Rhode Island Code of Regulations › Title 230 - Department of Business Regulation › Chapter 40 - Banking › Subchapter 10 - Lending › Part 3 - Home Loan Protection Act › Section 230-RICR-40-10-3.4 - Definitions

Current through June 14, 2024
A. Unless otherwise provided by this Part or
				  unless the context clearly requires otherwise, terms used in this Part shall
				  have the same meaning as the terms as defined in R.I. Gen. Laws Title 19 or the
				  Act. To the extent that this Part references federal law, Regulated
				  Institutions as defined in R.I. Gen. Laws §
										19-1-1 (unless otherwise exempt)
				  and Lenders and Loan Brokers as defined in R.I. Gen. Laws §
										19-14-1 are required to comply
				  with all federal legal requirements in effect at the relevant time. The
				  following terms are defined as follows:
1.
				  "Affiliate" means any company that controls, is controlled by, or is under
				  common control with another company as set forth in 12 U.S.C. §
											1841.1
2. "Annual percentage rate"
				  means the annual percentage rate for the loan calculated according to the
				  provisions of 12 C.F.R. Part 226.
3. "Applicant" means a Person who applies for
				  a Home Loan subject to the Act.
4.
				  "Bona fide discount points" means an amount knowingly paid by the borrower for
				  the express purpose of reducing, and which in fact does result in a bona fide
				  reduction of, the interest rate applicable to the Home Loan; provided the
				  undiscounted interest rate for the Home Loan does not exceed the conventional
				  mortgage rate by two (2) percentage points for a Home Loan secured by a first
				  lien, or by three and one-half (3.5) percentage points for a Home Loan secured
				  by a lien other than a first mortgage. The amount of the interest rate
				  reduction purchased by the discount points must be reasonably consistent with
				  established industry norms and practices for secondary market mortgage
				  transactions. For purposes of the Act it is presumed that a point is a bona
				  fide loan discount point if it reduces the interest rate by a minimum of 25
				  basis points or Y4 of a point provided all other terms of the loan remain the
				  same.
5. "Bona fide and reasonable
				  fees" means the following fees are examples of fees that are considered to be
				  bona fide and reasonable:
a. a tax payment
				  service fee as evidenced by an invoice or substantially similar document from
				  the tax payment service provider and the amount of the fee does not exceed the
				  customary fee for such service; (R.I. Gen. Laws §
												19-9-2 prohibits any mortgagee
				  holding the mortgagor's funds in escrow for the payment of taxes from charging
				  an annual "tax service fee" or other annual fee for ascertaining whether or not
				  the real estate taxes have in fact been paid);
b. flood certification fees that do not
				  exceed the amount charged by the flood certification service
				  provider;
c. pest infestation fees
				  that do not exceed the amount charged by the pest infestation inspector service
				  provider;
d. flood determination
				  fees that that do not exceed the amount charged by the flood determination
				  service provider;
e. appraisal fees
				  that do not exceed the amount charged by the appraiser;
f. inspection fees relative to inspections
				  performed prior to closing that do not exceed the amount charged by the
				  inspection service provider;
g.
				  credit report fees that do not exceed the amount charged by the credit report
				  service provider;
h. survey fees
				  that do not exceed the amount charged by the survey service provider;
i. attorney fees that do not exceed the
				  amount charged by the attorney;
j.
				  notary fees that do not exceed customary fees for such service and that do not
				  exceed the amount charged by the notary service provider;
k. escrow charges that do not exceed
				  customary fees for such service and that do not exceed the amount charged by
				  the escrow service provider;
l.
