And if that is possible how does this prevent the bank from avoiding paying imputed interest. Additionally could points be purchased to bring a rate to zero or a negative number?
Buying points is essentially prepaying the rate. You can only prepay as much as the bank is willing to let you, usually not a lot compared to the full-priced rate. So while theoretically both things are possible (no laws forbidding, that is, AFAIK), in practice it is unlikely that any bank would allow them.