The 11.6% Refinance: High-Cost Triggers in Maine
Mr. Leclerc, age 71, refinances his Portland home with a Maine supervised lender. The new first lien is $220,000, amortized over 30 years but due in 7 years. The APR is 11.6%; the average prime offer rate for a comparable transaction on the date the rate was set is 4.6%. Total points and fees are $13,640, equal to 6.2% of the total loan amount. The note carries a 3% prepayment penalty in years one through three, and a $1,200 fee if he later modifies or refinances with the same lender. The lender financed a $3,000 single-premium credit life policy into the loan balance. The file contains no counseling certificate. The lender's closer says the loan satisfies federal HOEPA, so Maine cannot impose anything additional.
1. Is this a Maine high-cost home loan? Walk through each trigger and show the arithmetic.
Read the worked answer
Yes - and it fails two independent tests, either of which is sufficient.
APR test. 11.6% − 4.6% APOR = 7.0 percentage points. Maine's first-lien trigger is more than 6.5 points over the APOR, so the loan is high-cost on this ground alone.
Points-and-fees test. $13,640 ÷ $220,000 = 6.2%, which exceeds Maine's 5% threshold for loans of this size.
Two practical points the file should reflect:
- The comparison uses the APR, not the note rate, and the APOR as of the date the rate was set. A lender cannot escape the test by pointing to a lower note rate.
- The worksheet should be in the file with the APOR source and date identified. Absent that, the lender cannot later prove the loan was not high-cost.
Once classified, every Maine high-cost requirement attaches, in addition to HOEPA. The closer's assumption that classification is optional is wrong.
2. Identify each loan feature that is prohibited or restricted, and state what must happen before this loan can close.
Read the worked answer
Features that must be removed or reworked:
- Prepayment penalty. Barred on high-cost home loans in Maine. Delete it and re-disclose.
- Balloon payment. A 7-year call on a 30-year amortization is a balloon and is prohibited. The loan must fully amortize over its stated term.
- Financed single-premium credit life. Financing credit insurance into a high-cost loan is prohibited. Remove it and refund or credit the premium.
- Modification/refinance fee. A $1,200 charge for later modifying or refinancing with the same lender is a prohibited fee. Delete it.
- Ability to repay. The lender must be able to document repayment ability on verified income; the presence of these other features makes that file documentation a likely examination target.
Before closing:
- Recalculate the APR after removing the fees and insurance, and issue corrected disclosures.
- Obtain pre-closing homeownership counseling from a HUD-approved counselor and place the written certification in the file. Without it, the loan cannot close.
- Document the net tangible benefit of the refinance to Mr. Leclerc.
3. Evaluate the closer's argument that compliance with federal HOEPA is enough and that Maine cannot add requirements.
Read the worked answer
The argument is backwards. Federal HOEPA is a floor, not a ceiling. States have always been free to impose stricter mortgage protections, and Maine has done so - its high-cost statute adds prohibitions and a counseling requirement that go beyond the federal rule.
The preemption question depends on the charter of the lender, not on the loan product. A lender licensed under Maine law as a supervised lender is directly subject to Maine's Consumer Credit Code and to the Bureau's licensing authority. The National Bank Act and HOLA preemption arguments belong to federally chartered institutions and federal savings associations; they are not available to a state-licensed supervised lender.
Even where a federally chartered lender is involved, Maine retains authority over licensing, advertising, and unfair or deceptive practices, and the practical compliance rule is the same: satisfy the stricter of the two regimes. Here, complying with HOEPA while charging a prepayment penalty and a balloon payment still violates Maine law.
Finally, the compliance failure is not merely technical. A high-cost loan closed without the required counseling and with prohibited terms exposes the lender to Bureau enforcement, borrower remedies, and repurchase risk.