				  title insurance premium, fire and hazard insurance premiums, and flood
				  insurance premiums for insurance that do not exceed the amount charged by the
				  insurance provider. Premiums for insurance against loss of or damage to
				  property, or against liability arising out of the ownership or use of property
				  includes single interest insurance if the insurer waives all right of
				  subrogation against the consumer. In order for any of the fees specified in the
				  above paragraph to be excluded fees under the provisions of R.I. Gen. Laws
				  §
												34-25.2-4(o)(9)
				  the following conditions must be met:
(1) The
				  insurance coverage may be obtained from a person of the consumer's choice and
				  this fact is disclosed. (A Creditor may reserve the right to refuse to accept,
				  for reasonable cause, an insurer offered by the consumer); and
(2) If the coverage is obtained from or
				  through the Creditor, the premium for the initial term of insurance coverage
				  shall be disclosed. If the term of insurance is less than the term of the
				  transaction, the term of insurance shall also be disclosed. The premium may be
				  disclosed on a unit-cost basis only in open-end credit transactions, closed-end
				  credit transactions by mail or telephone under
				  12 C.F.R. §
														226.17(g), and certain
				  closed-end credit transactions involving an insurance plan that limits the
				  total amount of indebtedness subject to coverage.
6. "Compensation" means payments,
				  costs, benefits, and/or fees whether paid to a Regulated Institution as defined
				  in R.I. Gen. Laws §
											19-1-1 (unless otherwise exempt)
				  or Lender or Loan Broker as defined in R.I. Gen. Laws §
											19-14-1 in connection with a Home
				  Loan.
7. "Composite rate" means,
				  for any Home Loan with a variable rate feature, a composite Annual Percentage
				  Rate, calculated taking into account the initial interest rate for as long as
				  it remains in effect and adjusting the interest rate in accordance with the
				  loan documents, including any periodic and maximum caps on adjustments, until
				  the interest rate charged is a Fully Indexed Rate. For any Previous Loan, the
				  Composite Rate means a composite Annual Percentage Rate similarly calculated,
				  taking into account the interest rate in effect on the fifteenth (15th) day of
				  the month immediately preceding the month in which the loan application was
				  received by the lender and adjusting the interest rate in accordance with the
				  Previous Loan documents, including any periodic and maximum caps on
				  adjustments, until the interest rate charged is a Fully Indexed Rate. The
				  principles used in calculating the Annual Percentage Rate for a loan with an
				  adjustable rate feature pursuant to
				  12 C.F.R. §
												226.17(c)(1) shall be
				  applied in calculating the Composite Rate.
8. "Consummation" means the point in time at
				  which all parties execute the promissory note, Consummation typically occurs at
				  closing.
9. "Conventional mortgage
				  rate" means the most recently published annual yield on conventional mortgages
				  published by the Board of Governors of the Federal Reserve System, as published
				  in statistical release H.15 or any publication that may supersede it, as of the
				  applicable time set forth in 12 C.F.R. §
												226.32(a)(1)(i).
10. "Creditor" means any Person who Regularly
				  Makes Available a Home Loan and shall include a loan broker.
11. "Excluded points and fees" means the
				  items delineated in R.I. Gen. Laws §
											35-25.2-4(o)(9)   for purposes of
				  calculating the Total Points and Fees threshold contained in the Act.
a. Points and Fees up to and including one
				  percent (1%) of the total Home Loan amount attributable to bona fide fees paid
				  to a federal or state government agency that insures payment of some portion of
				  a Home Loan plus an amount not to exceed two percent (2%) of the total new Home
				  Loan amount attributable to a Bona Fide Discount Points or a conventional
				  prepayment penalty. In no case shall the total Excluded Points and Fees in
				  connection with a Home Loan exceed three percent (3%) of the total Home Loan
				  amount; "Excluded Points and Fees" are limited to 3% of the total new Home Loan
				  amount regardless whether the terms of the new Home Loan include a 2% percent
				  prepayment penalty as well as 2% Bona Fide Discount Points. To illustrate, if
				  the total new Home Loan amount is $100,000 and the new Home Loan terms include
				  Bona Fide Discount Points of 2%, a prepayment penalty of 2%, and bona fide fees
				  paid to a federal or state government agency that insures payment of some
				  portion of the new Home Loan that total 2% of the new Home Loan amount, the
				  total amount of Excluded Points and Fees permitted under this section shall not
				  exceed $3,000 ($100,000 x .03).
b.
