to the extent their responses to comments following the hearing are still relevant to this re-promulgation, they should be included as part of the basis statement. The Bureaus’ responses to comments regarding “ability to pay” were not included at the time of the rule’s second promulgation because the “ability to pay” section of the rule was repealed. The Bureaus’ responses to comments regarding the “tangible net benefit” analysis and form relate to when a residential mortgage loan that is a high-cost mortgage loan or higher priced mortgage loan is made to refinance an existing residential mortgage loan. Furthermore, the Bureau’s comments do not apply when the creditor is a supervised financial organization or the Maine State Housing Authority. Therefore, the tangible net tangible form has also been amended so that the contact information of the Bureau of Financial Institutions has been removed.
8. Pursuant to Title 5, s. 8057-A(4), the Bureaus are required to provide citations for up to three primary sources of information relied up in adopting the rule. The Bureaus rely upon Public Law 2011, Chapter 427, “An Act to Amend the Maine Consumer Credit Code to Conform with Federal Law.”
COMMENTS AND RESPONSES TO THIS PARTIAL REPEAL
By letter dated October 31, 2011, Kathy Keneborus on behalf of the Maine Bankers Association, wrote in support of the partial repeal of the tangible net benefit rule because it aligns the rule with PL 2011, Chapter 427, “An Act to Amend the Maine Consumer Credit Code to Conform with Federal Law,” exempting Maine’s supervised financial organizations from the flipping prohibition in Article 8-A of Title 9-A.
The Bureaus were persuaded by the arguments put forward against the rebuttable presumption in the original proposed rule. The Bureaus determined that a form that reflects reasonable, tangible net benefit, if duly completed and signed, would serve as “evidence of compliance” with the prohibition against “flipping.” The Bureaus decided that it was appropriate to strengthen consumer protections by eliminating the “rebuttable presumption” that existed in the original proposed rule. Doing so, they determined, would diminish the possibility of unscrupulous creditors using the form as a shield to protect themselves from liability.
b) General responses to comments regarding the reasonable, tangible net benefit form
The Bureaus agreed that the term “amortization period” may not be understood by all borrowers, and the Bureaus thus changed this term so that it reads, “length of the repayment period.” The Bureaus also amended the term, “cash in excess of fees” to “amount of cash out (or paid to others).” The Bureaus were of the opinion that, under ordinary circumstances, “Bona fide personal need” requires certain extenuating circumstances to justify the benefit to the borrower, including, but not limited to, satisfying a tax lien, responding to a court order, honoring a divorce settlement, satisfying medical expenses, or obtaining a loan for educational expenses. However, with respect to the question of who determines what qualifies as a “bona fide personal need,” the Bureaus amended that part of the form so that it is clear that this determination is one made by the borrower, bearing in mind that the borrower’s need cannot be patently unreasonable. The Bureaus decided not to elaborate on the factor, “change in amortization period” (other than to simplify it to “length of repayment period,” as noted above) because (a) the reconstituted form requires creditors to provide the repayment periods for both the new and old loans and (b) the form was amended to clarify that creditors are required to consider all the circumstances of the borrower in determining reasonable, tangible net benefit. The Bureaus recognized that lengthening the repayment period would be beneficial to some borrowers, while shortening the repayment period would be beneficial to others. The Bureaus determined that the determination as to whether the change is beneficial to the borrower is one that must be made on a case-by-case basis, taking into account all the circumstances. The Bureaus amended the form and the rule to make clear that the borrower may either receive a reasonable amount of cash in excess of fees or may designate a third party recipient.
The Bureaus noted that there are several entities that provide objective, neutral counseling and, without mandating that they be referenced in the reasonable, tangible net benefit form, the Bureaus agreed that references to objective third-party counseling may be included in the form. The Bureaus had also agreed that it was in the public interest to include both Bureaus’ contact information on the form in case a borrower had any questions about the loan or creditor. Because supervised financial organizations are no longer subject to this rule, the contact information of the Bureau of Financial Institutions has been deleted from the form.
g) Time frame for providing the reasonable, tangible net benefit form to borrowers The Bureaus noted that the rule already makes clear that the form, or one substantially similar to it, must be provided prior to or upon making the new loan. If the terms of the refinancing change after a mortgage broker explains its determination to a borrower and signs the form, the creditor must explain the changes to the borrower and complete an additional form.
h) Use of the definition “fully indexed rate”
The Bureaus noted that rule requires an analysis of a loan at its fully indexed rate and took into consideration that this rate is simple to calculate and widely understood. The Bureaus further noted that using the fully indexed rate should strike a balance between the need to create clear guidelines for creditors with the need to protect borrowers. By using the term “fully indexed rate,” the rule would prevent creditors from using so-called teaser rates when calculating tangible net benefit or ability to pay. i) References to the HUD-1 Form
The rule was amended to use the fully indexed rate in the tangible net benefit analysis. The Bureaus believed that this analysis would provide a reasonable comparison of the new monthly payment with the payment on the loan or loans being refinanced, including adjustable loans.
l) Pipeline loans The Bureaus agreed with several of those commenting that the rule would only apply to loan applications received after January 1, 2008 and amended the effective date of the rule accordingly.
m) Application of the rule
The Bureaus stated that all mortgage brokers involved in mortgage lending in Maine would be subject to the rule. The rule applies to “creditors”; pursuant to section 8-506(1)(F) of the Act, mortgage brokers are included in the definition of “creditors.” The definition of “mortgage broker” refers to the federal definition of “mortgage broker” found in 24 C.F.R. 3500.2. However, the rule no longer applies to supervised financial organizations or the Maine State Housing Authority, pursuant to Public Law 2011, Chapter 427.
n) References to federal laws and terms
Because the intent behind the second re-promulgation was to repeal the ability to repay provisions from the rule entirely, the Bureaus did not believe these references to federal guidelines properly belong in the rule. Copies of 24 CFR § 3500.2 may be obtained at cost from the Bureau of Consumer Credit Protection or from the Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, Massachusetts 02210 tel. (617) 973-3000. In addition, a copy may be obtained at http://www.access.gpo.gov/nara/cfr/cfr-table-search.html.
Copies of 12 CFR 226.20(a) may be obtained at cost from the Bureau of Consumer Credit Protection or from the Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, Massachusetts 02210 tel. (617) 973-3000. In addition, a copy may be obtained at http://www.access.gpo.gov/nara/cfr/cfr-table-search.html.