GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1999

S	1 

SENATE BILL 1149

Short Title:  Prohibit Predatory Lending.	(Public)

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Sponsors: Senator Cooper.

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Referred to:  Judiciary I.

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April 15, 1999

A BILL TO BE ENTITLED
AN ACT TO MODIFY PERMISSIBLE FEES WHICH MAY BE CHARGED IN CONNECTION WITH HOME LOANS SECURED BY FIRST MORTGAGE OR FIRST DEED OF TRUST, TO IMPOSE RESTRICTIONS AND LIMITATIONS ON HIGH COST HOME LOANS, TO REVISE THE PERMISSIBLE FEES AND CHARGES ON CERTAIN LOANS, AND TO PROHIBIT UNFAIR OR DECEPTIVE PRACTICES BY MORTGAGE BROKERS AND LENDERS.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 24-1.1A reads as rewritten:
"§ 24-1.1A. Contract rates on home loans secured by first mortgages or first deeds of trust.
(a)	Notwithstanding any other provision of this Chapter (but subject to the provisions of G.S. 24-1.1E), parties to a home loan may contract in writing as follows:
(1)	Where the principal amount is ten thousand dollars ($10,000) or more the parties may contract for the payment of interest as agreed upon by the parties;
(2)	Where the principal amount is less than ten thousand dollars ($10,000) the parties may contract for the payment of interest as agreed upon by the parties, if the lender is either (i) approved as a mortgagee by the Secretary of Housing and Urban Development, the Federal Housing Administration, the Department of Veterans Affairs, a national mortgage association or any federal agency; or (ii) a local or foreign bank, savings and loan association or service corporation wholly owned by one or more savings and loan associations and permitted by law to make home loans, credit union or insurance company; or (iii) a State or federal agency;
(3)	Where the principal amount is less than ten thousand dollars ($10,000) and the lender is not a lender described in the preceding subdivision (2) the parties may contract for the payment of interest not in excess of sixteen percent (16%) per annum.
(4)	Notwithstanding any other provision of law, where the lender is an affiliate operating in the same office or subsidiary operating in the same office of a licensee under the North Carolina Consumer Finance Act, the lender may charge interest to be computed only on the following basis: monthly on the outstanding principal balance at a rate not to exceed the rate provided in this subdivision.
		On the fifteenth day of each month, the Commissioner of Banks shall announce and publish the maximum rate of interest permitted by this subdivision. Such rate shall be the latest published noncompetitive rate for U.S. Treasury bills with a six-month maturity as of the fifteenth day of the month plus six percent (6%), rounded upward or downward, as the case may be, to the nearest one-half of one percent (1/2 of 1%) or fifteen percent (15%), whichever is greater. If there is no nearest one-half of one percent (1/2 of 1%), the Commissioner shall round downward to the lower one-half of one percent (1/2 of 1%). The rate so announced shall be the maximum rate permitted for the term of loans made under this section during the following calendar month when the parties to such loans have agreed that the rate of interest to be charged by the lender and paid by the borrower shall not vary or be adjusted during the term of the loan. The parties to a loan made under this section may agree to a rate of interest which shall vary or be adjusted during the term of the loan in which case the maximum rate of interest permitted on such loans during a month during the term of the loan shall be the rate announced by the Commissioner in the preceding calendar month.
		An affiliate operating in the same office or subsidiary operating in the same office of a licensee under the North Carolina Consumer Finance Act may not make a home loan for a term in excess of six (6) months which provides for a balloon payment.  For purposes of this subdivision, a balloon payment means any scheduled payment that is more than twice as large as the average of earlier scheduled payments.  This subsection does not apply to equity lines of credit as defined in G.S. 45-81.
 	(b)	(1)	Except as provided in subdivision (2) of the subsection (b), a lender and a borrower may agree on any terms as to the prepayment of a home loan.
