GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 1999
SESSION LAW 1999-332
SENATE BILL 1149
AN ACT TO MODIFY PERMISSIBLE FEES WHICH MAY BE CHARGED IN
CONNECTION WITH HOME LOANS SECURED BY FIRST MORTGAGE OR FIRST
DEED OF TRUST, TO IMPOSE RESTRICTIONS AND LIMITATIONS ON HIGH-
COST HOME LOANS, TO REVISE THE PERMISSIBLE FEES AND CHARGES ON
CERTAIN LOANS, TO PROHIBIT UNFAIR OR DECEPTIVE PRACTICES BY
MORTGAGE BROKERS AND LENDERS, AND TO PROVIDE FOR PUBLIC
EDUCATION AND COUNSELING ABOUT PREDATORY LENDERS.
The General Assembly of North Carolina enacts:
Section 1. G.S. 24-1.1A reads as rewritten:
"§ 24-1.1A. Contract rates on home loans secured by
first mortgages or first deeds of trust.
(a) Notwithstanding any other provision of this
Chapter, Chapter, but subject to the
provisions of G.S. 24-1.1E, parties to a home loan may
contract in writing as follows:
(1) Where the principal amount is ten thousand
dollars ($10,000) or more the parties may contract for the
payment of interest as agreed upon by the parties;
(2) Where the principal amount is less than ten
thousand dollars ($10,000) the parties may contract for the
payment of interest as agreed upon by the parties, if the
lender is either (i) approved as a mortgagee by the
Secretary of Housing and Urban Development, the Federal
Housing Administration, the Veterans
Administration, Department of Veterans
Affairs, a national mortgage association or any federal
agency; or (ii) a local or foreign bank, savings and loan
association or service corporation wholly owned by one or
more savings and loan associations and permitted by law to
make home loans, credit union or insurance company; or (iii)
a State or federal agency;
(3) Where the principal amount is less than ten
thousand dollars ($10,000) and the lender is not a lender
described in the preceding subdivision (2) the parties may
contract for the payment of interest not in excess of
sixteen percent (16%) per annum.
(4) Notwithstanding any other provision of law,
where the lender is an affiliate operating in the same
office or subsidiary operating in the same office of a
licensee under the North Carolina Consumer Finance Act, the
lender may charge interest to be computed only on the
following basis: monthly on the outstanding principal
balance at a rate not to exceed the rate provided in this
subdivision.
On the fifteenth day of each month, the
Commissioner of Banks shall announce and publish the maximum
rate of interest permitted by this subdivision. Such rate
shall be the latest published noncompetitive rate for U.S.
Treasury bills with a six-month maturity as of the fifteenth
day of the month plus six percent (6%), rounded upward or
downward, as the case may be, to the nearest one-half of one
percent (1/2 of 1%) or fifteen percent (15%), whichever is
greater. If there is no nearest one-half of one percent (1/2
of 1%), the Commissioner shall round downward to the lower
one-half of one percent (1/2 of 1%). The rate so announced
shall be the maximum rate permitted for the term of loans
made under this section during the following calendar month
when the parties to such loans have agreed that the rate of
interest to be charged by the lender and paid by the
borrower shall not vary or be adjusted during the term of
the loan. The parties to a loan made under this section may
agree to a rate of interest which shall vary or be adjusted
during the term of the loan in which case the maximum rate
of interest permitted on such loans during a month during
the term of the loan shall be the rate announced by the
Commissioner in the preceding calendar month.
An affiliate operating in the same office or
subsidiary operating in the same office of a licensee under
the North Carolina Consumer Finance Act may not make a home
loan for a term in excess of six (6) months which provides
for a balloon payment. For purposes of this subdivision, a
balloon payment means any scheduled payment that is more
than twice as large as the average of earlier scheduled
payments. This subsection does not apply to equity lines of
credit as defined in G.S. 45-81.
(b) No prepayment fees shall be contracted by the
borrower and lender with respect to any home loan where the
principal amount borrowed is one hundred thousand dollars
($100,000) or less; otherwise a lender and a borrower may agree
on any terms as to the prepayment of a home loan.
Except as provided in subdivision (1) of this subsection, a
lender and a borrower may agree on any terms as to the prepayment
of a home loan.
(1) No prepayment fees or penalties shall
be contracted by the borrower and lender with respect to any
home loan in which: (i) the principal amount borrowed is one
hundred fifty thousand dollars ($150,000) or less, (ii) the
borrower is a natural person, (iii) the debt is incurred by
the borrower primarily for personal, family, or household
purposes, and (iv) the loan is secured by a first mortgage
or first deed of trust on real estate upon which there is
located or there is to be located a structure or structures
designed principally for occupancy of from one to four
families which is or will be occupied by the borrower as the
borrower's principal dwelling.
