NC 4 HOUR

In order to meet the deadline for late license renewal, a licensee must submit a renewal application in North Carolina prior to _____, or else he/she will be required to submit an initial licensing application to the NMLS.

dec 31

presumption of the ability to pay

exists if the total monthly debts, including payments due on the home loan, do not exceed 50% of the obligors' monthly gross income

Balloon payments

high-cost loans cannot include a scheduled payment that is more than twice as large as the average of the earlier scheduled payments

"pattern of residential mortgage fraud"

involves five or more mortgage loans which have the same or similar intents, results, accomplices, victims, or methods of commission (N.C.G.S. §14‑118.11(a)(3)). The legislature sought to facilitate prosecutions for mortgage fraud by creating a relatively easy burden of proof for the crime. Actions for fraud usually require proof that the party relying on false information was harmed as a result of his/her reliance on the information. The Residential Mortgage Fraud Act does not require proof of harm. Instead, it simply requires proof that the defendant acted with the intent to deceive or defraud.

No lending without regard to repayment ability

it is a common predatory lending practice to make loans without verifying whether borrowers or others who are obligated to repay the loan, such as co-borrowers or cosigners, have the ability to repay. Unscrupulous lenders and mortgage brokers are willing to make loans without verification of income and employment and without a meaningful assessment of debt-to-income ratios. In extreme cases, lenders have given loans to elderly borrowers on fixed incomes in spite of the fact that monthly payments would exceed their incomes. Under North Carolina law, lenders cannot make a loan without considering and verifying the current and expected income, current financial obligations, and employment status of each borrower, co-borrower, and cosigner who is obligated to repay the loan. A presumption of the ability to pay exists if the total monthly debts, including payments due on the home loan, do not exceed 50% of the obligors' monthly gross income (N.C.G.S. §24-1.1E.(c)(2)). If the total monthly debts do exceed 50% of the borrowers' monthly gross income, this does not necessarily equate to a presumption of the inability to pay, as other factors must be taken into consideration.

Structuring a loan to avoid application of the law

it is illegal to attempt to avoid the provisions of the Anti-Predatory Lending Law by structuring a high-cost, closed-end loan as an open-end credit plan. It is also illegal to divide a loan transaction into separate parts to avoid compliance with the provisions related to high-cost home loans

No shifting of liability

lenders cannot shift liability for any loss or claim to the closing agent or closing attorney. This provision is intended to ensure that prior to funding a loan, lenders seek to determine if the loan is a high-cost home loan and, if so, whether it is made within the limitations prescribed by the law (N.C.G.S. §24-1.1E.(c)(6)). In addition, a mortgage broker who brokers a consumer home loan that violates the law is jointly and severally liable with the lender

No lending without homeownership counseling

many victims of predatory lending transactions are borrowers who have little experience with lending transactions. They may be immigrants who have not made previous loan applications in this country, first-time borrowers who have not had an opportunity to establish credit, or elderly borrowers who have not participated in a lending transaction for many years. Virtually all studies on predatory lending show the importance of educating consumers about the rights and obligations that they have when they close on a home loan. Counseling can also help consumers to recognize predatory lending terms and practices. The North Carolina Anti-Predatory Lending Law does not allow lenders to make high-cost home loans until they receive certification from a counselor approved by the North Carolina Housing Finance Agency (NCHFA) that the borrower has received counseling (after receipt of a commitment with terms from the lender) if the loan is a high-cost loan (N.C.G.S. §24-1.1E.(c)(1)). Information regarding education programs is available online from the NCHFA.[1]

The origination of a high-cost home loan that violates the North Carolina Anti-Predatory Lending Law will result in liability for:

mortgage broker that funds the loan

The North Carolina S.A.F.E. Mortgage Licensing Act specifically requires which of the following licensees to have a principal place of business within the state?

mortgage brokers

Submitting License Applications to the NMLS

n order to obtain a license as a mortgage lender, mortgage broker, or mortgage loan originator in North Carolina, applicants must complete the forms that are available on the NMLS website and submit them electronically. The general goal that the regulators seek to achieve by obtaining the information submitted on the forms is to ensure that the business entities and individuals that are engaged in the mortgage business will conduct the making and brokering of loans in an ethical, financially sound, and professional manner. The following sections will discuss the use of specific licensing requirements to meet this goal. It is important to note that the NMLS does not make licensing decisions. State regulatory agencies, such as the Office of the Commissioner of Banks in North Carolina, continue to review applications to determine whether an applicant is eligible and qualified for licensure. There are a total of three forms. They are known as the Company Form, the Branch Form, and the Individual Form.

