SECTION 160:45-9-5. Prohibited acts or practices in connection with higher-priced mortgage loans

(a)   Higher-priced mortgage loans.

(1)   For purposes of this section, a higher-priced mortgage loan is a consumer credit transaction secured by the consumer's principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for loans secured by a first lien on a dwelling, or by 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling.

(2)   "Average prime offer rate" means an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics. The Board publishes average prime offer rates for a broad range of types of transactions in a table updated at least weekly as well as the methodology the Board uses to derive these rates.

(3)   Notwithstanding paragraph (a)(1) of this section, the term "higher-priced mortgage loan" does not include a transaction to finance the initial construction of a dwelling, a temporary or "bridge" loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months, a reverse-mortgage transaction subject to 160:45-9-3, or a home equity line of credit subject to 160:45-3-3.

(b)   Rules for higher-priced mortgage loans. Higher-priced mortgage loans are subject to the following restrictions:

(1)   Repayment ability. A creditor shall not extend credit based on the value of the consumer's collateral without regard to the consumer's repayment ability as of consummation as provided in 160:45-9-4(a)(4).

(2)   Prepayment penalties. A loan may not include a penalty described by 160:45-9-2(d)(6) unless:

(A)   The penalty is otherwise permitted by law, including 160:45-9-2(d)(7) if the loan is a mortgage transaction described in 160:45-9-2(a); and

(B)   Under the terms of the loan:

(i)   The penalty will not apply after the two-year period following consummation;

(ii)   The penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or an affiliate of the creditor; and

(iii)   The amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation.

(3)   Escrows.

(A)   Failure to escrow for property taxes and insurance. Except as provided in paragraph (b)(3)(B) of this section, a creditor may not extend a loan secured by a first lien on a principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer's default or other credit loss.

(B)   Exemptions for loans secured by shares in a cooperative and for certain condominium units.

(i)   Escrow accounts need not be established for loans secured by shares in a cooperative; and

(ii)   Insurance premiums described in paragraph (b)(3)(A) of this section need not be included in escrow accounts for loans secured by condominium units, where the condominium association has an obligation to the condominium unit owners to maintain a master policy insuring condominium units.

(C)   Cancellation. A creditor or servicer may permit a consumer to cancel the escrow account required in paragraph (b)(3)(A) of this section only in response to a consumer's dated written request to cancel the escrow account that is received no earlier than 365 days after consummation.

(D)   Definition of escrow account. For purposes of this section, "escrow account" means any account that a servicer establishes or controls on behalf of a borrower to pay taxes, insurance premiums (including flood insurance), or other charges with respect to a federally related mortgage loan, including charges that the borrower and servicer have voluntarily agreed that the servicer should collect and pay. The definition encompasses any account established for this purpose, including a "trust account", "reserve account", "impound account", or other term in different localities. An "escrow account" includes any arrangement where the servicer adds a portion of the borrower's payments to principal and subsequently deducts from principal the disbursements for escrow account items. For purposes of this section, the term "escrow account" excludes any account that is under the borrower's total control.

(4)   Evasion; open-end credit. In connection with credit secured by a consumer's principal dwelling that does not meet the definition of open-end credit in 160:45-1-2(21), a creditor shall not structure a home-secured loan as an open-end plan to evade the requirements of this section.

[Source: Added at 26 Ok Reg 2474, eff 7-11-09]