Assets and Opportunity Policy Progress: A virtual convening on state achievements in the 2008 legislative session

CURBING PREDATORY LENDING (MORTGAGE)

State legislatures responded to the mortgage crisis with a flurry of activity to curb predatory mortgage lending. Thirteen states took up substantive mortgage lending reform bills. Ten states enacted legislation, and in two others (Michigan and New York), legislation is pending, awaiting the governor's signature as of July 1, 2008. In Massachusetts, meanwhile, the Attorney General's relatively strong rules on predatory mortgage lending went into effect. The strongest bills ban prepayment penalties, require assessment of a borrower's “ability to repay” for all loan types, and establish good faith duties for brokers.

The table below provides details on legislation that was introduced, or enacted, as well as policies implemented through the regulatory process to curb predatory mortgage lending between February 1, 2007, and July 1, 2008.

State	2007-2008 Scorecard Policy Rating	Policy Action since February 2007	Description
Alabama
Alaska
Arizona
Arkansas
California			In 2008, California legislators introduced a comprehensive package of predatory lending reform bills (AB 1830 et al.). These bills would have required lenders to assess a borrower's ability to repay subprime and non-traditional loans, eliminated yield spread premiums as well as prepayment penalties on subprime loans, established new broker fiduciary duties, provided assignee liability for certain loans and established new servicing standards and regulations. The bills passed the California legislature but were vetoed by the governor.
Colorado			Colorado enacted legislation (SB 216) in June 2007 to address predatory mortgage lending practices. The bill creates a duty of good faith and fair dealing for mortgage brokers in their communications and transactions with borrowers; specifically lists acts and practices that are deemed unconscionable when committed by mortgage brokers or mortgage originators; and directs the banking board and the director of the division of real estate to adopt federally promulgated rules on nontraditional mortgage product risks.
Connecticut			In June 2008, Connecticut enacted legislation (HB 5577) banning subprime prepayment penalties, requires assessment of borrower's ability to repay and escrow of taxes and insurance for subprime loans, establishes broker duties, includes yield-spread premiums and prepayment penalties in definitions of high cost points and fees trigger.
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois			Enacted in November 2007, SB 1167 limits the types of loans mortgage brokers may offer by making sure that the proposed loan best meets the financial need of the potential homeowner. Mortgage brokers must verify that a borrower will be able to repay the loan. Brokers will be held to a higher standard and must act in the borrower�s interest by fully disclosing material facts about the loans being offered. They must also disclose how much money the broker will be paid. When comparing different loans, brokers must use apples-to-apples comparisons on monthly payments.
Indiana
Iowa
Kansas
Kentucky			Kentucky enacted a mortgage lending reform bill (HB 552) in April 2008. The legislation imposes a duty of good faith and fair dealing on mortgage brokers, although it limits substantive reform to high cost loans. Most notably, high cost loans must provide for (a) borrower consent to impose a prepayment penalty and (b) verification of ability to repay, including presumptions. However, the legislation does not include an outright ban on high-cost loans.
Louisiana
Maine			In June 2007, Maine enacted the Homeowners Protection Act (LD 1869). The bill requires lenders to assess the borrower's ability to repay a subprime or nontraditional mortgage loan based on the fully-indexed rate, requires verification of income, and implements a statutory duty of good faith and fair dealing for mortgage brokers. It also prohibits prepayment penalties and "flipping."
Maryland			In April 2008, Maryland enacted legislation (SB 270) banning prepayment penalties for all home loans and requiring an ability to repay assessment for all home loans. The law also promulgates rules regarding additional underwriting protections.
Massachusetts			The Massachusetts Attorney General's rules on predatory mortgage lending took effect in January 2008. The rules ban broker fees in cases where there is a conflict of interest with the borrower (e.g., yield-spread premiums); require an assessment of borrower's ability to repay for all home loans; ban abusive prepayment penalties; and establish additional broker duties.
Michigan			The Michigan legislature passed a package of mortgage lending reform bills (HB 5287-91; SB 826-33) in June 2008. The bills would restrict prepayment penalties; establish broker duties; require assessment of borrower's ability to repay for all home loans; and include yield-spread premiums and prepayment penalties in the high cost points and fees trigger. As of July 1, 2008, the bills were awaiting the governor's signature.
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York			In June 2008, the New York legislature passed sweeping mortgage lending reform legislation (A 10817). The legislation would require assessment of borrower's ability to repay (fully amortizing, at fully indexed rate with income verification) for subprime loans; ban subprime prepayment penalties, teaser rates for subprime loans, and negative amortization for subprime loans; ban flipping of any loans into a subprime loan without tangible net benefit to the borrower; and implement broker duties that include good faith and fair dealing and require that brokers act in the borrower's interest. As of July 1, 2008, the bill was awaiting the governor's signature.
North Carolina			In August 2007, North Carolina enacted a bill (HB 1817) to update the state's already strong laws on predatory mortgage lending. The bill expands North Carolina's existing high cost home loan protections by including all broker compensation, including yield spread premiums, in the calculation of "points and fees;" establishes joint mortgage broker-borrower liability in regard to the High Cost Home Loan statute; requires an ability to repay assessment for all subprime mortgage loans; and implements a statutory duty of good faith and fair dealing for mortgage brokers, including prohibition of the brokering of a subprime ARM without disclosing to the borrower the availability of a fixed rate loan offered by the same lender at the lowest APR for which the borrower qualifies.
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania			HB 2179 assures homebuyers that the person selling them a mortgage has passed a background check, completed training specific to state and federal mortgage laws, passed a test to prove their knowledge and is licensed by the Department of Banking. In the past, only mortgage companies had to be licensed in Pennsylvania, not their employees. SB 483 bans prepayment penalties on mortgages of $217,873 or less, a figure that will be adjusted for inflation every year from now on. SB 484 gives homebuyers more information to evaluate potential mortgage companies or salespeople. Until now, Pennsylvania law prohibited the Banking Department from telling the public about enforcement actions, fines and penalties against licensees. The new law allows the Banking Department to release more information more quickly. SB 485 extends the consumer protection and lending expertise of the state's appraisers' board by adding the Attorney General and the Secretary of Banking to its membership. It also increases the maximum penalty for appraiser misconduct to $10,000 per violation. SB 486 requires that a copy of every foreclosure notice be sent to the Pennsylvania Housing Finance Agency so that foreclosure activity can be monitored in real time.
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington			SB 6471 requires mortgage lenders to be licensed under the state�s Consumer Loan Act or the Mortgage Broker Practices Act.
West Virginia
Wisconsin
Wyoming

