First, on a "home loan" a lender's origination charges are limited to the following:
- loan application, origination, commitment, and interest rate lock fees (HUD-1 801; GFE Box 1);
- bona fide discount points (HUD-1 802; GFE Box 2); and
- additional origination charges (in whatever name) in the aggregate not to exceed the greater of (i) 1/4 of 1% of the note amount, or (ii) $150. (HUD-1 801; GFE Box 1) See N.C. Gen. Stat. 24-1.1A(c)(1).
The net result of the above limitation on a lender's origination charges is simple: other than application fee, origination, commitment fee, rate lock fee, and discount points, a lender can only charge an additional maximum of $150 to cover all other origination fees. (It's worth noting that the statute does not limit the origination fee (point) to 1% or any particular amount.) Anything beyond the limit will cause the loan to be out of tolerance.
Second, a "home loan" is defined to mean one where the loan:
- has a principal amount (note amount) that is less than $300,000;
- is a closed-ended transaction; and
- is secured by a first lien against real property with, or to be built upon it, one or more single-family dwellings or dwelling units, or a manufactured home.
Therefore, the definition is broad enough to cover purchase and refinance transactions to be secured by a principal residence, a second home, or investment property. But, loans in a subordinate lien position is excluded.
Third, the applicable statute and regulations are silent on the penalties if a lender exceeds the limitation on origination charges. Usually, it is acceptable under federal law, i.e., RESPA and TILA, to issue a lender credit at the time of closing, or a refund check post closing, to cure any tolerance violations. When asked whether there is a cure mechanism applicable to a N.C. Gen. Stat. 24-1.1A(c)(1) violation, an employee at the mortgage compliance division of the North Carolina Commissioner of Banks indicated, via informal telephone guidance, that a refund check to the borrower along with a letter of explanation is an acceptable way to cure the violation. Good record-keeping by a lender is advised in connection with discovering and curing a tolerance violation.
