1.    Q:  We are a Lender trying to document the fact that a borrower has received the Commissioner's Notice regarding how amortization works. We want to add a signature block and date to that form posted on the web site. Can we make that modification?

A: The form of the Commissioner's Notice to be delivered to the Applicant at the time of application, or within three days thereafter, may be altered to permit a signature block for the borrower to acknowledge receipt. In addition, another you may have some other document which you normally have the applicant sign at the time of application refer to the required notice and the fact that the applicant received a copy of the notice on such date. As long as the text is readable, accurate, and complete, you may otherwise make necessary or desirable adjustments.

2.    Q:  I notice that NC SAFE prohibits brokering of loans of under $150,000 that contain a prepayment penalty. May I as a Mortgage Lender make such loans?

A:  Licensed Mortgage Lenders may not make such a loan.  Chapter 24 of the General Statutes prohibits contracting for prepayment penalties on loans of under $150,000.   Additionally, NC SAFE prohibits the charging or collecting of any fee which violates Chapter 24. 

3.    Q:  Is it legally permissible to offer to pay a referral fee to a real estate agent who sells property and refers his buyer/client to me for a mortgage loan?

A: No. If the real estate agent is not a licensed Mortgage Broker or Mortgage Loan Originator, then the payment of the fee would be in violation of the Act. The Real Estate Agent is only exempt from the Act if he or she is not collecting any compensation in connection with the mortgage transaction except his or her real estate sales commission. Additionally, Mortgage Lender or Broker licensees are subject to discipline under the Act for knowingly making a payment to an unlicensed (and not exempt) person.

4.    Q:  May a Mortgage Lender or Broker that wants to encourage Real Estate Agents to direct potential borrowers to our company,  we agree to pay a specified amount of dollars to the Real Estate Agent's favorite charity for every loan he or she sends us?

A: NC SAFE prohibits any unlicensed, non-exempt person from brokering a loan with "... the expectation of compensation or gain, either directly or indirectly ..." The contribution to the real estate agent's favorite charity is a thing of value indirectly benefiting the real estate agent and is prohibited unless the real estate agent is also licensed as a Mortgage Broker. You should also consider the applicability of federal law, especially the Real Estate Settlement Procedures Act (RESPA).

5.    Q :  Is it lawful for two mortgage brokers to work with a borrower to place a loan with a mortgage lender and for each to receive compensation by sharing or splitting the fee charged for brokering the loan? Under what circumstances is this permissible?

A: Two mortgage brokers may share or split the fee for brokering a loan secured by residential real estate in North Carolina, provided that each is licensed (or is listed as exempt from licensure) under NC SAFE (MLA), and both parties must actually provide some reasonable amount of work in connection with the extension of the loan, as it is illegal to pay a referral fee in connection with the making of a loan under RESPA. See 12 USC 2607 - Prohibition against kickbacks and unearned fees:

"(b) Splitting charges
No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed."

6.    Q:  Is it the responsibility of the mortgage broker or lender to send adverse action letters to borrowers?

A:  Both lender and broker should ensure notification was sent.  When an application is submitted through a third party (broker), the application is often sent to more than one creditor. If the applicant uses the credit offered no notification is required. However, if no credit is offered or if the applicant does not expressly accept or use any of the credit offered, each creditor taking adverse action must send written notification, directly or through the third party. A notification given by a third party shall disclose the identity of each creditor on whose behalf the notice is given. See 12 CFR Section 202.9(g) Regulation B for further information.

NCCOB would expect to see a copy of the notification in both the broker’s and lender’s adverse action files. We recommend the broker send a notification letter to ensure proper notification was given.

7.    Q: After taking adverse action, how long does a licensee have to send the borrower notification of the adverse action?

A:  Generally, notification letters must be sent within 30 days from the date of the loan application. See Regulation B Equal Credit Opportunity for more information regarding this requirement. Note, an oral denial is considered a credit denial and notifications are required and files should be maintained on these also.

8.    Q:  Do business cards or company letterhead fall under the definition of “advertisement?”

A:  Yes. Licensees should ensure that all necessary identifying information is included on business cards, letterhead or other forms or documents shared with applicants’ or the public.  Licensees should review the advertising requirements in Regulation Z and ensure that all advertisements – whether print, radio, television or internet – comply with this federal regulation.

9.    Q:  When does the Annual Percentage Rate (APR) need to be disclosed in advertisements?

A:  Section 226.24 of Regulation Z requires the disclosure of an APR if an advertisement includes an interest rate.  In addition, if an ad includes certain credit term(s) (such as the number of payments or the amount of a monthly payment), there are additional disclosures that must be made.  Licensees should review the advertising requirements in Regulation Z and ensure that all advertisements – whether print, radio, television or internet – comply with this federal regulation.

10. Q:  Are two separate sets of disclosures required when brokering a first and second mortgage loan to an applicant simultaneously?

A:  Two separate sets of disclosures must be executed by the borrower if fees are received and retained by the broker in connection with both loans – one for the first mortgage and separate disclosures for the second mortgage.

11. Q:  Are amounts paid by mortgage lenders to mortgage brokers disclosed on the Good Faith Estimate (GFE) of settlement costs?

A:  Any fee or payment received by the mortgage broker from either the lender or the borrower arising from the initial funding transaction, including a servicing release premium or yield spread premium is to be noted on the GFE and listed in the 800 series of the HUD-1 Settlement Statement.  Refer to Appendix B to Part 3500 of HUD’s Regulation X (Illustrations of Requirements of RESPA) for additional guidance.

12. Q:  Can I pay an individual or company a referral fee?

A:  Referral fees are illegal. Section 8 of RESPA prohibits a person from giving or accepting anything of value in exchange for the referral of business.  Licensees should review the requirements and prohibitions of RESPA and provide training to employees to ensure compliance.

13. Q.  Is it legal to charge a fee for assisting homeowners with negotiating loan modifications or workout plans for their residential mortgage loans?  Is a license required?

A:   Generally speaking it is a criminal offense to engage in the business of debt adjusting as defined in N.C. G.S. § 14-423 et seq.   Prohibited “debt adjusting” specifically includes foreclosure assistance or debt settlement services if any advance fees are collected from the consumer.  Therefore, it would be unlawful to charge upfront fees to negotiate loan modifications for homeowners.

Creditors and their full-time employees collecting on debts are exempt from this prohibition.  In addition, certain other persons are exempt from the criminal statute, such as attorneys not employed by a debt adjuster and accredited non-profit credit counseling agencies in certain situations.

NCCOB licenses and regulates mortgage servicers that may be involved in loss mitigation activities on behalf of a creditor.  Authorized mortgage servicers are not considered debt adjusters.  However, the amount of fees that may be charged to a borrower by a mortgage servicer or mortgage holder in connection with loss mitigation are subject to limitation under Chapter 24 of the General Statutes.

The best practice if or when contacted by a borrower seeking this type of assistance is to encourage him/her to contact a local non-profit housing or credit counseling agency (a list is on our state foreclosure prevention website www.ncforeclosurehelp.org) or by calling 1-866-234-4857 to speak with a counselor who is authorized to provide this service.

Rev. 3/8/2010