				  Taxes, filing fees, recording and other charges and fees paid or to be paid to
				  public officials for determining the existence of or for perfecting, releasing
				  or satisfying a security interest; or
c. Bona Fide and Reasonable Fees paid to a
				  Person other than the Creditor or an Affiliate of the Creditor for the
				  following: fees for tax payment services; fees for flood certification; fees
				  for pest infestation and flood determination; appraisal fees; fees for
				  inspections performed prior to closing; credit reports; surveys; attorneys'
				  fees; notary fees; escrow charges, so long as not otherwise included under R.I.
				  Gen. Laws §
												34-25.2-4(o)(1);
				  title insurance premiums; and fire and hazard insurance and flood insurance
				  premiums, provided that the conditions in
				  12 C.F.R. §
													226.4(d)(2) are met;
d. The three percent (3%)
				  limitation contained in §
												3.4(A)(11)(a)   of this Part shall not apply to the
				  taxes and fees enumerated in §
												3.4(A)(11)(b) and (c)   of this
				  Part.
12. "Flipping a
				  home loan" means the making of a Home Loan to a borrower that refinances a
				  Previous Loan that was consummated within the prior sixty (60) months when the
				  new loan does not have reasonable, tangible net benefits in accordance with
				  R.I. Gen. Laws §
											34-25.2-4(q) to
				  the borrower considering all of the circumstances, including, but not limited
				  to, the terms of both the new and refinanced loans, the cost of the new Home
				  Loan, and the borrower's circumstances. For purposes of this definition, one
				  thousand eight hundred twenty-five (1,825) days shall constitute sixty (60)
				  months, irrespective of the fact that there may be a leap year within said
				  period.
13. "Fully indexed rate"
				  means, for any Home Loan, or a Previous Loan with a variable rate feature, the
				  sum of a recent value of the index used under the loan documents for interest
				  rate adjustments plus the margin used for interest rate adjustments. For a Home
				  Loan, a recent value of the index is one in effect on the fifteenth (15th) day
				  of the month immediately preceding the month in which the loan application was
				  received by the lender. For a Previous Loan, a recent value of the index is one
				  in effect on the fifteenth (15th) day of the month immediately preceding the
				  month in which the loan application was received by the lender. For refinances,
				  the date used for the recent value of the index should be the same for the
				  Previous Loan and the Home Loan that refinances the Previous Loan.
14. "High-Cost home loan" means a Home Loan
				  in which the terms of the loan meet or exceed one or more of the thresholds as
				  defined in R.I. Gen. Laws §
											34-25.2-4(r).
15. "Home loan" means a loan, including an
				  open-end credit plan, other than a reverse mortgage transaction where the loan
				  is secured by:
a. a mortgage or deed of trust
				  on real estate in the State of Rhode Island upon which there is located or
				  there is to be located a structure or structures designed principally for
				  occupancy of from one (1) to four (4) families which is or will be occupied by
				  a borrower as the borrower's principal dwelling; or
b. a security interest on a manufactured home
				  located or to be located within the State of Rhode Island which is or will be
				  occupied by a borrower as borrower's principal dwelling.
16. "Negative amortization" means a gradual
				  increase in mortgage debt that occurs when the monthly payment is insufficient
				  to cover the interest due, and the balance owed keeps increasing.
17. "New note rate" means the rate of
				  interest payable by a borrower on the new Home Loan. If the new Home Loan is an
				  adjustable rate Home Loan, the New Note Rate shall be the Composite
				  Rate.
18. "Person" means (as
				  defined in R.I. Gen. Laws §
											19-1-1(10))
				  individuals, partnerships, corporations, limited liability companies or any
				  other entity however organized.
19.
				  "Points and fees" means:
a. All items
				  included in the definition of finance charge in
				  12 C.F.R. §
													226.4(a) and
				  12 C.F.R. §
													226.4(b) except interest or
				  the time price differential;
b. All
				  items described in 12 C.F.R.