(2)	No prepayment fees or penalties shall be contracted by the borrower and lender with respect to any home loan in which: (i) the borrower is a natural person, (ii) the debt is incurred by the borrower primarily for personal, family, or household purposes; and (iii) the loan is secured by a first mortgage or first deed of trust on real estate upon which there is located or there is to be located a structure or structures designed principally for occupancy of from one to four families which is or will be occupied by the borrower as the borrower's principal dwelling.
		The limitations on prepayment fees and penalties contained in this subdivision (b)(2) shall not apply to the extent state law limitations on prepayment fees and penalties are preempted by federal law or regulation.
	(c)	(1)	If the home loan is one described in subsection (a)(1) or subsection (a)(2) above, the lender may charge the borrower the following fees and charges in addition to interest and other fees and charges as permitted in this section and late payment charges as permitted in G.S. 24-10.1:
a.	At or before loan closing, the lender may charge such of the following fees and charges as may be agreed upon by the parties notwithstanding the provisions of any state law (other than G.S. 24-1.1E) limiting the amount of such fees or charges:
1.	Loan application, origination, and commitment fees;
2.	Discount points, but only to the extent such discount points are paid for the purpose of reducing, and in fact result in a bona fide reduction of the interest rate or time-price differential;
3.	Assumption fees to the extent permitted by G.S. 24-10(d);
4.	Appraisal fees to the extent permitted by G.S. 24-10(h);
5.	Sums for the payment of bona fide loan-related goods, products and services provided or to be provided by third parties and sums for the payment of taxes, filing fees, recording fees and other charges and fees paid or to be paid to public officials to the extent permitted by G.S. 24-8(d); and
6.	Additional fees and charges payable to the lender which, in the aggregate, do not exceed the greater of (i) one quarter of one percent (.25%) of the principal amount of the loan, or (ii) one hundred fifty dollars ($150.00).  The fees and charges permitted by this subdivision (f) may be charged only by those lenders identified in subdivision (a)(2) of this section, without regard to the loan amount.
b.	Except as provided in subsection (g) of this section with respect to the deferral of loan payments, upon modification, renewal, extension, or amendment of any of the terms of a home loan, the lender may charge such of the following fees and charges as may be agreed upon by the parties notwithstanding the provisions of any State law (other than G.S. 24-1.1E) limiting the amount of such fees or charges:
1.	Discount points, but only to the extent such discount points are paid for the purpose of reducing, and in fact result in a bona fide reduction of, the interest rate or time-price differential;
2.	Assumption fees to the extent permitted by G.S. 24-10(d);
3.	Appraisal fees to the extent permitted by G.S. 24-10(h);
4.	Sums for the payment of bona fide loan-related goods, products, and services provided or to be provided by third parties and sums for the payment of taxes, filing fees, recording fees, and other charges and fees paid or to be paid to public officials to the extent permitted by G.S. 24-8(d); and
5.	Additional fees and charges payable to the lender which, in the aggregate, do not exceed the greater of (i) one quarter of one percent(.25%) of the balance outstanding at the time of the modification, renewal, extension, or amendment of terms, or (ii) one hundred fifty dollars ($150.00). The fees and charges permitted by this subdivision (e) may be charged (i) only pursuant to a written agreement made at the time of the modification, renewal, extension, or amendment, and (ii) only by those lenders identified in subsection (a)(2) of this section, without regard to the loan amount.
(2)	No lender on home loans under G.S. 24-1.1A(a)(3) may charge or receive any interest, fees, charges, or discount points other than: (i) sums for the payment of bona fide loan-related goods, products, and services provided or to be provided  by third parties and sums for the payment of taxes, filing fees, recording fees, and other charges and fees, paid or to be paid to public officials to the extent permitted by G.S. 24-8(d); (ii) interest as permitted in G.S. 24-1.1A(a)(3); and (iii) late payment charges to the extent permitted by G.S. 24-10.1.
