(a) Coverage.
(1) Except as provided in paragraph (a)(2)
of this section, the requirements of this section apply to a consumer
credit transaction that is secured by the consumer’s principal dwelling,
and in which either—
(i) the annual percentage rate at consummation
will exceed by more than 8 percentage points for first-lien loans,
or by more than 10 percentage points for subordinate-lien loans, the
yield on Treasury securities having comparable periods of maturity
to the loan maturity as of the 15th day of the month immediately preceding
the month in which the application for the extension of credit is
received by the creditor; or
(ii) the total points and fees payable
by the consumer at or before loan closing will exceed the greater
of 8 percent of the total loan amount, or $400; the $400 figure shall
be adjusted annually on January 1 by the annual percentage change
in the Consumer Price Index that was reported on the preceding June
1.
*(2) This section does not apply to the
following:
(i) a residential mortgage transaction.
(ii) a reverse-mortgage
transaction subject to section 226.33.
(iii) an open-end credit plan subject
to subpart B of this part.
6-971.4
(b) Definitions. For purposes of this
subpart, the following definitions apply:
(1) For purposes of paragraph (a)(1)(ii)
of this section, points and fees means—
(i) all
items required to be disclosed under section 226.4(a) and 226.4(b),
except interest or the time-price differential;
(ii) all compensation paid to mortgage
brokers; and
(iii)
all items listed in section 226.4(c)(7) (other than amounts held for
future payment of taxes) unless the charge is reasonable, the creditor
receives no direct or indirect compensation in connection with the
charge, and the charge is not paid to an affiliate of the creditor;
and
(iv) premiums
or other charges for credit life, accident, health, or loss-of-income
insurance, or debt-cancellation coverage (whether or not the debt-cancellation
coverage is insurance under applicable law) that provides for cancellation
of all or part of the consumer’s liability in the event of the loss
of life, health, or income or in the case of accident, written in
connection with the credit transaction.
(2) Affiliate means any company
that controls, is controlled by, or is under common control with another
company, as set forth in the Bank Holding Company Act of 1956 (12
USC 1841 et seq.).
6-971.5
(c) Disclosures. In addition to other disclosures
required by this part, in a mortgage subject to this section the creditor
shall disclose the following in conspicuous type size:
(1) Notices. The following statement: “You are not required to complete this
agreement merely because you have received these disclosures or have
signed a loan application. If you obtain this loan, the lender will
have a mortgage on your home. You could lose your home, and any money
you have put into it, if you do not meet your obligations under the
loan.”
(2) Annual percentage rate. The annual percentage
rate.
(3) Regular payment; balloon payment. The amount
of the regular monthly (or other periodic) payment and the amount
of any balloon payment. The regular payment disclosed under this paragraph
shall be treated as accurate if it is based on an amount borrowed
that is deemed accurate and is disclosed under paragraph (c)(5) of
this section.
(4) Variable rate. For variable-rate transactions,
a statement that the interest rate and monthly payment may increase,
and the amount of the single maximum monthly payment, based on the
maximum interest rate required to be disclosed under section 226.30.
(5) Amount borrowed. For a mortgage refinancing,
the total amount the consumer will borrow, as reflected by the face
amount of the note; and where the amount borrowed includes premiums
or other charges for optional credit insurance or debt-cancellation
coverage, that fact shall be stated, grouped together with the disclosure
of the amount borrowed. The disclosure of the amount borrowed shall
be treated as accurate if it is not more than $100 above or below
the amount required to be disclosed.
6-971.6
(d) Limitations. A mortgage transaction
subject to this section may not include the following terms:
(1) (i) Balloon payment. For a loan with
a term of less than five years, a payment schedule with regular periodic
payments that when aggregated do not fully amortize the outstanding
principal balance.
(ii) Exception. The limitations in
paragraph (d)(1)(i) of this section do not apply to loans with maturities
of less than one year, if the purpose of the loan is a “bridge” loan
connected with the acquisition or construction of a dwelling intended
to become the consumer’s principal dwelling.
(2) Negative amortization. A payment schedule with regular periodic
payments that cause the principal balance to increase.
(3) Advance payments. A payment schedule that consolidates more
than two periodic payments and pays them in advance from the proceeds.
(4) Increased interest rate. An increase in
the interest rate after default.
6-971.7
(5) Rebates. A refund calculated by a method less favorable than the actuarial
method (as defined by section 933(d) of the Housing and Community
Development Act of 1992, 15 USC 1615(d)), for rebates of interest
arising from a loan acceleration due to default.
(6) Prepayment
penalties. Except as allowed under paragraph (d)(7) of this section,
a penalty for paying all or part of the principal before the date
on which the principal is due. A prepayment penalty includes computing
a refund of unearned interest by a method that is less favorable to
the consumer than the actuarial method, as defined by section 933(d)
of the Housing and Community Development Act of 1992, 15 U.S.C. 1615(d).
(7) Prepayment penalty exception. A mortgage
transaction subject to this section may provide for a prepayment penalty
(including a refund calculated according to the rule of 78s) otherwise
permitted by law if, under the terms of the loan:
(i) The penalty
will not apply after the two-year period following consummation;
(ii) The penalty will
not apply if the source of the prepayment funds is a refinancing
by the creditor or an affiliate of the creditor;
(iii) At consummation, the consumer’s
total monthly debt payments (including amounts owed under the mortgage)
do not exceed 50 percent of the consumer’s monthly gross income, as
verified in accordance with section 226.34(a)(4)(ii); and
(iv) The amount of the periodic
payment of principal or interest or both may not change during the
four-year period following consummation.
(8) Due-on-demand clause. A demand feature that permits the creditor
to terminate the loan in advance of the original maturity date and
to demand repayment of the entire outstanding balance, except in the
following circumstances:
(i) there is fraud or material misrepresentation
by the consumer in connection with the loan;
(ii) the consumer fails to meet the
repayment terms of the agreement for any outstanding balance; or
(iii) there is any
action or inaction by the consumer that adversely affects the creditor’s
security for the loan, or any right of the creditor in such security.
