We have received numerous questions regarding changes to the North Carolina High-Cost Home Loan law ("NCHCHL"), effective October 1, 2008. As a result of these recent amendments to the NCHCHL law, there is uncertainly whether certain fees that had previously been excluded from the definition of "points and fees" under the NCHCHL law must now be treated as "points and fees" under the NCHCHL law. For the reasons stated below, we believe that with very limited exceptions, these recent amendments have not greatly expanded the definition of "points and fees" under the NCHCHL law.
Some background information is necessary. Effective January 1, 2008, the NCHCHL law was amended by Session Law 2007-352 to include all compensation paid to a mortgage broker as a point and fee, regardless of the source of the payment. Prior to the amendment, North Carolina G.S. Section 24-1.1E(a)(5) read in relevant part as follows (emphasis added):
(5) "Points and fees" is defined as provided in this subdivision.
a. The term includes all of the following:
.....
3. All compensation paid directly by the borrower to a mortgage broker not otherwise included in sub-subdivision a.1 or a.2 of this subdivision.
After the NCHCHL law was amended January 1, 2008, that same subdivision read as follows:
(5) "Points and fees" is defined as provided in this subdivision.
a. The term includes all of the following:
.....
3. To the extent not otherwise included in sub-subdivision a.1 or a.2 of this subdivision, all compensation paid from any source to a mortgage broker, including compensation paid to a mortgage broker in a table-funded transaction. A bona fide sale of a loan in the secondary mortgage market shall not be considered a table-funded transaction, and a table-funded transaction shall not be considered a secondary market transaction.
The change in the law was designed principally to capture yield spread premiums and other lender-paid compensation to a mortgage broker as a "point and fee" for purposes of the NCHCHL law. Prior to January 1, 2008, the forms of lender-paid compensation were excluded because they were not "paid directly by the borrower" to the mortgage broker.
Not too long thereafter, the North Carolina legislature once again amended the NCHCHL law (Session Law 2008-227), this time amending the definition of "threshold" contained in North Carolina G.S. Section 24-1.1E(a)(6). Prior to the amendment, North Carolina G.S. Section 24-1.1E(a)(6) read in relevant part as follows (emphasis added):
(6) "Threshold" means:
...
(b) The total points and fees payable by the borrower at or before the loan closing exceed five percent (5%) of the total loan amount if the total loan amount is twenty thousand dollars ($20,000) or more, or (ii) the lesser of eight percent (8%) of the total loan amount or one thousand dollars ($1,000), if the total loan amount is less than twenty thousand dollars ($20,000);...
After the NCHCHL law was amended, that same subdivision read as follows:
(6) "Threshold" means:
...
(b) The total points and fees, as defined in G.S 24.1.1E(a)(5), exceed five percent (5%) of the total loan amount if the total loan amount is twenty thousand dollars ($20,000) or more, or (ii) the lesser of eight percent (8%) of the total loan amount or one thousand dollars ($1,000), if the total loan amount is less than twenty thousand dollars ($20,000);...
The key phrase deleted from the earlier version of North Carolina G.S. Section 24-1.1E(a)(6), namely "payable by the borrower at or before the loan closing," has created ambiguity as to whether all fees payable by third parties, and whether fees payable subsequent to the loan closing, must now be included as "points and fees" for purposes of the NCHCHL law. Such changes would constitute a radical revision to the NCHCHL law. Fortunately, it is clear that such a radical reworking of the NCHCHL law was not intended by, nor should it be construed to have occurred as a result of, the amendment to North Carolina G.S. Section 24-1.1E(a)(6).
There are a number of indications that the true intent of the North Carolina legislature was not to make major substantive revisions to the NCHCHL law. For example, the preamble to Session Law 2008-227 states that the purpose of the legislation is simply to "make conforming changes in the definition of high cost home loans." In addition, the legislative history is clear that the conforming changes were made to bring the definitions in North Carolina G.S. Section 24-1.1E(a)(5) and North Carolina G.S. Section 24-1.1E(a)(6) into conformity so as to include (principally) lender-paid compensation to a mortgage broker within the definition of "points and fees." Finally, we are aware of a number of opinions from the North Carolina Office of the Commissioner of Banks concurring in the view that the recent revisions to the NCHCHL law were simply conforming language changes made, once again, to clarify that lender-paid compensation to a mortgage broker falls within the definition of "points and fees." Accordingly, we have made no substantive changes to the NCHCHL high cost test within the DocMagic software other than to ensure that all compensation paid to a mortgage broker, including yield spread premiums paid by a lender, are included as points and fees for purposes of the NCHCHL.
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