(3)	No lender on home loans under G.S. 24-1.1(a)(4) may charge or receive any interest, fees, charges, or discount points other than: (i) the fees described in G.S. 24-10; (ii) sums for the payment of bona fide loan-related goods, products, and services provided or to be provided by third parties and sums for the payment of taxes, filing fees, recording fees and other charges and fees, paid or to be paid to public officials to the extent permitted by G.S. 24-8(d); (iii) interest as permitted in G.S. 24-1.1A(a)(4); and (iv) late payment charges to the extent permitted by G.S. 24-10.1.
	(d)	The loan or investments regulated by G.S. 53-45 shall not be subject to the provisions of this section.
(e)	The term "home loan"shall mean a loan (other than an open-end credit plan) where the principal amount is less than three hundred thousand dollars ($300,000) secured by a first mortgage or first deed of trust on real estate upon which there is located or there is to be located one or more single-family dwellings or dwelling units.
(f)	Any home loan obligation existing before June 13, 1977, shall be construed with regard to the law existing at the time the home loan or commitment to lend was made and this act shall only apply to home loans or loan commitments made from and after June 13, 1977; provided, however, that variable rate home loan obligations executed prior to April 3, 1974, which by their terms provide that the interest rate shall be decreased and may be increased in accordance with a stated cost of money formula or other index shall be enforceable according to the terms and tenor of said written obligations.
(g)	The parties to a home loan governed by G.S. 24-1.1A(a) (1) or (2) may contract in writing to defer the payment of all or part of one or more unpaid installments and for payment of interest on deferred interest as agreed upon by the parties. The parties may agree in writing that deferred interest may be added to the principal balance of the loan. This subsection shall not be construed to limit payment of interest upon interest in connection with other types of loans.  The lender may charge deferral fees as may be agreed upon by parties to defer the payment of all or part of one or more unpaid installments.  If the home loan is of a type described in subsection (b)(2) of this section, the deferral fees shall be subject to the following limitations:
(1)	Deferral fees may be charged only pursuant to a written agreement made at the time of the deferral.
(2)	Deferral fees may not exceed the greater of:
a.	Five percent (5%) of each installment (or part thereof) deferred, multiplied by the number of months in the deferral period (the period in which no payment is required or made by reason of the deferral as measured from the date on which the deferred installment (or part thereof) would otherwise have been payable to the date the next installment (or part thereof) is payable under the terms of the deferral agreement), or
b.	Fifty dollars ($50.00) multiplied by the number of months in the deferral period (the period in which no payment is required or made by reason of the deferral as measured from the date on which the deferred installment (or part thereof) would otherwise have been payable to the date the next installment (or part thereof) is payable under the terms of the deferral agreement).
(3)	If a deferral fee has once been imposed with respect to a particular installment (or part thereof), no deferral fee may be imposed with respect to any future payment which would have been timely and sufficient but for the previous deferral.
(4)	If a deferral fee is charged pursuant to a deferral agreement, a late charge may be imposed with respect to the deferred payment only if the amount deferred is not paid when due under the terms of the deferral agreement and no new deferral agreement is entered into with respect to that installment.
(5)	No lender may charge a deferral fee for modifying or extending the maturity date of a loan or the date a balloon payment is due; provided, however, that any such modification or extension of the loan maturity date or the date a balloon payment is due shall, to the extend applicable, be considered a modification or extension subject to the provisions of subsection (c)(1)(ii) of this section.
(h)	The parties to a home loan governed by G.S. 24-1.1A(a) (1) or (2) may agree in writing to a mortgage or deed of trust which provides that periodic payments may be graduated during parts of or over the entire term of the loan. The parties to such a loan may also agree in writing to a mortgage or deed of trust which provides that periodic disbursements of part of the loan proceeds may be made by the lender over a period of time agreed upon by the parties, or over a period of time agreed upon by the parties ending with the death of the borrower(s). Such mortgages or deeds of trust may include provisions for adding deferred interest to principal or otherwise providing for charging of interest on deferred interest as agreed upon by the parties. This subsection shall not be construed to limit other types of mortgages or deeds of trust or methods or plans of disbursement or repayment of loans that may be agreed upon by the parties.
