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On November 27, 2003, the New Jersey Home Ownership Security Act of 2002 (N.J.S.A. 46:10B-22 et seq.), became effective. This law was put into place in order to combat predatory lending and is effective for owner-occupied home loans with a principal balance of $350,000.00 or less and secured by property in New Jersey.

Unfortunately, because of the potential legal and business risks arising out of home improvement loans, manufactured home loans and refinanced loans, all known as "covered home loans," many mortgage companies are no longer servicing mortgages in New Jersey.

Under the new law, the primary tangible benefit to the borrower is an interest rate lower than the interest rate on a debt satisfied or refinanced in connection with the home loan and it will take more than 4 years for the borrower to recoup the costs of the points and fees and other closing costs through savings resulting from the lower interest rate.

Late fees may only be charged as follows: 5% of the amount of the payment past due ands that fee may only be assessed by a payment past due for 15 days or more. If the late payment fee is deducted from a payment made on the loan, and such deduction causes a subsequent default on a subsequent payment, no late payment fee may be imposed for such default. In addition, no fee shall be charged unless the creditor notifies the borrower within 45 days following the date the payment was due that a late payment fee has been imposed for a particular late payment. No late payment fee may be collected from any borrower if the borrower informs the creditor that no payment of an installment is in dispute and presents proof of payment within 45 days of receipt of the creditor’s notice of the late fee. 

No home loan shall contain a provision that permits the creditor, in its sole discretion, to accelerate the indebtedness. This provision does not prohibit acceleration of the loan in good faith due to the borrower’s failure to abide by the material terms of the loan. 

When crafting a loan, the sum of all fees, including points, closing costs, etc., must not exceed 4 percent of the borrowed amount on some loan and 4 l/2 and 5 percent on others. The law will also affect the prime mortgage market.

The Act also prohibits some balloon payments, and big increases in interest rates when some borrowers default. It forbids mortgage flipping, the practice of selling and reselling mortgages, when a borrower does not receive "a reasonable tangible net benefit" from the exchange. It also regulates manufactured home loans and loans in which a home improvement contractor has referred the borrower to a creditor.

Although consumer advocate groups say the law will protect less-qualified and unsophisticated borrowers from accepting loan terms they can’t afford, many lenders are walking away from the state completely because the law's murky language and severe penalties are driving lenders to cut back services.

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