Negative amortization

negative amortization occurs when a lender establishes a repayment schedule that does not demand sufficient funds from the borrower to pay the interest due with each periodic payment. The lender adds the unpaid interest to the principal, resulting in a principal balance that increases over time. The North Carolina law does not allow lenders to create a payment schedule for high-cost home loans that will allow the principal balance to increase

How many hour(s) of continuing education related to North Carolina law and regulation are required by loan originators annually?

not 3 , maybe 8

A pattern of residential mortgage fraud involves ____ or more mortgage loans which have the same or similar intents, results, accomplices, victims, or methods of commission

not 4

The federal SAFE Act imposes all of the following minimum standards for loan originator license applicants, except:

not 8 , surety

In North Carolina, the pre-licensing education requirement for mortgage loan originators is:

not 8,20

Under North Carolina law, a registered loan originator is:

not A loan originator who is licensed by the State of North Carolina and registered as a member of the North Carolina Association of Mortgage Professionals

Which of the following is not a true statement regarding continuing education requirements in North Carolina?

not Licensees may not take the same course in the same or successive years to meet the requirement

Under which of the following circumstances would a licensee be responsible for the cost of an investigation?

not The licensee is always responsible for the cost of an investigation

Engaging in the mortgage business or acting as a mortgage loan originator without a license is a:

not a, b,

All of the following applicants must have three years of experience in residential mortgage lending, except

not branch man, qualifying

North Carolina's Anti-Predatory Lending Law applies to:

not sub , adjust

Which North Carolina law was enacted with the goal of providing protective measures for consumers to safeguard their personal information?

not the anti predatory

Company form

The Company Form is the application for business entities and sole proprietors seeking a license as a mortgage broker, lender, or servicer. It requires applicants to indicate the types of business activities which will be conducted, and requires information about the business, including name, address, phone number, trade names, the resident/registered agent, web addresses, employee contact information, books and records, approvals and designations, and bank account information. The Company Form also requires information pertinent to financial, criminal, civil judicial, and regulatory action disclosures. Owners, branch managers, and other individuals designated as control persons will also be required to complete and submit an Individual Form along with the Company Form.

The Identity Theft Protection Act of 2005

The Identity Theft Protection Act, found under the North Carolina General Statutes - Chapter 75 Article 2A, is aimed at limiting access and distribution of personal identifying information as well as providing protective measures for consumers by way of credit reporting agencies. The Act also outlines civil damages for violations resulting in exposure or theft of personal and financial data as permitted under the provisions of G.S. 1-539.2C. While the Act does not prohibit someone from obtaining credit and financial information for a legitimate consumer transaction, it does limit how the data is used and maintained.

Individual Form

The Individual Form is to be used by all individuals who must submit biographical and other required information as part of the license application process. This can include owners, directors, and other control persons of entities and sole proprietorships, branch managers for branch locations, and individual mortgage loan originators. The Individual Form requires the applicant to provide the following information: Personal identify information Residential and employment history Information about other current business ventures, if any Financial, criminal, civil judicial, and regulatory action disclosures (addressed in further detail in a later section of this course) Information about previous instances of voluntary and involuntary termination of employment Information regarding violations of applicable rules of conduct Authorization for fingerprinting, a background check, and a credit report Indication of a sponsorship relationship The Individual Form is also used when a loan originator wishes to terminate a relationship with an employer or sponsor, surrender or cancel a license, or amend an existing license or registration. The general goal that regulators seek to achieve by obtaining this information to ensure that licensed business entities and individuals that are engaged in the mortgage business will conduct the negotiating, making, and servicing of loans in an ethical, financially sound, and professional manner. The following sections will discuss the use of specific licensing requirements to meet this goal. It is essential that license applicants and control persons provide truthful, accurate answers to disclosure questions on these forms. If it is determined that an applicant or control person provided false or inaccurate information, this could be grounds for license denial. At the time of submitting the appropriate application form and additional required information, applicants must also pay an application fee and an NMLS processing fee. The fees are as follows: Mortgage broker, lender, and servicer applications: $1,388, which includes the $100 NMLS processing fee Branch office applications: $320, which includes the $20 NMLS processing fee Mortgage loan originator applications: $206.25, which includes the $30 NMLS processing fee, a $15 credit report fee, and a $36.25 criminal background check fee Fees submitted to the NMLS are nonrefundable.

APLL on No direct payments to home improvement contractors

The North Carolina Anti-Predatory Lending Law addresses this type of predatory practice by forbidding lenders to make any direct payments to home improvement contractors. The law allows lenders to: Issue payments directly to the borrower Make joint payments to the borrower and the home improvement contractor Pay a third-party escrow agent in accordance with terms in a written agreement signed by the borrower, the lender, and the contractor

Prohibited Lending Terms and Practices

The North Carolina Anti-Predatory Lending Law creates a number of limitations and prohibitions on particular lending terms and practices that are frequently associated with predatory loans. These limitations and prohibitions include the following: -Call Provisions -Balloon Payments -Negative amortization -Increased interest rate after default -Advanced payments -Modification or deferral fees -No lending without homeownership counseling -No lending without regard to repayment ability -No direct payments to home improvement contractors -No shifting of liability -Structuring a loan to avoid application of the law -No loan flipping

Seller-Paid Points and Fees

The State of North Carolina issued a declaratory ruling in order to interpret the inclusion of seller-paid points and fees in the calculation of points and fees under the high-cost loan threshold. The Office of the Commissioner of Banks determined that seller-paid points and fees are generally not included in the definition of "point and fees" under the High-Cost Home Loan Statute. The exception to this rule would be any of the following: -The seller pays a charge to, or directly benefiting, the lender or lender's affiliate -The seller pays any portion of the mortgage broker's fee -The seller contributes to any prepayment penalty charges The law also prohibits the seller from raising the sales price to cover the cost of seller-paid points and fees. The Commissioner's Declaratory Ruling that addresses seller-paid points is available online.

