Predatory Lending: A Comparison of State Laws to the Federal Home Ownership and Equity Protection Act

Predatory Lending: A Comparison of State Laws to the Federal Home Ownership and Equity Protection Act

Order Code RL32784
Predatory Lending: A Comparison of
State Laws to the Federal Home
Ownership and Equity Protection Act
Updated January 18, 2007
Kamilah Holder
Legislative Attorney
American Law Division
Kate M. Manuel
Law Clerk
American Law Division

Predatory Lending: A Comparison of State Laws to the
Federal Home Ownership and Equity Protection Act
Summary
Since the early 1990s, sub-prime mortgage lending has exploded in America,
increasing the availability of credit to segments of the population that traditionally
did not qualify for loans, given their income, savings, and credit profile. With this
explosion has also come the growth of predatory mortgage lending practices.
“Predatory lending” describes situations in which unscrupulous lenders prey on
borrowers — usually sub-prime borrowers — by including onerous terms and
conditions in the loan agreement, often leading to foreclosure or repeated refinancing.
Currently, the Home Ownership Equity Protection Act (HOEPA) provides
federal prohibitions on certain predatory lending practices, while more than twenty-
five states have enacted similarly-styled statutes that sometimes offer much broader
protections. This report gives a general background on predatory lending and
summarizes the various statutes’ provisions with respect to common predatory
lending practices.
This report will be updated as warranted.

Contents
Introduction and Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Comparison of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Asset-Based Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Prepayment Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Balloon Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Negative Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Loan Flipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Credit Counseling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Mandatory Arbitration Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Loan Packing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
No Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Financing of Points and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Predatory Lending: A Comparison of State
Laws to the Federal Home Ownership and
Equity Protection Act
Introduction and Background
Obtaining a loan can be an intimidating and confusing process for the vast
majority of people who participate in it, particularly when one is mortgaging his or
her home. To negotiate the attendant maze of loan terms, fees, and financing
documents, most Americans are forced to put a large amount of trust in the bank or
other entity lending them the money. This creates the potential for abuse by the
unscrupulous lender, who can take advantage of a borrower’s unfamiliarity with the
process and add terms and fees to a loan agreement that, while onerous to the
borrower, create a financial windfall for the lender. Some of these “predatory”
lenders can also create loan terms so onerous that the borrower will never be able to
repay, allowing the lenders to foreclose on mortgages and take borrowers’ homes.
Market forces protect most borrowers from predatory mortgage practices,
because most mortgage lending takes place in the “prime market,” where borrowers
have good credit and are therefore considered less risky. As lower risk customers,
prime borrowers are the subjects of competition among lenders. This competition
creates an incentive for lenders to offer the best loan terms possible, reducing the
danger of predatory lending.1 Further, prime borrowers tend to have more experience
with complex financial transactions, and so are more likely to identify and avoid
predatory loan terms. Finally, mortgage lenders often try to fit prime loans into the
industry-standard debt ratios and loan-to-value ratios set by secondary mortgage
giants like Fannie Mae and Freddie Mac, so that those organizations will purchase
the loans.2
Sub-prime borrowers, on the other hand, tend to be less experienced with
complex financial transactions, have low income and bad credit, and generally have
little besides their home equity to put up as collateral for loans.3 Sub-prime
borrowers are considered riskier customers by lenders, and so competition for sub-
prime mortgage loans is not nearly as robust as the market for prime loans. Because
1 See National Predatory Lending Task Force, Curbing Predatory Home Mortgage Lending:
A Joint Report, by the United States Department of Housing and Urban Development and
the United States Department of the Treasury, 17 (June 2000) (hereinafter “Joint Report”);
available at [http://www.hud.gov:80/pressrel/treasrpt.pdf] (last visited February 11, 2005).
2 Id.
3 Id.

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sub-prime loans are generally considered riskier, lenders seek higher interest rates
and other fees, partially to protect themselves in case of default.
Despite the higher rates and fees, sub-prime borrowers often need to take out
second mortgages on their homes to finance debt consolidation or home repairs, and
the sub-prime market has grown to meet this need. While the sub-prime mortgage
market is small when compared to the prime market, it grew to $160 billion by 1999,
making up 13% of the American mortgage market.4 As sub-prime mortgage lending
has grown, however, so has predatory lending.
Drawing the line between sub-prime lending and predatory lending has proven
to be a very difficult task.5 At what point do the higher interest rates and fees that
generally attend legitimate sub-prime lending become predatory? This is the
fundamental question for those who wish to curb predatory lending practices because
the vast majority of predatory lending takes place in the sub-prime market. If
restrictions on such practices go too far, the strictures could make the risk of sub-
prime lending seem too high to lenders and dry up the availability of credit for those
who desperately need it. On the other hand, if the restrictions are too loose, then
many sub-prime borrowers may lose the equity in their homes to unscrupulous
lenders.
Reports of predatory lending practices increased dramatically in the early 1990s,
and Congress responded in 1994 by passing the Home Ownership and Equity
Protection Act (HOEPA), restricting some of the tactics commonly used by predatory
lenders with respect to loans covered by the act.6 This legislation utilizes the
“threshold” or “trigger” approach in which certain home loans are classified as “high-
cost home loans” because of their high annual percentage rates (APRs) or points and
fees. As such, these loans trigger certain prohibitions and/or disclosures meant to
protect subprime borrowers from predatory lending practices.
Many have argued that while HOEPA is helpful, it does not go far enough.7 In
1999, North Carolina enacted its own predatory lending statute, conceptually
modeled after HOEPA, but more inclusive in the loans covered and with restrictions
on additional practices. Some states have followed by enacting specific statutes
broadly aimed at restricting a wide array of predatory lending practices, while other
states have fewer provisions regulating far fewer practices. Currently, at least thirty
4 Id. at 2.
5 Indeed, commentators have had a difficult time even coming up with a definition of
“predatory lending.” The Joint Report offered this definition: “In a predatory lending
situation, the party that initiates the loan often provides misinformation, manipulates the
borrower through aggressive sales tactics, and/or takes unfair advantage of the borrower’s
lack of information about the loan terms and their consequences. The results are loans with
onerous terms and conditions that the borrower often cannot repay, leading to foreclosure
or bankruptcy.” Joint Report, at 17.
6 Subtitle B of Title I of the Riegle Community Development and Regulatory Improvement
Act, P.L. 103-325 (1994). HOEPA is codified at 15 U.S.C. § 1601 et seq.
7 See, e.g., Margot Saunders, The Increase in Predatory Lending and Appropriate Remedial
Actions, 6 N.C. Banking Inst. 111, 112-113 (2002).

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states, the District of Columbia, and roughly a dozen municipalities have enacted
either comprehensive statutes or other limited statutory protections aimed at
predatory lending practices, some addressing a specific practice, some generally
tracking HOEPA, and others going far beyond it.
The differences among the various state statutes and between the state and
federal statutes reflect the difficulty in striking the appropriate balance, i.e.,
discouraging predatory terms and conditions without also discouraging sub-prime
lending in general. These differences have come under increasing scrutiny since the
Office of the Comptroller of the Currency (OCC) determined that HOEPA and its
regulations preempt the application of state predatory lending statutes to nationally-
chartered8 banks and their subsidiaries.9
Even with their differences, predatory lending statutes tend to confront a
combination of ten basic issues:
! asset-based lending;
! prepayment penalties;
! balloon payments;
! negative amortization;
! loan flipping;
! loan counseling;
! mandatory arbitration clauses;
! loan packing;
! no call provisions; and
! financing of points and fees.10
This report describes what loans are covered under HOEPA and the state
statutes, then lists how each statute deals (if at all) with the ten basic issues
mentioned above.
8 The United States has a dual-banking system, according to which a bank can be chartered
under federal law or the law of an individual state.
9 On August 5, 2003, the OCC issued a Preemption Determination and Order (OCC Docket
No. 03-17, 68 Fed. Reg. 46,264) preempting the Georgia Fair Lending Act for national
banks and their Georgia subsidiaries. The OCC subsequently issued more detailed
regulations that appear to generally preempt state predatory lending laws with respect to
national banks and their subsidiaries (69 Fed. Reg. 1904 (amending 12 C.F.R. Parts 7 and
34)). See CRS Report RS22057, Preemption of State Law for National Banks and Their
Subsidiaries by the Office of the Comptroller of the Currency: A Sketch, by M. Maureen
Murphy; see also C. Bailey King, Jr., Preemption and the North Carolina Predatory
Lending Law, 8 N.C. Banking Inst. 377 (2004).
10 For more detailed discussion of these issues, see generally Joint Report.

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Comparison of Provisions
Covered Loans
One of the most important features of a predatory lending statute is how it
defines loans covered under the statute and therefore subject to its protections and
restrictions. HOEPA, for example, does not include mortgages where the home
being purchased is used as collateral for the loan (hereinafter “purchase money
mortgages”), while the majority of state statutes protect such mortgages in their
predatory lending statutes. A loan is covered if it crosses one of the statutory
thresholds, of which there are generally two: one for the Annual Percentage Rate
(APR) of the loan, and one for the total points and fees paid by the borrower in
connection with the loan. Statutory definitions of “points and fees” differ, but
generally include finance charges, compensation paid to mortgage brokers, premiums
or other charges for credit insurance, application fees, late payment/default charges,
overdraft charges, credit plan fees, seller’s points, interest forfeited due to legally
required interest reduction on a time deposit used to secure the loan, and real estate
related fees (e.g., title examination, preparation of documents, notary, etc.).11 Listed
below are the various statutory definitions of loans covered under the respective
statutes. Unless otherwise noted, all of the definitions below refer to loans secured
by the borrower’s principal dwelling.
HOEPA. Mortgages secured by consumer’s principal dwelling (other than a
residential mortgage transaction,12 a reverse mortgage transaction, or a transaction
under an open-end credit plan) where either (1) the APR will exceed by more than
10%13 the yield on Treasury securities with comparable periods of maturity; or (2) the
total points and fees payable at or before closing exceed the greater of 8% of the total
loan amount or $400.14
Arkansas. Non-business mortgages (other than purchase money mortgages,
and bridge and construction loans) that do not exceed $150,000 where the APR is
such that the loan would be covered under HOEPA; or the total points and fees (not
including certain discount points paid by the borrower to reduce the interest rate or
time-price differential) exceed (1) 5% of the total loan amount for loans of $75,000 -
$150,000; (2) 6% for loans of $20,000 - $75,000; and (3) 8% for loans less than
$20,000. Not included are mortgages that, within sixty days of consummation, are
sold to/securitized for a government agency or government-sponsored enterprise
(e.g., Fannie Mae, Freddie Mac, etc.).15
11 See, e.g., 12 C.F.R. § 226.4.
12 A “residential mortgage transaction” is, in essence, a purchase money mortgage. 15
U.S.C. § 1602(w).
13 The Board of Governors of the Federal Reserve has the power to adjust this percentage
from 10% to anywhere between 8% and 12%. Id. at § 1602(aa)(2).
14 Id. at § 1602(aa)(1).
15 Ark. Code Ann. § 23-53-103(5). In 2005, Arkansas also enacted the Reverse Mortgage
(continued...)

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California. Loans secured by borrower’s principal dwelling — not including
reverse mortgages, open lines of credit, or bridge loans — in which the original
principal balance of the loan does not exceed the most current conforming limit for
a single family first mortgage loan established by the Federal National Mortgage
Association (for mortgages or deeds of trust),16 that cross either the APR or points
and fees threshold. A mortgage or deed of trust crosses the APR threshold when the
APR is more than 8% that of Treasury securities with comparable periods of
maturity. Home loans cross the second threshold where the total points and fees
exceed 6% of the total loan amount.17
Colorado. Covered loans include mortgages under HOEPA, except that the
points and fees threshold is 6% of the total loan amount.18
Connecticut. Non-commercial mortgages on borrower’s principal dwelling in
which the APR will exceed that of Treasury securities with comparable periods of
maturity by the percentage set under HOEPA and its regulations.19
District of Columbia. “Covered loans” include mortgages (not including
reverse mortgages or those insured/guaranteed by a state, local, and certain federal
authorities) that cross one or more of two thresholds: (1) the APR on the loan
exceeds by more than 6 percentage points the yield on Treasury securities with
comparable periods of maturity for first mortgages or, for second mortgages, 7
percentage points; or (2) the points and fees exceed 5% of the total loan amount.
This definition does not apply to loans made or purchased by Fannie Mae, Freddie
Mac, or any federally regulated financial institutions. Those loans are only “covered
loans” if they are covered under HOEPA and its regulations.20
Florida. Mortgages covered under HOEPA.21
Georgia. Mortgages — not including reverse mortgages, bridge loans, and
commercial mortgages — that cross one of two thresholds: (1) the APR is such that
the loan is covered under HOEPA and its regulations; or (2) total points and fees
(excluding no more than two bona fide discount points paid by the borrower to
reduce the interest rate) exceed 5% of the total loan amount if that amount is $20,000
15 (...continued)
Protection Act, Ark. Code Ann. § 23-54-101 et seq., to regulate reverse mortgage
transactions.
16 Cal. Fin. Code § 4970(b).
17 Id.
18 Colo. Rev. Stat. § 5-3.5-101(2).
19 Conn. Gen. Stat. § 36a-746a(4).
20 D.C. Code Ann. § 26-1151.01(7).
21 Fla. Stat. Ann. § 494.0079(7).

