Stricter New Mexico Lending Law Expected to Fundamentally Change How the Mortgage Industry Does Business in the State

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Lenders reassess compliance controls in anticipation of more restrictive requirements affecting a majority of loans in the state.

unfair or deceptive trade practice

ComplianceEase®, the nation's leading provider of mortgage risk management solutions, announced today that tough new restrictions on mortgage lending in New Mexico have led financial institutions across the country to turn to automated solutions to manage the daunting compliance challenges that are expected to impact a majority of the loans made in the state. The sweeping and largely unprecedented changes are set to take effect at the end of July, restricting how and when interest rates change on adjustable rate mortgages, requiring extensive verification of borrowers' ability to repay loans, and prohibiting prepayment penalties on nearly all loans made in New Mexico.

The modified legislation, a full 97 pages in length, greatly broadens the influence of the existing New Mexico Home Loan Protection Act (HLPA), one of the stricter state "high-cost" lending laws. Starting on July 31st, the new HLPA will apply its toughest lending restrictions not just to a limited set of "high cost" loans, but to all loans that it classifies as "home loans." The changes mean that nearly every conforming loan in New Mexico (loans for amounts less than Fannie Mae and Freddie Mac's loan limits) will be subject to stricter requirements that were once reserved only for "high cost" loans.

With most loans in the state expected to see impact from the new law, many lenders have been scrambling to figure out what changes they need to make in order to stay compliant. ComplianceAnalyzer®, the industry's most adopted automated compliance system, has helped many financial institutions stay ahead of the curve in New Mexico. Burton Embry, vice president - Compliance & Quality Assurance at Franklin American Mortgage Company, explained, "Implementing regulatory compliance controls using technology is the only way a lender can realistically stay up to date with new changes and be prepared in advance for new restrictions and requirements. It's important to have a quality business partner to rely on in these times. ComplianceAnalyzer was ready to audit loans against the new law in New Mexico weeks ahead of its effective date, which allowed us to determine how well our loan programs would fare under its tighter restrictions without expending additional resources."

With the new law's provisions focused on specific loan features such as when and by how much rates can adjust, it is expected that the law will have a noticeable impact on the types of loan programs that can legally be offered to borrowers in the state. Don Lampe, who is a partner at Womble Carlyle Sandridge & Rice, PLLC and worked closely with New Mexico lawmakers on the original HLPA, weighed in on the impact the changes could have on doing business in New Mexico, "The changes to the law apply a strict set of restrictions to a very broad category of loans. Historically, when a mortgage lending law has done that, it has had a dramatic effect on how companies conduct business in the state." With the law likely to require that the mortgage industry make changes to the loan products they offer, it is not surprising that lenders turned to automated compliance technology that was ready for the new requirements well ahead of time. Lampe added, "There's no question that loan product availability will be impacted by the new law, so lenders need to plan ahead."

With nearly all residential mortgages in New Mexico set to be affected, lenders that relied solely on trying to keep their fees and rates below the established thresholds in order to steer clear of additional restrictions will have to rethink that strategy. Among the broader restrictions that lenders will need to deal with are what amounts to a complete ban on prepayment penalties, a loan feature used extensively by Wall Street firms during the mortgage boom to keep initial "teaser" interest rates low. Lenders will also be compelled by law to verify borrowers' abilities to repay for all "home loans." The law prescribes that assessing ability to repay must include taking into account "teaser rates" on adjustable rate loans as well as considering the borrower's complete monthly payment, including taxes and insurance. Aside from tougher restrictions on loans, a seemingly minor addition to enforcement of the law may expose lenders to new liability by proclaiming that a violation of the HLPA can actually be considered as an "unfair or deceptive trade practice" under the state's existing Unfair Practices Act.

By continuously monitoring changes to laws and making them available for users of the ComplianceAnalyzer system in advance of new laws' effective dates, ComplianceEase helps to take the burden off of financial institutions' internal compliance, legal and IT departments. Jason Roth, senior vice president of product management, added, "A key decision we made early on in the development of ComplianceAnalyzer was to empower different workflows with compliance audit capabilities, whether audits are performed before, during or after origination. We think our approach to automating compliance is very unique and continues to allow us to adapt quickly to the mortgage industry's evolving needs."

About ComplianceEase
ComplianceEase, a division of LogicEase Solutions Inc., headquartered in the San Francisco Bay Area, is a premier provider of intelligent business solutions to the financial services industry. ComplianceEase's patented platform includes ComplianceAnalyzer - the mortgage industry's leading automated compliance solution. ComplianceEase combines industry and regulatory compliance expertise with innovative technology to power beginning-to-end solutions in a fraction of the time and for a fraction of the cost of traditional approaches, while providing high levels of accuracy and integrity. ComplianceEase's significant and growing client base includes the nation's top mortgage lenders, and over 350 financial institutions, service providers, and regulators. Managed by a team of highly experienced and innovative mortgage professionals, the company is funded by the First American Corporation, the WI Harper Group, and the senior management team. For more information about ComplianceEase, visit http://www.ComplianceEase.com.

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Jason Roth
1.650.373.1111 x1107

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Jason Roth
ComplianceEase®
1.650.373.1111 ext. 1107
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