Tennessee lawmakers seek to raise home loan insurance rate caps with bill

Yahoo

07-04-2025

NASHVILLE, Tenn. (WKRN) — A bill that has already passed the Tennessee Senate would effectively raise the maximum interest rate on mortgages.
SB 749/HB 908, brought by Goodlettsville Republican Rep. Johnny Garrett and Kingston Republican Sen. Ken Yager by way of mortgage bankers in Tennessee, would change the index on second mortgages to a 'more modern' index in the Average Prime Offer Rate.
According to Yager, the bill was created with assistance of the Tennessee Commissioner of Financial Institutions and will expand the opportunity for people to have a subordinate loan, such as a home equity loan.
Per the text of the bill, the maximum effective rate of interest on home loans would be set at an amount 'equal to four (4) percentage points above the average prime offer rate' on a 30-year fixed loan. Further, the maximum effective rate of interest per year for home loans would be capped at 18%, the bill reads.
Current law states the maximum interest rate is set at an amount equal to two percentage points above the 'most recent weighted average yield of the accepted offers of the Federal National Mortgage Association's current free market system auction.'
It is restricted, in that it only applies to mortgages in excess of 15 years, which Yager said would be 'good for the economy that we make this change.'
However, the measure received pushback from Democrats, with Nashville Sen. Jeff Yarbro stating the bill as written would actually apply to 'any home loan' with a 15- or 30-year mortgage.
Yarbro said the current mortgage rate in Tennessee is set at 8.5%, but the bill would allow that rate to be as high as 11.5%, which gave him significant pause.
'I am hesitant to do something that opens the door for mortgage rates in the state to be three percentage points higher than what they are currently,' he said on the Senate floor in mid-March.
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Sen. Charlane Oliver (D-Nashville) echoed Yarbro's comments, saying while some of her Senate colleagues classified the measure as a 'cleanup' bill, it could have significant unintended consequences for Tennesseans.
'This puts a significant burden on families trying to purchase a home in Tennessee,' she said, noting how larger counties in Tennessee, like Davidson, housing affordability is already an issue, and the bill could lead to double-digit mortgage rates—something not seen in Tennessee since 1994, she added.
Yager reiterated the market fluctuates daily and affected by multiple indexes, so the likelihood of the bill making mortgage rates significantly higher was low. He further reiterated how the bill would make subordinate home loans more available for things like second mortgages or home equity loans.
Memphis Sen. London Lamar said Yager's bill would equate to a 4-point increase, which would fully price out many Tennesseans.
The measure has already passed the House of Representatives unanimously—due to its placement on a consent calendar—and transmitted to the Senate for action. But lawmakers attempted to 'recall' the bill from the Senate, but the motion failed at the end of March.
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