North Carolina Antipredatory Home Lending Law

In 1999, North Carolina became the first state to pass an antipredatory lending law. The law aims to protect the equity that homeowners have invested in their homes by curbing abusive lending practices. The law includes several prohibitions for all home loans:

-no prepayment penalties for home loans of $150,000 or less;
-no "flipping," where a lender repeatedly refinances an existing home loan with up-front fees; and
-no financing of up-front, single-premium insurance.

The antipredatory lending law also restricts the terms of high-cost home loans of $300,000 or less as follows:

-no financing of up-front fees or insurance premiums;
-counseling is required for borrowers prior to closing;
-no balloon payments, where the borrower owes a large lump sum at some point during the loan;
-no loans with negative amortization, where the loan amount increases because the monthly payments do not cover the costs of the loan; and
-no lending without consideration of the consumer's ability to repay the loan.

The goal of this law is to reduce abusive lending practices.

A recent evaluation found the law significantly reduced the number of subprime loans and refinancing loans in North Carolina between 1999 and 2002. North Carolina's law has become a model for other states and localities; at least 25 states and 11 localities have enacted antipredatory lending laws since 1999.