The law extends investigative and enforcement authority to numerous agencies involved in the regulation of real estate and mortgage brokering, including each of the following, except

The Superintendent of Financial Services

The lending agreement for a reverse mortgage can specify certain acts that will constitute default by the borrower, which may include all of the following, except:

The borrower dies and the home is the principal residence of the surviving borrower

APLL Calculation of Points and Fees

The calculation of points and fees includes: All items included in the "finance charge," as that term is defined in 12 C.F.R. §1026.4(a), except for: Interest or the time-price differential Upfront fees collected and paid to the Federal Housing Administration (FHA), the Veterans' Administration (VA), or the U.S. Department of Agriculture (USDA) to insure or guarantee a loan Bona fide third-party charges not retained by the creditor Real estate-related fees that are bona fide and reasonable All compensation paid from any source to a mortgage broker, including compensation paid to a mortgage broker in a table-funded transaction Permissible prepayment penalties (N.C.G.S. §24-1.1E.(a)(5)) Following is a more detailed discussion of the charges that are excluded from the computation of points and fees: Bona fide discount points, which are defined in the law as loan discount points knowingly paid by the borrower to reduce the interest rate. The Anti-Predatory Lending Law states that certain discount points and prepayment fees/penalties may be excluded from the calculation of total points and fees payable by the borrower as follows: "Up to and including two bona fide loan discount points payable by the borrower in connection with the loan transaction, but only if 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 reasonably comparable loan from either Fannie Mae or the Federal Home Loan Mortgage Corporation, whichever is greater" "Up to and including one bona fide loan discount point payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan's interest rate will be discounted does not exceed by more than two percentage points (2%) the required net yield for a 90‑day standard mandatory delivery commitment for a reasonably comparable loan from either Fannie Mae or the Federal Home Loan Mortgage Corporation, whichever is greater" (N.C.G.S. §24-1.1E(a)(6)(b)) Prepayment fees and penalties, if they do not exceed amounts specified in the law. There are slightly different guidelines for closed-end and open-end transactions. For a closed-end loan, prepayment fees and penalties are excluded from the calculation of points and fees if they do not exceed 1% of the amount prepaid, provided the loan documents do not permit the lender to charge or collect any prepayment fees or penalties more than 30 months after the loan closing (N.C.G.S. §24-1.1E.(a)(6)b.)3.)). In addition to general provisions regarding charges that are excluded from the definition of "points and fees," the North Carolina Anti-Predatory Lending Law lists the following particular fees, stating that they are not included in the calculation of points and fees: Fees paid to public officials: these fees, which are not added to the points and fees calculation include fees such as taxes, filing fees, and recording fees Third-party settlement services: points and fees do not include fees paid to a non-affiliated third party for third-party settlement services such as flood certification, property inspection, appraisal, credit report, surveys, fees for an attorney that is chosen by the borrower, notary fees, escrow fees, and insurance coverage for optional insurance products that is not required by the lender

Mortgage Broker Fees

The calculation of points and fees must include all compensation paid by the borrower to a mortgage broker. In 2007, the General Assembly revised the Anti-Predatory Lending Law to clarify that compensation paid to a mortgage broker includes compensation paid "... in a table-funded transaction" (N.C.G.S. §24-1.1E.(a)(5)a.)3.)). When table-funding loans, brokers have funds in hand, enabling them to close loans in their own names. Lenders are not required to disclose their earnings on loans, and while functioning as "lenders," table-funding brokers have been able to avoid the disclosure of indirect fees. The change in the law is intended to close this loophole. The revised law also addresses the temporary transformation of the "real lender into a secondary mortgage market purchaser." At the time of closing, or within one business day after the funding of the loan takes place, a "real lender" purchases the loan from the table-funding broker. North Carolina law clarifies that a lender's purchase of a loan that it has recently funded does not convert the lender into a secondary mortgage market investor. The law eliminates these blurred distinctions between brokers, lenders, and secondary market investors by providing that "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" (N.C.G.S. §24-1.1E.(a)(5)a.)3.)).

Residential Mortgage Fraud Act

The law addresses fraud that occurs during the mortgage lending process, and it defines the term "mortgage lending process" as one that includes: -Soliciting, applying for, negotiating, and originating a mortgage loan -Underwriting, signing, closing, and funding a mortgage loan -Providing third-party settlement services, including appraisals

Enforcement Authority and Penalties for Violations of the Law

The law extends investigative and enforcement authority to numerous agencies that are involved in the regulation of real estate and mortgage brokering. These are: -The Commissioner of Banks -The North Carolina Real Estate Commission -The North Carolina Appraisal Board (N.C.G.S. §14‑118.14) The Attorney General and district attorneys also have authority to file an action for mortgage fraud. Mortgage fraud involving a single mortgage loan is a Class H felony. Proof of a pattern of mortgage fraud is a Class E felony. North Carolina criminal law specifies that felony crimes may be punishable by imprisonment (N.C.G.S. §14-1(3)). As previously mentioned, proof of a pattern of residential mortgage fraud requires evidence of: -Five or more mortgage loans -The making of these loans with the same intents, results, accomplices, victims, or methods or other distinguishing characteristics (N.C.G.S. § 14‑118.11(3)) In addition to imposing penalties for residential mortgage fraud, courts may require restitution to a person harmed in a mortgage fraud scheme.

