JULY 2004

Amendment to New Jersey's
Predatory Lending Law

On July 6, New Jersey Governor James McGreevey signed Senate Bill No. 279/Assembly Bill 2911 amending the state's predatory lending law.

The New Jersey Home Ownership Security Act of 2002 which was signed into law on May 1, 2003 and became effective November 27, 2003 was revised in several ways including:

• The "covered home loan" category defined as a loan with fees equaling 4 to 5 percent of the loan was removed from the Act's provisions;
• The prohibition on "flipping" was also eliminated;
• "The grace period for detection and adjustment of certain unintentional compliance failures…" on the part of creditors under the act was extended from 90 days to one year;
• The requirement that lenders be abe t prove that refinancing provided a "reasonable and tangible net benefit to borrowers" was eliminated;
• A provision to the Act to reinforce the exemption of purchasers of "high-cost" loans (who qualify for "safe harbor") from class action was added; and
• The "total points and fees threshold" that determines "high-cost" home loan status was reduced from 5 percent to 4.5 percent of the loan.

Consumer groups welcomed the expansion of the high-cost home loan designation noting that the lowering of the threshold translates into more consumers receiving the credit counseling associated with the application for such loans.

The amendment was seen as a direct response to the May 13, 2004 announcement (outlined in last month's edition of Spotlight) by Standard & Poor's (S&P) Ratings Services that in order to compensate for the liability risk posed to securitization market participants it would require credit enhancement for anti-predatory lending law loans. New Jersey's director of the Division of Banking, H. Robert Tillman, remarked that "…even though the S&P finding only affected a very small number of loans in New Jersey, the credit enhancement limited some consumers' access to loans." In the months before the amended legislation was passed, a number of large mortgage companies, including Ameriquest Mortgage Co., had announced that they had sharply curtailed their lending in New Jersey.