(2) The limitations on prepayment fees
and penalties contained in subdivision (b)(1) of this
section shall not apply to the extent state law limitations
on prepayment fees and penalties are preempted by federal
law or regulation.
(c) Except as limited by subsection (b) above, a
lender may charge to the borrower the fees described in G.S.
24-10. Provided, if the loan is one described in subsection
(a)(1) or subsection (a)(2) above, the parties may agree to the
payment of discount points, commitment fees, finance charges, or
other similar charges agreed upon by the parties notwithstanding
the provisions of any state law limiting the amount of discount
points, commitment fees, finance charges or other similar charges
which may be charged, taken, received or reserved with respect to
a home loan. Provided further, that no lender on loans under G.S.
24-1.1A(a)(3) may charge or receive any fees or discount points
other than the interest permitted in G.S. 24-1.1A(a)(3).
If the home loan is one described in subdivision (a)(1) or
subdivision (a)(2) of this section, the lender may charge the
borrower the following fees and charges in addition to interest
and other fees and charges as permitted in this section and late
payment charges as permitted in G.S. 24-10.1:
(1) At or before loan closing, the lender
may charge such of the following fees and charges as may be
agreed upon by the parties notwithstanding the provisions of
any State law, other than G.S. 24-1.1E, limiting the amount
of such fees or charges:
a. Loan application, origination,
and commitment fees;
b. Discount points, but only to the
extent the discount points are paid for the purpose of
reducing, and in fact result in a bona fide reduction
of the interest rate or time-price differential;
c. Assumption fees to the extent
permitted by G.S. 24-10(d);
d. Appraisal fees to the extent
permitted by G.S. 24-10(h);
e. To the extent permitted by G.S.
24-8(d), sums for the payment of bona fide loan-related
goods, products, and services provided or to be
provided by third parties and sums for the payment of
taxes, filing fees, recording fees, and other charges,
and fees paid or to be paid to public officials;
and
f. Additional fees and charges,
however denominated, payable to the lender which, in
the aggregate, do not exceed the greater of (i) one
quarter of one percent (1/4 of 1%) of the principal
amount of the loan, or (ii) one hundred fifty dollars
($150.00).
(2) Except as provided in subsection (g)
of this section with respect to the deferral of loan
payments, upon modification, renewal, extension, or
amendment of any of the terms of a home loan, the lender may
charge such of the following fees and charges as may be
agreed upon by the parties notwithstanding the provisions of
any State law, other than G.S. 24-1.1E, limiting the amount
of such fees or charges:
a. Discount points, but only to the
extent the discount points are paid for the purpose of
reducing, and in fact result in a bona fide reduction
of, the interest rate or time-price differential;
b. Assumption fees to the extent
permitted by G.S. 24-10(d);
c. Appraisal fees to the extent
permitted by G.S. 24-10(h);
d. To the extent permitted by G.S.
24-8(d), sums for the payment of bona fide loan-related
goods, products, and services provided or to be
provided by third parties and sums for the payment of
taxes, filing fees, recording fees, and other charges,
and fees paid or to be paid to public officials;
and
e. Additional fees and charges,
however denominated, payable to the lender which, in
the aggregate, do not exceed the greater of (i) one
quarter of one percent (1/4 of 1%) of the balance
outstanding at the time of the modification, renewal,
extension, or amendment of terms, or (ii) one hundred
fifty dollars ($150.00). The fees and charges permitted
by this sub-subdivision may be charged only pursuant to
a written agreement which states the amount of the fee
or charge and is made at the time of the specific
modification, renewal, extension, or amendment, or at
the time the specific modification, renewal, extension,
or amendment is requested.
(c1) No lender on home loans under subdivision (a)(3) of
this section may charge or receive any interest, fees, charges,
or discount points other than: (i) to the extent permitted by
G.S. 24-8(d), sums for the payment of bona fide loan-related
goods, products, and services provided or to be provided by third
parties and sums for the payment of taxes, filing fees, recording
fees, and other charges and fees, paid or to be paid to public
officials; (ii) interest as permitted in subdivision (a)(3) of
this section; and (iii) late payment charges to the extent
permitted by G.S. 24-10.1.
