Maine Aligns State and Federal Provisions Regarding Alternative Mortgage Transactions
The Maine Department of Professional and Financial Regulation adopted provisions, effective immediately, that will help to unify the Bureau of Financial Institutions and Bureau of Consumer Credit Protection’s Alternative Mortgage Transactions joint rule with the CFPB’s Regulation D.
The rule authorizes creditors and financial institutions to make mortgage loans with adjustable rates and finance charges, limits adjustments to interest rates and finances charges and how they may be made; prevents change in the interest rate of a balloon mortgage at renewal, and forbids prepayment penalties on alternative mortgage loans (a loan secured by an interest in residential property for which the mortgage interest rate or finance charge may be adjusted). Aligning Maine’s regulations with the federal regulations on alternative mortgage loans will provide clarity for both state and federal financial institutions and protect Maine consumers.
The new provisions repeal and replace the current Alternative Mortgage Transaction Joint Rule, Bureau of Financial Institutions Regulation 19 and Bureau of Consumer Credit Protection Rule 250. Important pieces of the new provisions are highlighted below:
- A creditor or financial institution may engage in an alternative mortgage transaction.
- With increases in interest rates or finance charges lenders must use either an index or a formula.
- Lenders may decrease the interest rate or finance charge on an alternative mortgage transaction.
- When there is an alternative mortgage transaction with a balloon payment, lenders may negotiate an increase or decrease in the interest rate when the transaction is renewed but only if the lender makes a written commitment to renew the transaction at specified intervals throughout the amortization period.
- Lenders must allow borrowers to prepay in whole or in part without penalty at any time. Prepayments are a direct reduction on loan principal, unless otherwise agreed upon by the creditor or financial institution and borrower.
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