Source: Center for Responsible Lending.

PAYDAY LENDING

Payday Lending

Three states and the District of Columbia took substantive action to curb payday lending between February 2007 and July 2008. The District of Columbia, New Hampshire, and Ohio each enacted legislation that placed an interest rate cap on payday loans. In Arkansas, the Attorney General used legal precedent to pressure many of the state's payday lenders to cease operations.

The table below provides details on policy changes to restrict payday lending that occurred between February 1, 2007, and July 2, 2008. More information on payday lending policy - which is one of the 38 policy measures included in the Scorecard, but not one of the 12 Core Policies - is available here.

State	Policy Action since February 2007	Comments
Arkansas		In March 2008, the Arkansas Attorney General sent cease and desist letters to the state's payday lenders, following rulings by the state Supreme Court suggesting that payday lending practices may violate the state constitution's ban on usury. Most of the state's payday lenders have since indicated that they will shut down operations.
District of Columbia		In September 2007, the District of Columbia enacted the Payday Loan Consumer Protection Act, which caps annual interest rates for payday and title loans at 24%.
New Hampshire		In July 2008, New Hampshire enacted legislation (HB 267) that caps annual interest rates for payday and title loans at 36%.
Ohio		In June 2008, Ohio enacted legislation (HB 545) that caps the annual interest rate for payday loans at 28%. The law also sets a $500 borrowing limit for consumers; restricts borrowers to four loans per year; and extends loan terms from 14 days to 31 days.

Source: Center for Responsible Lending.