Alston & Bird Consumer Finance Blog

State Law

Pennsylvania: What is a Bona Fide Discount Point?

By

What Happened?

Effective August 29, 2025, Pennsylvania enacted House Bill 1103 (the “Bill”) impacting discount points on residential mortgage loans by making amendments to Pennsylvania’s usury code (the Loan Interest and Protection Law (“Law”)), and the Mortgage Licensing Act.  First, the Bill amends the Law by repealing the definition of discount points in section 101 and repealing all of section 402, which prohibits lenders from collecting discount points from sellers on non-government mortgages. Second, the Bill amends the Mortgage Licensing Act to permit licensed mortgage lenders of first and secondary mortgage loans to offer “discount points,”  which the measure defines as “fees knowingly paid by the consumer for the purpose of reducing, and which result in a bona fide reduction of, the interest rate or time-price differential applicable to the mortgage.”

Why is it Important?

The Legislative history states that the purpose of these amendments is to allow borrowers to buy down their interest rate and align with the majority of states that do not restrict lenders from charging discount points.  It is worth noting that the usury’s law restriction on discount points was very narrowly drafted to apply only to points paid by the seller with several exclusions and was arguably preempted for first-lien residential mortgage loans under the Depository Institutions Deregulation and Monetary Control Act. Moreover, in the context of residential mortgages the usury law applies only to residential mortgage loans with an original principal amount of the base figure or less (currently, $319,777 and adjusted annually for inflation).

As amended, mortgage lenders licensed under the Mortgage Licensing Act have the power to charge discount points on a “mortgage loan,” which includes both first or secondary mortgage loans, irrespective of the dollar amount, provided such discount points are for the purpose of reducing the rate and result in a “bona fide” reduction of rate.  The statute does not define “bona fide.”  While not dispositive, it is worth noting that the federal Truth in Lending Act (“TILA”) defines the term “bona fide” discount point in the context of high cost residential mortgage loans. More specifically, under TILA, “[t]he term bona fide discount point means an amount equal to 1 percent of the loan amount paid by the consumer that reduces the interest rate or time-price differential applicable to the transaction based on a calculation that is consistent with established industry practices for determining the amount of reduction in the interest rate or time-price differential appropriate for the amount of discount points paid by the consumer.”  Absent concrete guidance from the regulators, it is not clear what constitutes “bona fide” for purposes of Pennsylvania law.  With that said, Pennsylvania regulators have informally suggested that any actual reduction in rate would be deemed bona fide.

What to do now?

Given that violations of the Mortgage Licensing Act could result in fines of $10,000 per offense, licensed mortgage lenders should ensure that any discount points charged on first or secondary mortgage loans meet the Pennsylvania’s Department of Banking’s interpretation of “bona fide” and result in an actual reduction of the rate.

Operation Robocall Roundup: State AGs Target Voice Providers

By ,

What Happened?

In a nationwide push to combat illegal robocalls, 51 state and attorneys general—through the Anti-Robocall Litigation Task Force— have launched Operation Robocall Roundup, targeting voice service providers that have allegedly failed to implement mandated Federal Communications Commission safeguards. The AGs allege that these companies have routed thousands of robocalls to consumers across the country, and that most robocalls were scams, with some impersonating utility, financial, or other companies.

The task force issued warning letters to 37 voice providers; each provider has 21 days to submit a detailed compliance plan aligned with both federal and state law. The task force also sent letters to a number of downstream companies that accept call traffic to notify them that they’re in business with “bad actors,” according to New York Attorney General Letitia James.

Why Is It Important?

Originating and/or transmitting illegal robocalls are violations of the Telemarketing Sales Rule, the Telephone Consumer Protection Act, and the Truth in Caller ID Act, as well as state consumer protection statutes. This coordinated, multi-state effort is designed to choke off robocall traffic at its source and create a unified compliance standard nationwide.

Failure to comply can lead to severe consequences, including significant fines, operational restrictions, and even license revocations across multiple jurisdictions. The risks extend beyond legal penalties—robocall traffic erodes customer trust, tarnishes brand reputation, and can cause business partners to sever ties. Conversely, demonstrating strong compliance not only satisfies regulators but also reinforces credibility with customers, strengthens market standing, and avoids costly enforcement actions.

What To Do Now?

Voice service providers should take comprehensive steps to ensure compliance, including filing a certification and robocall mitigation plan to comply with FCC mandates, responding swiftly to traceback requests, and considering implementation of advanced authentication protocols to detect and block suspicious traffic. Thorough documentation of all compliance efforts is important in the event of regulatory review.

 

New York Legislation Impacts Investments in Single-Family Rental Properties

By

What Happened?

