With the passage of Senate Bill 692, which became effective Oct. 1, 2013, the North Carolina High-Cost Home Loan and Rate Spread Home Loan Laws have been amended. The North Carolina High-Cost Home Loan Law has been amended as follows:
►The definition of "points and fees" has been modified with respect to the amount of up-front mortgage insurance premiums collected and paid to the Federal Housing Administration (FHA), funding fees collected and paid to the Veterans Administration (VA), and guaranty fees collected and paid to the U.S. Department of Agriculture (USDA) that may be excluded from points and fees. Effective Oct. 1, 2013, the amount of such fees that may be excluded is no longer subject to a percentage of the total loan amount. In addition, upfront private mortgage insurance (PMI) premiums will no longer be excludable from points and fees. Only upfront fees collected and paid to the FHA, the VA, or the USDA to insure or guarantee a home loan may be excluded, in full, from points and fees.
►The “points and fees” threshold has been increased from four percent to five percent.
The North Carolina Rate Spread Home Loan Law has been amended as follows:
►Amending the definition of such loans to track the definition of a federal higher-priced mortgage loan (HPML) [www.docmagic.com/compliance/wizard/2009/september-2009/hpml-audit].
►The existing limitations and restrictions of rate spread home loans have been eliminated and the following restrictions added:
►A rate spread home loan shall not violate 15 U.S.C. § 1639c(a) [www.law.cornell.edu/uscode/text/15/1639c ] (the ability-to-repay provisions for residential mortgage loans) and any regulations promulgated thereunder; otherwise, the loan shall be declared usurious.
►Any prepayment penalty shall not violate 15 U.S.C. §1639c(c) [www.law.cornell.edu/uscode/text/15/1639c] and any regulations promulgated thereunder; otherwise, the prepayment penalty shall be unenforceable. In other words, the prepayment penalty must comply with the provisions of the Qualified Mortgage Rule [www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-z/#guide].
Lenders originating loans in North Carolina should update their systems accordingly or ensure that their compliance vendors have updates to their North Carolina high-cost test and rate spread home loan audits in place, as of Oct. 1.
Melanie A. Feliciano Esq. is DocMagic Inc.’s chief legal officer and currently serves as editor-in-chief of DocMagic’s electronic compliance newsletter, The Compliance Wizard. She received her JD from the Georgetown University Law Center, and is licensed in California and Texas. She may be reached by phone at (800) 649-1362 or e-mail [email protected]