On August 9, the Massachusetts Legislature approved the Predatory Home Loan Practices Act (PHLPA), which provided strong protections against predatory lending. A response to perceptions of abusive lending practices in Massachusetts, PHLPA provided extensive protections for borrowers. The protections in the PHLPA mirrored provisions in other comparable statutes such as the North Carolina Predatory Lending Law.
Similar to the North Carolina Predatory Lending Law, PHLPA implemented a broad definition of “high-cost mortgage” – mortgage loans that either had annual interest rates in excess of 8% of the yield on comparable U.S. Treasury securities or had total points and fees in excess of the greater of 5% of the total loan amount or $400.
PHLPA provides the following protections for borrowers:
Borrowers who took on high-cost loans had to have a third-party housing counselor. This third-party counseling requirement imposed a waiting requirement because borrowers had to consider their proposed loan agreement over a longer period of time, and so served as a brake on high-pressure sales tactics. Through the third-party counseling requirement, borrowers discussed the benefits and costs of their desired loan with experts, who could clear up confusions and clarify deceptive terms.
Lenders could not make high-cost mortgage loans to borrowers unless they had a reasonable belief that borrowers “will be able to make the scheduled payments to repay the home loan.”
Lenders could not knowingly refinance a home loan that was “consummated within the prior 60 months . . . unless the refinancing is in the borrower’s interest.” In other words, loan flipping — when lenders refinance a mortgage loan simply to extract fees from borrowers became illegal.
Borrowers retained rights to bring a claim in court.
Lenders could not include mortgage provisions that compelled borrowers to bring disputes to “a forum that is less convenient, more costly, or more dilatory for the resolution of a dispute than a judicial forum.
Lenders could not compel borrowers to pursue claims through arbitration if doing so would be “less convenient, more costly, or more dilatory,” even if the loan had a mandatory arbitration clause.
PHLPA also provided remedies for victims of lender violations. The statute provided strong assignee liability, so that borrowers could bring claims against the purchasers of their mortgage. It also allowed class action lawsuits.