				  §
													226.32(b)(1)(iii);
c. All compensation paid directly by a
				  borrower to a loan broker including a loan broker that originates a loan in its
				  own name in a table-funded transaction; direct Compensation shall include any
				  fees or benefit paid by a borrower to a loan broker.
d. All compensation paid indirectly to a loan
				  broker from any source other than the borrower in excess of one percentage
				  point of the total loan amount, including a loan broker that originates a loan
				  in its own name in a table-funded transaction; Indirect Compensation shall
				  include any fees or benefit paid to a loan broker from any source other than
				  the borrower.
e. The cost of all
				  premiums financed by the Creditor, directly or indirectly for any credit life,
				  credit disability, credit unemployment or credit property insurance, or any
				  other life or health insurance, or any payments financed by the Creditor
				  directly or indirectly for any debt cancellation or suspension agreement or
				  contract, except that insurance premiums or debt cancellation or suspension
				  fees calculated and paid in full on a monthly basis shall not be considered
				  financed by the Creditor;
f. The
				  maximum prepayment fees and penalties that may be charged or collected under
				  the terms of the loan documents;
g. All prepayment fees or penalties that are
				  incurred by the borrower if the Home Loan refinances a Previous Loan originated
				  or currently held by the same Creditor or an Affiliate of the Creditor; and
h. For open-end Home Loans, the
				  Points and Fees are calculated by adding the total Points and Fees known at or
				  before closing, including the maximum prepayment penalties which may be charged
				  or collected under the terms of the loan documents, plus the minimum additional
				  fees the borrower would be required to pay to draw down an amount equal to the
				  total credit line. This section should be construed to include the minimum fee
				  that can be charged pursuant to the provisions of the Home Loan documents
				  during the term of the loan. The minimum fees that borrow would be required to
				  pay to draw down the Home Loan shall include:
(1) in cases where the draw fee is calculated
				  as a percentage of each draw, said percentage applied to the total amount of
				  credit available under the open-end Home Loan. To illustrate, if the total
				  amount of credit available under the open-end Home Loan is $50,000 and the draw
				  fee is 1.0% of the amount drawn, the draw fees to be included would be $500
				  ($50,000 x .01);
(2) in cases were
				  the draw fee is a stated dollar amount (i.e. $25 for each draw) and the Home
				  Loan contract does not provide for a minimum draw amount, the amount of the
				  minimum specified draw fee (i.e. in this example, $25). To illustrate, if the
				  draw fee is $25 per draw, the draw fees to be included would be $25;
(3) in cases where the draw fee is a stated
				  dollar amount and the Home Loan contract provides for a maximum draw amount,
				  the amount of the draw fees to be included would be calculated as follows:
				  (Total dollar amount available under the open-end loan divided by the maximum
				  draw amount) times the stated draw fee dollar amount. To illustrate, if the
				  draw fee is $25 per draw and the maximum draw amount on a $100,000 open-end
				  loan is $1,000, the draw fees to be included would be $2,500 ([$100,000/$1,000]
				  x $25)
(4) These examples
				  demonstrate the minimum fees possible to draw down an amount equal to the total
				  credit line. The above three (3) examples are not all inclusive and may not
				  describe all possible terms with respect to draw fees. Therefore, it is the
				  Creditor's duty to perform the correct good-faith analysis resulting in the
				  inclusion of all additional minimum fees.
20. "Previous loan" means the outstanding
				  Home Loan to be refinanced through the proceeds of the new Home Loan made to
				  the same borrower. A loan is a Previous Loan even though there is not complete
				  identity between the obligors on the Previous Loan and the new home loan, so
				  long as at least one borrower is obligated on both the previous Home Loan and
				  the new Home Loan. See §
											3.4(A)(19)(g)   of this Part.
21. "Previous note rate" means the rate of
				  interest payable by a borrower on a Previous Loan. If the Previous Loan is an
				  adjustable rate Home Loan, the Previous Note Rate shall be the Composite
				  Rate.
22. "Regularly makes
				  available" - A Person Regularly Makes Available a Home Loan if the Person
				  originates or extends more than one Home Loan. See definition of Creditor in
				  §
											3.4(A)(10)   of this Part.
23.
				  "Undiscounted interest rate" means the contract rate of interest that would be
				  contained in the promissory note that would have been stated in the promissory
				  note if the Bona Fide Discount Point(s) had not been paid by the
				  borrower.