(c2) No lender on home loans under subdivision (a)(4) of
this section may charge or receive any interest, fees, charges,
or discount points other than: (i) the fees described in G.S. 24-
10; (ii) to the extent permitted by G.S. 24-8(d), sums for the
payment of bona fide loan-related goods, products, and services
provided or to be provided by third parties and sums for the
payment of taxes, filing fees, recording fees, and other charges
and fees, paid or to be paid to public officials; (iii) interest
as permitted in subdivision (a)(4) of this section; and (iv) late
payment charges to the extent permitted by G.S. 24-10.1.
(d) The loan or investments regulated by G.S. 53-45 shall
not be subject to the provisions of this section.
(e) The term "home loan" shall mean a loan
loan, other than an open-end credit plan, where the
principal amount is less than three hundred thousand dollars
($300,000) secured by a first mortgage or first deed of trust on
real estate upon which there is located or there is to be located
one or more single-family dwellings or dwelling units.
(f) Any home loan obligation existing before June 13, 1977,
shall be construed with regard to the law existing at the time
the home loan or commitment to lend was made and this act shall
only apply to home loans or loan commitments made from and after
June 13, 1977; provided, however, that variable rate home loan
obligations executed prior to April 3, 1974, which by their terms
provide that the interest rate shall be decreased and may be
increased in accordance with a stated cost of money formula or
other index shall be enforceable according to the terms and tenor
of said written obligations.
(g) The parties to a home loan governed by
G.S.24-1.1A(a) (1) or (2) subdivision (a)(1)
or (2) of this section may contract in
writing to defer payments of interest
the payment of all or part of one or more unpaid
installments and for payment of interest on deferred interest
as agreed upon by the parties. The parties may agree in
writing that said deferred interest may
be added to the principal balance of the loan. This subsection
shall not be construed to limit payment of interest upon interest
in connection with other types of loans. Except as restricted
by G.S. 24-1.1E, the lender may charge deferral fees as may be
agreed upon by the parties to defer the payment of one or more
unpaid installments. If the home loan is of a type described in
subdivision (1) of this subsection, the deferral fees shall be
subject to the limitations set forth in subdivision (2) of this
subsection:
(1) A home loan will be subject to the
deferral fee limitations set forth in subdivision (2) of
this subsection if:
a. The borrower is a natural
person;
b. The debt is incurred by the
borrower primarily for personal, family, or household
purposes; and
c. The loan is secured by a first
mortgage or first deed of trust on real estate upon
which there is located or there is to be located a
structure or structures designed principally for
occupancy of from one to four families which is or will
be occupied by the borrower as the borrower's principal
dwelling.
(2) Deferral fees for home loans
identified in subdivision (1) of this subsection shall be
subject to the following limitations:
a. Deferral fees may be charged only
pursuant to an agreement which states the amount of the
fee and is made at the time of the specific deferral or
at the time the specific deferral is requested;
provided, that if the agreement relates to an
installment which is then past due for 15 days or more,
the agreement must be in writing and signed by at least
one of the borrowers. For purposes of this subdivision
an agreement will be considered a signed writing if the
lender receives from at least one of the borrowers a
facsimile or computer-generated message confirming or
otherwise accepting the agreement.
b. Deferral fees may not exceed the
greater of five percent (5%) of each installment
deferred or fifty dollars ($50.00), multiplied by the
number of complete months in the deferral period. A
month shall be measured from the date an installment is
due. The deferral period is that period during which
no payment is required or made as measured from the
date on which the deferred installment would otherwise
have been due to the date the next installment is due
under the terms of the note or the deferral
agreement.
c. If a deferral fee has once been
imposed with respect to a particular installment, no
deferral fee may be imposed with respect to any future
payment which would have been timely and sufficient but
for the previous deferral.
d. If a deferral fee is charged
pursuant to a deferral agreement, a late charge may be
imposed with respect to the deferred payment only if
the amount deferred is not paid when due under the
terms of the deferral agreement and no new deferral
agreement is entered into with respect to that
installment.
e. No lender may charge a deferral
fee for modifying or extending the maturity date of a
loan or the date a balloon payment is due; provided,
however, that any such modification or extension of the
loan maturity date or the date a balloon payment is due
shall, to the extent applicable, be considered a
modification or extension subject to the provisions of
subdivision (c)(2) of this section.
(h) The parties to a home loan governed by G.S.
24-1.1A(a) (1) or (2) subdivision (a)(1) or (2) of
this section may agree in writing to a mortgage or deed of
trust which provides that periodic payments may be graduated
during parts of or over the entire term of the loan. The parties
to such a loan may also agree in writing to a mortgage or deed of
trust which provides that periodic disbursements of part of the
loan proceeds may be made by the lender over a period of time
agreed upon by the parties, or over a period of time agreed upon
by the parties ending with the death of the borrower(s). Such
mortgages or deeds of trust may include provisions for adding
deferred interest to principal or otherwise providing for
charging of interest on deferred interest as agreed upon by the
parties. This subsection shall not be construed to limit other
types of mortgages or deeds of trust or methods or plans of
disbursement or repayment of loans that may be agreed upon by the
parties.
