(1) The requirements of this section apply
to a high-cost mortgage, which is any consumer credit transaction
that is secured by the consumer’s principal dwelling, other than as
provided in paragraph (a)(2) of this section, and in which:
(i) The
annual percentage rate applicable to the transaction, as determined
in accordance with paragraph (a)(3) of this section, will exceed the
average prime offer rate, as defined in section 1026.35(a)(2), for
a comparable transaction by more than:
(A) 6.5 percentage points
for a first-lien transaction, other than as described in paragraph
(a)(1)(i)(B) of this section;
(B) 8.5 percentage points for a first-lien
transaction if the dwelling is personal property and the loan amount
is less than $50,000; or
(C) 8.5 percentage points for a subordinate-lien transaction; or
(ii)
The transaction’s total points and fees, as defined in paragraphs
(b)(1) and (2) of this section, will exceed:
(A) 5 percent
of the total loan amount for a transaction with a loan amount of $20,000
or more; the $20,000 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; or
(B) The lesser of 8 percent of the total loan
amount or $1,000 for a transaction with a loan amount of less than
$20,000; the $1,000 and $20,000 figures 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; or
(iii) Under the terms
of the loan contract or open-end credit agreement, the creditor can
charge a prepayment penalty, as defined in paragraph (b)(6) of this
section, more than 36 months after consummation or account opening,
or prepayment penalties that can exceed, in total, more than 2 percent
of the amount prepaid.
(2) Exemptions. This section does not apply to the following:
(i) A reverse
mortgage transaction subject to section 1026.33;
(ii) A transaction to finance the initial
construction of a dwelling;
(iii) A transaction originated by a
Housing Finance Agency, where the Housing Finance Agency is the creditor
for the transaction; or
(iv) A transaction originated pursuant
to the United States Department of Agriculture’s Rural Development
Section 502 Direct Loan Program.
(3) Determination
of annual percentage rate. For purposes of paragraph (a)(1)(i)
of this section, a creditor shall determine the annual percentage
rate for a closed- or open-end credit transaction based on the following:
(i) For a transaction in which the annual percentage rate will not
vary during the term of the loan or credit plan, the interest rate
in effect as of the date the interest rate for the transaction is
set;
(ii) For a transaction
in which the interest rate may vary during the term of the loan or
credit plan in accordance with an index, the interest rate that results
from adding the maximum margin permitted at any time during the term
of the loan or credit plan to the value of the index rate in effect
as of the date the interest rate for the transaction is set, or the
introductory interest rate, whichever is greater; and
(iii) For a transaction in which the
interest rate may or will vary during the term of the loan or credit
plan, other than a transaction described in paragraph (a)(3)(ii) of
this section, the maximum interest rate that may be imposed during
the term of the loan or credit plan.
(1) In connection with a closed-end credit
transaction, points and fees means the following fees or charges that
are known at or before consummation:
(i) All items included
in the finance charge under section 1026.4(a) and (b), except that
the following items are excluded:
(A) Interest or the time-price
differential;
(B) Any
premium or other charge imposed in connection with any Federal or
State agency program for any guaranty or insurance that protects the
creditor against the consumer’s default or other credit loss;
(C) For any guaranty or insurance
that protects the creditor against the consumer’s default or other
credit loss and that is not in connection with any Federal or State
agency program:
(1) If the premium or other charge is payable after consummation,
the entire amount of such premium or other charge; or
(2) If the premium or
other charge is payable at or before consummation, the portion of
any such premium or other charge that is not in excess of the amount
payable under policies in effect at the time of origination under
section 203(c)(2)(A) of the National Housing Act (12 U.S.C. 1709(c)(2)(A)),
provided that the premium or charge is required to be refundable on
a pro rata basis and the refund is automatically issued upon notification
of the satisfaction of the underlying mortgage loan;
(D) Any bona fide third-party
charge not retained by the creditor, loan originator, or an affiliate
of either, unless the charge is required to be included in points
and fees under paragraph (b)(1)(i)(C), (iii), or (iv) of this section;
(E) Up to two bona fide discount points paid by the consumer in connection with the transaction,
if the interest rate without any discount does not exceed:
(1) The average prime offer rate,
as defined in section 1026.35(a)(2), by more than one percentage point;
or
(2) For purposes
of paragraph (a)(1)(ii) of this section, for transactions that are
secured by personal property, the average rate for a loan insured
under Title I of the National Housing Act (12 U.S.C. 1702 et seq.) by more than one percentage point; and
(F) If no discount points have
been excluded under paragraph (b)(1)(i)(E) of this section, then up
to one bona fide discount point paid by the consumer in connection
with the transaction, if the interest rate without any discount does
not exceed:
(1) The average prime
offer rate, as defined in section 1026.35(a)(2), by more than two
percentage points; or
(2) For purposes of paragraph (a)(1)(ii) of this section,
for transactions that are secured by personal property, the average
rate for a loan insured under Title I of the National Housing Act
(12 U.S.C. 1702 et seq.) by more than two percentage points;
(ii) All compensation paid directly
or indirectly by a consumer or creditor to a loan originator, as defined
in section 1026.36(a)(1), that can be attributed to that transaction
at the time the interest rate is set unless:
(A) That compensation
is paid by a consumer to a mortgage broker, as defined in section
1026.36(a)(2), and already has been included in points and fees under
paragraph (b)(1)(i) of this section;
(B) That compensation is paid by a mortgage
broker, as defined in section 1026.36(a)(2), to a loan originator
that is an employee of the mortgage broker;
(C) That compensation is paid by a creditor
to a loan originator that is an employee of the creditor; or
(D) That compensation is paid
by a retailer of manufactured homes to its employee.
