Indiana Homeowner Protection Act Exempts Bankers

October 01, 2004

Indiana home buyers have new legislation to protect them from abusive lenders who prey on unsuspecting borrowers. The Indiana Homeowner Protection Act (IHOPA) is intended to curtail high-cost loans that are not in the best interest of the borrower.

The law covers loans made by mortgage brokers and consumer finance companies. Lending institutions that are already regulated—banks, trusts, savings and loans, credit unions, and industrial loan and investment companies—are exempt.

Unlike similar legislation in other states, IHOPA does not hold wholesale buyers of loans liable for purchasing predatory loans. Federal Home Loan Banks are also exempt from penalties if predatory loans are used as collateral for advances.

In addition, the law establishes a homeowner protection unit in the Indiana attorney general's office. The unit will investigate deceptive practices, institute appropriate administrative and civil actions, and pursue prosecution where appropriate. A new $3 mortgage-recording fee on all mortgages made in the state, including those made by banks, will pay for the unit.

Protection Act Highlights

For all home loans, lenders may not:

roll the cost of credit insurance into the loan amount and charge interest on it;
demand that the borrower pay the total amount due on a loan unless the borrower has already stopped making loan payments;
refinance a zero-interest loan, such as a Habitat for Humanity loan, or a subsidized loan within 10 years of the loan origination unless the original lender agrees to the refinancing in writing; and
refuse to tell the borrower what is still owed.

For high-cost loans, lenders may not:

roll points and fees into the loan and charge interest on them;
charge certain fees if a loan is refinanced within four years;
charge a penalty for paying off the loan early after the first two years of a loan;
require a balloon payment after regular payments on a loan if the balloon comes within10 years of start of the loan;
set up a loan so that, even when the borrower makes regular payments, the amount that the borrower owes grows.
make a loan that a borrower cannot pay back, given his or her monthly income.

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Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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