(i) Nothing in this section shall be construed to
authorize or prohibit a lender, a borrower, or any other party to
pay compensation to a mortgage broker or a mortgage banker for
services provided by the mortgage broker or the mortgage banker
in connection with a home loan."
Section 2. Chapter 24 of the General Statutes is
amended by adding a new section to read:
"§ 24-1.1E. Restrictions and limitations on high-cost home
loans.
(a) Definitions. -- The following definitions apply for
the purposes of this section:
(1) `Affiliate' means any company that
controls, is controlled by, or is under common control with
another company, as set forth in the Bank Holding Company
Act of 1956 (12 U.S.C. § 1841 et seq.), as amended from time
to time.
(2) `Annual percentage rate' means the
annual percentage rate for the loan calculated according to
the provisions of the federal Truth-in-Lending Act (15
U.S.C. § 1601, et seq.), and the regulations promulgated
thereunder by the Federal Reserve Board (as said Act and
regulations are amended from time to time).
(3) `Bona fide loan discount points'
means loan discount points knowingly paid by the borrower
for the purpose of reducing, and which in fact result in a
bona fide reduction of, the interest rate or time-price
differential applicable to the loan, provided the amount of
the interest rate reduction purchased by the discount points
is reasonably consistent with established industry norms and
practices for secondary mortgage market transactions.
(4) A `high-cost home loan' means a loan
other than an open-end credit plan or a reverse mortgage
transaction in which:
a. The principal amount of the loan
does not exceed the lesser of (i) the conforming loan
size limit for a single-family dwelling as established
from time to time by the Federal National Mortgage
Association, or (ii) three hundred thousand dollars
($300,000);
b. The borrower is a natural
person;
c. The debt is incurred by the
borrower primarily for personal, family, or household
purposes;
d. The loan is secured by either (i)
a security interest in a manufactured home (as defined
in G.S. 143-147(7)) which is or will be occupied by the
borrower as the borrower's principal dwelling, or (ii)
a mortgage or deed of trust on real estate upon which
there is located or there is to be located a structure
or structures designed principally for occupancy of
from one to four families which is or will be occupied
by the borrower as the borrower's principal dwelling;
and
e. The terms of the loan exceed one
or more of the thresholds as defined in subdivision (6)
of this section.
(5) `Points and fees' means:
a. All items required to be
disclosed under sections 226.4(a) and 226.4(b) of Title
12 of the Code of Federal Regulations, as amended from
time to time, except interest or the time-price
differential;
b. All charges for items listed
under section 226.4(c)(7) of Title 12 of the Code of
Federal Regulations, as amended from time to time, but
only if the lender receives direct or indirect
compensation in connection with the charge or the
charge is paid to an affiliate of the lender;
otherwise, the charges are not included within the
meaning of the phrase `points and fees';
c. All compensation paid directly by
the borrower to a mortgage broker not otherwise
included in sub-subdivision a. or b. of this
subdivision;
d. The maximum prepayment fees and
penalties which may be charged or collected under the
terms of the loan documents; and
e. `Points and fees' shall not
include (i) taxes, filing fees, recording and other
charges and fees paid or to be paid to public officials
for determining the existence of or for perfecting,
releasing, or satisfying a security interest; and (ii)
fees paid to a person other than a lender or an
affiliate of the lender or to the mortgage broker or an
affiliate of the mortgage broker for the following:
fees for tax payment services; fees for flood
certification; fees for pest infestation and flood
determinations; appraisal fees; fees for inspections
performed prior to closing; credit reports; surveys;
attorneys' fees (if the borrower has the right to
select the attorney from an approved list or
otherwise); notary fees; escrow charges, so long as not
otherwise included under sub-subdivision a. of this
subdivision; title insurance premiums; and fire
insurance and flood insurance premiums, provided that
the conditions in section 226.4(d)(2) of Title 12 of
the Code of Federal Regulations are met.