The Commissioner of Banks can deny a license application for which of the following reasons?

The license applicant was convicted of a misdemeanor or pled nolo contendere to a misdemeanor involving fraud or moral turpitude within the five-year period prior to the application

In order to be considered a high-cost home loan, all of the following characteristics must be satisfied, except:

The loan must exceed the interest rate threshold, the points and fees threshold, and the prepayment penalty threshold

Primary Goal of APLL

The primary goal of North Carolina's Anti-Predatory Lending Law is to protect consumers who need access to credit but are unable to qualify for loans other than subprime or high-cost home loans. The limitations and restrictions on high-cost loans are intended to ensure that the lending terms for these loans are not excessively burdensome and that consumers obtain counseling during the lending process so that they understand the terms of high-cost loans.

Third-Party Fees and Charges

Third-party fees and charges are those amounts charged in a transaction by someone other than the lender. These fees are included in the finance charge if the lender: Requires the use of a third party as a condition of the transaction, even if the consumer may choose the third party, or If the lender retains a portion of the third-party charge Such third-party charges include: Service, transaction, activity, and carrying charges Points (other than bona fide discount points as discussed in the previous section), loan fees, assumption fees, finder's fees, and similar charges Appraisal, investigation, and credit report fees Premiums and other charges for private mortgage insurance, provided that they are refundable on a prorated basis Charges for insurance against loss of or damage to property Charges or premiums for debt cancellation coverage

Which of the following does not accurately describe a continuing education requirement for mortgage loan originators in North Carolina?

Three hours of Ethics

In order to obtain authorization to make a reverse mortgage, a lender must complete an application, which must include all of the following, except:

$500,000 surety bond

authorization to make reverse mortgages, a lender must complete an application and submit it to the Commissioner with:

-A $500 nonrefundable application fee -An audited financial statement prepared by a certified public accountant, showing that the lender has a minimum net worth of $500,000 -A $100,000 surety bond -Civil, criminal, and regulatory action disclosures -Financial disclosures Applicants who obtain authorization to make reverse mortgages must pay an annual renewal and registration fee of $250. The authorization is available only to lenders. North Carolina does not allow mortgage brokers to make or broker reverse mortgages.

In order to obtain a reverse mortgage on a residence in North Carolina, the borrower must satisfy the following requirements:

-He/she must be at least 62 years old (N.C.G.S. §53-257(2)) -The borrower must complete counseling from a certified reverse mortgage counselor after receipt of a commitment with terms from the lender (N.C.G.S. §53-264(b)) -The North Carolina home securing the mortgage must be the borrower's principal residence (N.C.G.S. §53-257(6)(i)) -The loan must be secured by a first mortgage or first deed of trust (N.C.G.S. §53-257(6)(i))

The law states that residential mortgage fraud occurs when a person commits any of the following acts for financial gain and with the intent to defraud:

-Knowingly making or attempting to make any material misstatement, misrepresentation, or omission within the mortgage lending process with the intention that a mortgage lender, mortgage broker, borrower, or any other person or entity that is involved in the mortgage lending process relies on it -Knowingly using, facilitating or attempting to use or facilitate the use of any misstatement, misrepresentation, or omission within the mortgage lending process with the intention that a mortgage lender, borrower, or any other person or entity that is involved in the mortgage lending process relies on it -Receiving or attempting to receive proceeds or any other funds in connection with a residential mortgage closing that the person knew, or should have known to have resulted from misstatements, misrepresentations, or omissions in the mortgage lending process -Conspiring or soliciting another to use misstatements, misrepresentations, or omissions during the mortgage lending process -Knowingly filing a document falsely claiming that a mortgage loan has been satisfied, discharged, released, revoked, or terminated or is invalid

Reverse Mortgage Products

-Single-purpose reverse mortgages -Home equity conversion mortgages (HECMs) -Proprietary reverse mortgages HECMs and proprietary reverse mortgages may have high upfront costs, and borrowers must consider the downside of depleting their home equity. These issues, as well as loan terms, such as the amount of interest that the borrower will pay and whether the lender and borrower will share appreciation of the property value, are important matters to discuss with reverse mortgage counselors. The Commissioner's website includes a list of certified counselors.

"Identifying information"

-Social Security Numbers -Driver's license, state-issued identification card, or passport numbers -Checking and savings account numbers -Credit and debit card numbers -Personal Identification Number (PIN) Codes -Electronic identification, including email address, Internet accounts, or other Internet identification -Digital signatures -Fingerprints and other biometric data -Passwords -Parent's legal surname prior to marriage -Any other numbers or information that can be used to access a person's financial resources

The minimum surety bond requirement for a mortgage broker is:

100,000

For how long must a licensee maintain records of advertisement samples?

12 months

A loan is a high-cost home loan if it includes a prepayment penalty more than _____ months after closing or a prepayment penalty that exceeds more than _____ of the amount prepaid.

30, 2%

A loan originator who fails to maintain a valid license for a period of _____ years or longer must retake the exam.

