(1) Home improvement
contracts. A creditor shall not pay a contractor under a home
improvement contract from the proceeds of a high-cost mortgage, 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. A creditor may not
sell or otherwise assign a high-cost mortgage 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 consumer
could assert against the creditor.”
(3) Refinancings
within one-year period. Within one year of having extended a
high-cost mortgage, a creditor shall not refinance any high-cost mortgage
to the same consumer into another high-cost mortgage, unless the refinancing
is in the consumer’s interest. An assignee holding or servicing a
high-cost mortgage shall not, for the remainder of the one-year period
following the date of origination of the credit, refinance any high-cost
mortgage to the same consumer into another high-cost mortgage, unless
the refinancing is in the consumer’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.
(4) Repayment ability for high-cost mortgages. In connection with
an open-end, high-cost mortgage, a creditor shall not open a plan
for a consumer where credit is or will be extended without regard
to the consumer’s repayment ability as of account opening, including
the consumer’s current and reasonably expected income, employment,
assets other than the collateral, and current obligations including
any mortgage-related obligations that are required by another credit
obligation undertaken prior to or at account opening, and are secured
by the same dwelling that secures the high-cost mortgage transaction.
The requirements set forth in section 1026.34(a)(4)(i) through (iv)
apply to open-end high-cost mortgages, but do not apply to closed-end
high-cost mortgages. In connection with a closed-end, high-cost mortgage,
a creditor must comply with the repayment ability requirements set
forth in section 1026.43. 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, are
exempt from this repayment ability requirement.
(i) Mortgage-related obligations. For purposes
of this paragraph (a)(4), mortgage-related obligations are property
taxes; premiums and similar charges identified in section 1026.4(b)(5),
(7), (8), and (10) that are required by the creditor; fees and special
assessments imposed by a condominium, cooperative, or homeowners association;
ground rent; and leasehold payments.
(ii) Basis
for determination of repayment ability. Under this paragraph
(a)(4) a creditor must determine the consumer’s repayment ability
in connection with an open-end, high cost mortgage 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)
A creditor must verify the consumer’s current obligations, including
any mortgage-related obligations that are required by another credit
obligation undertaken prior to or at account opening, and are secured
by the same dwelling that secures the high-cost mortgage transaction.
(iii) Presumption of compliance. For an open-end,
high cost mortgage, a creditor is presumed to have complied with this
paragraph (a)(4) with respect to a transaction if the creditor:
(A) Determines the consumer’s repayment ability as provided in paragraph
(a)(4)(ii);
(B) Determines
the consumer’s repayment ability taking into account current obligations
and mortgage-related obligations as defined in paragraph (a)(4)(i)
of this section, and using the largest required minimum periodic payment
based on the following assumptions:
(1) The consumer borrows the full credit line at account opening
with no additional extensions of credit;
(2) The consumer makes only required
minimum periodic payments during the draw period and any repayment
period;
(3) If
the annual percentage rate may increase during the plan, the maximum
annual percentage rate that is included in the contract, as required
by section 1026.30, applies to the plan at account opening and will
apply during the draw period and any repayment period.
(C) Assesses the consumer’s
repayment ability taking into account at least one of the following:
The ratio of total current obligations, including any mortgage-related
obligations that are required by another credit obligation undertaken
prior to or at account opening, and are secured by the same dwelling
that secures the high-cost mortgage transaction, to income, or the
income the consumer will have after paying current obligations.
(iv) Exclusions from presumption of compliance. Notwithstanding the previous paragraph, no presumption of compliance
is available for an open-end, high-cost mortgage transaction for which
the regular periodic payments when aggregated do not fully amortize
the outstanding principal balance except as otherwise provided by
section 1026.32(d)(1)(ii).
(5) Pre-loan
counseling.
(i) Certification
of counseling required. A creditor shall not extend a high-cost
mortgage to a consumer unless the creditor receives written certification
that the consumer has obtained counseling on the advisability of the
mortgage from a counselor that is approved to provide such counseling
by the Secretary of the U.S. Department of Housing and Urban Development
or, if permitted by the Secretary, by a State housing finance authority.
(ii) Timing of counseling. The counseling required
under this paragraph (a)(5) must occur after:
(A) The consumer
receives either the disclosure required by section 5(c) of the Real
Estate Settlement Procedures Act of 1974 (12 U.S.C. 2604(c)) or the
disclosures required by section 1026.40; or
(B) The consumer receives the disclosures
required by section 1026.32(c), for transactions in which neither
of the disclosures listed in paragraph (a)(5)(ii)(A) of this section
are provided.
(iii) Affiliation
prohibited. The counseling required under this paragraph (a)(5)
shall not be provided by a counselor who is employed by or affiliated
with the creditor.
(iv) Content of certification. The
certification of counseling required under paragraph (a)(5)(i) must
include:
(A) The name(s) of the consumer(s) who obtained
counseling;
(B) The date(s)
of counseling;
(C) The
name and address of the counselor;
(D) A statement that the consumer(s) received
counseling on the advisability of the high-cost mortgage based on
the terms provided in either the disclosure required by section 5(c)
of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2604(c))
or the disclosures required by section 1026.40.