(6) `Thresholds' means:
a. Without regard to whether the
loan transaction is or may be a `residential mortgage
transaction' (as the term `residential mortgage
transaction' is defined in section 226.2(a)(24) of
Title 12 of the Code of Federal Regulations, as amended
from time to time), the annual percentage rate of the
loan at the time the loan is consummated is such that
the loan is considered a `mortgage' under section 152
of the Home Ownership and Equity Protection Act of 1994
(Pub. Law 103-25, [15 U.S.C. § 1602(aa)]), as the same
may be amended from time to time, and regulations
adopted pursuant thereto by the Federal Reserve Board,
including section 226.32 of Title 12 of the Code of
Federal Regulations, as the same may be amended from
time to time;
b. The total points and fees payable
by the borrower at or before the loan closing exceed
(i) five percent (5%) of the total loan amount if the
total loan amount is twenty thousand dollars ($20,000)
or more, or (ii) the lesser of eight percent (8%) of
the total loan amount or one thousand dollars ($1,000),
if the total loan amount is less than twenty thousand
dollars ($20,000); provided, the following discount
points and prepayment fees and penalties shall be
excluded from the calculation of the total points and
fees payable by the borrower:
1. Up to and including two bona
fide loan discount points payable by the borrower
in connection with the loan transaction, but only
if the interest rate from which the loan's
interest rate will be discounted does not exceed
by more than one percentage point (1%) the
required net yield for a 90-day standard mandatory
delivery commitment for a reasonably comparable
loan from either the Federal National Mortgage
Association or the Federal Home Loan Mortgage
Corporation, whichever is greater;
2. Up to and including one bona
fide loan discount point payable by the borrower
in connection with the loan transaction, but only
if the interest rate from which the loan's
interest rate will be discounted does not exceed
by more than two percentage points (2%) the
required net yield for a 90-day standard mandatory
delivery commitment for a reasonably comparable
loan from either the Federal National Mortgage
Association or the Federal Home Loan Mortgage
Corporation, whichever is greater;
3. Prepayment fees and
penalties which may be charged or collected under
the terms of the loan documents which do not
exceed one percent (1%) of the amount prepaid,
provided the loan documents do not permit the
lender to charge or collect any prepayment fees or
penalties more than 30 months after the loan
closing; or
c. The loan documents permit the
lender to charge or collect prepayment fees or
penalties more than 30 months after the loan closing or
which exceed, in the aggregate, more than two percent
(2%) of the amount prepaid.
(7) `Total loan amount' means the same as
the term `total loan amount' as used in section 226.32 of
Title 12 of the Code of Federal Regulations, and the same
shall be calculated in accordance with the Federal Reserve
Board's Official Staff Commentary thereto.
(b) Limitations. -- A high-cost home loan shall be
subject to the following limitations:
(1) No call provision. -- No high-cost
home loan may contain a provision which permits the lender,
in its sole discretion, to accelerate the indebtedness.
This provision does not apply when repayment of the loan has
been accelerated by default, pursuant to a due-on-sale
provision, or pursuant to some other provision of the loan
documents unrelated to the payment schedule.
(2) No balloon payment. -- No high-cost
home loan may contain a scheduled payment that is more than
twice as large as the average of earlier scheduled payments.
This provision does not apply when the payment schedule is
adjusted to the seasonal or irregular income of the
borrower.
(3) No negative amortization. -- No high-
cost home loan may contain a payment schedule with regular
periodic payments that cause the principal balance to
increase.
(4) No increased interest rate. -- No
high-cost home loan may contain a provision which increases
the interest rate after default. This provision does not
apply to interest rate changes in a variable rate loan
otherwise consistent with the provisions of the loan
documents, provided the change in the interest rate is not
triggered by the event of default or the acceleration of the
indebtedness.
(5) No advance payments. -- No high-cost
home loan may include terms under which more than two
periodic payments required under the loan are consolidated
and paid in advance from the loan proceeds provided to the
borrower.
(6) No modification or deferral fees. --
A lender may not charge a borrower any fees to modify,
renew, extend, or amend a high-cost home loan or to defer
any payment due under the terms of a high-cost home
loan.
(c) Prohibited Acts and Practices. -- The following acts
and practices are prohibited in the making of a high-cost home
loan:
(1) No lending without home-ownership
counseling. -- A lender may not make a high-cost home loan
without first receiving certification from a counselor
approved by the North Carolina Housing Finance Agency that
the borrower has received counseling on the advisability of
the loan transaction and the appropriate loan for the
borrower.