(i)	Nothing in this section shall be construed to authorize or prohibit a lender, a borrower, or any other party to pay compensation to a mortgage broker or a mortgage banker for services provided by the mortgage broker or the mortgage banker in connection with a home loan."
Section 2.  Chapter 24 of the General Statutes is amended by adding a new section to read:
"§ 24-1.1E.  Restrictions and limitations on high cost home loans.
(a)	Definitions.  The following definitions apply for the purposes of this section:
(1)	'Affiliate' means any company that controls, is controlled by, or is under control with another company, as set forth in the Bank Holding Company Act of 1956 (12 U.S.C. § 1841 et seq.), as amended from time to time.
(2)	'Annual percentage rate' means the annual percentage rate for the loan calculated according to the provisions of the federal Truth-in-Lending Act (15 U.S.C. § 1601, et seq.), and the regulations promulgated thereunder by the Federal Reserve Board (as said Act and regulations are amended from time to time.
(3)	'Bona fide loan discount points' are loan discount points paid for the purpose of reducing, and which in fact result in a bona fide reduction of, the interest rate or time-price differential applicable to the loan, provided (i) the interest rate from which the loan's interest rate will be discounted does not exceed by more than one percentage point (1%) the required net yield for a 90-day standard mandatory delivery commitment for a comparable loan from either the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, whichever is greater, and (ii) the amount of the interest rate reduction purchased by the discount points is reasonably consistent with established industry norms and practices for secondary mortgage market transactions.
(4)	A 'high cost home loan' is a loan other than an open-end credit plan or a reverse mortgage transaction in which:
a.	The principal amount of the loan does not exceed the lesser of (i) the conforming loan size limit for a single family dwelling as established from time to time by the Federal National Mortgage Association, or (ii) three hundred thousand dollars ($300,000;)
b.	The borrower is a natural person;
c.	The debt is incurred by the borrower primarily for personal, family, or household purposes;
d.	The loan is secured by a mortgage or deed or trust on real estate upon which there is located or there is to be located a structure or structures designed principally for occupancy of from one to four families; which is or will be occupied by the borrower as the borrower's principal dwelling; and
e.	The terms of the loan exceed one or more of the thresholds described in subsection (b) of this section.
(5)	'Points and fees' means:
a.	All items required to be disclosed under sections 226.4(a) and 226.4(b) of Title 12 of the Code of Federal Regulations, as amended from time to time, except interest or the time price differential;
b.	All charges for items listed under section 226.4(c)(7) of Title 12 of the Code of Federal Regulations, as amended from time to time (other than amounts held for future payment of taxes) unless the charge is reasonable, the lender receives no direct or indirect compensation in connection with the charge, and the charge is not paid to an affiliate of the lender;
c.	All compensation paid directly by the borrower to a mortgage broker not otherwise included in subsection (a) or (b) above;
d.	All insurance premiums financed by the lender as ;part of the loan transaction other than insurance premiums for fire, casualty, title, flood, or private mortgage insurance related to the loan transaction; provided that insurance premiums calculated and paid on a monthly or other regular, periodic basis shall not be considered financed as part of the loan transaction; and
e.	The maximum prepayment fees and penalties which may be charged or collected under the terms of the loan documents.