(E) For transactions for which neither of
the disclosures listed in paragraph (a)(5)(ii)(A) of this section
are provided, a statement that the consumer(s) received counseling
on the advisability of the high-cost mortgage based on the terms provided
in the disclosures required by section 1026.32(c); and
(F) A statement that the counselor
has verified that the consumer(s) received the disclosures required
by either section 1026.32(c) or the Real Estate Settlement Procedures
Act of 1974 (12 U.S.C. 2601 et seq.) with respect to the transaction.
(v) Counseling fees. A creditor may pay the
fees of a counselor or counseling organization for providing counseling
required under this paragraph (a)(5) but may not condition the payment
of such fees on the consummation or account-opening of a mortgage
transaction. If the consumer withdraws the application that would
result in the extension of a high-cost mortgage, a creditor may not
condition the payment of such fees on the receipt of certification
from the counselor required by paragraph (a)(5)(i) of this section.
A creditor may, however, confirm that a counselor has provided counseling
to the consumer pursuant to this paragraph (a)(5) prior to paying
the fee of a counselor or counseling organization.
(vi) Steering
prohibited. A creditor that extends a high-cost mortgage shall
not steer or otherwise direct a consumer to choose a particular counselor
or counseling organization for the counseling required under this
paragraph (a)(5).
(6) Recommended
default. A creditor or mortgage broker, as defined in section
1026.36(a)(2), may not recommend or encourage default on an existing
loan or other debt prior to and in connection with the consummation
or account opening of a high-cost mortgage that refinances all or
any portion of such existing loan or debt.
(7) Modification
and deferral fees. A creditor, successor-in-interest, assignee,
or any agent of such parties may not charge a consumer any fee to
modify, renew, extend or amend a high-cost mortgage, or to defer any
payment due under the terms of such mortgage.
(8) Late fees.
(i) General. Any late payment charge imposed in connection with a high-cost mortgage
must be specifically permitted by the terms of the loan contract or
open-end credit agreement and may not exceed 4 percent of the amount
of the payment past due. No such charge may be imposed more than once
for a single late payment.
(ii) Timing. A late payment charge may be imposed in connection with a high-cost mortgage
only if the payment is not received by the end of the 15-day period
beginning on the date the payment is due or, in the case of a high-cost
mortgage on which interest on each installment is paid in advance,
the end of the 30-day period beginning on the date the payment is
due.
(iii) Multiple late charges assessed on payment subsequently
paid. A late payment charge may not be imposed in connection
with a high-cost mortgage payment if any delinquency is attributable
only to a late payment charge imposed on an earlier payment, and the
payment otherwise is a full payment for the applicable period and
is paid by the due date or within any applicable grace period.
(iv) Failure to make required payment. The terms
of a high-cost mortgage agreement may provide that any payment shall
first be applied to any past due balance. If the consumer fails to
make a timely payment by the due date and subsequently resumes making
payments but has not paid all past due payments, the creditor may
impose a separate late payment charge for any payment(s) outstanding
(without deduction due to late fees or related fees) until the default
is cured.
(9) Payoff statements.
(i) Fee prohibition. In general, a creditor
or servicer (as defined in 12 CFR 1024.2(b)) may not charge a fee
for providing to a consumer, or a person authorized by the consumer
to obtain such information, a statement of the amount due to pay off
the outstanding balance of a high-cost mortgage.
(ii) Processing
fee. A creditor or servicer may charge a processing fee to cover
the cost of providing a payoff statement, as described in paragraph
(a)(9)(i) of this section, by fax or courier, provided that such fee
may not exceed an amount that is comparable to fees imposed for similar
services provided in connection with consumer credit transactions
that are secured by the consumer’s principal dwelling and are not
high-cost mortgages. A creditor or servicer shall make a payoff statement
available to a consumer, or a person authorized by the consumer to
obtain such information, by a method other than by fax or courier
and without charge pursuant to paragraph (a)(9)(i) of this section.
(iii) Processing fee disclosure. Prior to charging
a processing fee for provision of a payoff statement by fax or courier,
as permitted pursuant to paragraph (a)(9)(ii) of this section, a creditor
or servicer shall disclose to a consumer or a person authorized by
the consumer to obtain the consumer’s payoff statement that payoff
statements, as described in paragraph (a)(9)(i) of this section, are
available by a method other than by fax or courier without charge.
(iv) Fees permitted after multiple requests. A creditor or servicer that has provided a payoff statement, as
described in paragraph (a)(9)(i) of this section, to a consumer, or
a person authorized by the consumer to obtain such information, without
charge, other than the processing fee permitted under paragraph (a)(9)(ii)
of this section, four times during a calendar year, may thereafter
charge a reasonable fee for providing such statements during the remainder
of the calendar year. Fees for payoff statements provided to a consumer,
or a person authorized by the consumer to obtain such information,
in a subsequent calendar year are subject to the requirements of this
section.
(v) Timing of delivery of payoff statements. A payoff statement, as described in paragraph (a)(9)(i) of this
section, for a high-cost mortgage shall be provided by a creditor
or servicer within five business days after receiving a request for
such statement by a consumer or a person authorized by the consumer
to obtain such statement.
(10) Financing
of points and fees. A creditor that extends credit under a high-cost
mortgage may not finance charges that are required to be included
in the calculation of points and fees, as that term is defined in
section 1026.32(b)(1) and (2). Credit insurance premiums or debt cancellation
or suspension fees that are required to be included in points and
fees under section 1026.32(b)(1)(iv) or (2)(iv) shall not be considered
financed by the creditor when they are calculated and paid in full
on a monthly basis.