At both federal and state levels, there has been notable increased governmental scrutiny of institutional investment in the single-family rental market and concern about its impact on rising housing costs in the country.  For example, in October 2021 the United States Senate Committee on Banking, Housing and Urban Affairs held a hearing to discuss the impact institutional landlords have had on the housing market and tenants generally. Then, on July 11, 2023, the Stop Predatory Investing Act was introduced in the U.S. Senate, which aims to address the housing shortage by prohibiting investors who acquire 50 or more new single-family rental homes after the date of enactment from deducting interest or depreciation on those properties. Another version of this legislation was reintroduced in the Senate on March 11, 2025, and the revised bill would, among other things, also deny interest and depreciation deductions for taxpayers owning 50 or more single family properties.

New York State has now entered the fray. On May 9, 2025, Governor Hochul signed into law Assembly Bill A3009C that, notably, (i) imposes a 90-day waiting period on the purchase of one- and two-family residences for certain institutional investors, (ii) restricts the use of certain tax deductions for such investors, and (iii) requires the New York Secretary of State to provide public notice when creating cease and desist zones.

Why It Matters

The New York law is clearly aimed at institutional investors, known as “Covered Entities”, defined as those entities or combined groups that directly or indirectly (i) own ten or more single- or two-family residences, (ii) manage or receive funds pooled from investors and act as fiduciaries with respect to those investors, and (iii) have at least $30 million in net value or assets under management on any day during a given taxable year , and specifically impacts the purchase of single- and two-family residences in New York State.  Under the 90-day waiting period, Covered Entities may not “purchase, acquire, or offer to purchase or acquire” any interest in a single- or two-family residence unless that property has been “listed for sale to the general public” for 90 days. Further, when a Covered Entity offers to purchase a single- or two-family residence, it must provide notice of its status as a Covered Entity to the seller or the seller’s agent. The legislation contains three salient “subparts”.

Subpart A imposes a 90-day wait period before a “Covered Entity,” may make an offer to purchase or acquire a single-family or two-family residence, starting from the day the residence is listed for sale to the public. The 90-day period restarts if the seller changes the asking price. Finally, when making an offer to a seller, the covered entity must provide the seller with a signed statement declaring itself as a covered entity. Exact required language for this form is provided in the statute. A copy of this form must also be filed with the New York Department of Law within 3 days of the offer. However, Section 521 in Subpart A specifically lists July 1, 2025, as a starting date that Covered Entities must wait 90 days before offering to purchase single or two-family homes.

Subpart B adjusts what depreciation and interest may be deducted from the covered entity’s net income.

Subpart C requires the New York Secretary of State to post notice of an established cease and desist zone once annually in a locally circulated newspaper, on the Secretary’s website, and though any other method deemed necessary to maximize awareness of the cease-and-desist zone. Any homeowner in the zone who wishes not to be solicited may file a notice with the New York Secretary of State.

Failure to comply with these requirements could result in civil damages and penalties of up to $250,000 for violations of the waiting period and up to $10,000 for violations of the notice requirement for establishing cease and desist zones where real estate brokers and salespersons are excessively soliciting homeowners. Notably, however, failure to comply with the new law would not appear to expose holders of loans secured by properties not adhering to these new procedures to liability or impact the validity of the loans themselves.

This act takes effect on the one hundred twentieth day after it become law, but again the legislation designates July 1, 2025, as a starting date that Covered Entities must wait 90 days before offering to purchase single or two-family homes.

What to do now:

Other states are considering legislation that is similar to New York Assembly Bill A3009C, and the enactment of these laws along with the federal Stop Predatory Investing Act would significantly impact investments in single- family rental markets, not to mention the securitization of loans secured by these properties—with unintended consequences to these markets and the availability of single-family rental properties.

Servicers Take Note: Louisiana Now Allows Insurers to Offer Borrowers Stated Value Property Insurance Policies

By

What Happened?

Mortgage servicers should take note that on June 30, 2025, Louisiana Governor Jeff Landry signed into law HB 356 (2025 La. Acts 480) creating the Stated Value Policy Act (the “Act”) which allows insurers to offer residential property owners an insurance policy based on the total debt of a mortgage loan. While the Act is not directly applicable to residential mortgage servicers, its implications will impact residential mortgage servicers. This law is effective as of June 30th.

Why is it Important?

 Under the Act, a “stated value policy” is a “residential insurance policy under which the insured has the option to declare a stated value for the insured residential property, which is agreed upon by the insurer as the amount of insurance coverage, irrespective of the current market value of the property.”

Insurers are required to provide a coverage limit for residential property in an amount not less than the total assessed fair market value of the property, based on the most recent assessment of the parish in which the property is located. However, if the property doesn’t have any mortgage, then the homeowner can insure the property for any stated amount of insurance. If there is a mortgage on the property, an insurer can also provide a stated value policy for a sum not less than the “verified outstanding balance of any mortgage on the homeowner’s property, ensuring that the insurance coverage adequately reflects the financial obligations associated with the property.”  To satisfy the verification requirements, the homeowner electing a stated value policy must submit to his insurer a written accurate payoff statement from the entity holding the mortgage along with a mortgage certificate from the clerk of court indicating the presence or absence of a mortgage on the property.