(2) No lending without due regard to
repayment ability. -- As used in this subsection, the term
`obligor' refers to each borrower, co-borrower, cosigner, or
guarantor obligated to repay a loan. A lender may not make
a high-cost home loan unless the lender reasonably believes
at the time the loan is consummated that one or more of the
obligors, when considered individually or collectively, will
be able to make the scheduled payments to repay the
obligation based upon a consideration of their current and
expected income, current obligations, employment status, and
other financial resources (other than the borrower's equity
in the dwelling which secures repayment of the loan). An
obligor shall be presumed to be able to make the scheduled
payments to repay the obligation if, at the time the loan is
consummated, the obligor's total monthly debts, including
amounts owed under the loan, do not exceed fifty percent
(50%) of the obligor's monthly gross income as verified by
the credit application, the obligor's financial statement, a
credit report, financial information provided to the lender
by or on behalf of the obligor, or any other reasonable
means; provided, no presumption of inability to make the
scheduled payments to repay the obligation shall arise
solely from the fact that, at the time the loan is
consummated, the obligor's total monthly debts (including
amounts owed under the loan) exceed fifty percent (50%) of
the obligor's monthly gross income.
(3) No financing of fees or charges. --
In making a high-cost home loan, a lender may not directly
or indirectly finance:
a. Any prepayment fees or penalties
payable by the borrower in a refinancing transaction if
the lender or an affiliate of the lender is the
noteholder of the note being refinanced;
b. Any points and fees; or
c. Any other charges payable to
third parties.
(4) No benefit from refinancing existing
high-cost home loan with new high-cost home loan. -- A
lender may not charge a borrower points and fees in
connection with a high-cost home loan if the proceeds of the
high-cost home loan are used to refinance an existing high-
cost home loan held by the same lender as noteholder.
(5) Restrictions on home-improvement
contracts. -- A lender may not pay a contractor under a home-
improvement contract from the proceeds of a high-cost home
loan other than (i) by an instrument payable to the borrower
or jointly to the borrower and the contractor, or (ii) at
the election of the borrower, through a third-party escrow
agent in accordance with terms established in a written
agreement signed by the borrower, the lender, and the
contractor prior to the disbursement.
(d) Unfair and Deceptive Acts or Practices. -- Except as
provided in subsection (e) of this section, the making of a high-
cost home loan which violates any provisions of subsection (b) or
(c) of this section is hereby declared usurious in violation of
the provisions of this Chapter and unlawful as an unfair or
deceptive act or practice in or affecting commerce in violation
of the provisions of G.S. 75-1.1. The provisions of this section
shall apply to any person who in bad faith attempts to avoid the
application of this section by (i) the structuring of a loan
transaction as an open-end credit plan for the purpose and with
the intent of evading the provisions of this section when the
loan would have been a high-cost home loan if the loan had been
structured as a closed-end loan, or (ii) dividing any loan
transaction into separate parts for the purpose and with the
intent of evading the provisions of this section, or (iii) any
other such subterfuge. The Attorney General, the Commissioner of
Banks, or any party to a high-cost home loan may enforce the
provisions of this section. Any person seeking damages or
penalties under the provisions of this section may recover
damages under either this Chapter or Chapter 75, but not
both.
(e) Corrections and Unintentional Violations. -- A
lender in a high-cost home loan who, when acting in good faith,
fails to comply with subsections (b) or (c) of this section, will
not be deemed to have violated this section if the lender
establishes that either:
(1) Within 30 days of the loan closing
and prior to the institution of any action under this
section, the borrower is notified of the compliance failure,
appropriate restitution is made, and whatever adjustments
are necessary are made to the loan to either, at the choice
of the borrower, (i) make the high-cost home loan satisfy
the requirements of subsections (b) and (c) of this section,
or (ii) change the terms of the loan in a manner beneficial
to the borrower so that the loan will no longer be
considered a high-cost home loan subject to the provisions
of this section; or
(2) The compliance failure was not
intentional and resulted from a bona fide error
notwithstanding the maintenance of procedures reasonably
adapted to avoid such errors, and within 60 days after the
discovery of the compliance failure and prior to the
institution of any action under this section or the receipt
of written notice of the compliance failure, the borrower is
notified of the compliance failure, appropriate restitution
is made, and whatever adjustments are necessary are made to
the loan to either, at the choice of the borrower, (i) make
the high-cost home loan satisfy the requirements of
subsections (b) and (c) of this section, or (ii) change the
terms of the loan in a manner beneficial to the borrower so
that the loan will no longer be considered a high-cost home
loan subject to the provisions of this section. Examples of
a bona fide error include clerical, calculation, computer
malfunction and programming, and printing errors. An error
of legal judgment with respect to a person's obligations
under this section is not a bona fide error.
(f) Severability. -- The provisions of this section
shall be severable, and if any phrase, clause, sentence, or
provision is declared to be invalid or is preempted by federal
law or regulation, the validity of the remainder of this section
shall not be affected thereby. If any provision of this section
is declared to be inapplicable to any specific category, type, or
kind of points and fees, the provisions of this section shall
nonetheless continue to apply with respect to all other points
and fees."
