AB440 or NRS 598.040-NRS 598D.100
was specifically placed into law by the Nevada Legislature in 2007. The original intent behind the bill was good. The intention of the legislature was to cut down on the numbers of Nevada citizens getting loans that weren't based on their ability to repay. The legislature determined that in order to assist its citizens, it would disallow "no-document" or "low-document" loans that didn't assure that the mortgagor had the ability to repay them.An almost immediate outcry came from the Lenders who provided these products. In Nevada, many citizens are on tip incomes or self-employed. Self-employed and tip income individuals often have difficulty with full documentation loans because the documentation isn't representative of their ability to repay. The law went to great links to define what a no-document and low document loan was. No
document loans are defined as requiring no verification of income. Low Document loans are loans with a "limited verification" of income or ability to repay.Commissioner Joe Waltuch wrote a letter in response to lenders concerns which stated that it wasn't that the loans couldn't be provided. Instead, he stated, the loans would require that the lenders do a worksheet or another "commercially standard" document
which would explain to people the cost of the mortgage and assure that they could make the payments. That paints a nice picture of a mortgage broker sitting down with his clients to explain the cost of their new
house payment. That analysis works great for fixed rate loans. Variable rates, balloons, pre-payment penalties, etc. are another matter entirely.Unfortunately, the statute doesn't really specifically state what you need to analyze and how far out the assurance of repayment by the homeowner needs to be satisfied. The penalty for not doing it the right way is large. The statute considers giving a stated income, low doc or no doc loan as an unfair lending practice unless the lender determines using a "mechanism" that the borrower has the ability to repay the loan.What does that mean? If this law affects you, contact us to discuss
whether your verification methods meet this test and what you can do
to protect yourself from unfair lending lawsuits.