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or more or, if this amount is less than $20,000, then 8% of the total loan amount or
$1,000, whichever is lesser.22
Illinois. “High risk home loans” include mortgages — not including open-end
credit plans, purchase money mortgages, or loans for business purposes unrelated to
the residence — that cross either the APR or points and fees threshold. The APR
threshold is crossed for a first lien mortgage when the APR is more than 6% greater
than the yield on Treasury securities with comparable periods of maturity, while for
a junior mortgage, the figure is 8%. The points and fees threshold is crossed when
the total points and fees exceed 5% of the total loan amount or $800, whichever is
greater.23
Indiana. A “high-cost home loan” is a mortgage — other than a open-end
credit plan or a reverse mortgage — covered under HOEPA or that exceeds a points
and fees threshold. The loan crosses the points and fees threshold when the points
and fees exceed 5% of the total loan amount for loans of $40,000 or more, or 6% of
the total loan amount for loans of less than $40,000.24 These dollar amounts are
subject to change in accordance with the Consumer Price Index for Urban Wage
Earners and Clerical Workers compiled by the Bureau of Labor Statistics.25
Kentucky. “High-cost home loans” are between $15,000 and $200,000 and
“mortgages” under HOEPA.26
Maine. Mortgages covered under HOEPA.27
Maryland. Mortgages covered under HOEPA, except that the APR comparison
percentage with respect to Treasury securities is one percentage point less than that
of HOEPA (as adjusted).28
Massachusetts. Mortgages on principal dwelling (not including reverse
mortgages) that cross either the APR or points and fees threshold. The APR
threshold is crossed where the APR exceeds by more than 8 percentage points that
of Treasury securities with comparable periods of maturity for first mortgage liens,
or 9 points for subordinate liens. The points and fees threshold is crossed where the
22 Ga. Code Ann. § 7-6A-2(17).
23 815 Ill. Comp. Stat. 137/10. The $800 figure is changed every year according to the
percentage change in the Consumer Price Index (CPI) for all urban consumers for all items
published by the Department of Labor. Id. To further explore the issue of predatory
lending, the Illinois Legislature amended its Residential Real Property Disclosure Act and
established a predatory lending database pilot program within Cook County to start no later
than September 2006. See 765 Ill. Comp. Stat. 77/20.
24 Ind. Code § 24-9-2-8.
25 See Ind. Code § 24-9-2-8(b).
26 Ky. Rev. Stat. Ann. § 360.100(1)(a).
27 Me. Rev. Stat. Ann. tit. 9-A, § 8-103(F-1).
28 Md. Code Ann., Comm. § 12-127(a)(2).

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points and fees (excluding conventional prepayment penalties or up to two bona fide
discount points paid by the borrower to reduce the interest rate or time-price
differential) exceed 5% of the total loan amount or $400,29 whichever is greater.30
Michigan. Mortgages on principal dwellings, not including purchase money
mortgages, reverse mortgages, or open-end credit plans.31
Nevada. Mortgages under HOEPA.32
New Jersey. Mortgages — not including reverse mortgages — the principal of
which do not exceed $350,00033 where one or more of two thresholds is crossed.
The first threshold is crossed when the mortgage is covered under HOEPA. The
second threshold is crossed when the total points and fees due at or before closing
(excluding conventional prepayment penalties or up to two bona fide discount points)
exceed (1) if the total amount of the loan is less than $20,000, the lesser of 6% of the
total loan amount or $1,000; (2) if the total loan amount is between $30,000 and
$40,000, 6% of the total loan amount; or (3) 4.5% of the total loan amount if that
amount is $40,000 or more.34
New Mexico. Covered loans include home loans — other than reverse
mortgages and bridge loans — that cross one of four thresholds: (1) for covered loans
less than $20,000, the total points and fees (excluding certain bona fide discount
points paid by the borrower to reduce the interest rate) exceed 8% of the total loan
amount or $1,000, whichever is lesser; (2) for covered loans equal to or greater than
$20,000, the total points and fees are equal to or greater than 5% of the total loan
amount; (3) for a first lien mortgage, the interest rate is seven percentage points
higher than that of Treasury securities with comparable periods of maturity; or (4) for
a subordinate mortgage lien, the interest rate is nine percentage points higher than
that of comparable Treasury securities.35
New York. The New York statute does not exclude open end credit plans or
residential mortgage transactions from its definition of “high-cost home loan.” A
“high-cost home loan” is any loan, other than a reverse mortgage transaction, in
which the borrower is a natural person and the debt is incurred by the borrower.36 In
addition the loan must exceed at least one of two thresholds. The loan reaches the
first threshold when, for a first lien mortgage loan, the APR exceeds eight percentage
29 This $400 figure must be adjusted every year to reflect changes in the CPI.
30 Mass. Gen. Laws ch. 183C, § 2.
31 Mich. Comp. Laws § 445.1632(d).
32 Nev. Rev. Stat. § 598D.040.
33 The statute calls for this amount to be adjusted annually according to the New York-New
Jersey listing in the CPI.
34 N.J. Stat. Ann. § 46:10B-24.
35 N.M. Stat. Ann. § 58-21A-3(H); N.M. Stat. Ann. §58-21A-3(L), (N).
36 N.Y.Banking Law § 6-l(D), (E) (McKinney 2002).

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points over the yield on Treasury securities with comparable periods of maturity. For
a subordinate mortgage lien, the threshold is an APR of nine percentage points over
the Treasury securities yield.37 The loan surpasses the second threshold if the total
points and fees (not including certain discount points paid by the borrower to reduce
the interest rate or time-price differential) exceed either 5% of the total loan amount
if that amount is $50,000 or more; 6% if the total loan amount is $50,000 or more
and the loan is a purchase money loan guaranteed by the Federal Housing
Administration or the Veterans Administration[Department of Veteran Affairs]; or
the greater of 6% or $1,500 if the total loan amount is less than $50,000.38
North Carolina. A covered loan must cross one of three thresholds. The terms
cross the first North Carolina threshold if the loan is not a reverse mortgage or open
end credit plan and the APR of the loan is such that the loan is covered under
HOEPA.39 The loan exceeds another North Carolina threshold if the total points and
fees payable by the borrower (not including certain discount points paid by the
borrower to reduce the interest rate or time-price differential) exceed 5% of the total
loan amount if that amount is $20,000 or more, or if it is less than $20,000, then the
lesser of 8% of the total loan amount or $1,000.40 The final threshold is that, for a
closed-end loan, the loan documents permit the lender to charge or collect
prepayment fees or penalties more than thirty months after the loan closing or which
exceed 2% of the amount prepaid; or, if the loan is an open end credit plan, the loan
documents permit the lender to charge or collect prepayment fees or penalties (I)
more than thirty months after the loan closing if the borrower has no right or option
to repay all or any of the portion of the outstanding balance of the credit plan at a
fixed rate over a specified period of time; or (ii) if the borrower has the
aforementioned option, more than thirty months after the date the borrower
voluntarily exercises the option, or (iii) which exceed 2% of the amount prepaid.41
Ohio. Mortgages covered under HOEPA.42
Oklahoma. “Subsection 10” mortgages are those secured by the consumer’s
principal dwelling — not including purchase money mortgages, reverse mortgages,
and open-end credit plans - that cross one of two thresholds. The loan crosses the
first threshold where the APR is (1) 8 percentage points greater than that of Treasury
securities with comparable periods of maturity for first lien mortgages; or (2) ten
percentage points greater for subordinate liens (Oklahoma officials are authorized to
adjust both of these differentials within certain limits). The loan crosses the second
37 New York Banking Law § 6-l(1)(G)(I) (If the terms of the home loan offer any initial or
introductory period, and the APR is less than that which will apply after the end of that
period, then the APR for the purpose of the statute is the one that applies after the
introductory period).
38 N.Y. Banking Law § 6-l(1)(G)(II) (McKinney 2002).
39 N.C. Gen. Stat. § 24-1.1E(a)(6)(a) (2002).
40 N.C. Gen. Stat. § 24-1.1E(a)(6)(b) (2002).
41 N.C. Gen. Stat. § 24-1.1E(a)(6)(c) (2002).
42 Ohio Rev. Code Ann. § 1349.25(D).

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threshold where the total points and fees exceed 8% of the total loan amount or $400,
whichever is greater. The $400 amount is required to be adjusted every year
according to the annual percentage change in the CPI.43
Pennsylvania. Mortgages covered under HOEPA for which the original
principal balance is less than $100,000.44
Rhode Island. “High-cost home loans” are loans secured by a mortgage or
deed of trust on the borrower’s principal dwelling45 (including open-ended credit
plans, other than reverse mortgage transactions) in which the terms of the loan meet
or exceed one or more of two thresholds.46 The first threshold is for a first lien
mortgage home loan with an interest rate equal to eight percentage points of Treasury
securities with comparable periods of maturity and nine percentage points for
subordinate mortgage liens.47 The loan crosses the second threshold when the total
points and fees exceed 5% of the total loan amount when the total loan amount is
$50,000 or more and 8% when the total loan amount is less than $50,000.48 For
open-ended loans, the total loan amount is calculated using the total line of credit
allowed under the home loan at closing.49 The provisions of this chapter do not apply
to federal savings banks, national banks, their subsidiaries, or state and federal
housing agencies.50
South Carolina. Non-business related mortgages of borrower’s principal
dwelling or property on which such is located. To be covered, the principal of the
loan must not exceed the conforming loan size limit as established by Fannie Mae.
In addition, the loan must cross either the APR or points and fees threshold. The loan
crosses the APR threshold if the APR is such that the loan would be covered under
HOEPA. If the loan is a non-real estate manufacturing housing lien, then the
threshold is crossed if the APR of the loan is greater than 10 percentage points
greater than that of Treasury securities with comparable maturities. The loan crosses
the points and fees threshold if the total points and fees (not including conventional
prepayment penalties and certain discount points paid by the borrower to reduce the
interest rate) exceed (1) for loans of $20,000 or more, 5% of the total loan amount;
(2) for loans of less than $20,000, the lesser of $1,000 or 8% of the total loan
amount; or (3) for non-real estate secured manufactured housing transactions of
$20,000 or more, 3% of the total loan amount.51
43 Okla. Stat. Tit. 14A, § 1-301(10).
44 63 Pa. Cons. Stat. § 456.503.
45 R.I. Gen. Laws § 34-25.2-4(l), (m)(1), (2).
46 Id. § 34-25.2-4(l).
47 Id. at § 34-25.2-4(r)(1)(I), (ii).
48 Id. at § 34-25.2-4(r)(2)(I), (ii).
49 Id. at § 34.25.2-4(s).
50 Id. at § 34-25.2-11.
51 S.C. Code Ann. §§ 37-23-20(9), (15).

