Due to the distress in the financial and housing markets, Kentucky amended its “high-cost home loan” law to address predatory lending concerns.
A “high-cost home loan” is a loan between $15,000 to $200,000 secured by a home, if the total points and closing fees exceed the greater of $3,000 or 6% of the loan amount. These loans are subject to more stringent requirements, such as mandatory escrow of tax and insurance costs, a requirement that the lender undertake a more thorough verification of the borrower’s ability to repay, and prohibition of interest-only payments. Furthermore, the new law prohibits prepayment penalties unless the borrower rejects this offer in writing.
Other restrictions for “high-cost home loans” include:
Lender cannot accelerate in its “sole discretion”.
Scheduled payment cannot increase to twice the average of earlier payment amounts.
Principal balance cannot increase over time.
No default interest rate allowed.
No more than two scheduled payments can be made from cash received at the closing.
Limitations on fees that can be charged to renew, extend, modify or amend.
Written notice must be provided to the borrower prior to closing.
The written notice that must be provided includes: IF YOU OBTAIN THIS LOAN, THE LENDER WILL HAVE A MORTGAGE ON YOUR HOME. YOU COULD LOSE YOUR HOME AND ANY MONEY YOU PUT INTO IT IF YOU DO NOT MEET YOUR OBLIGATIONS UNDER THE LOAN. The full notice includes additional warnings.
— Catherine A. Nestrick
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