Section 3. Chapter 24 of the General Statutes is
amended by adding a new section to read:
"§ 24-2.5. Mortgage bankers and mortgage brokers.
A mortgage broker or a mortgage banker originating a loan
in a table-funded loan transaction in which the mortgage broker
or mortgage banker is identified as the original payee of the
note shall be considered a lender for purposes of this
Chapter."
Section 4. G.S. 24-8 reads as rewritten:
"§ 24-8. Loans not in excess of $300,000; what
interest, fees and charges permitted.
No lender shall charge or receive from any borrower
or require in connection with a loan any borrower, directly or
indirectly, to pay, deliver, transfer or convey or otherwise
confer upon or for the benefit of the lender or any other person,
firm or corporation any sum of money, thing of value or other
consideration other than that which is pledged as security or
collateral to secure the repayment of the full principal of the
loan, together with fees and interest provided for in this
Chapter or Chapter 53 of the North Carolina General Statutes,
where the principal amount of a loan is not in excess of three
hundred thousand dollars ($300,000.00); provided, this section
shall not prevent a borrower from selling, transferring, or
conveying property other than security or collateral to any
person, firm or corporation for a fair consideration so long as
such transaction is not made a condition or requirement for any
loan; provided that this shall not prevent the lender from
collecting from the borrower for remittance to others, money in
payment of taxes, assessments, cost of upkeep, recording fees,
surveys, attorneys' fees, fire, title, life, accident and health,
unemployment, and mortgage insurance premiums and other such fees
and costs, nor from receiving the proceeds from any insurance
policies where a loss occurs under the terms of such policies.
This section shall not be applicable to any corporation licensed
as a "Small Business Investment Company" under the provisions of
the United States Code Annotated, Title 15, section 661, et
seq. nor shall it be applicable to the sale or purchase of
convertible debentures, nor to the sale or purchase of any debt
security with accompanying warrants, nor to the sale or purchase
of other securities through an organized securities
exchange.
(a) If the principal amount of a loan is less than three
hundred thousand dollars ($300,000), no lender shall charge or
receive from any borrower or require in connection with any loan
any borrower, directly or indirectly, to pay, deliver, transfer,
or convey or otherwise confer upon or for the benefit of the
lender or any other person, firm, or corporation any sum of
money, thing of value, or other consideration other than that
which is pledged as security or collateral to secure the
repayment of the full principal of the loan, together with fees
and interest provided for in this Chapter or Chapter 53 of the
General Statutes.
(b) Notwithstanding any contrary provision of State law,
if the principal amount of a loan is three hundred thousand
dollars ($300,000) or more, any borrower may agree to pay, and
any lender or other person may charge and collect from the
borrower, interest, fees, and other charges as may be agreed upon
between the parties, and the borrower and anyone claiming by or
through the borrower is prohibited from asserting usury as a
claim or defense.
(c) The provisions of this section shall not prevent a
borrower from selling, transferring, or conveying property other
than security or collateral to any person, firm, or corporation
for a fair consideration so long as such transaction is not made
a condition or requirement for any loan.
(d) Notwithstanding any contrary provision of State law,
any lender may collect money from the borrower for the payment of
(i) bona fide loan-related goods, products, and services provided
or to be provided by third parties, and (ii) taxes, filing fees,
recording fees, and other charges and fees paid or to be paid to
public officials. No third party shall charge or receive (i) any
unreasonable compensation for loan-related goods, products, and
services, or (ii) any compensation for which no loan-related
goods and products are provided or for which no or only nominal
loan-related services are performed. Loan-related goods,
products, and services include fees for tax payment services,
fees for flood certification, fees for pest-infestation
determinations, mortgage brokers' fees, appraisal fees,
inspection fees, environmental assessment fees, fees for credit
report services, assessments, costs of upkeep, surveys,
attorneys' fees, notary fees, escrow charges, and insurance
premiums (including, for example, fire, title, life, accident and
health, disability, unemployment, flood, and mortgage
insurance).
(e) Notwithstanding any contrary provision of State law,
any lender may receive the proceeds from any insurance policies
where loss occurs under the terms of such policies.
(f) This section shall not be applicable to any
corporation licensed as a `Small Business Investment Company'
under the provisions of the United States Code Annotated, Title
15, section 66, et seq., nor shall it be applicable to the sale
or purchase of convertible debentures, nor to the sale or
purchase of any debt security with accompanying warrants, nor to
the sale or purchase of other securities through an organized
securities exchange."
Section 5. Chapter 24 of the General Statutes is
amended by adding a new section to read:
"§ 24-10.2. Consumer protections in certain home
loans.
