Issue #15: Preventing “fee-padding”

Into the ask for Public Comment, OCCR identified the growth, or at least the perception of the development, that loan providers had been increasing charges and points to an amount just beneath the limit that will qualify that loan as an even more heavily controlled high-rate, high-fee “Section 32” loan. We asked commenters to share with us whether this perception had been a real possibility, and when just what exactly could possibly be done about this.

Our conclusion is fee-padding is taking place in Maine, so that as one good way to deal with the training our company is suggesting (see proposed bill connected as Appendix number 1, area 2) that the limit of “points and fees” that produces part 32 therapy, be lowered from 8% of that loan quantity, to 5%.

We base this proposition from the presumption that the availability of loans in this range (between 5% points and charges, and 8% points and costs) is, in financial terms, “elastic, ” such that developing a unique, reduced degree will maybe not lead to an unwillingness regarding the element of loan providers to help make the great majority of these loans that currently fall within the range between 5% points-and-fees, and 8%. Put differently, we think that loan providers making loans with points and charges totaling 6%, 7% as well as 8%, will reduce fees on a lot of loans to 5%.

We additionally get this proposal with all the knowledge that other states that are nearbysuch as for instance Massachusetts and Connecticut) currently have founded the low 5% limit inside their state statutes. This modification can also be in line with proposals advanced by Coastal Enterprises, Inc. (CEI), and also by AARP in its model home loan legislation work.

We believe that this proposition, along with stricter enforcement regarding the requirement that the GFE accurately reveal all costs within 3 days of application, should help reduce any “padding” of charges. (See more conversation with this proposal in Issue #16’s reviews, below, on whether loan broker settlement or home loan finance fees should really be “capped”. )

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