(a) Prohibited acts or practices for loans subject to section 226.32. A creditor extending mortgage credit subject to section 226.32 shall
not—
(1) Home-improvement contracts. Pay a contractor under a home-improvement
contract from the proceeds of a mortgage covered by section 226.32,
other than—
(i) by an instrument payable to the
consumer or jointly to the consumer and the contractor; or
(ii) at the election of
the consumer, through a third-party escrow agent in accordance with
terms established in a written agreement signed by the consumer, the
creditor, and the contractor prior to the disbursement.
(2) Notice to assignee. Sell or otherwise assign
a mortgage subject to section 226.32 without furnishing the following
statement to the purchaser or assignee: “Notice: This is a mortgage
subject to special rules under the federal Truth in Lending Act. Purchasers
or assignees of this mortgage could be liable for all claims and defenses
with respect to the mortgage that the borrower could assert against
the creditor.”
(3) Refinancings within one-year period. Within
one year of having extended credit subject to section 226.32, refinance
any loan subject to section 226.32 to the same borrower into another
loan subject to section 226.32, unless the refinancing is in the borrower’s
interest. An assignee holding or servicing an extension of mortgage
credit subject to section 226.32, shall not, for the remainder of
the one-year period following the date of origination of the credit,
refinance any loan subject to section 226.32 to the same borrower
into another loan subject to section 226.32, unless the refinancing
is in the borrower’s interest. A creditor (or assignee) is prohibited
from engaging in acts or practices to evade this provision, including
a pattern or practice of arranging for the refinancing of its own
loans by affiliated or unaffiliated creditors, or modifying a loan
agreement (whether or not the existing loan is satisfied and replaced
by the new loan) and charging a fee.
(4) Repayment
ability. Extend credit subject to section 226.32 to a consumer
based on the value of the consumer’s collateral without regard to
the consumer’s repayment ability as of consummation, including the
consumer’s current and reasonably expected income, employment, assets
other than the collateral, current obligations, and mortgage-related
obligations.
(i) Mortgage-related
obligations. For purposes of this paragraph (a)(4), mortgage-related
obligations are expected property taxes, premiums for mortgage-related
insurance required by the creditor as set forth in section 226.35(b)(3)(i),
and similar expenses.
(ii) Verification
of repayment ability. Under this paragraph (a)(4) a creditor
must verify the consumer’s repayment ability as follows:
(A) A creditor
must verify amounts of income or assets that it relies on to determine
repayment ability, including expected income or assets, by the consumer’s
Internal Revenue Service Form W-2, tax returns, payroll receipts,
financial institution records, or other third-party documents that
provide reasonably reliable evidence of the consumer’s income or assets.
(B) Notwithstanding paragraph
(a)(4)(ii)(A), a creditor has not violated paragraph (a)(4)(ii) if
the amounts of income and assets that the creditor relied upon in
determining repayment ability are not materially greater than the
amounts of the consumer’s income or assets that the creditor could
have verified pursuant to paragraph (a)(4)(ii)(A) at the time the
loan was consummated.
(C) A creditor must verify the consumer’s current obligations.
(iii) Presumption of compliance. A creditor is
presumed to have complied with this paragraph (a)(4) with respect
to a transaction if the creditor:
(A) Verifies the consumer’s repayment
ability as provided in paragraph (a)(4)(ii);
(B) Determines the consumer’s repayment ability
using the largest payment of principal and interest scheduled in the
first seven years following consummation and taking into account current
obligations and mortgage-related obligations as defined in paragraph
(a)(4)(i); and
(C) Assesses
the consumer’s repayment ability taking into account at least one
of the following: The ratio of total debt obligations to income, or
the income the consumer will have after paying debt obligations.
(iv) Exclusions from presumption of compliance. Notwithstanding the previous paragraph, no presumption of compliance
is available for a transaction for which:
(A) The regular periodic payments
for the first seven years would cause the principal balance to increase;
or
(B) The term of the
loan is less than seven years and the regular periodic payments when
aggregated do not fully amortize the outstanding principal balance.
(v) Exemption. This paragraph (a)(4) does not
apply to temporary or “bridge” loans with terms 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.
6-972.3
(b) Prohibited acts or
practices for dwelling-secured loans; open-end credit. In connection
with credit secured by the consumer’s dwelling that does not meet
the definition 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 section 226.32.