(a) For purposes of this section, the term `consumer home
loan' shall mean a loan in which (i) the borrower is a natural
person, (ii) the debt is incurred by the borrower primarily for
personal, family, or household purposes, and (iii) the loan is
secured by a mortgage or deed of trust upon real estate upon
which there is located or there is to be located a structure or
structures designed principally for occupancy of from one to four
families which is or will be occupied by the borrower as the
borrower's principal dwelling.
(b) Notwithstanding the provisions of G.S. 58-57-35(b),
it shall be unlawful for any lender in a consumer home loan to
finance, directly or indirectly, any credit life, disability, or
unemployment insurance, or any other life or health insurance
premiums; provided, that insurance premiums calculated and paid
on a monthly basis shall not be considered financed by the
lender.
(c) No lender may knowingly or intentionally engage in
the unfair act or practice of `flipping' a consumer home loan.
`Flipping' a consumer loan is the making of a consumer home loan
to a borrower which refinances an existing consumer home loan
when the new loan does not have reasonable, tangible net benefit
to the borrower considering all of the circumstances, including
the terms of both the new and refinanced loans, the cost of the
new loan, and the borrower's circumstances. This provision shall
apply regardless of whether the interest rate, points, fees, and
charges paid or payable by the borrower in connection with the
refinancing exceed those thresholds specified in G.S. 24-
1.1E(a)(6).
(d) No lender shall recommend or encourage default on an
existing loan or other debt prior to and in connection with the
closing or planned closing of a consumer home loan that
refinances all or any portion of such existing loan or debt.
(e) The making of a consumer home loan which violates the
provisions of this section is hereby declared usurious in
violation of the provisions of this Chapter and unlawful as an
unfair or deceptive act or practice in or affecting commerce in
violation of the provisions of G.S. 75-1.1. The Attorney
General, the Commissioner of Banks, or any party to a consumer
home loan may enforce the provisions of this section. Any person
seeking damages or penalties under the provisions of this section
may recover damages under either this Chapter or Chapter 75, but
not both.
(f) In any suit instituted by a borrower who alleges that
the defendant violated this section, the presiding judge may, in
the judge's discretion, allow reasonable attorneys' fees to the
attorney representing the prevailing party, such attorneys' fees
to be taxed as a part of the court costs and payable by the
losing party, upon a finding by the presiding judge that:
(1) The party charged with the violation
has willfully engaged in the act or practice, and there was
unwarranted refusal by such party to fully resolve the
matter which constitutes the basis of such suit; or
(2) The party instituting the action
knew, or should have known, that the action was frivolous
and malicious.
(g) This section establishes specific consumer
protections in consumer home loans in addition to other consumer
protections that may be otherwise available by law."
Section 6. Of the funds appropriated to the Department
of Justice for the 1999-2000 fiscal year, the sum of one hundred
thousand dollars ($100,000) may be used to develop and implement
a program of consumer counseling or awareness designed to inform
the public about the methods by which predatory lenders impose
unconscionable and noncompetitive fees and charges as part of
complex home mortgage transactions, to protect the public from
incurring such fees and charges, and otherwise to encourage the
informed and responsible use of credit.
Section 7. The Legislative Research Commission shall
study the implementation and enforcement of this act including:
(1) Whether the provisions of this act have a
measurable effect on the availability of credit in the
State;
(2) Whether the act is successfully reducing the
predatory lending practices proscribed by the act; and
(3) Whether there are specific circumstances in
which consumers would benefit from permitting a lender to
finance credit insurance premiums, which practice is
prohibited by G.S. 24-10.2(b).
The Commission shall report their findings and
recommendations on the issue of financing credit insurance
premiums to the 2000 Regular Session of the 1999 General
Assembly. The Commission may report their findings and
recommendations to the 2001 General Assembly and shall make a
final report to the 2002 Regular Session of the 2001 General
Assembly.
Section 8. Section 2 of this act and G.S. 24-10.2(b),
as enacted in Section 5 of this act, become effective July 1,
2000, and apply to loans made or entered into on or after that
date. Section 6 of this act becomes effective July 1, 1999.
Section 7 of this act is effective when this act becomes law.
The remainder of this act becomes effective October 1, 1999, and
applies to loans made or entered into, payments deferred, and
loans modified, renewed, extended, or amended on or after that
date.
In the General Assembly read three times and ratified
this the 15th day of July, 1999.
s/ Dennis A. Wicker
President of the Senate
s/ James B. Black
Speaker of the House of Representatives
s/ James B. Hunt, Jr.
Governor
Approved 10:35 a.m. this 22nd day of July, 1999