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SB 365 ADJUSTABLE RATE MORTGAGE CHANGES

Current Location: PCH
Referrals: STBTC/SJC/HCEDC

[5] STBTC/SJC-STBTC [10] DP-SJC [12] DP/a [14] PASSED/S (37-1) [12] HCEDC-HCEDC [14] DP [17] PASSED/H (69-0) SGND BY GOV (Apr. 6) Ch. 82.

SB 365 PDF  |  SB 365 FIR


Scheduled on - Date:  Time:   Location:

3/15/2021 [14]HCEDC - Do Pass House Calendar (HCal)
3/11/2021 [12]HINT - Sent to location House Commerce and Economic Development (HCEDC)
3/10/2021 [14]SCal - Passed the Senate House Introduction (HINT)
3/08/2021 [12]HAFC - Do Pass as Amended Senate Calendar (SCal)
3/01/2021 [10]STBTC - Do Pass Senate Judiciary (SJC)
2/10/2021 [5] - Sent to location Senate Tax, Business and Transportation (STBTC)
Synopsis:

 Senate Bill 365 amends code relating to mortgage loan origination to change the prohibitions and requirements relating to certain adjustable rate home loans. 

Analysis:

 Senate Bill 365 amends code relating to mortgage loan origination to change the prohibitions and requirements relating to certain adjustable rate home loans. 

SECTION 1. Amends Financial Institutions and Regulations Section 58-21A-4 NMSA 1978 (being Laws 2003, Chapter 436, Section 4, as amended) PROHIBITED PRACTICES AND PROVISIONS REGARDING HOME LOANS to make the following changes:

Subsection N(2) inserts more lending situations that must follow the prohibition against making or originating an adjustable rate home loan to include:
— a home loan that is eligible for sale to the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation or a home loan that is eligible for insurance under Title II of the federal National Housing Act.
— inserts text that provides the possibility of increasing interest rate and payment more frequently than once every six months, which is an increase from allowing an annual increase.

Subsection N(3)(b) prohibits making an adjustable rate home loan where the periodic interest rate may be increased by more than one percent every six months rather than the previous two percent.

Amendments:

Senate Bill 365 (SB 365) is amended by the Senate Judiciary Committee (SJC) as follows:
In Section 1, Subsection N(2) to prohibit creditors from specific practices regarding home loans. 
In Subsection N(2) addressing adjustable rate home loans to allow the frequency of interest changes to once every six months, rather than annually. It also removes the restriction that this item apply only to federal home loans or federal national housing act homes, thus imposing this change to every home loan.

Current Law:Senate Bill 365 makes changes to Section 58-21A-4 NMSA 1978 (being Laws 2003, Chapter 436, Section 4, as amended).

Bill Comments:
Position: Support   Priority: High
ICBA/NM supports SB 365. 
Adjustable-rate mortgages rely on independent and secure reference rates to determine how a consumer’s payment will change over time. For many years, the reference rate used for most adjustable-rate financial transactions throughout the world has been LIBOR. At the behest of regulators in the United States and the United Kingdom, and to avoid widespread market disruption, financial institutions across all markets began transitioning away from LIBOR in recent years and moving towards the Secured Overnight Financing Rate (SOFR).  

This transition includes Fannie Mae and Freddie Mac (GSE's - Government Sponsored Enterprises) who announced last year that at the end of 2020 they would no longer acquire mortgages indexed to LIBOR and will replace LIBOR-indexed mortgages with SOFR-indexed mortgages. A key difference is that LIBOR-indexed loan rates reset once per year and SOFR-indexed loan rates resets twice per year. To avoid the potential for payment shock to borrowers, the GSEs also cut in half the maximum amount by which a borrower’s interest rate could increase with each reset. The end result is that the borrower maintains the same protection against rising interest rates. 

A provision of New Mexico statutes has an unintended consequence that will limit the availability of adjustable-rate mortgages due to prohibiting state-chartered mortgage lenders from originating a mortgage loan with an adjustable rate that resets more than once every twelve months.  

Any GSE-approved adjustable-rate mortgage originated by a state-chartered lender will violate New Mexico law unless the New Mexico Home Loan Protection Act is amended.  These loans would include those eligible for purchase, guarantee, or insurance by the Federal Housing Administration, the Department of Veterans Affairs, and the Rural Housing Service of the Department of Agriculture, as well as Fannie Mae and Freddie Mac.