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Tennessee. “High-cost home loans”are loans secured by a mortgage or deed of
trust on the borrower’s principal dwelling52 primarily for personal, family or
household purposes (not including open ended credit loans, reverse mortgages,
residential mortgage transactions, construction loans, or loans insured or guaranteed
by a government agency) in which the principal amount of the loan does not exceed
the lesser of the conforming loan size limit for a single family dwelling as established
by the Federal National Mortgage Association or $ 350,000 and the terms of the loan
must meet or exceed one of two thresholds.53 The first threshold is crossed when the
mortgage is covered under HOEPA.54 The second threshold is crossed when the total
points and fees (excluding no more than two bona fide discount points) to be paid by
the borrower at or before the loan closing exceed the greater of (1) 5% of the total
loan amount or (2) $2,400 if the total loan amount is more than $30,000 or 8% of the
total loan amount if the total loan amount is $30,000 or less.55
Texas. Mortgage (other than a reverse mortgage or an open-end credit plan)
with a principal that is no higher than half of Fannie Mae’s maximum conventional
loan amount and that is covered under the HOEPA regulations.56 Unlike the HOEPA
regulations, however, a purchase money mortgage is covered under Texas law if the
total loan amount is more than $20,000 and the APR or total points and fees exceed
the applicable limits in the HOEPA regulations.57
Utah. Mortgages that cross either the APR threshold or the points and fees
threshold. The APR threshold is crossed where the rate exceeds by more than 8
percentage points the rate on Treasury securities with comparable periods of maturity
for first lien mortgages, and ten percentage points for junior/subordinate mortgages.
The points and fees threshold is crossed where the total points and fees exceed 8%
of the total loan amount or $400, whichever is greater.58
Wisconsin. Non-commercial mortgages (other than reverse mortgages and
open-end credit plans) covered under HOEPA or where the total points and fees
exceed 6% of the total loan amount.59
52 Tenn. Code § 47-20-102(10)(A)-(D).
53 Id at § 47-20-102(9), (15), (17).
54 Id. at § 47-20-102(15).
55 Id. at § 47-20-102(12), (17).
56 12 C.F.R. § 226.32.
57 Tex. Fin. Code Ann. § 343.201(1).
58 Utah Code § 61-2d-102(3). The $400 figure is adjusted every year in accordance with
parallel HOEPA regulations. Id.
59 Wis. Stat. § 428.202(2).

CRS-11
Asset-Based Lending
Most creditors extend mortgage loans with the expectation that the borrower
will be able to meet the scheduled payments. There is a concern, however, that some
predatory lenders make loans with the opposite desire. These lenders make loans
based on the value of the borrower’s asset (i.e., the home) without considering the
lender’s ability to repay the loan. It is also alleged that some lenders make loans
knowing that borrowers will be unable to repay, thereby allowing the lenders to
obtain borrowers’ houses through foreclosure.60 Statutes combat this practice by
requiring lenders to consider the borrower’s repayment ability when extending
certain high-risk loans.
HOEPA. Prohibits extension of covered loans based on collateral without
regard to the consumer’s ability to repay.61
Arkansas. Prohibits extension of covered loans based on collateral without
regard to the consumer’s ability to repay.62
California. Lender may not make a covered loan without a reasonable belief
that the borrower will be able to make the scheduled payments. Rebuttable
presumption that loan satisfies this requirement where the consumer’s total monthly
indebtedness (including monthly payments under the proposed mortgage) is less than
55% of the consumer’s monthly income. However, the statute prohibits lenders from
imposing a presumption that the consumer will be unable to pay merely because the
consumer does not pass this test.63
Colorado. Lender may not make a covered loan based on collateral without
regard to borrower’s repayment ability. The lender is presumed to have violated this
provision if the lender engages in a pattern of extending loans subject to federal
regulations regarding certain closed-end mortgages on principal dwellings64 without
verifying and documenting the borrower’s ability to repay. For stated income loans,
lenders may not rely simply on the borrower’s income as stated by the borrower.65
Connecticut. Prohibits extension of covered loans without a reasonable belief
that the borrower will be able to repay. Rebuttable presumption that loan satisfies
this requirement where the consumer’s total monthly indebtedness (including
60 See Joint Report, at 76-77.
61 15 U.S.C. § 1639(h).
62 Ark. Code Ann. § 23-53-104(l).
63 Cal. Fin. Code § 4973(f).
64 12 C.F.R. § 226.32.
65 Colo. Rev. Stat. § 5-3.5-103(1)(b).

CRS-12
monthly payments under the proposed mortgage) is less than half the consumer’s
monthly income.66
District of Columbia. Prohibits extension of covered loans to borrowers who
cannot reasonably be expected to make the monthly payments. This prohibition only
applies to covered loans to borrowers who make 120% or less of the gross median
family income, as determined by HUD.67
Florida. Prohibits “engaging in a pattern or practice” of extending covered
loans based on collateral without regard to the consumer’s ability to repay.68
Georgia. Lender may not make a covered loan unless a reasonable lender
would believe the borrower would be able to make the payments. Rebuttable
presumption that loan satisfies this requirement where the consumer’s total monthly
indebtedness (including monthly payments under the proposed mortgage) is less than
half the consumer’s monthly income and the lender followed the federal residual
income guidelines.69
Illinois. Prohibits extension of covered loans based on collateral without a
belief in the consumer’s ability to repay. Rebuttable presumption that the consumer
will be able to repay if the consumer’s total monthly indebtedness (including monthly
payments under the proposed mortgage) is less than half the consumer’s monthly
income.70
Indiana. Prohibits extension of covered loans without regard to repayment
ability. Rebuttable presumption that this requirement has been satisfied where lender
followed commercially acceptable practices (e.g., used federal debt-income ratio and
residual income guidelines). There is also a rebuttable presumption that the
borrower’s statement of income provided to the lender is accurate.71
Kentucky. Prohibits extension of covered loans without a reasonable belief that
the borrower will be able to repay. Rebuttable presumption that loan satisfies this
requirement where the consumer’s total monthly indebtedness (including monthly
payments under the proposed mortgage) is less than half the consumer’s monthly
income. However, the statute prohibits lenders from imposing a presumption that the
consumer will be unable to pay merely because the consumer does not pass this test.72
66 Conn. Gen. Stat. § 36a-746e(5).
67 D.C. Code Ann. § 26-1152.02.
68 Fla. Stat. Ann. § 494.00791(6).
69 Ga. Code Ann. § 7-6A-5(8).
70 815 Ill. Comp. Stat. 137/15.
71 Ind. Code § 24-9-4-8.
72 Ky. Rev. Stat. Ann. § 360.100(2)(i).

CRS-13
Maine. Prohibits “engaging in a pattern or practice” of extending covered loans
based on collateral without regard to the consumer’s ability to repay.73
Maryland. Prohibits extension of covered loans without due regard to
repayment ability for borrowers who make 120% or less of the monthly median
family income in the borrower’s metropolitan area. Rebuttable presumption that loan
satisfies this requirement where the consumer’s total monthly indebtedness
(including monthly payments under the proposed mortgage) is less than 45% of the
consumer’s monthly income.74
Massachusetts. Prohibits extension of covered loans without reasonable belief
that the borrower will be able to make the scheduled payments. Presumption arises
that the borrower can make the payments where the consumer’s total monthly
indebtedness (including monthly payments under the proposed mortgage) is less than
half the consumer’s monthly income and the borrower can meet federal residual
income guidelines after paying his or her monthly debt.75
Michigan. No provision.
Nevada. Prohibits extension of covered loans based solely on borrower’s
equity, rather than on the borrower’s ability to repay the loan.76
New Jersey. No provision.
New Mexico. Prohibits extension of covered loans without due regard to
repayment ability. Rebuttable presumption that lender has satisfied this requirement
if lender complies with state debt-to-income and residual income guidelines.77
New York. Prohibits extension of covered loans based on collateral without
regard to the consumer’s ability to repay. Rebuttable presumption that loan satisfies
this requirement where the consumer’s total monthly indebtedness (including
monthly payments under the proposed mortgage) is less than half the consumer’s
monthly income and the lender followed the federal residual income guidelines.78
North Carolina. Prohibits extension of covered loans based on collateral
without reasonable belief in the consumer’s ability to repay. Rebuttable presumption
that the consumer will be able to repay if the consumer’s total monthly indebtedness
(including monthly payments under the proposed mortgage) is less than half the
consumer’s monthly income. However, the statute prohibits lenders from imposing
73 Me. Rev. Stat. Ann. tit. 9-A, § 8-206-A(12).
74 Md. Code Ann., Comm. § 12-127(b).
75 Mass. Gen. Laws ch. 183C, § 4.
76 Nev. Rev. Stat. § 598D.100(b).
77 N.M. Stat. Ann. § 58-21A-5(H).
78 N.Y. Banking Law § 6-l(2)(K) (McKinney 2002).

CRS-14
a presumption that the consumer will be unable to pay merely because the consumer
does not pass this test.79
Ohio. Prohibits “engaging in a pattern or practice” of extending covered loans
based on collateral without regard to the consumer’s ability to repay.80
Oklahoma. Prohibits “engaging in a pattern or practice” of extending covered
loans based on collateral without regard to the consumer’s ability to repay.
Presumption that this provision has been violated where lender engages in a pattern
or practice of extending covered loans without verifying/documenting the borrower’s
repayment ability. Presumption that borrower will be able to make the scheduled
payments where the consumer’s total monthly indebtedness (including monthly
payments under the proposed mortgage) is less than 55% of the consumer’s monthly
income. However, the statute prohibits lenders from imposing a presumption that the
consumer will be unable to repay merely because the consumer does not pass this
test.81

Pennsylvania. Prohibits extension of covered loans based on collateral without
reasonable belief in the consumer’s ability to repay. Rebuttable presumption that the
consumer will be able to repay if the consumer’s total monthly indebtedness
(including monthly payments under the proposed mortgage) is less than half the
consumer’s monthly income. However, the statute prohibits lenders from imposing
a presumption that the consumer will be unable to pay merely because the consumer
does not pass this test. This prohibition does not apply to borrowers whose income
is greater than 120% of the states’s median family income.82
Rhode Island. Prohibits extension of high-cost home loans to borrowers unless
a reasonable creditor would believe at closing time of the loan that the borrower(s)
will be able to make the scheduled payments associated with the loan. Rebuttable
presumption that the borrower is able to make the scheduled payments if at the time
that the loan is consummated, the borrower’s total monthly indebtedness (including
amounts under the loan) is less than 50% of the borrower’s monthly gross income as
verified by tax returns, payroll receipts and other third party income verification.83
South Carolina. Prohibits extension of covered loans based on collateral
without reasonable belief in the consumer’s ability to repay. Rebuttable presumption
that the consumer will be able to repay if the consumer’s total monthly indebtedness
(including monthly payments under the proposed mortgage) is less than half the
consumer’s monthly income. However, the statute prohibits lenders from imposing
79 N.C. Gen. Stat. § 24-1.1E(c)(2) (2002).
80 Ohio Rev. Code Ann. § 1349.27(D).
81 Okla. Stat. Tit. 14A, § 3-410(2)(d).
82 63 Pa. Cons. Stat § 456.512(b).
83 R.I. Gen. Laws §34-25.2-6.(h). In assessing the borrower’s ability to repay, the factors
to be considered are the borrower’s: current and expected income, current obligations,
employment status and other financial resources, other than the borrower’s equity in the
collateral that secures the repayment of the loan.

CRS-15
a presumption that the consumer will be unable to repay merely because the
consumer does not pass this test.84
Tennessee. Lenders may not make a high-cost loan unless the lender reasonably
believes that the borrower(s) will be able to make scheduled payments to repay the
loan based on consideration of their current and expected income, current
obligations, employment status and other financial resources that do not include the
borrower’s equity in the dwelling that secures repayment of the loan.85 Borrowers
are deemed able to make their scheduled payments when their total monthly
indebtedness (including amounts owed under the loan) is less than or equal to 50%
of the borrower’s monthly gross income.86
Texas. Prohibits “engaging in a pattern or practice” of extending covered loans
based on collateral without regard to the consumer’s ability to repay.87
Utah. No provision.
Wisconsin. Lender may not make a covered loan based on collateral without
regard to borrower’s repayment ability. The lender is presumed to have violated this
provision if the lender engages in a pattern of extending covered loans without
verifying and documenting the borrower’s ability to repay.88
Prepayment Penalties
Prepayment of loans often takes place as a result of relocation or refinancing.
Some lenders, particularly those in the sub-prime market, charge fees for prepayment
that are intended to cover the lender for losses incurred due to such prepayments.
With the prevalence of these prepayment fees in the sub-prime market, some have
expressed concern over whether sub-prime borrowers even know that they have the
option to obtain loan products without prepayment penalties. In addition,
prepayment penalties can sometimes hinder a borrower’s ability to refinance a high-
cost loan with a lower-cost loan, causing the lender to be locked into the original
loan.89 Consequently, predatory lending statutes typically address one or both of
these concerns.
HOEPA. Prohibits prepayment penalties after the first five years of the covered
loan where the consumer has a total monthly indebtedness (including monthly
84 S.C. Code Ann. § 37-23-40(2).
85 Tenn. Code Ann. § 47-20-103(6)(A).
86 Id. at § 47-20-103(6)(B). Monthly gross income is to be verified by the credit application,
the borrower’s financial statements, tax returns, payroll receipts or third party income
verification and as underwritten in accordance with the lender’s underwriting guidelines and
methodology.
87 Tex. Fin. Code Ann. § 343.204(b).
88 Wis. Stat. § 428.203(6).
89 See Joint Report, at 93-94.

