SB 1216 has two major components. First, it continues the State Home Foreclosure Prevention Project (SHFPP) through May 31, 2013 and expands the program to cover all NC home loans not just subprime loans. Second, it modifies the points & fees trigger for determining if a mortgage is high-cost.
State Home Foreclosure Prevention Project Continued & Expanded
This law continues and expands the State Home Foreclosure Prevention Project (SHFPP), which the NC Office of the Commissioner of Banks (NCCOB) and the NC Administrator of the Courts have administered since November 2008. This program provides free assistance to homeowners who have fallen behind on their mortgage, linking them with housing counselors and others who can work with them to save their homes.
Under this program:
- Homeowners are notified when foreclosure is imminent, at least 45 days before the foreclosure is filed.
- Homeowners receive information about available resources and assistance, including:
- A hotline to access a network of 150 certified housing counselors across the state
- Legal service providers who can review loans or assist with foreclosure defense.
- Mortgage companies file pre-foreclosure information with the Administrative Office of the Courts (AOC), which is maintained and updated in a confidential database available to the NCCOB, the courts, and the mortgage lenders (for their loans).
- The NCCOB is charged with monitoring the progress of loan workouts, and providing assistance when communications break down between housing counselors and mortgage companies. The NCCOB can also extend one time the filing date of a foreclosure proceeding on a primary residence by up to 30 days, if they have reason to determine that a delay would be helpful.
Effective November 1, 2010 this law expanded the reach and impact of SHFPP by:
- Covering all home loans, not just subprime loans made between 2005-2007;
- Extending it through May 31, 2013. It was scheduled to end November 2010; and
- Requiring a $75 pre-foreclosure filing fee, which funds:
- Administrative costs, including the maintenance of the foreclosure database which will enable the tracking of foreclosures and identification of trends (up to $2.2 million or 30% of the total funds collected per year)
Nonprofit housing counseling agencies for their foreclosure prevention counseling services (up to $3.4 million or 40% of yearly funds);
Nonprofit legal service providers for their foreclosure prevention assistance -- negotiating a loan modification or work-out plan, defending homeowners in foreclosure, representing homeowners in bankruptcy, and researching and counseling about the status of their home loan (up to 30% of yearly funds). This legal services funding is not income-restricted.
The NC Housing Trust Fund (any remaining funds at the end of SHFPP are to be directed here).
Points & Fees Triggers in 1999 NC Predatory Lending Law Modified
Effective September 1, 2010, SB 1216 amended portions of our 1999 NC Predatory Mortgage Lending Law by relaxing some restrictions that applied to upfront fees and insurance:
- Upfront fees paid to the Federal Housing Administration, Veterans' Administration, or U.S. Department of Agriculture to insure or guarantee a home loan are not included in the points and fees calculation, to the extent that the fee exceeds 1.25% of the total loan amount, and
- Upfront private mortgage insurance (PMI) are not included in the points and fees calculation, to the extent that the fee exceeds 1.25% of the total loan amount, but only if the product is fully refundable and the refund is automatic upon notice of satisfaction of the mortgage. The legislation also reiterates current federal law where, under a refundable PMI product, the borrower can request a refund when the loan to value (LTV) in the home is below 80% and is automatic when LTV is below 78%.
In exchange for the exclusion of these fees, the points and fees threshold for a high-cost loan was lowered to 4%, from the previous 5%. So effective September 1, 2010 home loans with points and fees above 4% are considered high-cost loans and extra protections apply. These changes give significant protections to consumers while allowing enough room under the points and fees threshold so that FHA, VA and USDA loans can be made.