1. State Mini-HOEPA Laws: A Guide to Hot Legal Issues Alys Cohen National Consumer Law Center MWCOG Conference 4/27/06

2. Context: How do state laws fit into the legislative picture? State laws primarily are modeled on HOEPA; they effectively create statewide underwriting standards. State laws primarily are modeled on HOEPA; they effectively create statewide underwriting standards. The “Threshold Model” is only one approach, but it is the prevailing one now. The “Threshold Model” is only one approach, but it is the prevailing one now.

3. Ups and Downs of Segregating Loans by Cost Benefits: Can act as an effective ceiling on loans Can act as an effective ceiling on loans Provides expanded legal remedies Provides expanded legal remedies Laboratory for regulatory/legislative fixes Laboratory for regulatory/legislative fixes Allows for research on specific segment of the market Allows for research on specific segment of the market

4. More on Ups and Downs of Segregating Loans by Cost Risks: Denies other loans sufficient protections Denies other loans sufficient protections Battle of the calculators (Finance charge vs. Amount Financed) Battle of the calculators (Finance charge vs. Amount Financed) Many HOEPA loans aren’t identified by the lender Many HOEPA loans aren’t identified by the lender Effect on credit score; ironic cycle Effect on credit score; ironic cycle Focuses on origination to the exclusion of servicing issues Focuses on origination to the exclusion of servicing issues

5. Key Background Concepts Alternative Approaches: Regulate all home equity loans equally Regulate all home equity loans equally Alter definition of Finance Charge –> all-inclusive Alter definition of Finance Charge –> all-inclusive The Goal: All Credit is NOT good. Restricting credit access makes sense in some situations. All Credit is NOT good. Restricting credit access makes sense in some situations. The goal is to stop abuses. You must include the whole process—origination, servicing, collection, access to remedies (arbitration, assignee liability, damages, rescission). The goal is to stop abuses. You must include the whole process—origination, servicing, collection, access to remedies (arbitration, assignee liability, damages, rescission).

6. State laws: Highlights of key issues and categories North Carolina First state to pass a predatory mortgage lending statute First state to pass a predatory mortgage lending statute Provides guide to ongoing legislative issues Provides guide to ongoing legislative issues Needs to be viewed through the lens of ALL of North Carolina law (common law and other statutory remedies). Needs to be viewed through the lens of ALL of North Carolina law (common law and other statutory remedies).

7. North Carolina Covers more loans than HOEPA 5% for loans of $20K or more 5% for loans of $20K or more Separate threshold for loans with harsh prepayment penalties Separate threshold for loans with harsh prepayment penalties Issue: Threshold approach in general Issue: Threshold approach in general Outlaws more abusive loan terms Points and fees cannot be financed Points and fees cannot be financed No points/fees on high-cost loan refis w/same lender No points/fees on high-cost loan refis w/same lender Issue: Equity Stripping Mechanisms Issue: Equity Stripping Mechanisms

8. North Carolina Provides guidance on defining asset-based lending and flipping Provides guidance on defining asset-based lending and flipping No refinancing unless borrower receives reasonable net tangible benefit No refinancing unless borrower receives reasonable net tangible benefit List of factors that a lender must consider in assessing repayment ability List of factors that a lender must consider in assessing repayment ability Establishes a presumption that a loan is affordable if total monthly debt, including the loan, does not exceed 50% of verified gross monthly income Establishes a presumption that a loan is affordable if total monthly debt, including the loan, does not exceed 50% of verified gross monthly income Issue: How can the law get at seemingly hard- to-define practices? Issue: How can the law get at seemingly hard- to-define practices?

9. North Carolina Requires housing counseling on high-cost loans Requires housing counseling on high-cost loans Issue: How can we distinguish between housing counseling (and credit counseling) that is a real help and situations where it simply immunizes a predatory lender? Issue: How can we distinguish between housing counseling (and credit counseling) that is a real help and situations where it simply immunizes a predatory lender? No explicit assignee liability provision—common law provides for this already. No explicit assignee liability provision—common law provides for this already. Issue: What is the role and responsibility of the secondary market? Issue: What is the role and responsibility of the secondary market?

10. State laws with a lower/more inclusive trigger than HOEPA New York New York Illinois Illinois California (note points and fees test is narrower but number is lower) California (note points and fees test is narrower but number is lower) Massachusetts Massachusetts New Jersey New Jersey New Mexico New Mexico Arkansas Arkansas Georgia Georgia District of Columbia (exempts some lenders) District of Columbia (exempts some lenders)

11. State laws with more restrictions than HOEPA include… (These are highlights of the state laws) (These are highlights of the state laws) New York Broader restrictions on balloon payments, refinancing, & asset-based lending Broader restrictions on balloon payments, refinancing, & asset-based lending Also restricts arbitration clauses, financing of points and fees and credit insurance, broker fees Also restricts arbitration clauses, financing of points and fees and credit insurance, broker fees “Tangible net benefit test” “Tangible net benefit test” Rescission available Rescission availableConnecticut Cap on prepaid finance charges Cap on prepaid finance charges Credit insurance must be offered with a monthly payment scheme Credit insurance must be offered with a monthly payment scheme Asset-based lending prohibition without need to prove pattern or practice Asset-based lending prohibition without need to prove pattern or practice Prohibits mandatory arbitration clauses (but this was held to be preempted by federal law) Prohibits mandatory arbitration clauses (but this was held to be preempted by federal law)