CRS-16
payments under the proposed mortgage) greater than half the consumer’s monthly
income. This prohibition does not apply to funds obtained from refinancing the
mortgage with the creditor.90
Arkansas. No provision.
California. No prepayment penalties after three years of covered loan. The
lender may charge prepayment penalties in the first three years of the covered loan
where (1) the lender has offered the borrower another product without prepayment
fees; (2) the lender has provided a written disclosure to the borrower on the
differences between products with prepayment fees and those without; (3) the
prepayment fees is equal to no more than six-months, advance interest on the amount
prepaid in any 12-month period in excess of 20% of the original principal amount;
(4) the loan has not been accelerated due to default; and (5) the lender will not
finance a prepayment penalty with a new loan.91
Colorado. Prepayment fees only allowed where a lender other than the original
one (not pursuant to a sale) refinances a loan with a covered loan, and even then only
within the first three years of the covered loan. Also, in order to charge prepayment
fees, the lender must first offer the borrower another product without such fees, and
the covered loan must be a first mortgage, deed of trust, or security interest to
refinance an existing loan financing the construction/acquisition of a dwelling.92
Connecticut. Prepayment penalties only allowed in the first three years of the
covered loan and may not exceed (1) during the first year, 3% of the amount prepaid;
(2) during the second year, 2% of the amount prepaid; and (3) during the third year,
1% of the amount prepaid. Prepayment fees are prohibited if the source of the
prepayment is a refinancing by the lender or if, at the time of consummation, the
borrower’s total monthly debts (including those under the proposed loan) are greater
than half the borrower’s monthly income.93
District of Columbia. Prepayment penalties subject to Washington, D.C.’s
general usury restrictions.94
Florida. No prepayment penalties for covered loans after three years. Within
first three years, prepayment penalties legal if the consumer has been offered another
product without prepayment penalties and the consumer has been given a disclosure
statement three days prior to consummation.95
90 15 U.S.C. § 1639(c).
91 Cal. Fin. Code § 4973(a).
92 Colo. Rev. Stat. § 5-3.5-102(1)(g).
93 Conn. Gen. Stat. § 36a-746c(6).
94 D.C. Code Ann. § 26-1152.12.
95 Fla. Stat. Ann. § 494.00791(1).

CRS-17
Georgia. No prepayment fees or penalties after two years of covered loan.
During first two years, no prepayment fees that exceed in the aggregate: (1) in the
first year after closing, more than 2% of the loan prepaid; or (2) in the second year
after closing, more than 1% of the loan prepaid.96
Illinois. Prepayment penalties prohibited after three years. During the first
three years of the loan, no prepayment penalties for payments that are: more than 3%
of the total loan amount in the first year; more than 2% in the second year; and more
than 1% in the third year.97
Indiana. Prepayment fees only allowed during first two years of loan, and
lender charging prepayment fees must also offer a product without prepayment fees
to the borrower. Prepayment fees may not exceed 2% of the total amount prepaid
during the first two years after closing.98
Kentucky. No prepayment penalties after three years. During the first three
years of the loan, prepayment penalties are subject to the following ceilings: 3% of
the amount prepaid in the first year; 2% in the second year; and 1% in the third year.99
Louisiana. Prepayment penalties are allowed as long as they do not exceed 5%
of the unpaid principal balance if the loan is prepaid in the first year, 4% in the
second year, 3% in the third year, 2% in the fourth year, and 1% in the fifth year.100
Prepayment penalties not allowed in instances where all or part of the outstanding
loan balance is paid from proceeds in satisfaction of claims made under policies of
insurance insuring against casualty, flood, or other losses to property when it is being
prepared in connection with a gubernatorially declared disaster.101
Maine. Prepayment penalties for covered loans prohibited after five years of
loan. Prepayment penalties during first five years unless the consumer’s total
monthly indebtedness (including monthly payments under the proposed mortgage)
is less than half the consumer’s monthly income, and this income is verified by
specific sources. Further, the prepayment penalty can only apply to payments made
with funds not provided by the lender in a refinancing.102
Maryland. No provision.
96 Ga. Code Ann. § 7-6A-5(1).
97 815 Ill. Comp. Stat. 137/30.
98 Ind. Code §§ 24-9-4-1(2)-(4).
99 Ky. Rev. Stat. Ann. § 360.100(2)(a).
100 La. Rev. Stat. Ann. 6:1096(E)(2).
101 Id.. 6:1096(E)(3).
102 Me. Rev. Stat. Ann. tit. 9-A, §§ 8-206-A(6), (7).

CRS-18
Massachusetts. No prepayment penalties in covered loans.103
Michigan. No provision.
Minnesota. No prepayment penalties in residential mortgage loans for any
partial prepayment of the loan; any prepayment of the loan upon the sale of property
or interest in property that secured the loan; any prepayment that is made more than
42 months after the date of the note or other agreement for the loan; or if the total
amount of prepayment penalties, fees, and other charges exceed the lesser of an
amount equal to 2% of the unpaid principal balance at the time of prepayment or the
amount totaling sixty days, interest at the rate effective at the time of prepayment, on
the unpaid principal balance at the time prepayment.104
Nevada. No provision.
New Jersey. No provision.
New Mexico. No prepayment fees for covered loans.105
New York. No provision.
North Carolina. No prepayment fees for any home loan for $150,000 or less
where the borrower is a person (as opposed to a corporation); the debt is incurred for
personal/household purposes; and the loan is secured by a first mortgage on a
structure designed for occupancy by one to four families that will be the borrower’s
principal residence.106
Ohio. No prepayment penalties for covered loans. Prohibition does not apply
to a prepayment penalty allowed under HOEPA.107
Oklahoma. Prohibits prepayment penalties after two years. No prepayment
penalties in the first two years unless (1) the borrower’s total monthly indebtedness
(including under the proposed loan) is less than 50% of the borrower’s monthly
income and that income is verified; (2) the prepayment does not apply to funds
obtained through a refinancing with the lender; and (3) the aggregated penalty does
not exceed 2% of the loan amount prepaid in the first year or 1% in the second
year.108
103 Mass. Gen. Laws ch. 183C, § 5.
104 Minn. Stat. § 58.137(a). A residential mortgage originator offering or making residential
mortgage loans with prepayment penalties exceeding the amount allowed in this section
must make a clear disclosure to the potential borrower.
105 N.M. Stat. Ann. § 58-21A-5(O).
106 N.C. Gen. Stat. § 24-1.1A(b)(1) (2002).
107 Ohio Rev. Code Ann. § 1349.27(A)(1).
108 Okla. Stat. Tit. 14A, § 3-309.4(3)(b).

CRS-19
Pennsylvania. Prepayment fees only allowed in the first 60 months of the
covered loan where the lender has made available an alternative product without any
prepayment fees. Under no circumstances can a lender charge prepayment fees on
a covered loan that refinances another covered loan held by the lender.109
Rhode Island. No prepayment penalties or fees are allowed for high-cost home
loans.110
South Carolina. Borrower may prepay in full any consumer home loan of
$150,000 or less.111
Tennessee. Borrowers may not be charged prepayment fees or penalties (also
not allowed in the loan documents) for a high-cost loan exceeding an aggregate of
2% of the loan prepaid, in the first two years following the loan closing.112
Furthermore, prepayment penalties or fees are not allowed if a lender or a lender’s
affiliate is refinancing a high-cost home loan of which they are the original note
holder.113
Texas. Prohibits prepayment penalties in covered loans.114
Utah. No prepayment penalties after three years, and prepayment penalties
must not be greater than the interest paid at 80% of the preceding six scheduled
payments. If prepayment does not pay full balance of loan, then the prepayment
penalty must be reduced by a percentage equal to the percentage of the balance
unpaid before the prepayment. In addition, no prepayment penalties where the
prepayment is paid with funds from a new loan by the same lender.115
West Virginia. Allows prepayment penalties of no more than 1% of the
original principal within the first three years.116 In any event, prepayment penalties
are not allowed on refinancing within one year from the date of the prior loan.117
Wisconsin. No prepayment penalties after three years or when refinancing a
covered loan held by the refinancing lender. During first three years, no prepayment
109 63 Pa. Cons. Stat. § 456.511(f).
110 R.I. Gen. Laws § 34-25.2-6(b).
111 S.C. Code Ann. § 37-23-80.
112 Tenn. Code Ann. § 47-20-103(9)(A).
113 Id. at § 47-20-103(9)(B).
114 Tex. Fin. Code Ann. § 343.205.
115 Utah Code § 61-2d-103.
116 W. Va. Code § 46A-3-110(2).
117 Id.

CRS-20
penalties unless the lender has also offered the consumer an alternative product with
no prepayment penalty. This offer must be initialed by the borrower.118
Balloon Payments
Balloon payments occur at the end of the loan term when the scheduled
payments do not fully amortize the principal. Balloon payments tied to high-cost
loans with short terms can be particularly difficult for sub-prime borrowers to make,
forcing them to refinance (sometimes repeatedly) with another high-cost loan.119
Most statutes prohibit payments that are more than twice as high as the average of
earlier payments.
HOEPA. Covered loans of less than five years may not include terms under
which the aggregate amount of the regular periodic payments would not fully
amortize the outstanding principal balance.120
Arkansas. Covered loans of less than ten years may not include terms under
which regular periodic payments would not fully amortize the outstanding principal
balance. This prohibition does not apply where the change in payment schedule
reflects the borrower’s seasonal/irregular income or the loan is a bridge loan for the
acquisition/construction of borrower’s principal dwelling.121
California. Covered loans of less than five years may not include terms under
which regular periodic payments would not fully amortize the principal. When the
payment schedule is adjusted to account for the borrower’s seasonal income, the total
installments in any year may not exceed the amount of one year’s worth of payments
on the loan. This prohibition does not apply to bridge loans.122
Colorado. Covered loans may not, within first ten years, have any scheduled
payments twice as large as the average of earlier payments, unless the change reflects
the borrower’s seasonal/irregular income or the loan is a bridge loan for the
construction/acquisition of the borrower’s principal dwelling.123
Connecticut. Covered loans may not, within the first seven years, include terms
under which the regular periodic payments would not fully amortize the outstanding
principal balance. This loan does not apply to bridge loans of under one year.124
118 Wis. Stat. § 428.207.
119 See Joint Report, at 96.
120 15 U.S.C. § 1639(e).
121 Ark. Code Ann. § 23-53-104(f). This provision does not apply to reverse mortgage
transactions.
122 Cal. Fin. Code § 4973(b).
123 Colo. Rev. Stat. § 5-3.5-102(1)(a).
124 Conn. Gen. Stat. § 36a-746c(1).

CRS-21
District of Columbia. Covered loans may not, within the first seven years,
include terms under which the regular periodic payments would not fully amortize
the outstanding principal balance, unless the payment schedule reflects the
seasonal/irregular income of the borrower or the loan is a bridge loan.125
Florida. Covered loans of less than ten years may not include terms under
which regular periodic payments would not fully amortize the principal, unless such
terms reflect the borrower’s seasonal/irregular income or the loan is a bridge loan.126
Georgia. Covered loans may not have any scheduled payments twice as large
as the average of earlier payments, unless the change reflects the borrower’s
seasonal/irregular income.127
Illinois. No provision.
Indiana. Covered loans may not have any scheduled payments twice as large
as the average of earlier payments during first ten years of loan, unless the change
reflects the borrower’s seasonal/irregular income or the loan is a bridge loan for the
construction/acquisition of borrower’s principal dwelling.128
Kentucky. Covered loans may not have any scheduled payments twice as large
as the average of earlier payments, unless the change reflects the borrower’s
seasonal/irregular income.129
Maine. Covered loans with terms of less than five years may not include a
payment schedule that would not fully amortize the outstanding principal balance.130
Maryland. No provision.
Massachusetts. Covered loans may not have any scheduled payments twice as
large as the average of earlier payments, unless the change reflects the borrower’s
seasonal/irregular income.131
Michigan. Covered loans with terms of less than five years (but not including
bridge loans of less than one year) may not include a payment schedule that would
not fully amortize the outstanding principal balance.132
125 D.C. Code Ann. § 26-1152.13.
126 Fla. Stat. Ann. § 494.00791(3).
127 Ga. Code Ann. § 7-6A-5(2).
128 Ind. Code § 24-9-4-3.
129 Ky. Rev. Stat. Ann. § 360.100(2)(c).
130 Me. Rev. Stat. Ann. tit. 9-A, § 8-206-A(9).
131 Mass. Gen. Laws ch. 183C, § 8.
132 Mich. Comp. Laws § 445.1635.

