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Update on Consumer Protections

Presentation of Chris Kukla and Debbie Goldstein

2011 North Carolina Affordable Housing Conference – Housing Works

November 2, 2011

http://www.responsiblelending.org 2

Wall Street Reform and Consumer Protection Act

Includes the creation of the Consumer Financial Protection Bureau

Mortgage protections – Establishes broad protections against abusive mortgages, protecting millions of borrowers moving forward—builds on decade of state, industry, and regulatory victories


CFPB

Independent bureau with single director

Authority includes: Prohibit “unfair, deceptive, or abusive practices” Existing federal consumer financial statutes (i.e. TILA)

Supervision and Enforcement authority: depositories, non-bank mortgage-related lenders, payday lenders, other non-bank providers

Preemption


Mortgage protections

Originator duty of care; compensation; and steering

Ability to repay requirement/QM (rulemaking underway now)

Prepayment penalties; financed credit insurance, and mandatory arbitration

Disclosure reform


NC Lending Protections

Mortgage Lending NC General Statutes 24-1.1E and 24-1.1F – The NC

anti-predatory lending laws, NC Secure and Fair Enforcement Mortgage Licensing

Act – Regulation of mortgage loan originators, general conduct,

NC Consumer Finance Act – Regulation of consumer finance companies, limits on interest rates and fees.

NC Homeowner and Homebuyer Protection Act – Protections against foreclosure rescue scams and scams involving contract for deed sales and lease-option sales.


Anti-Predatory Mortgage Lending Laws

NC General Statute 24-1.1E The first state anti-predatory lending law, passed in

1999. Provides protections for “high-cost loans,” generally:

– Loans with more than 4% in points and fees– Loans with interest rates more than 8% above prime rate

Points and fees include all fees paid to broker, all lender-received fees, and any fee paid to FHA, VA, USDA or GSEs, or up-front private mortgage insurance that exceeds 1.25% of the loan amount.


NC Anti-Predatory Mortgage Lending Laws

NC G.S. 24-1.1F – response to more recent abuses.

Applies to “rate-spread home loans,” which generally track subprime market. Today, a mortgage with an interest rate above 6% on a

first-lien mortgage would trigger additional protections. No prepayment penalties or yield-spread

premiums on rate-spread home loans. Requires lender to assess ability to repay the loan

as defined under federal Regulation Z.


NC SAFE Act – Mortgage Licensing Act

Original law passed in 2001 – first comprehensive state law requiring licensing and regulation of mortgage brokers and mortgage bankers

Federal SAFE Act (2008) required states to enact laws similar to NC’s original law.

Requires licensees to meet minimum requirements, pass test, post bond to enter business.

Requires licensees to complete continuing education.


NC SAFE Act – Mortgage Licensing Act – 2008 Rewrite

Required brokers to find loans “reasonably advantageous to the borrower,”

Imposed duty of loyalty to the borrower, Increased broker surety bond requirements and

minimum net worth requirements, Added mortgage servicer duties (amended later in

other legislation), Gave NCCOB ability to suspend a foreclosure for

up to 60 days if illegal terms suspected/found in loan.


NC Consumer Finance Act

Consumer finance companies licensed under state law.

Allowed to make loans that exceed general usury limit of 8%, with limitations.

Most lenders operate under 53-176, which allows: Interest rates of:

– 30% on first $1,000 balance– 18% on balance between $1,000 and $7,500– 18% on entire balance between $7,500 and $10,000


NC Consumer Finance Act

Fees:– Not to exceed $25 for loans up to $2,500– 1% of loan amount not to exceed $40 for loans above $2,500– Cannot be charged to same customer more than twice per 12-

month period Allows credit insurance NCCOB data show that vast majority of loans under

$3,500 are secured by some form of personal property.– Lender can then require borrower to purchase of insurance

product that pays lender balance owed if collateral is uncollectable.

No deferral fees, modification fees, late fees.


Activity in NC General Assembly

Mortgage bills: Three bills introduced that would have decreased

protections in mortgage lending:– HB 814 (Collins, Stam & Faircloth)/SB 559 (Meredith) would

have allowed mortgage brokers and mortgage lenders to:– Exclude up to 2% in discount points from points and fees

threshold in predatory lending law– Excluded all FHA, VA, USDA, GSE or upfront private mortgage

insurance fees from points and fees threshold– Slashed broker bond requirements, and– Prohibited the NCCOB from denying a license because of a drop

in the broker’s credit score.



– HB 717 (Wray) would have removed requirement that up-front private mortgage insurance premiums be fully refundable to be excluded from points and fees threshold.

All three bills did not meet crossover deadline All parties involved agreed to continuing looking at

issue NCCOB collecting data Study Commission on Modernizing the NC Banking

Code to meet during interim



Consumer Finance Act HB 810 (Steen, Brubaker, Owens, K. Alexander) would

make sweeping changes to the Consumer Finance Act:– Increase maximum loan from $10,000 to $15,000– Allow interest rates of:

– 30% on first $5,000 balance – 24% on balance between $5,000 and $10,000– 18% on balance between $10,000 and $15,000

– Allow late fees, modification fees and deferral fees

House voted 60-54 to pass, Senate showing no signs of moving bill.



Homeowner and Homebuyer Protection Act Original bill (Senator Stein sponsor) passed last session

to protect against foreclosure rescue scams and scams involving contract for deed and lease-option sales.

HB 654 (McCormick, LaRoque) would gut existing protections– Changes definitions to ensure that few, if any, transactions

would be covered– Would eliminate many of the protections enacted last year.– Bill passed the House 66-48, pending in Senate Commerce

Committee.


Contact Information

Chris Kukla

[email protected]

919-313-8520

Debbie Goldstein

[email protected]

919-313-8517

mailto:[email protected]

mailto:[email protected]

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