12. State restrictions cont’d New Jersey Prohibits mandatory arbitration clauses Prohibits mandatory arbitration clauses Caps financing of points/fees Caps financing of points/fees For ALL loans: restricts flipping & credit insurance financing For ALL loans: restricts flipping & credit insurance financing New Mexico Prohibits mandatory arbitration clauses Prohibits mandatory arbitration clauses Restricts financing of points and fees Restricts financing of points and fees Requires credit counseling Requires credit counseling

13. State restrictions cont’d Illinois Presumptive threshold for unaffordable loans Presumptive threshold for unaffordable loans Prohibits financing of single-premium credit insurance Prohibits financing of single-premium credit insuranceCalifornia Greater restrictions on prepayment penalties and asset-based lending Greater restrictions on prepayment penalties and asset-based lending Prohibits steering Prohibits steering BUT--specifically exempts assignees BUT--specifically exempts assigneesMassachusetts Limits financing of fees and restricts prepayment penalties Limits financing of fees and restricts prepayment penalties Prohibits mandatory arbitration clauses Prohibits mandatory arbitration clauses ALL refinancings in the borrower’s interest if within five years ALL refinancings in the borrower’s interest if within five years

14. State restrictions cont’d Arkansas Restricts mandatory arbitration clauses and refinancing without a tangible net benefit to the borrower Restricts mandatory arbitration clauses and refinancing without a tangible net benefit to the borrower Violation of this law is a UDAP violation Violation of this law is a UDAP violationKentucky Restrictions on asset-based lending & arbitration clauses Restrictions on asset-based lending & arbitration clausesGeorgia For ALL home loans: restricts unfair late charges, limits payoff fees, and prohibits financing of credit insurance premiums For ALL home loans: restricts unfair late charges, limits payoff fees, and prohibits financing of credit insurance premiums For high-cost loans: restricts prepayment penalties, mandatory arbitration clauses, and asset-based lending For high-cost loans: restricts prepayment penalties, mandatory arbitration clauses, and asset-based lending

15. State restrictions cont’d District of Columbia Restrictions on asset-based lending and refinancings Restrictions on asset-based lending and refinancingsOklahoma Restricts refinancings of low-interest loans and asset-based lending Restricts refinancings of low-interest loans and asset-based lendingMaine Requires credit reporting Requires credit reporting Restrictions on advertising regarding lowering of monthly payments Restrictions on advertising regarding lowering of monthly payments Restricts points charged on refis of high-cost loans Restricts points charged on refis of high-cost loans

16. Assignee Liability North Carolina (separate from mini-HOEPA) North Carolina (separate from mini-HOEPA) Massachusetts Massachusetts New York New York New Jersey New Jersey New Mexico New Mexico Oklahoma Oklahoma Maine Maine District of Columbia District of Columbia Arkansas Arkansas Illinois Illinois

17. Localities New York New York City law found to be preempted (by state trial court) by state and federal law (mayor brought suit) New York City law found to be preempted (by state trial court) by state and federal law (mayor brought suit)California Oakland ordinance found by California Supreme Court to be preempted by state law. Oakland ordinance found by California Supreme Court to be preempted by state law. Los Angeles ordinance blocked by Oakland decision. Los Angeles ordinance blocked by Oakland decision.Maryland  Montgomery County ordinance, Bill 36-04, which takes a fair lending approach. OTS has issued a preemption letter regarding federal savings associations.

18. Localities cont’d Ohio Dayton ordinance found to be preempted by state appeals court. Dayton ordinance found to be preempted by state appeals court. State appeals court upheld Cleveland ordinance on “home rule” theory; this is on appeal to the Ohio S. Ct. State appeals court upheld Cleveland ordinance on “home rule” theory; this is on appeal to the Ohio S. Ct. State appeals court also upheld Toledo ordinance on similar grounds, however anti-steering and disclosure requirements regarding counseling were unconstitutionally vague but severable. State appeals court also upheld Toledo ordinance on similar grounds, however anti-steering and disclosure requirements regarding counseling were unconstitutionally vague but severable.Pennsylvania Philadelphia ordinance preempted by state legislation. City didn’t challenge preemption issue in light of AFSA lawsuit. Philadelphia ordinance preempted by state legislation. City didn’t challenge preemption issue in light of AFSA lawsuit.

19. Additional State Issues Remedy Issues E.g., Georgia—Rescission with 5 year statute of limitations. E.g., Georgia—Rescission with 5 year statute of limitations. Weaker Laws OH, PA, SC, NB, NE, MD, FL, CO, MI, WI, UT, IN, CT, MN, VA OH, PA, SC, NB, NE, MD, FL, CO, MI, WI, UT, IN, CT, MN, VA Other Models Texas and Virginia have limited laws that apply to all home loans. Texas and Virginia have limited laws that apply to all home loans. New Illinois law with data collection and credit counseling requirement for some loans made by state licensed loan originators. New Illinois law with data collection and credit counseling requirement for some loans made by state licensed loan originators. Montgomery County, MD fair housing approach. Montgomery County, MD fair housing approach.