(b)	Thresholds.  A loan will not be considered a high cost home loan unless:
(1)	The loan is secured by a first mortgage or first deed of trust on the borrower's principal dwelling, the borrower's principal dwelling which will secure repayment of the loan is not or does not include (or will not be or will not include) a manufactured home as defined in G.S. 143-145(7), and the annual percentage rate at consummation will exceed by more than eight percentage points (8%) the weekly average yield on United States Treasury securities adjusted to a constant maturity of five years (as made available by the federal reserve board) as of the week immediately preceding the week in which the interest rate for the loan is established; or
(2)	The loan is secured by a first mortgage or first deed of trust on the borrower's principal dwelling, the borrower's principal dwelling which will secure repayment of the loan is or includes (or will be or will include) a manufactured home as defined in G.S. 143-145(7), and the annual percentage rate at consummation will exceed by more than nine percentage points (9%) the weekly average yield on United States Treasury securities adjusted to a constant maturity of five years (as made available by the Federal Reserve Board) as of the week immediately preceding the week in which the interest rate for the loan is established; or
(3)	The loan is secured by a second or subordinate mortgage or a second or subordinate deed of trust on the borrower's principal dwelling, and the annual percentage rate at consummation will exceed by more than nine percentage points (9%) the weekly average yield on United States Treasury securities adjusted to a constant maturity of five years (as made available by the Federal Reserve Board) as of the week immediately preceding the week in which the interest rate for the loan is established; or
(4)	The loan documents permit the lender to charge or collect prepayment fees or penalties more than two years after loan closing or which exceed, in the aggregate, more than two percent (2%) of the amount prepaid; or
(5)	The lender finances any prepayment fees or penalties payable by the borrower in a refinancing transaction if the lender or an affiliate of the lender is the noteholder of the note being refinanced; or
(6)	The total points and fees payable by the borrower at or before loan closing exceed five percent (5%) of the principal amount of the loan; provided, up to and including two bona fide loan discount points payable by the borrower in connection with the loan transaction shall be excluded from the calculation of the total points and fees payable by the borrower.
(c)	Limitations.  A high cost home loan shall be subject to the following limitations:
(1)	No call provision.  No high cost home loan may contain a call provision which permits the lender, in its sole discretion, to accelerate the indebtedness.  This provision does not apply when repayment of the loan has been accelerated by default, pursuant to a due-on-sale provision, or pursuant to some other provision of the loan documents unrelated to the payment schedule.
(2)	No balloon payment.  No high cost loan may contain a scheduled payment that is more than twice as large as the average of earlier scheduled payments.  This provision does not apply when the payment schedule is adjusted to the seasonal or irregular income of the borrower.
(3)	No negative amortization.  No high cost home loan may contain a payment schedule with regular periodic payments that cause the principal balance to increase.
(4)	No increased interest rate.  No high cost home loan may contain a provision which increases the interest rate after default.  This provision does not apply to interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan documents, provided the change in the interest rate is not triggered by the event of default or the acceleration of the indebtedness.
(5)	No oppressive mandatory arbitration clause.  No high cost home loan may be subject to a mandatory arbitration clause which is oppressive, unfair, unconscionable, or substantially in derogation of the rights of consumers.  A mandatory arbitration clause shall be presumed to be unfair or oppressive if it limits legal remedies generally available to consumers, limits the right of the borrower to seek relief through the judicial process without a corresponding restriction on the lender's right to judicial relief, and imposes terms which unreasonably favor the lender as a result of a gross disparity in bargaining power between the borrower and the lender.
(6)	No advance payments.  No high cost home loan may include terms under which more than two periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower.
(7)	No modification or deferral fees.  A lender may not charge a borrower any fees to modify, renew, extend, or amend a high cost home loan or to defer any payment due under the terms of a high cost home loan.
(d)	Prohibited acts and practices.  The following acts and practices are prohibited in the making of a high cost home loan:
(1)	No lending without home-ownership counseling.  A lender may not make a high cost loan without first receiving certification from a home-ownership counselor approved by the Department of Housing and Urban Development that the borrower has received counseling on the advisability of the loan transaction and the appropriate loan for the borrower.
(2)	No lending without due regard to repayment ability.  As used in this subsection, the term 'obligor' refers to each borrower, co-borrower, co-signer, or guarantor obligated to repay a loan.  A lender may not make a high cost home loan unless the lender reasonably believes at the time the loan is consummated that one or more of the obligors (when considered individually or collectively) will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources (other than the borrower's equity in the dwelling which secures repayment of the loan).  An obligor shall be presumed to be able to make the scheduled payments to repay the obligation if, at the time the loan is consummated, the obligor's total monthly debts (including amounts owed under the loan) do not exceed fifty percent (50%) of the obligor's monthly gross income as verified by the credit application, the obligor's financial statement, a credit report, financial information provided to the lender by or on behalf of the obligor, or any other reasonable means.
