AN ACT relating to total net income limits on loans secured by a mortgage.
Summary
SB157 amends Kentucky law governing mortgage loans secured by residential real property by placing a cap on the total net income a licensee or exempt person may generate from originating a loan. In general, a lender or mortgage originator may not make a mortgage loan if the total net income from the transaction exceeds the greater of $2,000 or 4% of the total loan amount. The bill also creates an exception for loans whose total points and fees fall below the federal threshold in 12 C.F.R. sec. 1026.43(e)(3), as amended.
The bill defines “total net income” broadly to include fees and compensation collected by the originator or an affiliate, such as origination fees, broker fees, lender fees, discount points retained as income, processing fees, administrative fees, document preparation fees, yield spread premiums, servicing release premiums, and financial counseling fees. It excludes interest on the mortgage itself and payments to unaffiliated third parties. The bill applies only to contracts entered into on or after its effective date.
Impact
SB157 changes KRS 286.8-125 by tightening the statutory limits on compensation tied to mortgage origination in Kentucky and by clarifying how income from affiliates is counted. It affects mortgage lenders, brokers, and other licensees or persons claiming an exemption who originate residential mortgage loans, while also aligning one exception to a federal points-and-fees threshold. The act applies prospectively to new contracts entered after the effective date.
Sentiment
The bill appears to have been broadly supported. It passed the Senate unanimously 37-0 and later cleared the House by a wide margin in a veto override vote, 89-1, indicating strong bipartisan agreement and little recorded opposition. The final enactment as a signed act suggests the measure was ultimately accepted despite any earlier executive resistance implied by the override.
Contention
The main policy issue is the scope of lender compensation that counts toward the cap, especially the inclusion of affiliate-generated income and a wide range of fees beyond interest. Supporters likely viewed the bill as a consumer-protection measure to limit excessive mortgage-related charges and clarify the law, while any opposition would likely have centered on concerns that the cap could restrict lender revenue, reduce flexibility in pricing, or complicate mortgage transactions. The near-unanimous votes suggest these concerns were limited or not strongly expressed in the recorded legislative history.