In an apparent effort to correct the confusion brought on by the changes to the North Carolina high-cost home loan law (G.S. Section 24-1.1E) by Session Law 2008-227 (House Bill 2188), which changes precipitated the North Carolina Commissioner of Banks to issue Declaratory Ruling 2008-1, the North Carolina legislature has once again amended the definition of points and fees in high-cost home law to insert a requirement that the charges be "paid by a borrower at or before closing."  See House Bill 1222 (Session Law 2009-457) here.  With this statutory change, it appears that seller-paid Regulation Z Section 226.4(c)(7) charges are not points and fees for purposes of the high-cost home law, even if paid to the lender or lender affiliate and even if the lender otherwise receives a direct or indirect benefit from the payment of the charges.  The determination in Declaratory Ruling 2008-1 with respect to seller-paid mortgage broker fees and prospective seller-paid prepayment penalty fees remain unaffected by these statutory changes and remain points and fees under the high-cost home law. 

Late last year, the North Carolina Commissioner of Banks issued a declaratory ruling regarding the treatment of certain seller-paid points and fees for purposes of the North Carolina high-cost home loan test.  A copy of the Commissioner's declaratory ruling is available here.  The declaratory ruling was issued in response to a letter from the President of the Mortgage Bankers Association of the Carolinas requesting clarification of the treatment of seller-paid points and fees in light of recent statutory changes to the North Carolina high-cost home loan law.  Specifically, House Bill 2188 modified the definition of points and fees by deleting the requirement that points and fees be "payable by the borrower at or before the loan closing."  The ostensible purpose of the change was to ensure that yield spread premiums be included as a point and fee.  However, the definitional change raised additional questions, specifically with respect to whether certain seller-paid items now constituted points and fees for purposes of the North Carolina high-cost home loan law. 

In a well-reasoned analysis, the Commissioner concluded that, despite the statutory change, most seller-paid items did not constitute points and fees under the North Carolina high-cost home loan law.  However, the Commissioner ruled that the following items, if paid by the seller, constituted points and fees: (1) seller-paid Regulation Z Section 226.4(c)(7) charges not specifically excluded under the North Carolina high-cost home loan law if paid to the lender or lender affiliate, or if the lender otherwise receives a direct or indirect benefit from the payment of the charge; (2) seller-paid mortgage broker fees; and (3) prospective seller-paid prepayment penalty fees .

The DocMagic North Carolina high-cost home loan test was modified shortly after the Commissioner issued his declaratory ruling but we were remiss in not publicizing that fact sooner.

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