PREDATORY LENDING LAW

New Legislation enacts the Tennessee High-Cost Home Loan Protection Act. The provisions of the amendment offer a comprehensive and meaningful approach to address the issue of predatory lending.   Legislation now provides new consumer protections for borrowers in the high-cost home loan market.  

This is not a comprehensive Act that takes care of all problems Tennessee consumers may have in the area of predatory practices by certain lenders. 

NEW CONSUMER PROTECTIONS AND LENDER LIMITS UNDER THE ACT

* No loans to be made without first establishing affordability of payments for the customer.

* Lender must provide a "Notice to Borrower" before closing with various warnings, suggesting they shop other credit sources, and seek credit counseling advice before signing.

* Lender must provide the borrower information on available counseling opportunities from third-party nonprofit organizations approved by the United States Department of Housing and Urban Development, a housing financing agency of this state, or the regulatory agency which has jurisdiction over the creditor.

* Lender may not present a borrower with a high-cost home loan at closing with a materially different interest rate, term, type of loan, or settlement charges without providing advance disclosure to the borrower. No "bait and switch" change in terms at closing.

* Borrowers must receive a reasonable benefit when refinancing

 - Must meet a test for providing a benefit to the borrower

- No fees can be charged to refinance the old loan only on new additional funds for borrower

* No single premium credit insurance can be financed over $50,000

* Closings must occur in official business or lawyer offices.  

* No incomplete documents at closing.  Prohibition on any person soliciting, encouraging or conspiring to have a borrower to sign a closing document if any material terms of the loan or transaction, including but not limited to, the duration, interest rate, or fees, are omitted or incomplete. Prohibition on borrowers from signing incomplete documents.

* Interest rate threshold trigger tracks federal law (HOEPA)

* Limits points and fees that may be charged a borrower.  Limits financing points and fees:

          - Points and fees threshold trigger is lower than federal law (HOEPA).

          - No financing points and fees over the triggers

          - Lender may not finance more than two (2) Bona Fide Loan Discount Points

- No prepayment fees or penalties which exceed (2%) of the loan amount prepaid in the 24 months following the loan closing.

- No pre-payment penalties after 24 months

- No prepayment fees or penalties are permitted if the lender is refinancing its own high-cost home loan.

* No balloon notes.

* No negative amortization.

* Lender must: 1) provide two free pay-off requests annually; and 2) respond to pay-off request from a borrower within 5 business days.

* Refinancing must have reasonable benefits to the borrower, ultimately subject to regulatory and judicial determination as to whether it was a

benefit.

       This Act became effective July 1, 2006.