Georgia’s Anti-Predatory Lending Law
The Georgia Fair Lending Act was passed on April 22, 2002, and became effective on October 1, 2002. This new legislation is noteworthy because it is considered to be the most restrictive in the country for home mortgage loans and imposes severe penalties for violations. The following is an excerpt of a summary of the Georgia Fair Lending Act (GAFLA) prepared by the Georgia Department of Banking & Finance for informational purposes and should not be construed as legal advice.
Overview of Legislation
The Georgia Fair Lending Act imposes liability on loan brokers, loan servicers, and loan purchasers or assignees. All residential mortgage lenders, regardless of loan type, credit quality, type of collateral, loan pricing or office location, are affected as are mortgage brokers, loan servicers, and assignees.
The Act places different restrictions on “High Cost Loans,” on certain “Covered Loans,” and in general on all “Home Loans.” If a lender makes even one of these loans, the provisions of the Act will apply. The law is concerned with loans that are secured by a borrower’s principal dwelling located on real estate in Georgia. It includes manufactured homes if they are located on Georgia real estate that is part of the security for the loan.
For all home loans, various practices are outlawed such as financing credit insurance and excessive late charges. In particular for “High Cost Loans,” the entire lending procedure will be different, including additional disclosures, need for borrower counseling, restricted terms and conditions, additional foreclosure notices, and an expanded ability to cure default.
Home Loan Definition
A “home loan” is –
- A loan (including an open-end loan) not exceeding the Fannie Mae single-family conforming loan size ($300,700 as of October 1, 2002),
- Secured by real estate in Georgia where it is or will be located, including a manufactured home,
- Designed principally for 1-4 family occupancy, and
- Occupied by the borrower as the borrower’s principal dwelling.
Home loans do not include reverse mortgage loans, temporary financing for initial construction on land owned by the borrower (i.e., bridge financing), or business, agricultural or commercial purpose loans.
Home Loan Prohibitions
Based on the definition of “home loan,” prohibitions and limitations for home loans are:
- No financing of credit insurance premiums or debt cancellation coverage charges.
- No creditor or servicer is permitted to encourage default on an existing loan or other debt pending closing a home loan that refinances the existing loan or debt.
- No fee is permitted for providing loan payoff quote, except a $10.00 processing fee for providing the information by fax or within 60 days of fulfillment of a previous request.
- Late payment fees must be authorized in the loan documents and are limited to 5% of the amount of the late payment (past due 10 days or more), and one late charge per late payment.
Georgia’s approach imposes tougher penalties than previous laws
|All Owner-occupied residential loans under $300,700
- Refund two times interest paid
- Loan can be voided during first 5 years of maturity for violations
- Criminal charges
|All loans under $300,700
- Refund two times interest paid or pay triple damages
|U.S. Home Ownership And Equity Protection Act (HOEPA)
Source: American Banker
|All residential loans excluding purchase loans and lines of credit
- Refund finance charges including points, some fees, and interest paid
- Loan can be voided during the first 3 years of maturity for violations
Covered Home Loan and “Flipping” Restrictions
“Flipping” a loan is prohibited, which is defined as –
- A creditor makes a covered home loan to a borrower that refinances an existing home loan consummated within the prior 5 years, and
- The loan does not provide a reasonable, tangible net benefit to the borrower considering all of the circumstances, or
- The existing loan is a “special mortgage” bearing a below-market interest rate or with nonstandard payment terms beneficial to the borrower.
High Cost Home Loans
Home loans in which the loan terms meet or exceed one of the “thresholds,” defined as:
The total loan points and fees (except for 2 bona fide discount points) exceed –
If the total loan amount is $20,000 or more,
If the total loan amount is less than $20,000, the lesser of:
- 5% of the total loan amount, or
- 8% of the total loan amount, or $1,000.
High cost loans are subject to 15 limitations and prohibited practices outlined in Section 7-6A-5 of the Act.
To read the entire Act or the GAFLA’s questions and answers regarding the Act, go to the GAFLA Resources page of the Department’s website at http://www.state.ga.us/dbf/GAFLAresources.html.
Fannie Mae and Freddie Mac have announced plans to leave the “high-cost loan” market in Georgia. Fannie Mae reported that it had decided to stop purchasing any loans that qualify as high-cost home loans under the Georgia Fair Lending Act starting on Jan. 1, 2003. Fannie Mae will conduct additional quality assurance reviews of mortgages secured by properties in Georgia and will require “immediate” repurchase of those loans determined to be high-cost home loans under the GFLA, or other federal, state or local laws. Freddie Mac stopped purchasing high-cost home loans from Georgia in November 2002.
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