CRS-22
Nevada. No provision.
New Jersey. Covered loans may not have any scheduled payments more than
twice as large as the average of earlier payments, unless the change reflects the
borrower’s seasonal/irregular income.133
New Mexico. Covered loans may not have any scheduled payments more than
twice as large as the average of earlier payments, unless the change reflects the
borrower’s seasonal/irregular income.134
New York. The New York statute prohibits scheduled payments that are more
than twice as large as the average of earlier payments, unless such payments become
due at least fifteen years after the loan’s consummation. This provision does not
apply when the payment schedule is adjusted to reflect the borrower’s
seasonal/irregular income.135
North Carolina. Prohibits scheduled payments that are more than twice as
large as the average of earlier payments, unless the payment schedule is adjusted due
to the borrower’s seasonal/irregular income.136
Ohio. Covered mortgages of less than five years may not include terms under
which the aggregate amount of the regular periodic payments would not fully
amortize the outstanding principal balance. Prohibition does not apply to “bridge
loans” connected with construction of borrower’s principal dwelling, where such
loans have less than one year maturity.137
Oklahoma. For all consumer loans (except for those which are parts of
revolving loan accounts), where any scheduled payment is more than twice the
average of earlier payments, the borrower has the right to refinance that payment at
the time it is due without penalty. This does not apply where the change reflects the
borrower’s seasonal/irregular income.138
Pennsylvania. Covered loans may not have any scheduled payments more than
twice as large as the average of earlier payments during the first ten years of the loan,
unless the change reflects the borrower’s seasonal/irregular income or the loan is a
bridge loan.139
133 N.J. Stat. Ann. § 46:10B-26(a).
134 N.M. Stat. Ann. § 58-21A-5(B).
135 N.Y. Banking Law § 6-l(2)(B) (McKinney 2002).
136 N.C. Gen. Stat. § 24-1.1E(b)(2) (2002).
137 Ohio Rev. Code Ann. § 1349.27(C).
138 Okla. Stat. Tit. 14A, § 3-402.
139 63 Pa. Cons. Stat. § 456.511(a).

CRS-23
Rhode Island. High-cost home loans may not contain a scheduled payment that
is more than twice as large as the average of earlier payments, unless the payment
schedule is adjusted to the seasonal or irregular income of the borrower.140
South Carolina. Covered loans may not have any scheduled payments twice
as large as the average of earlier payments, unless the change reflects the borrower’s
seasonal/irregular income or the loan is a bridge loan.141
Tennessee. High-cost home loans may not contain scheduled payments that are
more than twice as large as the average of the earlier scheduled payments.142
Texas. Covered loans may not have any scheduled payments twice as large as
the average of earlier payments during the first five years. This prohibition does not
apply to payment schedules that reflect the borrower’s seasonal/irregular income or
the loan is a bridge loan for the acquisition/construction of borrower’s principal
dwelling.143
Utah. No provision.
Wisconsin. Covered loans may not have any scheduled payments more than
twice as large as the average of earlier payments, unless the change reflects the
borrower’s seasonal/irregular income or the loan is a bridge loan with a maturity of
less than one year.144

Negative Amortization
Negative amortization refers to payment schedules that do not cover the full
amount of interest due, causing the outstanding principal balance to increase, rather
than decrease, as would normally be the case. The borrower actually loses equity
under such a payment scheme,145 which is why it is usually prohibited with respect
to covered loans.
HOEPA. Covered mortgages may not include terms under which the
outstanding principal balance will increase at any time over the course of the loan
because the regular periodic payments do not cover the full amount of interest due.146
140 R.I. Gen. Laws § 34-25.2-6(c).
141 S.C. Code Ann. § 37-23-30(2).
142 Tenn. Code Ann. § 47-20-103(10). This provision does not apply when the payment
schedule is adjusted to the seasonal or irregular income of a borrower.
143 Tex. Fin. Code Ann. § 343.202.
144 Wis. Stat. § 428.203(1).
145 See Joint Report, at 91.
146 15 U.S.C. § 1639(f).

CRS-24
Arkansas. Covered mortgages may not include terms under which the
outstanding principal balance will increase at any time over the course of the loan
because the regular periodic payments do not cover the full amount of interest due.147
California. Prohibits payment schedules for covered loans under which
principal balance will increase, unless the loan is a first mortgage and the lender
discloses to the borrower that the negative amortization provision may add to the
principal.148
Colorado. A covered loan may not include a regular payment schedule that will
cause the outstanding principal balance to increase, although negative amortization
is allowed where it is the result of temporary forbearance sought by the borrower.149
Connecticut. Prohibits covered loans with scheduled payments that cause the
principal balance to increase.150
District of Columbia. A covered loan may not include a regular payment
schedule that will cause the outstanding principal balance to increase.151
Florida. Identical to HOEPA.152
Georgia. Covered loans may not include terms under which the outstanding
principal balance will increase at any time over the course of the loan because the
regular periodic payments do not cover the full amount of interest due.153
Illinois. Covered mortgages (but not including reverse mortgages) may not
include terms under which the outstanding principal balance will increase at any time
over the course of the loan because the regular periodic payments do not cover the
full amount of interest due, unless the negative amortization is the result of temporary
forbearance sought by the borrower.154
Indiana. Covered mortgages may not include terms under which the
outstanding principal balance will increase at any time over the course of the loan
147 Ark. Code Ann. § 23-53-104(g). This provision does not apply to reverse mortgage
transactions.
148 Cal. Fin. Code § 4973(c).
149 Colo. Rev. Stat. § 5-3.5-102(1)(c).
150 Conn. Gen. Stat. § 36a-746c(2).
151 D.C. Code Ann. § 26-1152.15.
152 Fla. Stat. Ann. § 494.00791(4).
153 Ga Code Ann. § 7-6A-5(3).
154 815 Ill. Comp. Stat. 137/65.

CRS-25
because the regular periodic payments do not cover the full amount of interest due.
Prohibition does not apply to temporary forbearance requested by the borrower.155
Kentucky. Covered loans may not contain scheduled payments that cause the
principal balance to increase.156
Maine. Covered mortgages may not include terms under which the outstanding
principal balance will increase at any time over the course of the loan because the
regular periodic payments do not cover the full amount of interest due.157
Maryland. No provision.
Massachusetts. Covered loans may not contain scheduled payments that cause
the principal balance to increase.158
Michigan. No provision.
Nevada. No provision.
New Jersey. Covered mortgages may not include terms under which the
outstanding principal balance will increase at any time over the course of the loan
because the regular periodic payments do not cover the full amount of interest due.159
New Mexico. Covered loans may not include terms under which the
outstanding principal balance will increase at any time over the course of the loan
because the regular periodic payments do not cover the full amount of interest due.160
New York. No covered loan may contain a payment schedule with regular
periodic payments that cause the principal balance to increase.161
North Carolina. No covered loan may contain a payment schedule with regular
periodic payments that causes the principal balance to increase.162
155 Ind. Code § 24-9-4-4.
156 Ky. Rev. Stat. Ann. § 360.100(2)(d).
157 Mass. Gen. Laws ch. 183C, § 10.
158 Ky. Rev. Stat. Ann. § 360.100(2)(d).
159 N.J. Stat. Ann. § 46:10B-26(b).
160 N.M. Stat. Ann. § 58-21A-5(C).
161 New York Banking Law § 6-l(2)(C) (McKinney 2002).
162 N.C. Gen. Stat. § 24-1.1E(b)(3) (2002).

CRS-26
Ohio. Covered loans may not include terms under which the outstanding
principal balance will increase at any time over the course of the loan because the
regular periodic payments do not cover the full amount of interest due.163
Oklahoma. Covered mortgages may not include terms under which the
outstanding principal balance will increase at any time over the course of the loan
because the regular periodic payments do not cover the full amount of interest due.164
Pennsylvania. Unless the borrower makes more than 150% of the median
family income, no covered loan may contain a payment schedule with regular
periodic payments that causes the principal balance to increase. Prohibition does not
apply to temporary forbearance or restructure agreed to by the borrower.165
Rhode Island. High-cost home loan may not contain payment terms under
which the outstanding principal balance or accrued interest will increase at any time
over the course of the loan, because the regularly scheduled periodic payments do not
cover the full amount of the interest due.166
South Carolina. No covered loan may contain a payment schedule with regular
periodic payments that causes the principal balance to increase.167
Tennessee. Lenders may not make high-cost home loans containing payment
schedules with regular periodic payments that cause the principal balance to
increase.168
Texas. No covered loan may contain a payment schedule with regular periodic
payments that causes the principal balance to increase, unless the schedule is the
result of a temporary forbearance/restructure requested by the borrower, or the loan
is a bridge loan.169
Utah. All covered loans must have a payment schedule sufficient to cover all
interest owed and a portion of the principal for each payment, and to cover the full
amount owed during the loan term (unless late fees or other charges incurred).170
163 Ohio Rev. Code Ann. § 1349.27(A)(2).
164 Okla. Stat. Tit. 14A, § 3-309.4(6).
165 63 Pa. Cons. Stat. § 456.511(c).
166 R.I. Gen. Laws § 34-25.2-6(d).
167 S.C. Code Ann. § 37-23-30(3).
168 Tenn. Code Ann. § 47-20-103(11).
169 Tex. Fin. Code § 343.203.
170 Utah Code § 61-2d-104.

CRS-27
West Virginia. Regulated consumer lender may not require or contain terms
of repayment that do not result in continuous monthly reduction of the original
principal amount of the loan.171
Wisconsin. No covered loan may contain a payment schedule with regular
periodic payments that cause the principal balance to increase, unless the schedule
is the result of a temporary forbearance requested by the borrower.172
Loan Flipping
Loan flipping is the practice of refinancing (often repeatedly) one loan with a
high-cost loan. The borrower may get a lower interest rate by refinancing, but the
total points and fees associated with doing so actually make the refinancing a bad
option for the borrower.173 Most state statutes restrict this practice in some way.
HOEPA. No provision.
Arkansas. Prohibits loan flipping, which is defined as refinancing an existing
home loan with a covered loan, where doing so does not provide a reasonable,
tangible net benefit to the consumer. Presumption of loan flipping where (1) the
primary benefit is a lower interest rate as a result of refinancing but it will take the
borrower more than four years to realize this benefit due to the points and fees
associated with the refinancing; or (2) the new loan refinances certain existing special
mortgages subsidized by government or non-profit entities.174
California. No refinancing of consumer loans with covered loans for the
purposes of refinancing, debt consolidation, or cash out, where the new loan does not
provide an identifiable benefit to the borrower.175
Colorado. Lenders may not refinance one covered loan held by that lender into
another covered loan within the first year of loan unless it is in the borrower’s interest
to do so.176 In addition, a lender may not replace or consolidate zero-interest loans
or certain low-interest rate loans with a covered loan within ten years of the original
loan unless the holder of the original loan consents in writing.177
171 W. Va. Code § 46A-4-109(5)(E). Does not apply to reverse mortgages, open-ended lines
of credit or bridge loans.
172 Wis. Stat. § 428.203(3).
173 See Joint Report, at 75-76.
174 Ark. Code Ann. § 23-53-104(b).
175 Cal. Fin. Code § 4973(j).
176 Colo. Rev. Stat. § 5-3.5-103(1)(c).
177 Id. at § 5-3.5-103(1)(d).

CRS-28
Connecticut. Prohibits covered loans that refinance existing loans unless doing
so provides a benefit to the borrower.178
District of Columbia. No provision.
Florida. No refinancing of a covered loan within the first 18 months when the
refinancing does not have a reasonable benefit to the consumer.179
Georgia. Prohibits loan flipping for all home loans, not just covered loans.
Loan flipping is defined as refinancing an existing home loan with another one within
five years, even though the new loan does not reasonably benefit the borrower.180
Presumption of loan flipping where the new loan refinances a loan consummated
within previous five years, and that is a special mortgage subsidized by government
or non-profit entities.181
Illinois. No refinancing of covered loan where such refinancing brings
additional points and fees within the first year of loan, unless the refinancing results
in a tangible net benefit to the borrower.182
Indiana. No provision.
Kentucky. Lender may not refinance, replace or consolidate zero-interest loans
or certain low-interest rate loans made by a government or non-profit lender with a
covered loan.183
Maine. No provision.
Maryland. No provision.
Massachusetts. No provision.
Michigan. No provision.
Nevada. No provision.
New Jersey. No provision.
178 Conn. Gen. Stat. § 36a-746e(8).
179 Fla. Stat. Ann. § 494.00791(9).
180 Ga. Code Ann. § 7-6A-4(a).
181 Id. at § 7-6A-4(b). This presumption does not apply to refinancings of home loans
purchased/guaranteed by the Georgia Housing and Finance Authority. Id.
182 815 Ill. Comp. Stat. 137/45.
183 Ky. Rev. Stat. Ann. § 360.100(2)(m).

