§ 24-1.1F. Rate spread home loans. - North Carolina Statutes

§ 24‑1.1F.  Rate spreadhome loans.

(a)        Definitions. – Thefollowing definitions apply for purposes of this section:

(1)        Annual percentagerate. – The annual percentage rate for the loan calculated according to theprovisions of the federal Truth‑in‑Lending Act (15 U.S.C. § 1601,et seq.) and the regulations promulgated thereunder by the Federal ReserveBoard, as that Act and regulations are amended from time to time.

(2)        Average prime offerrate. – An annual percentage rate published by the Federal Reserve Board andthat is derived from average interest rates, points, and other loan pricingterms currently offered to consumers by a representative sample of creditorsfor mortgage transactions that have low‑risk pricing characteristics.

(3)        Repealed by SessionLaws 2009‑457, s. 2, effective October 1, 2009.

(4)        Mortgage broker. – Amortgage broker as defined in G.S. 53‑243.01.

(5),(6)  Repealed by SessionLaws 2009‑457, s. 2, effective October 1, 2009.

(7)        Rate spread homeloan. – A loan in which all the following apply:

a.         The loan is not (i)an equity line of credit as defined in G.S. 24‑9, (ii) a constructionloan as defined in G.S. 24‑10, (iii) a reverse mortgage transaction, or(iv) a bridge loan with a term of 12 months or less, such as a loan to purchasea new dwelling where the borrower plans to sell a current dwelling within 12months.

b.         The borrower is anatural person.

c.         The debt is incurredby the borrower primarily for personal, family, or household purposes.

d.         The principal amountof the loan does not exceed the conforming loan size limit for a single‑familydwelling as established from time to time by Fannie Mae.

e.         The loan is securedby (i) a security interest in a manufactured home, as defined in G.S. 143‑145,in the State which is or will be occupied by the borrower as the borrower'sprincipal dwelling, (ii) a mortgage or deed of trust on real property in theState upon which there is located an existing structure designed principallyfor occupancy of from one to four families that is or will be occupied by theborrower as the borrower's principal dwelling, or (iii) a mortgage or deed oftrust on real property in the State upon which there is to be constructed usingthe loan proceeds a structure or structures designed principally for occupancy offrom one to four families which, when completed, will be occupied by theborrower as the borrower's principal dwelling.

f.          The loan's annualpercentage rate exceeds each of the following:

1.         The average primeoffer rate for a comparable transaction as of the date the interest rate forthe loan is set by (i) one and one‑half percentage points (1.5%) or more,if the loan is secured by a first lien mortgage or deed of trust or (ii) threeand one‑half percentage points (3.5%) or more, if the loan is secured bya subordinate lien mortgage or deed of trust.

2.         The conventionalmortgage rate by (i) one and three‑quarters percentage points (1.75%) ormore, if the loan is secured by a first lien mortgage or deed of trust, or (ii)three and three‑quarters percentage points (3.75%) or more, if the loanis secured by a subordinate lien mortgage or deed of trust. For purposes ofthis calculation, the "conventional mortgage rate" means the mostrecent daily contract interest rate on commitments for fixed‑rate firstmortgages published by the Board of Governors of the Federal Reserve System inits Statistical Release H. 15, or any publication that may supersede it, duringthe week preceding the week in which the interest rate for the loan is set.

3.         The yield on U.S.Treasury securities having comparable periods of maturity by (i) threepercentage points (3%) or more, if the loan is secured by a first lien mortgageor deed of trust, or (ii) five percentage points (5%) or more, if the loan issecured by a subordinate lien mortgage or deed of trust. Without regard towhether the loan is subject to or reportable under the provisions of the HomeMortgage Disclosure Act 12 U.S.C. § 2801, et seq. (HMDA), the differencebetween the annual percentage rate and the yield on Treasury securities havingcomparable periods of maturity shall be determined using the same proceduresand calculation methods applicable to loans that are subject to the reportingrequirements of HMDA, as those procedures and calculation methods are amendedfrom time to time, provided that the yield on Treasury securities shall bedetermined as of the fifteenth day of the month prior to the application forthe loan.

(b)        No prepayment feesor penalties shall be charged or collected on a rate spread home loan.

(c)        No lender shallmake a rate spread home loan to a borrower based on the value of the borrower'scollateral without due regard to the borrower's repayment ability as ofconsummation, including the borrower's current and reasonably expected income,employment, assets other than the collateral, current obligations, and mortgage‑relatedobligations. Without regard to whether the loan is a "higher‑pricedmortgage loan" as defined in section 226.35 of Title 12 of the Code ofFederal Regulations, the methodology and standards for the determination of aborrower's repayment ability set forth in section 226.34(a)(4) of Title 12 ofthe Code of Federal Regulations and the related Federal Reserve Board'sOfficial Staff Commentary on Regulation Z, as the regulation and commentary maybe amended from time to time, shall be applied to determine a lender'scompliance with this requirement.

(d)        The making of arate spread home loan which violates subsection (b) or (c) of this section ishereby declared usurious in violation of the provisions of this Chapter. Inaddition, any prepayment penalty in violation of this section shall beunenforceable. However, a borrower shall not be entitled to recover twice forthe same wrong. The Attorney General, the Commissioner of Banks, or any partyto a rate spread home loan may enforce the provisions of this section. Thissection establishes specific consumer protections in rate spread home loans inaddition to other consumer protections that may be otherwise available by law.A mortgage broker who brokers a rate spread home loan that violates theprovisions of this section shall be jointly and severally liable with thelender.

(e)        The provisions ofthis section shall apply to any person who in bad faith attempts to avoid theapplication of this section by (i) dividing any loan transaction into separateparts for the purpose and with the intent of evading the provisions of thissection, or (ii) any other such subterfuge.

(f)         A lender in a ratespread home loan who, when acting in good faith, fails to comply with thissection, will not be deemed to have violated this section if the lenderestablishes that either:

(1)        Within 90 days ofthe loan closing and prior to the institution of any action against the lenderunder this section, the borrower was notified of the compliance failure, thelender tendered appropriate restitution, the lender offered, at the borrower'soption, either to (i) make the rate spread home loan comply with subsection (b)or (c), or (ii) change the terms of the loan in a manner beneficial to theborrower so that the loan will no longer be considered a rate spread home loansubject to the provisions of this section, and within a reasonable period oftime following the borrower's election of remedies, the lender took appropriateaction based on the borrower's choice; or

(2)        The compliancefailure was not intentional and resulted from a bona fide error notwithstandingthe maintenance of procedures reasonably adopted to avoid such errors, andwithin 120 days after the discovery of the compliance failure and prior to theinstitution of any action against the lender under this section or the lender'sreceipt of written notice of the compliance failure, the borrower was notifiedof the compliance failure, the lender tendered appropriate restitution, thelender offered, at the borrower's option, either to (i) make the rate spreadhome loan comply with subsection (b) or (c) of this section, or (ii) change theterms of the loan in a manner beneficial to the borrower so that the loan willno longer be considered a rate spread home loan subject to the provisions ofthis section, and within a reasonable period of time following the borrower'selection of remedies, the lender took appropriate action based on theborrower's choice. Examples of a bona fide error include clerical, calculation,computer malfunction and programming, and printing errors. An error of legaljudgment with respect to a person's obligations under this section is not abona fide error.

(g)        The provisions ofthis section shall be severable, and if any phrase, clause, sentence, orprovision is declared to be invalid or is preempted by federal law orregulation, the validity of the remainder of this section shall not be affectedthereby.  (2007‑352,s. 4; 2008‑228, s. 16; 2009‑457, s. 2.)