North Carolina Amends its Anti-Predatory Lending Law – House Bill 692
by: Louis Danastorg
Recently, North Carolina amended its anti-predatory lending laws to make them no more restrictive than federal lending regulations, having been concerned anti-predatory lending laws in North Carolina had become burdensome to instate lenders. First, the General Assembly revised its consideration of the points and fees, mortgage finance charges, assessed to a borrower as a condition precedent to consummating a home loan. Points and fees include any charge paid by the borrower at or before closing, which compensates, either directly or indirectly, the creditor or its third party affiliate. Mortgage loan finance charges used in a point and fees determination include, generally: interest, service or transaction charges, loan fees (other than application fees), investigation fees (appraisal and credit reports), insurance premiums protecting creditor, borrower or subject property, charges imposed on the creditor by third parties, discounts for choosing a particular payment method other than a credit agreement, and any compensation, from any source, paid to a mortgage broker. Any bona fide and reasonable fees related to the subject property may be included-such as: title services, title insurance, surveys, document preparation, notary fees, appraisals and inspections, any amounts not otherwise considered a finance charge that is to be paid into escrow or trustee accounts, and the maximum prepayment penalties allowed under the loan agreement.
As previously written, G.S. 24-1.1E(a)(5) stated that points and fees would not include the portion of upfront fees that exceeded either 1.25% of total loan amount or any amount of upfront private mortgage insurance premiums exceeding 1.25% of the total loan amount. Under the revisions the portioned amounts have been expanded, but the points and fees determination shall now not include any upfront fees paid to the FHA, VA, or USDA. The new threshold limitations exclude fees in excess of 5% of the total loan amount for loans above $20,000 or the lessor of either 8% of the loan amount or $1000 for loans below $20,000-similar to the federal requirements. Also excluded are fees paid to public officials (taxes, filing or recording fees) and fees owed to third parties, having been paid to anyone other than the lender or its affiliate.
Beyond updating the points, fees, and threshold limitations, North Carolina amended its definition of rate spread home loans. The previous language defined rate spread home loans as having APR’s exceeding the average prime offer rate for comparable transactions by 1.5% for loans secured by first liens or deeds of trust, or 3.5% for those secured by subordinate liens. A rate spread home loan would also have exceeded both the conventional mortgage rate by 1.75% or 3.75%, and the yield on US Treasury securities by 3% or 5% for first and subordinate liens, respectively. The revised provisions now reflect the federal requirements and limitations for “qualified mortgages” set out in 15 U.S.C. ยง 1639c. Under the federal standard, North Carolina rate spread home loans may not include adjustable rates or state an APR exceeding the average prime offer rate by 1.5% for first lien mortgages with a principal obligation equal to or less than the maximum limitation pursuant the sixth sentence of section 1454(a) (2) of title 12, 80% LTV, and 2.5% for principal obligations above the same maximum limitation. Subordinate lien mortgages are subject to a 3.5% limitation regardless of a LTV determination.
About the Author
Louis Danastorg, J.D., M.B.A. is a Regulatory Compliance Consultant at Bankers Advisory, Inc. He is a graduate of Vanderbilt University and earned his Juris Doctor and Masters of Business Administration from Suffolk University. He can be reached at Louis@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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