(3)	No financing of fees or charges.  In making a high cost home loan, a lender may not directly or indirectly finance (i) points and fees, or (ii) any charges payable to third parties.  In making a high cost home loan, a lender may not directly or indirectly finance any prepayment fees or penalties payable by the borrower in a refinancing transaction if the lender or an affiliate of the lender is the noteholder of the note being refinanced.
(4)	No benefit from refinancing existing high cost home loan with new high cost home loan.  A lender may not charge a borrower points and fees in connection with a high cost home loan if the proceeds of the high cost home loan are used to refinance an existing high cost home loan held by the same lender as noteholder.
(5)	Restrictions on home-improvement contracts.  A lender may not pay a contractor under a home-improvement contract from the proceeds of a high cost home loan other than (i) by an instrument payable to the borrower or jointly to the borrower and the contractor, or (ii) at the election of the borrower, through a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender, and the contractor prior to the disbursement.
(e)	Unfair and deceptive acts or practices.  The making of a high cost home loan which violates any provision of subsection (c) or (d) of this section is hereby declared usurious in violation of the provisions of this Chapter and unlawful as an unfair or deceptive act or practice in or affecting commerce in violation of the provisions of G.S. 75-1.1.  The provisions of this section shall apply to any person who seeks to avoid its application by any device, subterfuge, or pretense whatsoever including, but not limited to, (i) structuring a loan transaction as an open-end credit plan for the purpose and with the intent of evading the provisions of this section when the loan would have been a high cost home loan if the loan had been structured as a closed-end loan, or (ii) dividing any loan transaction into separate parts for the purpose of or with the effect of evading the provisions of this section.  The Attorney General, the Commissioner of Banks, or any party to a high cost home loan may enforce the provisions of this section.
(f)	Severability.  The provisions of this section shall be severable, and if any phrase, clause, sentence, or provision is declared to be invalid or is preempted by federal law or regulation, the validity of the remainder of this section shall not be affected thereby.  If any provision of this section is declared to be inapplicable to any specific category, type, or kind of points and fees, the provisions of this section shall nonetheless continue to apply with respect to all other points and fees.
(g)	Applicability.  This section shall apply to loans made or entered into after the effective date of this section.
Section 3.  Chapter 24 of the General Statutes is amended by adding a new section to read:
"§ 24-2.5.  Mortgage Bankers and Mortgage Brokers.
A mortgage broker or a mortgage banker originating a loan in a table-funded loan transaction in which the mortgage broker or mortgage banker is identified as the original payee of the note shall be considered a lender for purposes of this Chapter."
Section 4.  G.S. 24-8 reads as rewritten:
"§ 24-8.  Loans not in excess of $300,000; what interest, fees and charges permitted.
"(a)	If the principal amount of a loan is less than three hundred thousand dollars ($300,000), no lender shall charge or receive from any borrower or require in connection with any loan any borrower, directly or indirectly, to pay, deliver, transfer, or convey or otherwise confer upon or for the benefit of the lender or any other person, firm, or corporation any sum of money, thing of value or other consideration other than that which is pledged as security or collateral to secure the repayment of the full principal of the loan, together with fees and interest provided for in this Chapter, Chapter 25A, or Chapter 53 of the North Carolina General Statutes.
(b)	Notwithstanding any contrary provision of State law, if the principal amount of a loan is three hundred thousand dollars ($300,000) or more, any borrower may agree to pay, and any lender or other person may charge and collect from the borrower, interest, fees, and other charges as may be agreed upon between the parties, and the borrower and anyone claiming by or through the borrower is prohibited from asserting usury as a claim or defense.
