Rhode Island Adopts Provisions Regarding Home Loan Protection Act
The Rhode Island Department of Business Regulation has recently adopted provisions regarding its Home Loan Protection Act. These updates include procedures, clarification, and guidance to mortgagees, and are effective as of October 18, 2018.
The purpose of the Home Loan Protection Act is to prohibit predatory lending practices in Rhode Island and to preserve access to credit. To protect consumers, the new provisions lay out record-keeping requirements for lenders, a list of prohibited acts and practices, and set of regulations that apply to high-cost home loans.
The provisions first set out several record-keeping requirements for lenders. Lenders subject to the requirements of the Act are required to keep a list of all loans in which a “tangible net benefit” has been assented to by the borrower, along with documentation that substantiates the “tangible net benefit.” Lenders must also keep a list of all loans where a high-cost home loan was assented to by the borrower, along with documentation of the analysis of whether or not a loan is a high-cost home loan. And additionally, lenders must provide all applicants who refinance a previous loan that was consummated within the prior sixty months with the Flipping a Home Loan Disclosure Form 3 entitled “Rhode Island Home Loan Protection Act Disclosure-Tangible Net Benefit” prior to or upon consummation of the loan.
The Act also lists five prohibited acts and practices for lenders. These include (1) the financing of credit insurance premiums or any other health or life insurance premiums or debt cancellation charges; (2) the making of a home loan to a borrower that refinances a previous loan that was consummated within the prior sixty months which does not have reasonable, tangible net benefit to the borrower; (3) encouraging or recommending default; (4) including a provision that permits the creditor, in its sole discretion, to accelerate the indebtedness (which does not prohibit the acceleration of the home loan in good faith due to the borrower’s failure to abide by the material terms of the Home Loan); and (5) requiring a borrower to assert any claim or defense in a forum that is less convenient, more costly, or more dilatory for the resolution of a dispute, than a judicial forum where the borrower may otherwise bring a claim or defense, or limiting in any way a claim or defense the borrower may have.
The provisions provide additional limitations for high-cost home loans. In connection with a high-cost home loan a creditor may not finance any points or fees which are more than five percent of the total home loan amount, or eight hundred dollars (whichever is greater). In addition, prepayment fees or penalties are not permissible for high-cost home loans. A high-cost home loan may not contain a scheduled payment that is more than twice as large as the average of earlier scheduled payments. And the Act prohibits negative amortization, and provisions that increase the new note rate after default. Finally, a creditor may not make a high-cost home loan without first receiving certification from a counselor with a third-party nonprofit organization approved by the United States Department of Housing and Urban Development that the applicant/borrower has received counseling on the advisability of the loan transaction.
Zachary Pearlstein, JD, is a Regulatory Compliance Director with CLA's Mortgage Advisory Division. He joined CLA on January 1, 2014, as part of its acquisition of Bankers Advisory, Inc. Zachary oversees Mortgage Advisory's regulatory compliance team, which focuses on federal and state compliance, fair lending, and the Home Mortgage Disclosure Act (HMDA). He is a graduate of Brandeis University and earned his juris doctor at Suffolk University Law School. He is admitted to the Massachusetts Bar.
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