5

The minimum surety bond requirement for North Carolina-licensed mortgage brokers is:

75000

What is the definition of a subprime loan?

A loan with an interest rate above the prime rate

Actions Required by the Identity Theft Act

Actions required by the Act include: -Appropriate handling of all personal financial and non-public information -Disclosure to consumers about security freezes -Proper destruction of consumer records which include identifying information -Notification of security breaches

With how many licensees or exempt depository institutions is an exclusive mortgage broker permitted to be affiliated?

An exclusive mortgage broker may only be affiliated with one licensee or exempt entity at any given time

APLL Thesholds

As stated in the previous section, a loan is not a high-cost home loan unless it meets an APR threshold, a points and fees threshold, or a prepayment penalty threshold. The thresholds under North Carolina law are as follows: APR threshold: the North Carolina Anti-Predatory Lending Law incorporates the APR threshold established under federal law, which says that a loan is a high-cost home loan if the APR exceeds the average prime offer rate by more than: 6.5 percentage points for a first lien transaction 8.5 percentage points for a first lien transaction, if the dwelling is personal property and the loan amount is less than $50,000 8.5 percentage points for a subordinate lien Points and fees threshold: the North Carolina law sets different points and fees threshold limits for loans of different amounts. For loans of $20,000 or more, the threshold is met if the points and fees paid by the borrower at or before closing exceed 5% of the total loan amount. For loans of less than $20,000, the threshold is met if the points and fees paid by the borrower at or before closing equal $1,000 or 8% of the total loan amount, whichever is less. Prepayment penalty threshold: the rules are slightly different for closed-end and open-end loans. A closed-end loan is considered a high-cost loan if the loan documents allow the lender to charge a prepayment penalty more than 30 months after closing, or allow the lender to collect a prepayment penalty that exceeds more than 2% of the amount prepaid. An open-end loan is considered a high-cost loan if the loan documents allow the lender to charge a prepayment penalty: More than 30 months after closing if the borrower, in accordance with the loan documents, is not permitted to repay all or any of the outstanding balance at a fixed interest rate over a specified period of time If the borrower, in accordance with the loan documents, is permitted to repay all or any of the outstanding balance at a fixed interest rate over a specified period of time, more than 30 months after the date the borrower voluntarily exercises that right, or Which exceeds more than 2% of the amount prepaid (N.C.G.S. §24-1.1E.(a)(6)) As discussed in a subsequent section of this course, the North Carolina Mortgage Licensing Act prohibits the brokering of a mortgage loan that includes prepayment penalties if the amount of the loan is $150,000 or less. Furthermore, federal law imposes more extensive restrictions on prepayment penalties.

Civil Judicial Disclosures

Civil Judicial Disclosures require the applicant to disclose under oath whether it has, within the past ten years, been: Subject to an injunction regarding an activity related to providing financial services Found to have violated any laws or regulations that relate to financial services A party to a settlement agreement which it entered to resolve an action brought against it for alleged violations of laws and regulations that relate to financial services

Enforcement Actions for Violations of the Law

Under the Anti-Predatory Lending Law, the inclusion of prohibited lending terms or the use of prohibited practices in the making of a high-cost home loan constitutes an unfair or deceptive trade practice. A lawsuit under North Carolina's unfair and deceptive trade practices law can result in the imposition of treble damages and reasonable attorney's fees. The law also permits actions for the use of prohibited lending terms and fees as a violation of the state laws against usury. The penalty for usury can include forfeiture of all the interest due on a loan. The law limits the recovery of damages to those under the Unfair and Deceptive Trade Practices Act (UDTP) or the laws against usury. Plaintiffs cannot recover damages under both laws.

The Mortgage Licensing Act continued

Congress adopted the SAFE Act to ensure that all state-regulated mortgage professionals across the country are subject to similar and rigorous regulatory requirements. The law seeks to achieve this goal by requiring all states to meet the following standards: Use of the Nationwide Multistate Licensing System (NMLS) for the filing of license applications and registrations Establishment of licensing requirements for all loan originators Requirement for license applicants to complete 20 hours of pre-licensing education Requirement for licensees to complete eight hours of continuing education each year Requirement for license applicants to authorize criminal background checks Establishment of surety bond and net worth requirements Requirement for the reporting of enforcement actions to the NMLS On July 1, 2008, North Carolina began participating in the NMLS. All licensing for mortgage lenders, mortgage brokers, exclusive mortgage brokers, and mortgage loan originators now takes place via the submission of licensing forms through the NMLS. The following material will review the requirements of North Carolina's Mortgage Licensing Act. This review will begin with a look at the NMLS application process and the license application fees that are associated with obtaining a license as a mortgage professional in North Carolina. Following the explanation of NMLS licensing procedures is a review of the law, including definitions, qualifications for a license, grounds for license denials, requirements for renewals, prohibited practices, and special requirements for disclosures and notifications.