CRS-29
New Mexico. Prohibits loan flipping for all home loans, not just covered loans.
Loan flipping is defined as refinancing an existing home loan with another one, even
though the new loan does not reasonably benefit the borrower.184
New York. Prohibits loan flipping for covered loans. Loan flipping is defined
as refinancing an existing home loan where the refinancing does not have a tangible
net benefit to the consumer considering all of the surrounding circumstances.185 Also
requires that borrowers first get loan counseling before lenders extend covered loans
that refinance certain special mortgages originated, subsidized, or guaranteed by or
through state, tribal, or local governments, or nonprofit organizations.186
North Carolina. Prohibits loan flipping for all consumer home loans except
reverse mortgages. Loan flipping is defined as refinancing an existing home loan
where the refinancing does not have a tangible net benefit to the consumer
considering all of the surrounding circumstances.187
Ohio. Prohibits refinancing a covered loan into another covered loan within one
year of consummation unless doing so is in the consumer’s interest.188 In addition,
borrowers may not replace or consolidate zero-interest and certain low-rate loans
made by a government or non-profit lender within the first ten years of the original
loan without the lender’s written consent.189
Oklahoma. Within first year of a covered loan, lender may not refinance that
loan with another covered loan unless it is in the borrower’s interest to do so.190 In
addition, lender may not consolidate or replace a zero interest loan or certain low rate
loans issued by a governmental or non-profit lender with a covered loan within the
first ten years of the original loan without the borrower’s written consent.191
Pennsylvania. Lender may not charge points when refinancing one covered
loan with another one when the last financing was within the previous year.192 In
addition, borrowers may not replace or consolidate zero-interest and low-rate loans
(i.e., loans carrying interest rates 2% or more below that of comparable Treasury
184 N.M. Stat. Ann. § 58-21A-4(B).
185 New York Banking Law § 6-l(2)(I)
186 New York Banking Law § 6-l(2)(J) (McKinney 2002).
187 N.C. Gen. Stat. § 24-10.2(a), (c) (2002).
188 Ohio Rev. Code Ann. § 1349.27(G)(1).
189 Id. at § 1349.27(J).
190 Okla. Stat. Tit. 14A, § 3-410(2)(d).
191 Id. at § 3-410(2)(a).
192 63 Pa. Cons. Stat. § 456.512(c).

CRS-30
securities) made by a government or non-profit lender within the first ten years of the
original loan without the lender’s written consent.193
Rhode Island. Creditors must not engage in the making of a home to a
borrower that refinances an existing home loan that was consummated within the
prior sixty months when the new loan does not have a reasonable and tangible net
benefit to the borrower.194 All circumstances are to be considered in making this
determination including the terms of both the new and refinanced loans, the cost of
the new loan, the borrower’s circumstances, and any other pertinent factors.
South Carolina. Prohibits loan flipping with respect to all consumer home
loans. Loan flipping is defined as refinancing one consumer home loan with another
within three-and-a-half years of the original loan where doing so would not provide
a reasonable, tangible benefit to the borrower. The statute lists several events that
give rise to a presumption that the refinancing does benefit the borrower, including
where the borrower’s monthly debt (including the proposed loan) does not exceed
50% of the borrower’s net income. On the other hand, flipping is presumed to have
occurred where a loan refinances certain special mortgages originated, subsidized,
or guaranteed by or through state, tribal, or local governments, or nonprofit
organizations.195
Tennessee. Lenders may not make high-cost home loans that refinance within
thirty months an existing home loan or high-cost home loan of the borrower when the
new loan does not reasonably benefit the borrower.196
Texas. Lender may not consolidate or replace certain low rate loans issued by
a governmental or non-profit lender in the first seven years unless the new loan has
a lower interest rate and points and fees, or the loan is being restructured to avoid
foreclosure.197
Utah. No provision.
Virginia. Prohibits mortgage lender and brokers from engaging in the act or
practice of “loan flipping.” Loan flipping is defined as refinancing a mortgage loan
193 63 Pa. Cons. Stat. § 456.512(d).
194 R.I. Gen. Laws § 34-25.2-5(b). “Tangible net benefit” means at the time of refinancing
of a home loan(s), the new home loan meets, at a minimum, one of six statutorily
enumerated factors. See R.I. Gen. Laws § 34-25.2-4(q).
195 S.C. Code Ann. §§ 37-23-70(A), 37-23-20(8).
196 Tenn. Code Ann. § 47-20-103(4)(A). In determining if a reasonable benefit to the
borrower exists, all circumstances including; the terms of both the new and refinanced loan,
the economic and non-economic factors, the cost of the new loan, and the borrower’s
circumstances must be considered.
197 Tex. Fin. Code Ann. § 343.101.

CRS-31
within 12 months of originating the loan unless refinancing is in the borrower’s best
interest.198
Wisconsin. No refinancing of a covered loan with another covered loan in the
first year unless it is in the borrower’s interest to do so.199 In addition, lender may not
consolidate or replace a zero interest loan or certain low rate loans issued by a
governmental or non-profit lender with a covered loan within the first ten years of the
original loan without the borrower’s written consent.200
Credit Counseling
As mentioned in the introduction, a predatory lender relies on the borrower’s
unfamiliarity with typical loan practices and terms. In many instances, for example,
borrowers who agree to sub-prime terms and conditions could qualify for prime
loans, but they don’t realize it. Recognizing the role that knowledge plays in curbing
predatory lending, there is a movement among some advocates to require borrowers,
before agreeing to a high-cost loan, to seek loan counseling.201
HOEPA. No requirement to encourage the consumer to get counseling.
Arkansas. No extension of covered loan unless the borrower receives loan
counseling from a counselor certified by HUD or other state or federal government
regulatory bodies.202
California. Required disclosure statement contains a recommendation that the
borrower consider seeking loan counseling.203
Connecticut. No provision.
Colorado. No provision.
District of Columbia. Lender must inform borrower of right to obtain
counseling in connection with a covered loan.204
198 Va. Code Ann. § 6.1-422.1(a), (b). Provides several examples of the factors to be
addressed in determining whether refinancing is in the borrower’s best interest.
199 Wis. Stat. § 428.203(7).
200 Id. at § 428.203(8m).
201 See Joint Report,. at 60-61.
202 Ark Code Ann. § 23-53-104(k).
203 Cal. Fin. Code § 4973(k)(1).
204 D.C. Code Ann. § 26-1152.19.

CRS-32
Florida. Required disclosure statement contains a recommendation that the
borrower consider seeking loan counseling.205
Georgia. No covered loan can be made without certification from a third-party
nonprofit recognized by the U.S. Department of Housing and Urban Development
(HUD) or the Georgia Housing and Finance Authority that the borrower has received
counseling on the loan.206
Illinois. Required disclosure statement contains a recommendation that the
borrower seek loan counseling.207 In addition, if a covered loan becomes delinquent
by more than thirty days, then lender is required to notify borrower that borrower may
want to consider loan counseling.208
Indiana. Before making a covered loan, lenders must first provide information
on federal and state loan counseling to the borrower.209
Kentucky. Required disclosure statement contains a recommendation that the
borrower consider seeking loan counseling.210 In addition, lender is required to make
available to the borrower an audio or video tape approved by the Kentucky
Department of Financial Institutions explaining the borrower’s rights with respect to
covered loans.211
Maine. No provision.
Maryland. Lender of a covered loan must provide borrower with written
recommendation to seek loan counseling and a list of approved counseling
agencies.212
Massachusetts. No covered loan can be made without certification from a
third-party nonprofit recognized by certain federal or state government entities that
the borrower has received counseling on the loan.213
205 Fla. Stat. Ann. § 494.00792(1)(a).
206 Ga. Code Ann. § 7-6A-5(7).
207 815 Ill. Comp. Stat. 137/95.
208 815 Ill. Comp. Stat. 137/100.
209 Ind. Code § 24-9-4-7.
210 Ky. Rev. Stat. Ann. § 360.100(2)(h).
211 Id. at § 360.100(2)(o).
212 Md. Code Ann., Comm., § 12-409.1(c)(2).
213 Mass. Gen. Laws ch. 183C, § 3.

CRS-33
Michigan. Lender of covered loan must provide borrower with written notice
on the benefits of loan counseling and a list of HUD-approved counseling agencies.214
Nevada. No provision.
New Jersey. Required disclosure statement contains a recommendation that the
borrower seek loan counseling.215
New Mexico. No covered loan can be made without certification from a third-
party nonprofit recognized by the U.S. Department of Housing and Urban
Development (HUD) or similar state authority that the borrower has received
counseling on the loan.216
New York. Upon receiving an application for a covered loan, lenders must
encourage applicants to consider loan counseling and provide a copy of the New
York State Banking Department’s list of loan counselors.217
North Carolina. No covered loan can be made unless borrower provides
certification from a counselor approved by the North Carolina Housing Finance
Agency that the borrower has received counseling on the loan.218
Ohio. No provision.
Oklahoma. No provision.
Pennsylvania. Required disclosure statement contains a recommendation that
the borrower consider seeking loan counseling.219
Rhode Island. Creditors may not make high-cost home loans without receiving
certification from a third-party nonprofit organization counselor, approved by HUD,
that the borrower has received counseling on the advisability of the loan
transaction.220
South Carolina. Lenders may not make covered loans without receiving
certification from the State Housing Finance and Development Authority that the
borrower has received loan counseling.221
214 Mich. Comp. Laws § 445.1637.
215 N.J. Stat. Ann. § 46:10B-26(f).
216 N.M. Stat. Ann. § 58-21A-5(G).
217 New York Banking Law § 6-l(2)(L)(i) (McKinney 2002).
218 N.C. Gen. Stat. § 24-1.1E(b)(1) (2002).
219 63 Pa. Cons. Stat. § 456.512(a).
220 R.I. Gen. Laws § 34-25.2-6(g).
221 S.C. Code Ann. § 37-23-40(1).

CRS-34
Tennessee. Requires a disclosure statement recommending that the borrower
seek loan counseling.222 Lenders must also provide borrowers with notice of the
availability of third-party non-profit counselors approved by HUD or other state
housing agencies, and this notice must also provide a list of such counselors in the
borrower’s county or a list of agencies with toll-free numbers and website
information identifying such counselors.223
Texas. No provision.
Utah. No provision.
Wisconsin. Required disclosure statement contains a recommendation that the
borrower consider seeking loan counseling.224
Mandatory Arbitration Clauses
Mandatory arbitration clauses require parties to a loan agreement to resolve their
differences in arbitration, rather than in court. These clauses can be onerous to the
borrower — and therefore discourage valid claims — in that they sometimes require
the borrower to pay arbitration costs or to travel far from home.225
HOEPA. No provision.
Arkansas. No covered loan may be subject to a mandatory arbitration clause
that limits in any way the borrower’s right to seek relief through the judicial
process.226
California. No provision.
Colorado. Arbitration clauses in covered loans must comply with the rules of
a nationally recognized arbitration organization (e.g., American Arbitration
Association) and require the arbitration to be conducted in the federal district in
which the property is located, in the nearest city in which a federal district court is
located, or some other location mutually agreed upon by the parties. Arbitration
clauses in covered loans must require lenders to pay at least 50% of the filing fees
and at least the first day’s standard daily arbitration fees.227
222 Tenn. Code Ann. § 47-20-103(16).
223 Id. at § 47-20-103(21).
224 Wis. Stat. § 428.208.
225 See Joint Report, at 98-99.
226 Ark. Code Ann. § 23-53-104(j).
227 Colo. Rev. Stat. § 5-3.5-102(e).

