On August 16, 2007, Governor Mike Easley signed into law the NC Predatory Lending Law, House Bill 1817. This law passed with strong support, and was endorsed by major financial organizations across the state as well as the Coalition for Responsible Lending. The law bans abusive lending practices that have contributed to the current subprime mortgage foreclosure crisis. This new law:
Defines subprime loans and provides new protections. The law uses the Federal Home Mortgage Disclosure Act (HMDA) definition of subprime loans. As of 12/07, loans with an interest rate of 8% or higher would be covered (3% over the comparable Treasury rate). For subprime loans, new protections apply:
- Prohibit prepayment penalties;
- Require underwriting to ensure ability to repay at the fully indexed rate, not the teaser rate; and
- Require verification & documentation of income, putting an end to stated doc or no-doc loans.
Strengthens the 1999 NC Predatory Lending Law by including yield spread premiums (kickbacks to brokers) in the 5% fee trigger for high cost home loans. If a loan is determined to be a high cost home loan, additional protections apply.
Strengthens broker duties included in the 2001 NC Mortgage Broker Licensing Law by closing a loophole in the broker duties to provide borrowers a "reasonably advantageous loan." Previously this duty only applied to loans from lenders with whom the broker regularly did business, even if they were all high cost lenders.
Prohibits the following acts:
- Brokering a subprime adjustable rate loan (ARM) without disclosing to the borrower the terms and costs associated with a fixed rate loan from the same lender at the lowest APR for which they qualify;
- Failing to comply with all applicable federal laws and regulations; and
- Engaging in unfair, misleading, or deceptive advertising.
Gives the NC Commissioner of Banks new authority to ban practices that the Commissioner finds to be "unfair, deceptive, designed to evade the laws of this state, or which are not in the best interest of the borrowing public."
This law is effective January 1, 2008.