Minnesota Modifies Provisions Regarding Subprime References
The state of Minnesota modified its provisions by removing references to “subprime” from certain statutes. These provisions are effective on July 1, 2019.
The amendment removes subprime references from the definition of “investment grade” and defines “investment grade” to mean “a system of categorizing residential mortgage loans in which the loans are distinguished by interest rate or discount points or both charged to the borrower, which vary according to the degree of perceived risk of default based on factors such as the borrower’s credit, including credit score and credit patterns, income and employment history, debt ratio, loan-to-value ratio, and prior bankruptcy or foreclosure.”
Section 2 of the amendment prohibits a residential mortgage originator from entering into a loan (current law states subprime loan) that contains a provision requiring or permitting the imposition of a penalty, fee, premium, or other charge in the event the residential mortgage loan is prepaid in whole or in part if the loan also contains an annual percentage rate that:
- “for an adjustable rate loan secured by a first lien on a dwelling that can increase in interest rate but not decrease in interest rate below the fully indexed rate at the time of origination, is more than two percentage points above the yield on United States Treasury securities having comparable periods of maturity as of (i) the 15th day of the preceding month if the rate is set between the first and the 14th day of the month, or (ii) the 15th day of the current month if the rate is set on or after the 15th day;
- for all other loans secured by a first lien on a dwelling, is more than three percentage points above the yield on United States Treasury securities having comparable periods of maturity as of (i) the 15th day of the preceding month if the rate is set between the first and the 14th day of the month, or (ii) the 15th day of the current month if the rate is set on or after the 15th day; and
- for loans secured by a subordinate lien on a dwelling, is more than five percentage points above the yield on United States Treasury securities having comparable periods ofmaturity as of (i) the 15th day of the preceding month if the rate is set between the first andthe 14th day of the month, or (ii) the 15th day of the current month if the rate is set on or after the 15th day.”
The amendment further states that the above prohibitions do not apply to any loan with a principal amount that, or, in the case of an open-end credit plan, in which the borrower’s initial maximum credit limit, exceeds the conforming loan size limit for a single-family dwelling as establishedfrom time to time by the Federal Housing Finance Administration or its successor.
The amendment also repeals Minnesota Statutes 2018, section 58.02, subdivision 27 that defines subprime loans.
Rhona Kyeyune, LLM, is a regulatory compliance consultant with CLA. She is a graduate of Makerere University and earned her master of laws at Boston University School of Law.
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