Damages for Identity Theft

Damages for Identity Theft

Mortgage brokers have duties under North Carolina Law that include all but one of the following:

Duty to find a prime loan for all loan applicants

Financial Disclosures

Financial Disclosures, which require the applicant to disclose whether he or she has: Been the subject of a bankruptcy petition or foreclosure action within the last ten years Had a bonding company deny, pay out, or revoke the entity's bond Any unsatisfied judgments or liens pending Any delinquencies on court-ordered child support payments

A lender can avoid liability for errors in the making of high-cost home loans if it:

Has procedures in place to avoid unintentional errors and corrects them before the borrower or the Commissioner of Banks notifies the lender of the error

Scenario

In late 2018, the North Carolina Commissioner of Banks responded to consumer complaints and launched an investigation of a company called Frankfurt & Goldenrod Financial. The Commissioner determined that Frankfurt & Goldenrod was posing as a mortgage company for the purposes of identity theft. The company's website advertised easy money and instant loan approval for consumers with damaged credit. The website also featured an online application where North Carolina consumers were asked to provide personal information, including Social Security Numbers and financial account numbers. Following complaints, the regulator quickly ascertained that the company was not licensed under Chapter 53. Along with the allegations of identity theft, a spokesperson for the Commissioner reported that the company was soliciting advance fees for services and then providing nothing in return. For instance, one consumer reported being offered a 15-year loan of $25,000 but was required to wire a deposit of $2,100 for the first ten months' payments and an additional $2,100 for the purposes of "mortgage insurance." The consumer was then told that the loan approval had fallen through and the funds would be returned to his bank account within a month - something that never occurred. The investigation continues, but it is likely that a number of North Carolina consumers were victimized. The Commissioner has since issued a cease and desist order against the company and has referred the case to the Attorney General for further investigation and criminal prosecution. The Commissioner's spokesperson indicated that the FBI Mortgage Fraud Unit has also been alerted to the proceedings.

The Mortgage Licensing Act

In the 1980s, changes in tax laws, banking laws, and the secondary market allowed non-depository lenders and mortgage brokers to emerge as regular players in the mortgage lending business. The growth of the mortgage brokering business was phenomenal. Working independently of regulated financial organizations such as banks and savings and loans, mortgage brokers and non-depository lenders were negotiating and making loans without direct accountability to any regulatory agency. Unfortunately, the growth and success of the business lured some unscrupulous players, prompting state and federal legislators to propose regulatory controls for this new group of mortgage professionals. Mortgage professionals supported the proposed legislation, recognizing the need for regulatory controls. Federal legislation lagged behind state initiatives, and state agencies that regulated financial institutions became the primary regulators of mortgage brokers, non-depository lenders, and mortgage loan originators. In North Carolina, these mortgage professionals are regulated by the Commissioner of Banks. The Mortgage Lending Act, adopted in 2001, was located in Chapter 53, Article 19A of the North Carolina General Statutes. The Act repealed an existing law that required mortgage lenders and brokers to register with the Commissioner of Banks and replaced the simple registration requirements with strict licensing requirements. Since its enactment, the Mortgage Lending Act has been subject to numerous revisions. During the 2009 legislative session, the North Carolina General Assembly repealed that Act and replaced it with the Mortgage Licensing Act - Article 19B, as mandated by the federal law known as the "Secure and Fair Enforcement for Mortgage Licensing Act of 2008" (SAFE Act).

The Right to Correct Violations and Unintentional Errors

Lenders have 30 days from the date of closing to avoid liability for compliance failures made in good faith by notifying the borrower and offering a loan that complies with the law or a loan that is not a high-cost loan. Lenders have 60 days after the discovery of a bona fide error to avoid liability by notifying the borrower, correcting the compliance issues that resulted from the error, and offering the borrower a loan that complies with the law or that is not a high-cost loan. Bona fide errors include clerical, calculation, computer malfunction, program malfunction, and printing errors. Lenders can only correct these errors if they have procedures in place to avoid them. Bona fide errors do not include errors made as a result of a lender's failure to understand its obligations under the Anti-Predatory Lending Law. Lenders are only allowed to correct a noncompliance and to avoid liability if the errors that they make are bona fide errors, and if they discover the error and notify the borrower before the Attorney General, the Commissioner, or the borrower institutes an action based on failure to comply

Criminal, Regulatory Action, Civil Judicial, and Financial Disclosures

License applicants and their control affiliates must submit specific information with their applications. This information is meant to enable the Department to determine if the business entity or any of its affiliates has engaged in any acts, such as prior violations of state or federal law, that would render the entity unfit to conduct the business of mortgage lending. As described next, this information includes permission for a criminal background check, as well as disclosure of any civil, criminal, or regulatory actions filed against the license applicant. Criminal Disclosures require the applicant to disclose under oath whether it or any of its control persons or its control affiliate has: At any time been charged with, convicted of, or pled guilty or nolo contendere (no contest) to a felony Within the past ten years, been charged with, convicted of, or pled guilty or nolo contendere to a misdemeanor involving financial services, fraud, making false or fraudulent statements, omissions theft, forgery, bribery, perjury, counterfeiting, extortion, or conspiracy Regulatory Action Disclosures require the applicant and its control affiliate to disclose under oath whether a regulatory agency has taken any of the following actions against it within the past ten years: Found the applicant to be involved in the making of false statements or omissions Found the applicant to be involved in the violation of financial services regulations Denied, revoked, or suspended a license or registration When making Regulatory Action Disclosures on the Individual Form, the applicant must also disclose whether he or she has ever been: Barred from engaging in financial services-related business The subject of a final order based on violations of the law prohibiting fraudulent, manipulative, or deceptive conduct The subject of an order in connection with a license or registration Applicants must also disclose any current regulatory action that is pending.