CRS-35
Connecticut. Prohibits mandatory arbitration clauses.228
District of Columbia. Prohibits mandatory arbitration clauses in covered loans
that are oppressive, unfair, unconscionable, or substantially in derogation of the
rights of the consumer. The Mayor of Washington, D.C., is empowered to
promulgate guidelines for arbitration clauses (which must be in line with the
guidelines of a nationally recognized arbitration forum, such as the American
Arbitration Association), compliance with which creates a presumption that the
clause is valid.229
Florida. No provision.
Georgia. Any provision of a covered loan that requires suit in a forum that is
“less convenient, more costly, or more dilatory” than a state judicial forum is
unconscionable and void.230
Illinois. Prohibits mandatory arbitration clauses in covered loans that are
oppressive, unfair, unconscionable, or substantially in derogation of the rights of the
consumer.231
Indiana. Mandatory arbitration clauses unconscionable and void.232
Kentucky. Prohibits mandatory arbitration clauses in covered loans that are
oppressive, unfair, unconscionable, or substantially in derogation of the rights of the
consumer. Arbitration clauses conforming to the standards of the National Consumer
Dispute Advisory Committee of the American Arbitration Association are presumed
not to violate this prohibition.233
Maine. No provision.
Maryland. No provision.
Massachusetts. Any provision of a covered loan that requires suit in a forum
that is “less convenient, more costly, or more dilatory” than a state judicial forum or
limits in any claim or defense the borrower may raise is unconscionable and void.234
Michigan. No provision.
Nevada. No provision.
228 Conn. Gen. Stat. § 36a-746c(7).
229 D.C. Code Ann. § 26-1152.18.
230 Ga. Code Ann. § 7-6A-5(6).
231 815 Ill. Comp. Stat. 137/130.
232 Ind. Code § 24-9-4-12.
233 Ky. Rev. Stat. Ann. § 360.100(2)(p).
234 Mass. Gen. Laws ch. 183C, § 13.

CRS-36
New Jersey. Any provision of a covered loan that requires suit in a forum that
is “less convenient, more costly, or more dilatory” than a state judicial forum is
unconscionable and void.235 In addition, covered loan lenders must use New Jersey
courts to foreclose.236
New Mexico. Any provision of a covered loan that requires suit in a forum that
is “less convenient, more costly, or more dilatory” than a state judicial forum is
unconscionable and void.237
New York. Prohibits mandatory arbitration clauses in covered loans that are
oppressive, unfair, unconscionable, or substantially in derogation of the rights of the
consumer.238
North Carolina. No provision.
Ohio. No provision.
Oklahoma. Arbitration clauses in covered loans must comply with the rules of
a nationally recognized arbitration organization (e.g., American Arbitration
Association) and require the arbitration to be conducted in the federal district in
which the property is located, the nearest city in which a federal district court is
located, or some other location mutually agreed upon by the parties. Arbitration
clauses in covered loans must require lenders to pay at least 50% of the filing fees
and at least the first day’s standard daily arbitration fees.239
Pennsylvania. No provision.
Rhode Island. Home loans may not contain provisions allowing a party to
require that borrowers assert claims and defenses in forums less convenient, more
costly, or dilatory for the resolution of a dispute than a judicial forum established
within the state where the borrower may otherwise properly assert a claim or
defense.240 Also, borrowers must not be limited in regards to any claim or defense
that they may have.241
235 N.J. Stat. Ann. § 46:10B-26(e).
236 N.J. Stat. Ann. § 46:10B-26(k).
237 N.M. Stat. Ann. § 58-21A-5(F).
238 New York Banking Law § 6-l(2)(G) (McKinney 2002).
239 Okla. Stat. Tit. 14A, § 3-410(2)(f).
240 R.I. Gen. Laws § 34-25.2-5(e).
241 Id.

CRS-37
South Carolina. The loan agreement may not contain a choice of law provision
naming a state other than South Carolina, unless otherwise allowed under federal
law.242
Tennessee. No provision.
Texas. No provision.
Utah. Arbitration clauses in covered loans must comply with the standards in
the Utah Uniform Arbitration Act or the Federal Arbitration Act,243 or any successor
acts.244
West Virginia. Regulated consumer lenders may not require compulsory
arbitration that does not comply with federal law.245
Wisconsin. No provision.
Loan Packing
There are several types of credit insurance that cover various loan payments in
case of the borrower’s inability to pay, including credit life, credit accident, credit
disability, credit unemployment, and credit property insurance. Oftentimes with
high-cost loans, the premiums for credit insurance (or other types of insurance)
coverage are folded into a single premium and financed all at once by the loan. In
essence, this single premium becomes part of the principal, thereby increasing the
finance charges due.246 To combat this practice, many states prohibit covered loans
that finance (or “pack” into the loan) single premium credit insurance.
HOEPA. No provision.
Arkansas. Prohibits covered loans that finance (directly or indirectly) any
credit insurance or other health or life insurance. This prohibition does not include
premiums and fees calculated and paid on a monthly basis.247
California. No provision.
242 S.C. Code Ann. § 37-23-30(7).
243 9 U.S.C. § 1 et seq.
244 Utah Code § 61-2d-106.
245 W. Va. Code § 46A-4-109(5)(F).
246 See Joint Report, at 89-90.
247 Ark. Code Ann. § 23-53-104(a).

CRS-38
Colorado. Prohibits covered loans that finance (directly or indirectly)
premiums on credit insurance, or other health or life insurance. This prohibition does
not include premiums and fees calculated and paid on a monthly basis.248
Connecticut. If a covered loan lender offers credit life, disability, health,
accident, or unemployment insurance on a single premium basis, then the lender must
also offer the insurance on a monthly premium basis. If the borrower purchases any
such insurance, then the borrower has the right to cancel any such insurance product
at any time and get a refund of any unearned premiums paid.249
District of Columbia. Prohibits lenders of covered loans from selling prepaid
single premium credit life, health, unemployment, or accident insurance in
connection with a covered loan. Other forms of credit insurance must be
accompanied by a disclosure informing the lender that credit insurance is not
required.250
Florida. No provision.
Georgia. Prohibits all home loans that finance (directly or indirectly) any credit
insurance that provides for the cancellation of all or part of the borrower’s debt in the
case of death, injury, etc. The prohibition does not include insurance premiums and
fees calculated and paid on a monthly basis.251
Illinois. Prohibits covered loans that finance (directly or indirectly) single
premium credit insurance or any other health or life insurance. The prohibition does
not include insurance premiums and fees calculated and paid on a monthly basis.252
Indiana. Prohibits all home loans that finance (directly or indirectly) any credit
insurance. The prohibition does not include insurance premiums and fees calculated
and paid on a monthly basis.253
Kentucky. Lenders may not finance single premium credit life, accident,
health, disability, or loss-of-income insurance in connection with a covered loan.254
Louisiana. Mortgage lenders may not finance or include in the loan amount for
a residential mortgage loan the amount of any single premium credit life,
dismemberment, involuntary unemployment, collateral protection, debt cancellation,
248 Colo. Rev. Stat. § 5-3.5-103(1)(f).
249 Conn. Gen. Stat. § 36a-746f.
250 D.C. Code Ann. § 26-1152.03.
251 Ga. Code Ann. § 7-6A-3(1)(A).
252 815 Ill. Comp. Stat. 137/40.
253 Ind. Code § 24-9-3-1.
254 Ky. Rev. Stat. Ann. § 360.100(2)(n).

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health and accident, mortgage life and disability insurance sold in connection with
a residential mortgage loan transaction.255
Maine. If a covered loan lender offers credit life, health, accident, disability,
or unemployment insurance on a single premium basis, then the lender must also
offer the insurance on a monthly premium basis. If the borrower purchases credit
insurance, then the borrower has the right to cancel such insurance at any time and
get a refund of any unearned premiums paid.256 Also, all underwriters or processors
of mortgage loans on residential real estate property who engage in the business of
private mortgage insurance must disclose this fact to all loan applicants at the time
of application.257
Maryland. Prohibits covered loans that finance single premium credit health,
life, or unemployment insurance, unless in connection with a mobile home.258
Massachusetts. No provision.
Michigan. Prohibits covered loans that finance credit life, disability, or
unemployment insurance.259
Montana. Lenders are restricted in the amount of insurance that they may
require a borrower to maintain on a loan secured by real property.260
Nebraska. Prohibits financing (directly or indirectly) in connection with a
mortgage loan: any credit life, credit accident, credit health, credit personal property,
or credit loss-of-income insurance debt suspension coverage or debt cancellation
coverage that provides for cancellation of all or part of a borrower’s liability in the
event of loss of life, health, personal property, income, or in the case of accident.261
Nevada. Prohibits covered loans that finance (directly or indirectly) any credit
insurance.262
New Jersey. Prohibits all home loans that finance (directly or indirectly) any
credit insurance that provides for the cancellation of all or part of the borrower’s debt
255 La. Rev. Stat. Ann. 6:1096(G)(3). Mortgage lenders are not prohibited from the financing
of private mortgage insurance paid on a single premium basis in connection with a
residential mortgage loan transaction.
256 Me. Rev. Stat. Ann. tit. 9-A, § 8-206-A(13-C).
257 Me. Rev. State. Ann. tit. 33, § 507.
258 Md. Code Ann., Comm., § 12-312(d)(5).
259 Mich. Comp. Laws § 445.1634(b)(2)..
260 Mont. Code Ann. 32-5-306.
261 Neb. Rev. Stat. § 45-714(m).
262 Nev. Rev. Stat. § 598D.100(1)(d).

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in the case of death, injury, etc. The prohibition does not include insurance
premiums and fees calculated and paid on a monthly basis.263
New Mexico. Prohibits all home loans that finance (directly or indirectly) any
credit insurance that provides for the cancellation of all or part of the borrower’s debt
in the case of death, injury, etc. The prohibition does not include insurance
premiums and fees calculated and paid on a monthly basis.264
New York. Prohibits covered loans that finance (directly or indirectly) any
credit insurance that provides for the cancellation of all or part of the borrower’s debt
in the case of death, injury, etc. The prohibition does not include insurance
premiums and fees calculated and paid on a monthly basis.265
North Carolina. No provision.
Ohio. Prohibits financing into a covered loan credit life and credit disability
insurance (not including a contract issued by government of private mortgage
insurance company to insure lender against default) within thirty days of loan’s
consummation. The prohibition does not include insurance premiums and fees
calculated and paid on a monthly basis.266
Oklahoma. No provision.
Pennsylvania. Prohibits lenders from selling single-premium credit life,
accident, health, or unemployment insurance in connection with a covered loan
unless the lender provides the borrower with a separate disclosure stating, among
other things, that purchasing the insurance is not required.267
Rhode Island. Prohibits creditors making homes loans from financing (directly
or indirectly) any credit insurance that provides for the cancellation of all or part of
the borrower’s debt in the case of death, injury, etc.268 The prohibition does not
include insurance premiums and fees calculated and paid on a monthly basis.269
South Carolina. Prohibits lenders in all consumer home loans from financing
(directly or indirectly) any credit insurance or other health or life insurance. This
263 N.J. Stat. Ann. § 46:10B-25(a).
264 N.M. Stat. Ann. § 58-21A-4(A).
265 New York Banking Law § 6-l(2)(H) (McKinney 2002).
266 Ohio Rev. Code Ann. § 1349.27(I).
267 63 Pa. Cons. Stat. § 456.512(f).
268 R.I. Gen. Laws § 34-25.2-5(a).
269 Id.

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prohibition does not include premiums and fees that are calculated and paid on a
monthly basis.270
Tennessee. Lenders may not make high-cost loans that finance (directly or
indirectly) any single premium credit life insurance, or credit insurance product (such
as credit accident, credit disability, credit unemployment, etc.), or any payments
(directly or indirectly) for any debt cancellation or suspension agreement or contract,
unless (1) the total benefits payable under all such policies or contracts issued in
connection with the loan do not exceed $50,000, (2) the principal amount of the
financed premiums for such policy or contract are repayable during the term of the
policy or contract, or (3) the amount payable under such credit life insurance policies
is never more than 103% of the then unamortized principal balance of the loan.271
This prohibition does not include premiums and fees paid on a monthly basis or in
connection with bona fide credit property insurance required by a federal agency in
a single premium to that particular agency.272
Texas. For all home loans, lenders may not offer single premium credit
disability, life, or unemployment insurance without providing a disclosure stating,
among other things, that the borrower also has the option to buy credit insurance on
a monthly premium basis.273
Utah. Covered loan may not include a debt cancellation/suspension agreement
or single premium credit, death, illness, unemployment, accident, or disability,
insurance.274
Wisconsin. A lender may not, within thirty days of making a covered loan,
finance credit life, accident, health, disability or unemployment insurance (not
including a contract issued by government of private mortgage insurance company
to insure lender against default) on a prepaid single premium basis. This prohibition
does not include premiums and fees that are calculated and paid on a monthly or
other periodic basis.275
No Call
Some sub-prime loans allow the lender to unilaterally accelerate the loan
payments and the amount due. While such actions can be justified — e.g., where the
borrower has failed to abide by the terms of the loan agreements — they can also be
270 S.C. Code Ann. § 37-23-70(B).
271 Tenn. Code Ann. § 47-20-103(5). In this section, “credit property insurance” means
property insurance written in connection with credit transactions under which the lender is
the primary beneficiary.
272 Id.
273 Tex. Fin. Code Ann. § 343.104.
274 Utah Code § 61-2d-107.
275 Wis. Stat. § 428.203(8g).

