Kentucky HB 552 Becomes Law April 28, 2008 

On April 28, 2008, Kentucky Governor Beshear signed HB 552, which makes several amendments to existing licensing and high cost laws. This has been a very fast moving bill and we are working feverishly to incorporate the changes into the PredProtect/HCL systems. However, please note the updates will not be completed until May 9, which is after the enforcement date of the new law.  
 
Many of the bill's provisions are effective immediately and affect applications dated on or after April 28. (These changes do not affect applications taken prior to April 28.) The licensing/registration pieces won't be effective for about 90 days. We should expect the Office of Financial Institutions to release clarifications next week and implementing regulations in about two months.  
 
PLEASE EXERCISE CAUTION WITH NEW KENTUCKY APPLICATIONS TAKEN BETWEEN APRIL 28 AND MAY 9. PREDPROTECT/HCL WILL NOT BE UPDATED WITH THE NEW LAWS DURING THIS TIME. 
 
Feel free to contact the Interthinx Compliance Team during this period at compliance@interthinx.com and we'll be glad to provide assistance with your new applications.
 
Following are key changes that will be made to the PredProtect/HCL systems beginning May 9: 
 
1. New Lender/Broker "Net Income" Test
 
A new Section 26 is created under Chp. 286 of the Kentucky Revised Statutes: lenders and brokers are now limited to charging the greater of 4% or $2,000 in fees deemed to be "income" by the state. The fees include origination, broker, discount, processing, admin, doc prep and YSP but do not include per diem interest or fees to unaffiliated third parties. Note that the 4% calculation will be based on Kentucky's new definition of "total loan amount", which is the amount financed minus fees deemed "income" above. 
 
This new requirement runs independent of the state's high-cost loan law already in place, effectively limiting lenders and brokers to 4% or $2000. For brokered transactions, each party will be individually subject to the limits, however PredProtect does not distinguish between lender and broker fees and therefore will take a more conservative approach.
  
2. Amended High Cost Test 
 
Section 360.100 of the Revised Statutes - the state's high cost loan law - is amended by lowering the points and fees threshold to the greater of 6% of the "total loan amount" or $3,000, down from the current 8%. Note that "total loan amount" in this case is the same as TILA amount financed. 
 
Important: This change now requires yield spread to be included in the calculation. Previously, YSP's were not included. 
 
In addition, if a loan is high cost, prepayment penalties are now prohibited unless borrower is offered a comparable loan that has no penalty. 
 
Now - a loan may pass the high cost loan threshold tests but fail the net income test. It is unknown at this point how Wall St. will react.  
 
3. Amended Prepayment Penalty Restrictions (Non-High Cost)
 
Section 286.8-110 amends prepayment penalty limits by prohibiting penalties that extend beyond 60 days prior to the date of the first interest rate reset. This is in addition to the existing three-year rule. Now, whichever penalty period comes first determines the effective cap. 
 
As always, please don't hesitate to call or email compliance@interthinx.com with any questions you might have.  
 
Roger Fendelman, Esq.
Vice President - Compliance
Interthinx, Inc.
rfendelman@interthinx.com
 
Important Notice:  The content of this announcement is being provided for informational purposes only. It is not, nor should it be construed as, legal advice. No attorney-client relationship exists or has been created between you or your company and Interthinx or its employees.