Rhode Island General Laws 34-25.2-6. Limitations and prohibited practices regarding high-cost home loans
A high-cost home loan shall be subject to the following additional limitations and prohibited practices:
(a) In connection with a high-cost home loan, no creditor shall directly or indirectly finance any points or fees which total is greater than five percent (5%) of the total loan amount or eight hundred dollars ($800) whichever is greater.
(b) No prepayment fees or penalties shall be included in the loan documents for a high-cost home loan.
(c) No high-cost home loan may contain a scheduled payment that is more than twice as large as the average of earlier scheduled payments. This provision does not apply when the payment schedule is adjusted to the seasonal or irregular income of the borrower.
(d) No high-cost home loan may include 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 interest due.
(e) No high-cost home loan may contain a provision that increases the interest rate after default. This provision does not apply to interest rate changes in a variable-rate loan otherwise consistent with the provisions of the loan documents, provided the change in the interest rate is not triggered by the event of default or the acceleration of the indebtedness.
(f) No high-cost home loan may include terms under which more than two (2) periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower.
(g) A creditor may not make a high-cost home loan without first receiving certification from a counselor with a third-party nonprofit organization approved by the United States Department of Housing and Urban Development that the borrower has received counseling on the advisability of the loan transaction.
(h) A high-cost home loan shall not be extended to a borrower unless a reasonable creditor would believe at the time the loan is closed that one or more of the borrowers will be able to make the scheduled payments associated with the loan based upon a consideration of his or her 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. There is a rebuttable presumption that the borrower is able to make the scheduled payments to repay the obligation if, at the time the loan is consummated, said borrower’s total monthly debts, including amounts under the loan, do not exceed fifty percent (50%) of said borrower’s monthly gross income as verified by tax returns, payroll receipts, and other third-party income verification.
(i) A creditor may not pay a contractor under a home-improvement contract from the proceeds of a high-cost home loan, unless:
(1) The creditor is presented with a signed and dated completion certificate showing that the home improvements have been completed; and
(2) The instrument is payable to the borrower or jointly to the borrower and the contractor, or, at the election of the borrower, through a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the creditor, and the contractor prior to the disbursement.
(j) A creditor may not charge a borrower any fees or other charges to modify, renew, extend, or amend a high-cost home loan or to defer any payment due under the terms of a high-cost home loan.
(k) A creditor shall not make available a high-cost home loan that provides for a late payment fee except as follows:
(1) The late payment fee shall not be in excess of three percent (3%) of the amount of the payment past due.
(2) The late payment fee shall only be assessed for a payment past due for fifteen (15) days or more or ten (10) days or more in cases of bi-weekly mortgage payment arrangement.
(3) The late payment fee shall not be imposed more than once with respect to a single late payment. If a late payment fee is deducted from a payment made on the loan, and the deduction causes a subsequent default on a subsequent payment, no late payment fee may be imposed for the default.
(4) A creditor shall treat each payment as posted on the same business day as it was received.
(l) All high-cost home loan documents that create a debt or pledge property as collateral shall contain the following notice on the first page in a conspicuous manner: “Notice: This a high-cost home loan subject to special rules under state law. Purchasers or assignees of this high-cost home loan may be liable for all claims and defenses by the borrower with respect to the home loan.”
History of Section.
P.L. 2006, ch. 569, § 1; P.L. 2006, ch. 573, § 1; P.L. 2016, ch. 512, art. 1, § 22; P.L. 2017, ch. 451, § 14.
Terms Used In Rhode Island General Laws 34-25.2-6
- Borrower: means any person obligated to repay the loan, including a co-borrower, co-signor or guarantor. See Rhode Island General Laws 34-25.2-4
- Contract: A legal written agreement that becomes binding when signed.
- Creditor: means any person who regularly makes available a home loan and shall include a loan broker. See Rhode Island General Laws 34-25.2-4
- Department: means the department of business regulation. See Rhode Island General Laws 34-25.2-4
- Escrow: Money given to a third party to be held for payment until certain conditions are met.
- High-cost home loan: means a home loan in which the terms of the loan meet or exceed one of more of the thresholds as defined in subsection (r) of this section. See Rhode Island General Laws 34-25.2-4
- Home loan: means a loan, including an open-end credit plan, other than a reverse mortgage transaction, where the loan is secured by:
(1) A mortgage or deed of trust on real estate in this state upon which there is located or there is to be located a structure or structures designed principally for occupancy of from one to four (4) families which is or will be occupied by a borrower as the borrower's principal dwelling; or
(2) A security interest on a manufactured home which is or will be occupied by a borrower as the borrower's principal dwelling. See Rhode Island General Laws 34-25.2-4
- Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. Source: OCC
- Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Total loan amount: means the total amount the consumer will borrow, as reflected by the face amount of the note. See Rhode Island General Laws 34-25.2-4
- United States: include the several states and the territories of the United States. See Rhode Island General Laws 43-3-8