High risk loans and issues with usury

Hi;

In California, it is illegal to lend at a rate above 10% interest. Obviously this is a problem when lending to mobile home buyers, since they are so high risk. Is there anything that can be done to get the rate I need for the level of risk of the loan? (12-20% range)

This is a quote from a law firm talking about California Usury laws- I would say you should have an attorney give you an opinion on your classification as a lender type…

From:

California Usury Laws

By: June Lin

Niesar & Vestal LLP

San Francisco, CA

The quote:

The usury laws do not apply to time payment contracts, e.g., when a seller finances the purchase of real or personal property by extending payments over time. Other state laws may impose limits on the finance charges imposed by credit sellers (e.g., a retail installment contract between a buyer and seller for the payment for consumer goods and services in installments, where the buyer pays a service charge).

Read the whole thing here…

The we site- http://www.primerus.com/business-law-articles/california-usury-laws.htm

I believe federal law preempts state law on this particular topic. The following is copied from an email I received from DJ Pendleton, head of the Texas MH Association.


The Depository Deregulation and Monetary Control Act of 1980 provides that if the manufactured home contract complies with the disclosures mandated by the Office of Thrift Supervision there are no ususry limits. This Act preempts all state laws to the contrary. http://www.fdic.gov/regulations/laws/rules/8000-2200.html

Scroll down to Title V – State Usury Laws for the complete text, but below are a few excerpts:

SEC. 501. (a)(1) The provisions of the constitution or the laws of any State expressly limiting the rate or amount of interest, discount points, finance charges, or other charges which may be charged, taken, received, or reserved shall not apply to any loan, mortgage, credit sale, or advance which is–

(A) secured by a first lien on residential real property, by a first lien on all stock allocated to a dwelling unit in a residential cooperative housing corporation or by a first lien on a residential manufactured home;

(B) made after March 31, 1980; and

© described in section 527(b) of the National Housing Act (12 U.S.C. 1735f-5(b)), except that for the purpose of this section–

(i) the limitation described in section 527(b)(1) of such Act that the property must be designed principally for the occupancy of from one to four families shall not apply;

(ii) the requirement contained in section 527(b)(1) of such Act that the loan be secured by residential real property shall not apply to a loan secured by stock in a residential cooperative housing corporation or to a loan or credit sale secured by a first lien on a residential manufactured home;

(iii) the term “federally related mortgage loan” in section 527(b) of such Act shall include a credit sale which is secured by a first lien on a residential manufactured home and which otherwise meets the definitional requirements of section 527(b) of such Act, as those requirements are modified by this section;

(iv) the term “residential loans” in section 527(b)(2)(D) of such Act shall also include loans or credit sales secured by a first lien on a residential manufactured home, and any individual who finances the sale or exchange of residential real property or a residential manufactured home which such individual owns and which such individual occupies or has occupied as his principal residence;

(v) the requirement contained in section 527(b)(2)(D) of such Act that a creditor make or invest in loans aggregating more than $1,000,000 per year shall not apply to a creditor selling residential manufactured homes financed by loans or credit sales secured by first liens on residential manufactured homes if the creditor has an arrangement to sell such loans or credit sales in whole or in part, or if such loans or credit sales are sold in whole or in part to a lender, institution, or creditor described in section 527(b) of such Act or in this section or a creditor, as defined in section 103(f) of the Truth in Lending Act, as such section was in effect on the day preceding the date of enactment of this title, if such creditor makes or invests in residential real estate loans or loans or credit sales secured by first liens on residential manufactured homes aggregating more than $1,000,000 per year; and

(vi) the term “lender” in section 527(b)(2)(A) of such Act shall also be deemed to include any lender approved by the Secretary of Housing and Urban Development for participation in any mortgage insurance program under the National Housing Act.

Therefore, if the contracts has the three requirements mandated by the Feds(Prepayment disclosure, late charge disclosure, default disclosure), there is no limit.

1 Like