Update on Consumer Protections

1. Update on Consumer Protections Presentation of Chris Kukla and Debbie Goldstein 2011 North Carolina Affordable Housing Conference – Housing Works November 2, 2011

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

3. 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

4. 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

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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

11. 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.

12. 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.

13. Activity in NC General Assembly • 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

14. Activity in NC General Assembly • 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.

15. Activity in NC General Assembly • 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.

16. Contact Information Chris Kukla chris.kukla@responsiblelending.org 919-313-8520 Debbie Goldstein debbie.goldstein@responsiblelending.org 919-313-8517