Mortgage Lending Practices

Subprime and Predatory Mortgage Lending

This page addresses fraudulent or abusive lending practices in the mortgage market, commonly referred to as predatory lending.  The most prevalent categories of abusive practices include:

  • Loan flipping-repeatedly refinancing loans, charging high fees each time.
  • Excessive fees and "packing"-adding fees far exceeding those justified on economic grounds, often through loan terms, such as the financing of points, fees and pre-payment penalties, single-premium insurance (to cover the balance of the loan should a borrower die, paid in one sum and added to the amount financed) and balloon payments (those due at the end of a loan that are significantly higher than monthly payments).
  • Asset-based lending-lending based on a borrower's overall assets, rather than income and ability to repay.
  • Outright fraud and abuse.

Legislation regarding foreclosures is covered on the Foreclosures page. Legislation regarding the specific crime of mortgage fraud is covered on the Mortgage Fraud page.

 

NCSL Information

Current State Laws || Federal Activities

Legislation Last Updated:  June 12, 2008

NCSL Staff Contacts:  Heather Morton, Denver

 

Current State Laws

State:

Statutory Citation

Flipping Banned

Negative Amortization Banned

Prepayment Penalties Banned

Financing Credit Insurance Banned

Consumer Credit Counseling Provision

High Debt to Income Ratio Provision
(Ability to repay loan)

Arkansas

Ark. Stat. Ann. §23-53-101 et seq.

X

X

 

X

3rd party required

Give due regard

California

Cal. Financial Code §4970 et seq. and §4973 et seq.

X

X

 

 

Disclosure

Presumption at 55%

Colorado

Colo. Rev. Stat. §5-3.5-101 et seq. and §38-40-105

X

X

 

 

Notification

Give due regard

Connecticut

Conn. Gen. Stat. §36a-746 et seq. and §36a-521

 

X

 

 

Notification

Presumption at 50%

D.C.

D.C. Code Ann. §26-1114. and §26-1151.01 et seq.

 

X

X

  

  

Give due regard

Florida

Fla. Stat. §494.0078 et seq.

X

X

 

 

Notification

Give due regard

Georgia

Ga. Code §7-6A-1 et seq.

X

X

 

X

3rd party required

Presumption at 50%

Illinois

Ill. Rev. Stat. ch. 815, 137/1 et seq. and ch. 765, 77/70

X

X

 

X

Notification

Presumption at 50%

Indiana

Ind. Code 4-6-12 and 24-9-1 et seq.

 

X

 

X

3rd party required

Give due regard

Kentucky

Ky. Rev. Stat. §294.010 et seq. and §360.100

X

X

 

X

Notification

Presumption at 50%

Louisiana

La. Rev. Stat. Ann. 6:1096(G) and 9:3572.6(C)

 

 

 

 

 

 

Maine

Me. Rev. Stat. Ann. tit. 9-A, §2-509, tit. 9-B, §429; tit. 9-A, §8-103, §8-206-A, tit. 9-A, §10-102 and tit. 33, §506, 2007 Chapter 273, 2008 Chapter 471

X

X

X

X

3rd party required

Give due regard

Maryland

Md. Commercial Law Code §12-127, 12-311, 12-409.1 and 12-1029

X

X

 

X

3rd party required

Presumption at 45%

Massachusetts

Mass. Gen. Laws Ann. ch.183C, 1 et seq.

 

X

X

 

3rd party required

Presumption at 50%

Michigan

Mich. Comp. Laws §445.1631 et seq.

 

X

 

X

Notification

 

Minnesota

2007 Chapter 18
Minn. Stat. §58.137

X

 

 

 

Notification

Requires vertification

Missouri

Mo. Rev. Stat. 375.937

 

 

 

 

 

 

Montana

Mont. Code Ann. §32-5-306

 

 

 

 

 

 

Nebraska

Neb. Rev. Stat. §45-702, 45-704 and 45-705

 

 

 

X

 

 

Nevada

Nev. Rev. Stat. §598D.010 et seq.

 

 

X

X

 

Give due regard

New Jersey

N.J. Rev. Stat. 46:10B-22 et seq.

 

X

 

X

3rd party required

 

New Mexico

N.M. Stat. Ann. §58-21A-1 et seq.

X

X

X

X

3rd party required

Give due regard

New York

N.Y. Banking Law 6-l

X

X

 

X

Notification

Give due regard

North Carolina

N.C. Gen. Stat. §24-1.1E, §24-1.1F, §24-10.2 and §53-243.01 et seq.

X

X

 

 

3rd party required

Presumption at 50%

Ohio

Ohio Rev. Code Ann. §1322.062, §1322.07, §1322.08, §1345.01 et seq. and §1349.25 et seq.

X

X

 

X

 

Give due regard/
Presumption at 50%

Oklahoma

Okla. Stat. tit. 14A, §3-204 and tit. 59, §2081 et seq.

X

 

 

 

 

Give due regard

Pennsylvania

Pa. Cons. Stat. 63, §456.101 et seq.

 

 

 

 

Notification

Presumption at 50%

Rhode Island

R.I. Gen. Laws §34-23-5
R.I. Gen. Laws §34-25.2-1 et seq.

X

X

 

X

3rd party required

Presumption at 50%

South Carolina

S.C. Code Ann. §37-23-10 et seq.

X

X

 

X

3rd party required

Presumption at 50%

Tennessee

Tenn. Code Ann. §45-20-101 et seq.

X

X

 

 

 

Presumption at 50%

Texas

Tex. Finance Code §343.001 et seq. and Tex. Gov. Code §2306.001 et seq.

 

X

X

 

 

Give due regard

Utah

Utah Code Ann. §61-2d-101 et seq.

 

X

 

X

Notification

 

Virginia

Va. Code §6.1-422.1 and §6.1-422

X

 

 

 

 

 

Washington

Wash. Rev. Code §31.04 et seq.

 

 

 

  

  

  

West Virginia

W. Va. Code §31-17-1 et seq.

 

 

X

 

 

 

Wisconsin

Wis. Stat. Ann. §428.202 et seq.

X

X

 

X

Notification

Give due regard

Definitions of provisions:

Flipping:  refinancing an existing mortgage loan with no benefit to the consumer; also referred to as churning.

Negative amortization:  payment 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 or terms under which the aggregate amount of the regular periodic payments would not fully amortize the outstanding principal balance.

 

 

Federal Activities

Combating Predatory Lending
Office of the Comptroller of the Currency

NCSL objects to two new rules implemented January 7, 2004, by the Office of the Comptroller of the Currency (OCC) to exempt national banks from state consumer protection laws and enforcement actions.  Click here to review press release.

On April 17, 2007, the U.S. Supreme Court upheld the OCC exemption of national banks and their subsidiaries from state state consumer protection laws and enforcement actions. Click here to review the decision, Watters v. Wachovia.

Federal Reserve System
Dynamic Maps of Nonprime Mortgage Conditions in the United States
The maps, which are maintained by the Federal Reserve Bank of New York, display regional variation in the condition of securitized, owner-occupied subprime, and alt-A mortgage loans. The maps and data can be used to assist in the identification of existing and potential foreclosure hotspots.