It is also worth noting that before issuing any policy that limits coverage on the residential property equal to the unpaid principal balance of all mortgage loans on the policy, the insurer must obtain a signed statement from all insureds which contains a notice in boldfaced 18 point font  that provides “YOU ARE ELECTING TO PURCHASE COVERAGE AT A LIMIT THAT IS EQUAL TO ONLY THE UNPAID PRINCIPAL BALANCE OF THE MORTGAGE LOAN ON YOUR HOME.  ACCORDINGLY, IN THE EVENT OF TOTAL LOSS OF YOUR HOME OR A LOSS FOR WHCH THE COST TO REPAIR YOUR HOME EXCEEDS THE UNPAID BALANCE ON YOUR MORTGAGE LOAN, YOU WILL INCUR SIGNIFICANT FINANCIAL LOSSES INCLUDING THE POTENTIAL LOSS OF SOME OF YOUR HOME EQUITY.”

Depending on the investor of the borrower’s loans, a borrower’s election to obtain a stated value policy could conflict with investor requirements.   For example, Freddie Mac imposes insurance limits that must at least equal the higher of: (i) The unpaid principal balance (UPB) of the mortgage, or (ii) 80% of the full replacement cost value (RCV) of the insurable improvements as of the current insurance policy effective date.  Moreover, insurance policies must provide for claims to be settled on a replacement cost basis. As Freddie Mac states, if during the term of the mortgage, the mortgaged property is not covered by the minimum property insurance requirements, the servicer must comply with Freddie Mac’s lender placed insurance requirements.  On the other hand, Fannie Mae requires that lender or servicer verify that the property insurance coverage amount for a first mortgage secured by one- to four-unit property is at least equal to the lesser of: (i) 100% of the RCV of the improvements as of the current property insurance policy effective date, or (ii) the UPB of the loan, provided it equals no less than 80% of the RCV of the improvements as of the current property insurance policy effective date.

What to Do Now?

Now may be a good time to educate Louisiana borrowers of the applicable insurance requirements applicable to their loans so that borrowers don’t obtain a policy inconsistent with investor requirements.

California Quickly Enacts New Mortgage Servicing Standards That Can Affect Foreclosures

By ,

What Happened?

On June 30, 2025, California Governor Gavin Newsom signed into law, with an immediate effective date, California Assembly Bill 130, a significant housing bill that, notably renders certain mortgage servicer conduct an unlawful practice in connection with subordinate lien mortgage loans, including, among others, not providing the borrower with any communication regarding the loan secured by the mortgage for at least 3 years and  threatening to conduct a nonjudicial foreclosure after providing a form to the borrower indicating that the debt had been written off or discharged.

The legislation appears to be geared toward combatting “zombie mortgages” which are second mortgage debt that homeowners may have believed was discharged or satisfied long ago, only to have it unexpectedly reappear with demands for payment and potential threats of foreclosure years later. These dormant loans are often sold to debt buyers for a small fraction of their value. Borrowers may have received no notices or statements for years, leading them to believe the second mortgage had been forgiven, discharged in bankruptcy, or modified along with their first mortgage.

Why Does It Matter?

Notably, the legislation forbids mortgage servicers from engaging in the following “unlawful practices” while the servicing subordinate lien mortgages:

  • Not providing written communication to the borrower for at least three years
  • Failing to provide a transfer of loan servicing notice as required by the Real Estate Settlement Procedures Act (RESPA) or investor/grantor requirements
  • Failing to provide a transfer of loan ownership notice as required by the Truth-in-Lending Act (TILA) or investor/grantor requirements
  • Conducting or threatening to conduct a foreclosure sale after providing a form indicating the debt had been written off or discharged
  • Conducting or threatening to conduct a foreclosure after the statute of limitations expired
  • Failing to provide a periodic statement as required by TILA or investor/grantor requirements

Failure to comply with these law’s prohibitions could impede or prevent foreclosure of the second lien and expose servicers to liability. For example, borrowers contending that the mortgage servicer engaged in an unlawful practice may seek to enjoin the foreclosure sale until a court renders a final determination of the servicer’s compliance with the new law. Under the new law, it is affirmative defense in a judicial foreclosure proceeding if the court finds the mortgage servicer engaged in any of the unlawful practices enumerated above.  Court may also provide equitable remedies that they deem appropriate, depending on the extent and severity of the mortgage servicer’s violations. However, any failure to comply with the provisions of this section does not affect the validity of a trustee’s sale or a sale in favor of a bona fide purchaser.

What Should I Do?

Servicers of subordinate lien mortgage loans in California must ensure that they are fully compliant with federal and California law applicable to the servicing of loans, such as providing borrowers timely notices required by RESPA and TILA, especially with older vintage subordinate lien loans that have been delinquent or sporadically performing. Subordinate lien debt buyers must also ensure that their servicers comply with these laws before foreclosing on these debts. Additionally, servicers should review their foreclosure procedures to ensure they do not run afoul of California’s new standards.