Federal High-Cost Home Loan Thresholds

Like North Carolina law, HOEPA specifies that a high-cost mortgage is defined as a consumer transaction that meets one or more of three thresholds: The APR threshold The points and fees threshold The prepayment penalty threshold As previously mentioned, North Carolina law incorporates HOEPA's APR threshold, thus, as with the North Carolina Anti-Predatory Lending Law, a loan meets the APR threshold and is a high-cost home loan under HOEPA if the APR exceeds the average prime offer rate by more than: 6.5 percentage points for a first lien transaction 8.5 percentage points for a first lien transaction, if the dwelling is personal property and the loan amount is less than $50,000 8.5 percentage points for a subordinate lien A loan meets the federal points and fees threshold if the total points and fees for the transaction exceed: 5% of the loan amount, if the loan is for $21,549 or more, or The lesser of 8% of the total loan amount or $1,077, if the loan amount is less than $21,549 Note: These figures are adjusted annually, and the amounts shown are for 2019. A loan meets the prepayment penalty threshold and is a high-cost home loan if the contract provides for: A prepayment penalty that is in effect more than 36 months after consummation, or Prepayment penalties exceed 2% of the amount prepaid (12 C.F.R. §1026.32(a)) The term "average prime offer rate" is defined as an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics (12 C.F.R. §1026.35(a)(2)). It is important to note that federal law also imposes a number of requirements and prohibitions related to high-cost mortgage loans. Mortgage professionals should be familiar with provisions of both federal and state law, and note that, where they may conflict, the stricter standard will prevail.

Long Answer

List two violations committed by the mortgage company. Name the North Carolina law that Frankfurt & Goldenrod Financial violated by collecting personal information for the purposes of identity theft. Explain how Frankfurt & Goldenrod Financial violated federal fee prohibitions. List two examples of mortgage fraud committed by Frankfurt & Goldenrod Financial.

A "mortgage lender" under North Carolina law is:

NOT An individual or entity that funds mortgage loans, including those individuals or entities that table-fund loans

Qualified Lenders

North Carolina's Reverse Mortgage Act includes provisions that determine which lenders are allowed to make reverse mortgages. Those lenders that are allowed to make reverse mortgage include: -The North Carolina Housing Finance Agency -A bank, savings institution, or credit union formed under state or federal law -A wholly owned subsidiary of a bank, savings institution, or credit union

Licensees must keep samples of all advertisements used for at least:

One year

Anti-Predatory Lending Law

Predatory lending is the use of abusive lending practices and terms and is often associated with subprime lending transactions. Subprime loans, which are loans with interest rates above the prime rate, are typically offered to first-time borrowers who have not had an opportunity to establish credit or to borrowers with blemished credit records. Subprime loans are a valuable product for those who need financing for a home and cannot qualify for a prime loan. Subprime lending becomes predatory lending when loans with high interest rates are offered to borrowers who do not realize that they can qualify for prime rate loans or when the terms of the loan are so oppressive that they are likely to lead to default or foreclosure. North Carolina was the first state to enact legislation to address abusive or predatory lending practices associated with high-cost home loans. Since its enactment in 1999, the North Carolina law has served as a model for other state laws that seek to abolish lending practices and lending terms that often lead to the reduction of home equity and the loss of homes to foreclosure. North Carolina's state legislature delegated responsibility for implementation and enforcement of the law to the state's Commissioner of Banks. The law is located in the North Carolina General Statutes §24-1.1E.

Provisions Included in Reverse Mortgage Lending Agreements

Repayment is typically triggered by the occurrence of one of the following events: -Death of the homeowner -Sale of the home used to secure the loan -The homeowner's permanent relocation to a residential care facility The lending agreement can also specify particular acts and circumstances that will constitute a default by the borrower on the loan. These circumstances include: -The borrower's failure to maintain the residence -Selling or otherwise conveying the home to a third party -The borrower dies and the home is not the principal residence of the surviving borrower -The borrower does not live in the house as his/her principal residence for a period of 12 consecutive months due to physical or mental illness -For reasons other than physical or mental illness, the borrower does not use the home as a principal residence for 180 consecutive days -The borrower fails to pay taxes and insurance (N.C.G.S. §53-267)

Reverse Mortgage Act

Reverse mortgages are home loans that enable senior citizens to use home equity to cover living expenses. The stated purpose of the law is to allow reverse mortgages so that "...elderly homeowners may use the equity in their homes to meet their financial needs"

Who Is Covered by the Identity Theft Act

The Act broadly defines who is covered by the Act, but specifically indicates that any business entity, regardless of how it is organized to operate or profit, may not violate the protection of personal data. The term "business" includes "...a financial institution organized, chartered, or holding a license or authorization certificate..." in the state of North Carolina (N.C.G.S. §75-61(1)). The responsibilities of credit reporting agencies are outlined as they pertain to a consumer's right to place a security freeze on their financial data.