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predatory, in that they increase the chance of default. For this reason, most states
with predatory lending statutes prohibit such practices.
HOEPA. No provision.
Arkansas. Bars covered loans that allow a lender, in the lender’s sole
discretion, to accelerate the indebtedness. Acceleration acceptable where the
borrower fails to abide by the material terms of the loan.276
California. Bars covered loans that allow a lender, in the lender’s sole
discretion, to accelerate the indebtedness. This prohibition does not apply to
acceleration in accordance with loan’s terms due to the borrower’s default, a due-on-
sale provision, or the misrepresentation/fraud on the part of the borrower.277
Colorado. Bars covered loans that allow a lender, in the lender’s sole
discretion, to accelerate the indebtedness. This prohibition does not apply to
acceleration in accordance with loan’s terms due to the borrower’s default, a due-on-
sale provision, the misrepresentation/fraud on the part of the borrower, or the
borrower does something that adversely affects the lender security in the loan. In
addition, covered loans can provide for acceleration where the lender in good faith
feels materially insecure or that the prospect of future payments has become
materially impaired.278
Connecticut. Bars covered loans that allow a lender, in the lender’s sole
discretion, to accelerate the indebtedness. This prohibition does not apply when
acceleration is due to bona fide default, a due-on-sale provision, or another provision
not related to the payment schedule.279
District of Columbia. Bars covered loans that allow a lender, in the lender’s
sole discretion, to accelerate the indebtedness. This prohibition does not apply when
acceleration is due to bona fide default or another provision of the loan agreement not
related to the payment schedule.280
Florida. Prohibits provisions in covered loans that allow lender, in lender’s
sole discretion, to call or accelerate indebtedness. Acceleration acceptable where
there has been fraud/misrepresentation by the borrower or the borrower fails to abide
by the terms of the loan.281
276 Ark. Code Ann. § 23-53-104(d).
277 Cal. Fin. Code § 4973(i).
278 Col. Rev. Stat. § 5-3.5-102(1)(b).
279 Conn. Gen. Stat. § 36a-746c(8).
280 D.C. Code Ann. § 26-1152.14.
281 Fla. Stat. Ann. § 494.00791(8).

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Georgia. Bars covered loans that allow a lender, in the lender’s sole discretion,
to accelerate the indebtedness. This prohibition does not apply to good faith
acceleration due to the borrower’s failure to abide by the material terms of the loan.282
Illinois. Bars covered loans that allow a lender, in the lender’s sole discretion,
to accelerate the indebtedness. This prohibition does not apply to good faith
acceleration due to the borrower’s failure to abide by the material terms of the loan.283
Indiana. Bars all home loans that allow a lender, in the lender’s sole discretion,
to accelerate the indebtedness without material cause. This prohibition does not
apply to good faith acceleration due to the borrower’s failure to abide by the material
terms of the loan.284
Kentucky. Bars covered loans that allow a lender, in the lender’s sole
discretion, to accelerate the indebtedness. This prohibition does not apply when
acceleration is due to bona fide default, a due-on-sale provision, or another provision
not related to the payment schedule.285
Maine. Bars covered loans that allow a lender, in the lender’s sole discretion,
to accelerate the indebtedness. This prohibition does not apply when acceleration is
due to bona fide default, a due-on-sale provision, or another provision not related to
the payment schedule.286
Maryland. No provision.
Massachusetts. Prohibits demand features that allow the lender to terminate
the loan and demand repayment or the entire balance, except where there has been
fraud/misrepresentation by the borrower; the borrower has failed to abide by the
terms of the loan after being informed in writing and given a reasonable chance to
pay according to the loan agreement; or there has been a bona fide action/inaction by
the borrower adversely affecting lender’s security in the loan.287
Michigan. No provision.
Nevada. No provision.

New Jersey. Prohibits provisions in covered loans that allow lender, in lender’s
sole discretion, to call or accelerate indebtedness. Acceleration acceptable where
282 Ga. Code Ann. § 7-6A-5(14).
283 815 Ill. Comp. Stat. 137/90.
284 Ind. Code § 24-9-3-5.
285 Ky. Rev. Stat. Ann. § 360.100(2)(b).
286 Me. Rev. Stat. Ann. tit. 9-A, § 8-206-A(16-B).
287 Mass. Gen. Laws ch. 183C, § 9.

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there has been fraud/misrepresentation by the borrower or the borrower fails to abide
by the terms of the loan.288
New Mexico. Bars covered loans that allow a lender, in the lender’s sole
discretion, to accelerate the indebtedness. This prohibition does not apply to good
faith acceleration due to the borrower’s failure to abide by the material terms of the
loan.289
New York. New York bars covered loans that allow a lender, in the lender’s
sole discretion, to accelerate the indebtedness. This prohibition does not apply to
good faith acceleration due to the borrower’s failure to abide by the material terms
of the loan.290
North Carolina. North Carolina’s statute bars covered loans that allow a
lender, in the lender’s sole discretion, to accelerate the indebtedness. This
prohibition does not apply when acceleration is due to provisions in the loan
document - such as a due-on-sale provision - not related to the payment schedule.291
Ohio. Prohibits covered loans that allow the lender to terminate the loan and
demand repayment before the maturity date, unless there has been fraud by the
consumer, the consumer fails to meet the terms of the loan, or the consumer’s actions
adversely affect the lender’s security in the loan.292
Oklahoma. Prohibits covered loans that allow the lender to terminate the loan
and demand repayment before the maturity date, unless there has been fraud by the
consumer, the consumer fails to meet the terms of the loan, or the consumer’s actions
adversely affect the lender’s security in the loan.293
Pennsylvania. Bars covered loans that allow a lender, in the lender’s sole
discretion, to accelerate the indebtedness, unless repayment accelerated due to:
default; due-on-sale provision; borrower’s fraud/misrepresentation; consumer’s
actions that adversely affect the lender’s security in the loan.294
Rhode Island. Prohibits home loans from containing provisions that permit the
creditor, in its sole discretion, to accelerate the indebtedness.295 This provision does
288 N.J. Stat. Ann. § 46:10B-25(e).
289 N.M. Stat. Ann. § 58-21A-5(N).
290 N.Y. Banking Law § 6-l(2)(A) (McKinney 2002).
291 N.C. Gen. Stat. § 24-1.1E(b)(1) (2002).
292 Ohio Rev. Code Ann. § 1349.27(F).
293 Okla. Stat. Tit. 14A, § 3-410(1).
294 63 Pa. Cons. Stat. § 456.511(b).
295 R.I. Gen. Laws § 34-25.2-5(d).

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not apply where acceleration is done in good faith due to the borrower’s failure to
abide by the material terms of the loan.296
South Carolina. Bars covered loans that allow the lender, in the lender’s sole
discretion, to accelerate the indebtedness, unless repayment accelerated due to
default, a due-on-sale, provision, or some other provision not related to the payment
schedule.297
Tennessee. Lenders may not make high-cost home loans that contain provisions
permitting the lender, in its sole discretion, to accelerate the indebtedness.298 This
provision does not apply when repayment of the loan has been accelerated by default
in the terms of the note or deed of trust.299
Texas. No provision.
Utah. No provision.
Virginia. Prohibits licensed lenders and brokers from constructing agreements
with borrowers that include acceleration clauses (not based on breach of the
agreement, failure to perform under the agreement, failure to pay on time, or the
submission of false information).300
Wisconsin. Prohibits covered loans that allow the lender to terminate the loan
and demand repayment before the maturity date, unless there has been fraud by the
consumer, the consumer fails to meet the terms of the loan, the consumer’s actions
adversely affect the lender’s security in the loan, or the loan agreement provides for
such acceleration where the property securing the loan has been sold.301
Financing of Points and Fees
When lenders finance up-front points and fees into the loan, it can disguise the
actual cost of the loan to the borrower and create financial gain for the lender at
closing. Because the lender does this each time a loan is closed, it is in the lender’s
interest to have the borrower agree to another loan, i.e., refinance the original loan.
Of course, one way that the lender can ensure that the borrower will refinance is to
make the original loan have terms/payments that the borrower will not be able to
296 Id.
297 S.C. Code Ann. § 37-23-30(1).
298 Tenn. Code. Ann. § 47-20-103(12).
299 Id.
300 Va. Code Ann. § 6.1-422(a)(5).
301 Wis. Stat. § 428.203(2).

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meet. In other words, allowing lenders to finance up-front points and fees can
encourage unscrupulous lenders to write loans with unfair terms.302
HOEPA. No provision.
Arkansas. No provision.
California. No provision.
Colorado. No provision.
Connecticut. No provision.
District of Columbia. Where a covered loan is used to refinance another loan
held by the same lender and secured by the same property, the new loan may not
finance points and fees in excess of 3% of the principal or $400, whichever is
greater.303
Florida. No provision.
Georgia. No provision.
Illinois. Prohibits extension of covered loans that finance points and fees in an
amount exceeding 6% of the principal.304
Indiana. Lender making a covered loan may not finance points and fees.305
Kentucky. Where a covered loan is used to refinance another covered loan held
by the same lender, the new loan may not finance points and fees that total more than
4% of the principal.306
Maine. No provision.
Maryland. No provision.
302 See Joint Report, at 99-101; see also Margot Saunders, The Increase in Predatory
Lending and Appropriate Remedial Actions, 6 N.C. Banking Inst. 111, 121-122 (2002).
303 D.C. Code Ann. § 26-1152.04. The Mayor of Washington, D.C. is authorized to adjust
these limits within certain parameters. Id.
304 815 Ill. Comp. Stat. 137/55.
305 Ind. Code § 24-9-4-1.
306 Ky. Rev. Stat. Ann. § 360.100(2)(j). Real estate-related fees (title examination, notary,
etc.) are not included in the definition of “points and fees” with respect to this prohibition.
Id.

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Massachusetts. Prohibits extension of covered loans that finance points and
fees in an amount exceeding 5% of the principal or $800, whichever is greater.307
Michigan. No provision.
Minnesota. Residential mortgage originators making or modifying residential
mortgage loans to borrowers in the state may not include in the principal amount of
the residential mortgage loan any portion of any lender fee that exceeds 5% of the
loan amount.308
Nevada. No provision.
New Jersey. Prohibits the extension of covered loans that finance points and
fees unless a federally-approved non-profit loan counselor certifies that the borrower
has received credit counseling.309 In connection with a covered loan, the creditor may
not charge points and fees to borrowers where the proceeds of the new loan are being
used to refinance an existing loan held by the same creditor.310
New Mexico. Prohibits extension of covered loans that finance points and fees
in an amount exceeding 2% of the principal.311
New York. Prohibits extension of covered loans that finance points and fees
in an amount exceeding 3% of the principal.312
North Carolina. Prohibits financing of points and fees with a covered loan.313
Ohio. No provision.
Oklahoma. No provision.
Pennsylvania. Prohibits charging points in connection with a covered loan if
the proceeds of the covered loan are used to refinance an existing covered loan.314
307 Mass. Gen. Laws ch. 183C, § 6.
308 Minn. Stat. § 58.137.
309 N.J. Stat. Ann. § 46:10B-26(g).
310 Id. at § 46: 10B-26(j).
311 N.M. Stat. Ann. § 58-21A-5(A).
312 N.Y. Banking Law § 6-l(2)(M) (McKinney 2002).
313 N.C. Gen. Stat. § 24-1.1E(c)(3).
314 Pa. Cons. Stat. 63 § 456.512(c).

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Rhode Island. In a high-cost home loan, creditors may not (directly or
indirectly) finance any points or fees that total more than 5% of the total loan amount
or $800, whichever is greater.315
South Carolina. Prohibits financing of points and fees in an amount exceeding
2.5% of the principal.316
Tennessee. In high-cost loans, lenders may not finance points and fees (directly
or indirectly) exceeding 3% of the total loan amount or $1,500 if the total loan
amount is more than $30,000 or equal to 5% of the total loan amount if the total loan
amount is $30,000 or less.317
Texas. No provision.
Utah. No financing of points and fees exceeding 8% of the total loan amount
without providing a written disclosure of the potential dangers of the loan.318
Wisconsin. No provision.
315 R.I. Gen. Laws § 34-25.2-6(a).
316 S.C. Code Ann. § 37-23-40(3)(b).
317 Tenn. Code. Ann. § 47-20-103(7). However, registrants under Tenn. Code Ann. §45-5
may finance points and fees not exceeding the charges allowed under § 45-5-403(a)(1)(A)
on loans made under the provisions of § 45-5.
318 Utah Code § 61-2d-105.