(c)	The provisions of this section shall not prevent a borrower from selling, transferring, or conveying property other than security or collateral to any person, firm, or corporation for a fair consideration so long as such transaction is not made a condition or requirement for any loan.
(d)	Notwithstanding any contrary provision of State law, any lender may collect money from the borrower for the payment of (i) bona fide loan-related goods, products, and services provided or to be provided by third parties, and (ii) taxes, filing fees, recording fees, and other charges and fees paid or to be paid to public officials.  No third party shall charge or receive (i) any unreasonable compensation for loan-related goods, products, and services, or (ii) any compensation for which no loan-related goods and products are provided or for which no or only nominal loan-related services are performed.  Examples of loan-related goods, products, and services include the following:  fees for tax payment services; fees for flood certification; fees for pest-infestation determinations; mortgage brokers' fees; appraisal fees; inspection fees; environmental assessment fees; fees for credit report services; assessments; costs of upkeep; surveys; attorneys' fees; notary fees; escrow charges; and insurance premiums (including, for example, fire, title, life, accident, and health, disability, unemployment, flood, and mortgage insurance).
(e)	Notwithstanding any contrary provision of State law, any lender may receive the proceeds from any insurance policies where loss occurs under the terms of such policies.
(f)	This section shall not be applicable to any corporation licensed as a 'Small Business Investment Company' under the provisions of the United States Code Annotated, Title 15, section 66, et seq., nor shall it be applicable to the sale or purchase of convertible debentures, nor to the sale or purchase of any debt security with accompanying warrants, nor to the sale or purchase of other securities through an organized securities exchange."
Section 5.  Chapter 75 of the General Statutes is amended by adding a new Article to read:
"ARTICLE 4.
"Unfair Mortgage Brokering and Lending Practices.
"§ 75-90.  Purpose and construction.
Home ownership and the preservation of equity in homesteads are vital to the economic and social welfare of North Carolina citizens and their communities.  The General Assembly declares that regulation of certain mortgage brokering and lending practices is in the best interests of North Carolina homeowners and in the best interests of ethical mortgage lenders and brokers, and will further free and fair competition in real estate lending in this State.  This Article shall be construed to protect homeowners from unfair or deceptive mortgage brokering and lending practices.
"§ 75-91.  Definitions.
The following definitions apply in this Article:
(1)	'Mortgage broker' means a person or entity (other than a mortgage lender and the employees of a mortgage lender working in their capacity as employees of a mortgage lender) in the business of soliciting, processing, placing, or negotiating mortgage loans for others or offering to process, place, or negotiate mortgage loans for others.
(2)	'Mortgage lender' means a person or entity who or which for compensation or gain, either directly or indirectly, advances funds, offers to advance funds, or makes a commitment to advance funds to an applicant for a mortgage loan.
(3)	'Mortgage loan' means a loan or other extension of credit to a natural person or persons made primarily for personal, family or household purposes, secured by a mortgage or deed of trust on real estate upon which there is located or there is to be located a structure or structures designed principally for occupancy of from one to four families, which is or will be occupied by the borrower as the borrower's principal dwelling.
(4)	'Unconscionable' means oppressive or totally unreasonable, considering all of the circumstances.
"§ 75-92.  Unfair or deceptive acts or practices by mortgage brokers or lenders prohibited.
No mortgage broker or mortgage lender shall engage in any unfair or deceptive practices in the course of brokering or making mortgage loans to residents of this State.  Such practices include, but are not limited to, the following:
(1)	Brokering or making a mortgage loan which includes points, fees, or other finance charges which, considering the loan transaction as a whole (including the creditworthiness of the borrower, the terms of the loan, the value of the collateral, and the owner's equity in the collateral), so significantly exceed the usual and customary charges incurred by reasonably-informed consumers in this state for such points, fees, or other finance charges as to be unconscionable.
(2)	Brokering or making a mortgage loan in which the broker or lender charges and retains fees paid by the borrower (i) for services  which are not actually performed, or (ii) for which the fees bear no reasonable relationship to the value of the services actually performed, or (iii) which are otherwise unconscionable.
