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

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 forwardbuilds on decade of state, industry, and regulatory victories 2

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 3

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 4

5 NC Lending Protections Mortgage Lending NC General Statutes E and F – 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 E The first state anti-predatory lending law, passed in 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 F – 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 NCs 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 , 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 brokers 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 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 Debbie Goldstein