Branch Form

The Branch Form, as its name suggests, is to be used in obtaining branch licenses for additional locations of licensed entities. Like the Company Form, the Branch Form requires information about the types of business activities which will be conducted, as well as identifying information. Branch managers will also be required to complete and submit an Individual Form along with the Branch Form.

Advanced payments

a high-cost home loan may not include terms that allow for the consolidation of more than two regular payments that are paid in advance from the proceeds of the loan

Modification or deferral fees

a lender cannot charge any fees to modify, extend, or renew a high-cost home loan, and cannot charge fees to defer a payment that is due

In North Carolina, decisions on licensing applications are made by:

commissioner of banks

In order for an individual or an institution to establish his/her/its exempt status from the requirements of the North Carolina licensing law, it is necessary to file a claim of exemption with the:

commissioner of banks

Loans Covered by the Anti-Predatory Lending Law

oth the North Carolina Anti-Predatory Lending Law and the federal Home Ownership and Equity Protection Act (HOEPA) contain rules relating to high-cost mortgage loans. Specifically, each law includes a separate definition for what constitutes a high-cost loan. It is important to note that in the event that standards set forth by federal and state laws differ, students should be advised that the stricter standard will prevail. North Carolina's Anti-Predatory Lending Law applies to "high-cost home loans," which the law defines as a loan other than a reverse mortgage that meets each of the following characteristics: The principal amount of the loan does not exceed the conforming loan limit established by Fannie Mae for a single-family home, or $300,000, whichever is less Note, HOEPA does not place limitations on the amount of the loan The borrower is a natural person The loan is for personal, family, or household use The loan is secured by a mortgage or a deed of trust on the borrower's principal dwelling or is secured by a mortgage or deed of trust on real estate that will be the site of a building designed for the occupancy of one to four families and the borrower will occupy one of the units as his/her principal residence The loan exceeds the annual percentage rate (APR) threshold, the points and fees threshold, or the prepayment penalty threshold established by the law (N.C.G.S. §24-1.1E.(a)(4)) The law extends special protections to consumers who choose high-cost home loans. These protections create additional compliance concerns for originators of high-cost home loans. Originators must comply with limitations on lending terms and practices, and they have an affirmative duty to determine the borrower's repayment ability and to verify that the borrower received counseling prior to accepting the loan. All of these requirements and restrictions are discussed next.

No direct payments to home improvement contractors

some of the most outrageous accounts of predatory lending practices involve fraudulent schemes in which unethical mortgage brokers and home improvement contractors coordinate their efforts to fleece unsuspecting homeowners. In 2000, the Department of Housing and Urban Development conducted a joint study with the Treasury Department showing that these schemes usually take place in low-income neighborhoods. Using aggressive door-to-door sales tactics, home improvement contractors target consumers whose homes need repairs and who are not likely to pursue bids from other contractors. Elderly, housebound homeowners are often the recipients of these solicitations. After persuading the homeowners to allow them to do the work, the contractors urge the use of a particular mortgage broker for financing. When the closing takes place and the funds are secured, the broker pays the home improvement contractor immediately. The contractor performs little or no work, and the homeowner realizes too late that he or she is the victim of fraud.

Increased interest rate after default

the North Carolina law prohibits the inclusion of terms that allow a lender to increase the rate of interest on a loan after a borrower defaults. The law provides that the prohibition on increased interest rates does not apply to an increase that is calculated in accordance with a variable-rate agreement

Closing Agent Charges

the fees of the settlement agent, attorney, or title company that conducts the closing are included if the lender requires the particular services or requires the imposition of the charge.

Real estate fees

the following real estate fees are also included only if the lender receives direct or indirect compensation for the charge, or if the charge is paid to an affiliate of the lender: -Fees for title examination, abstract, title insurance, and property survey -Fees for loan-related documents, such as deed, mortgages, and settlement documents -Notary and credit report fees -Property appraisal fees, including fees related to pest infestation and flood hazard determinations -Escrow charges, if the amounts would not otherwise be included in the finance charge (N.C.G.S. §24-1.1E.(a)(5)); (12 C.F.R. §1026.4)

Call provisions

the lender cannot accelerate the indebtedness and demand immediate repayment of the loan balance, with the exception of borrower default

No loan flipping

the prohibition on loan flipping is another prohibition that applies not only to high-cost home loans, but also to other consumer home loans, including open-end credit plans. In the section of the North Carolina Code that addresses "Consumer Protections in Certain Home Loans," the law defines "loan flipping" as the making of a consumer home loan to a borrower which refinances an existing loan when the new loan lacks a reasonable, tangible net benefit to the borrower. This applies regardless of whether the interest rate, points, fees, and charges paid or payable in connection with the refinancing exceed the high-cost home loan thresholds

Home equity conversion mortgages (HECMs)

these are backed by HUD, and they allow borrowers to select a fixed monthly cash advance or a line of credit

Single-purpose reverse mortgages

these are obtained from government agencies and nonprofit organizations and are used for a specific purpose, such as payment for house repairs or property taxes

Proprietary reverse mortgages

these are private loans that are backed by the companies that develop them

If the total monthly debts do exceed 50% of the borrowers' monthly gross income

this does not necessarily equate to a presumption of the inability to pay, as other factors must be taken into consideration.

A mortgage loan originator is permitted ______ test attempts before having to wait 180 days before re-testing.

three