State takes stance on subprime lending
The state commissioner of banks took action Tuesday to curb abusive home-lending practices and better protect consumers.
The N.C. Office of the Commissioner of Banks, in line with other industry groups and the Federal Reserve, has adopted new guidelines for subprime lenders - who often target consumers with bad or limited credit.
These guidelines are meant to reign in lenders who are not subject to federal regulation. And they're meant to better buffer consumers from abuses like high interest rates, fees and adjustable-rate loans that come cheap but quickly jump in costs.
"Subprime loans should promote sustainable homeownership," Mark Pearce, the state's deputy commissioner of banks, said in a news release. "This guidance addresses many practices that have led to unaffordable home loans and mortgage fraud."
Companies that don't comply with the new regulations could be slapped with fines of up to $10,000 per violation or have their licenses revoked.
According to the news release, the new rules include:
* Lenders should make loans to avoid "payment shock" to borrowers by underwriting adjustable-rate loans at the "fully-indexed" rate, not the teaser rate
* Lenders should verify a borrower's income for most subprime adjustable rate loans to reduce potential for mortgage fraud and should inform borrowers of any additional costs for loans that do not verify income
* Lenders should inform borrowers in subprime loans of the need to pay real-estate taxes and homeowners' insurance, if those things are not included in the loan payment
* Lenders should inform borrowers in subprime loans of any prepayment penalties that they might charge
The guidance was developed by the Conference of State Bank Supervisors, the American Association of Residential Mortgage Regulators and the National Association of Consumer Credit Administrators in response to the federal statement on subprime lending released at the end of last month.
The N.C. Office of the Commissioner of Banks regulates more than 1,500 mortgage companies and more than 13,000 loan officers, along with state banks, thrift institutions, nondepository trust companies and other financial services firms operating throughout the state.
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