In addition, mortgages that have more than a certain amount of “points” added to the principal or loans that exceed a defined interest rate are deemed “high cost” loans by the state. High cost loans have a number of additional restrictions placed upon them by the law, including the following:

• Fees may not be financed. Often, in an attempt to hide the cost of mortgage fees or to make them more affordable, lenders add the fees to the loan amount. While making closing on the loan seem cheaper, the hefty fees added to the loan, combined with interest, make the loan quite expensive.
• Counseling is required for these loans. Borrowers must obtain counseling before signing a loan agreement for a high cost loan, insuring that they are informed about the possible problems that may ensue.
• Balloon payments are prohibited. Balloon payments have to do with a mortgage that is structured so that the monthly payments are artificially low. This is offset by a huge payment for the remainder of the balance that is due at some point in the future. These payments are usually impossible to make, requiring the borrower to refinance, sell the home, or lose it to foreclosure.
• Negative amortization is prohibited. Loans that have payments that are insufficient to cover interest are not allowed. Some mortgages, such as the Option ARM, permit the borrower to make a payment that covers only some artificial “minimum” amount. These payments are insufficient to cover any principal or the accruing interest on the loan, resulting in a loan balance that actually increases after the payment is made.

This is a great set of rules and it would be nice to see such things implemented in Federal law. Unfortunately, Congress is considering a bill that would not only weaken this law, but would dismantle it altogether. This would result in North Carolina once again becoming a haven for lenders who would take advantage of consumers who don’t know any better.