(a) Higher-priced mortgage loans—
(1) For purposes of this section, except
as provided in paragraph (b)(3)(v) of this section, a higher-priced
mortgage loan is a consumer credit transaction secured by the consumer’s
principal dwelling with an annual percentage rate that exceeds the
average prime offer rate for a comparable transaction as of the date
the interest rate is set by 1.5 or more percentage points for loans
secured by a first lien on a dwelling, or by 3.5 or more percentage
points for loans secured by a subordinate lien on a dwelling.
(2) “Average prime offer rate”
means an annual percentage rate that is derived from average interest
rates, points, and other loan pricing terms currently offered to consumers
by a representative sample of creditors for mortgage transactions
that have low-risk pricing characteristics. The Board publishes
average prime offer rates for a broad range of types of transactions
in a table updated at least weekly as well as the methodology the
Board uses to derive these rates.
(3) Notwithstanding paragraph (a)(1) of
this section, the term “higher-priced mortgage loan” does not include
a transaction to finance the initial construction of a dwelling, a
temporary or “bridge” loan with a term of twelve months or less, such
as a loan to purchase a new dwelling where the consumer plans to sell
a current dwelling within twelve months, a reverse-mortgage transaction
subject to section 226.33, or a home-equity line of credit subject
to section 226.5b.
(b) Rules for higher-priced mortgage loans. Higher-priced mortgage loans are subject to the following restrictions:
(1) Repayment ability. A creditor shall not extend credit based
on the value of the consumer’s collateral without regard to the consumer’s
repayment ability as of consummation as provided in section 226.34(a)(4).
(2) Prepayment penalties. A loan may not include
a penalty described by section 226.32(d)(6) unless:
(i) The
penalty is otherwise permitted by law, including section 226.32(d)(7)
if the loan is a mortgage transaction described in section 226.32(a);
and
(ii) Under the
terms of the loan—
(A) The penalty will not apply after the two-year
period following consummation;
(B) The penalty will not apply if the source
of the prepayment funds is a refinancing by the creditor or an affiliate
of the creditor; and
(C)
The amount of the periodic payment of principal or interest or both
may not change during the four-year period following consummation.
(3) Escrows —
(i) Failure to escrow for property taxes and insurance. Except as provided in paragraph (b)(3)(ii) of this section, a creditor
may not extend a loan secured by a first lien on a principal dwelling
unless an escrow account is established before consummation for payment
of property taxes and premiums for mortgage-related insurance required
by the creditor, such as insurance against loss of or damage to property,
or against liability arising out of the ownership or use of the property,
or insurance protecting the creditor against the consumer’s default
or other credit loss.
(ii) Exemptions for loans secured by shares
in a cooperative and for certain condominium units —
(A) Escrow accounts
need not be established for loans secured by shares in a cooperative;
and
(B) Insurance premiums
described in paragraph (b)(3)(i) of this section need not be included
in escrow accounts for loans secured by condominium units, where the
condominium association has an obligation to the condominium unit
owners to maintain a master policy insuring condominium units.
(iii) Cancellation. A creditor or servicer may
permit a consumer to cancel the escrow account required in paragraph
(b)(3)(i) of this section only in response to a consumer’s dated written
request to cancel the escrow account that is received no earlier than
365 days after consummation.
(iv) Definition
of escrow account. For purposes of this section, “escrow account”
shall have the same meaning as in 24 CFR 3500.17(b) as amended.
(v) “Jumbo” loans. For purposes of this section
226.35(b)(3), for a transaction with a principal obligation at consummation
that exceeds the limit in effect as of the date the transaction’s
interest rate is set for the maximum principal obligation eligible
for purchase by Freddie Mac, the coverage threshold set forth in paragraph
(a)(1) of this section for loans secured by a first lien on a dwelling
shall be 2.5 or more percentage points greater than the applicable
average prime offer rate.
(4) Evasion;
open-end credit. In connection with credit secured by a consumer’s
principal dwelling that does not meet the definition of open-end
credit in section 226.2(a)(20), a creditor shall not structure a home-secured
loan as an open-end plan to evade the requirements of this section.