(3)	Brokering or making a mortgage loan with repayment terms that so clearly exceed the borrower's financial capacity to repay as to be unconscionable.  In the case  of any amortizing mortgage loan which calls for substantially equal monthly payments of principal and interest, a loan that requires a borrower with a household income below the area median income, as determined by the U.S. Department of Housing and Urban Development, to make monthly amortizing payments (excluding any balloon payment) in excess of fifty percent (50%) of the borrower's monthly gross income shall be prima facie evidence that the payments exceed the borrower's reasonable capacity to repay.  In the case of any mortgage loan, evidence that the repayment terms exceed the borrower's reasonable capacity to repay may be rebutted by:
a.	A showing that the mortgage broker or mortgage banker reasonably believed at the time the loan was consummated that the borrower and any coborrowers, cosigners, or guarantors collectively had the capacity to repay the loan based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources, including the owner's equity in any dwelling and any other collateral securing repayment of the loan; or
b.	A showing that other compelling circumstances existed which justified the making of the loan notwithstanding the borrower's apparent lack of capacity to repay the loan.
(4)	'Flipping' mortgage loans; that is, brokering or making a mortgage loan to a borrower which refinances an existing mortgage loan when, considering all the circumstances of the refinancing, the refinancing is unconscionable.  This provision shall apply without regard to whether the interest rate, points, fees, and charges paid or payable by the borrower in connection with the refinancing exceed those thresholds specified in G.S. 24-1.1E(b).
(5)	Charging a borrower points, fees, or other charges in connection with the modification, renewal, extension, or amendment of a mortgage loan when the points, fees, and other charges are so excessive as to be unconscionable or are charged so repeatedly as to be unconscionable.  This provision shall apply without regard to whether such points, fees, and other charges paid or payable by the borrower in connection with such modification, renewal, extension, or amendment exceed the usury limitations set forth in Chapter 24 or those thresholds set forth in G.S. 24-1.1E(b).
(6)	'Packing' mortgage loans; that is, the practice of selling credit life, accident and health, disability or unemployment insurance products or unrelated goods or services in conjunction with a mortgage loan without the informed and independent request of the borrower and where:
a.	The broker or lender solicits the sale of such insurance, goods or services;
b.	The broker or lender receives direct or indirect compensation for the sale of such insurance, goods or services; and
c.	The charges for such insurance, goods or services are prepaid with the proceeds of the loan and financed as part of the principal amount of the loan.
	Provided, it shall not constitute the practice of 'packing' if the broker or lender, at least three business days before the loan is closed, makes a separate oral and a separate clear and conspicuous written disclosure to the borrower containing the following information:  (i) the cost of the credit insurance or other goods and services, (ii) the fact that the insurance, goods, or services will be prepaid and financed at the interest rate provided for in the loan, (iii) whether the cost of the insurance, goods, or services significantly exceeds the price of comparable insurance, goods, or services reasonably available to the borrower in a nonloan transaction; and (iv) that the purchase of such insurance, goods or services is not required to obtain the mortgage loan.  Provided further, insurance premiums shall not be considered financed as part of the loan transaction if insurance premiums are calculated, earned, and paid on a monthly or other regular, periodic basis.
(7)	Recommending or encouraging default or further default by a borrower on an existing loan or other debt prior to the closing of a mortgage loan that refinances all or any portion of such existing loan or debt.
"§ 75-93.  Remedies.
A violation of this Article shall constitute a violation of G.S. 75-1.1.  The remedies under this Article shall be in addition to any other rights, authority, or causes of actions otherwise available.
"§ 75-94.  Severability.
The provisions of this Article shall be severable, and if any phrase, clause, sentence, or provision is declared to be invalid or is preempted by federal law or regulation, the validity of the remainder of this section shall not be affected thereby."
Section 6.  This act becomes effective October 1, 1999.