(iii) All items listed
in section 1026.4(c)(7) (other than amounts held for future payment
of taxes), unless:
(A) The charge is reasonable;
(B) The creditor receives no direct or indirect
compensation in connection with the charge; and
(C) The charge is not paid to an affiliate
of the creditor;
(iv) Premiums or other charges payable
at or before consummation for any credit life, credit disability,
credit unemployment, or credit property insurance, or any other life,
accident, health, or loss-of-income insurance for which the creditor
is a beneficiary, or any payments directly or indirectly for any debt
cancellation or suspension agreement or contract;
(v) The maximum prepayment penalty,
as defined in paragraph (b)(6)(i) of this section, that may be charged
or collected under the terms of the mortgage loan; and
(vi) The total prepayment
penalty, as defined in paragraph (b)(6)(i) or (ii) of this section,
as applicable, incurred by the consumer if the consumer refinances
the existing mortgage loan, or terminates an existing open-end credit
plan in connection with obtaining a new mortgage loan, with the current
holder of the existing loan or plan, a servicer acting on behalf of
the current holder, or an affiliate of either.
(2) In connection with an open-end
credit plan, points and fees means the following fees or charges
that are known at or before account opening:
(i) All
items included in the finance charge under section 1026.4(a) and (b),
except that the following items are excluded:
(A) Interest or
the time-price differential;
(B) Any premium or other charge imposed in connection with any Federal
or State agency program for any guaranty or insurance that protects
the creditor against the consumer’s default or other credit loss;
(C) For any guaranty or
insurance that protects the creditor against the consumer’s default
or other credit loss and that is not in connection with any Federal
or State agency program:
(1) If the premium or other charge is payable after account
opening, the entire amount of such premium or other charge; or
(2) If the premium
or other charge is payable at or before account opening, the portion
of any such premium or other charge that is not in excess of the amount
payable under policies in effect at the time of account opening under
section 203(c)(2)(A) of the National Housing Act (12 U.S.C. 1709(c)(2)(A)),
provided that the premium or charge is required to be refundable on
a pro rata basis and the refund is automatically issued upon notification
of the satisfaction of the underlying mortgage transaction;
(D) Any bona fide third-party
charge not retained by the creditor, loan originator, or an affiliate
of either, unless the charge is required to be included in points
and fees under paragraphs (b)(2)(i)(C), (b)(2)(iii) or (b)(2)(iv)
of this section;
(E) Up
to two bona fide discount points payable by the consumer in
connection with the transaction, provided that the conditions specified
in paragraph (b)(1)(i)(E) of this section are met; and
(F) Up to one bona fide discount point payable by the consumer in connection with the transaction,
provided that no discount points have been excluded under paragraph
(b)(2)(i)(E) of this section and the conditions specified in paragraph
(b)(1)(i)(F) of this section are met;
(ii) All compensation paid directly
or indirectly by a consumer or creditor to a loan originator, as defined
in section 1026.36(a)(1), that can be attributed to that transaction
at the time the interest rate is set unless:
(A) That compensation
is paid by a consumer to a mortgage broker, as defined in section
1026.36(a)(2), and already has been included in points and fees under
paragraph (b)(2)(i) of this section;
(B) That compensation is paid by a mortgage
broker, as defined in section 1026.36(a)(2), to a loan originator
that is an employee of the mortgage broker;
(C) That compensation is paid by a creditor
to a loan originator that is an employee of the creditor; or
(D) That compensation is paid
by a retailer of manufactured homes to its employee.
(iii) All items listed
in section 1026.4(c)(7) (other than amounts held for future payment
of taxes) unless:
(A) The charge is reasonable;
(B) The creditor receives no direct or indirect
compensation in connection with the charge; and
(C) The charge is not paid to an affiliate
of the creditor;
(iv) Premiums or other charges payable
at or before account opening for any credit life, credit disability,
credit unemployment, or credit property insurance, or any other life,
accident, health, or loss-of-income insurance for which the creditor
is a beneficiary, or any payments directly or indirectly for any debt
cancellation or suspension agreement or contract;
(v) The maximum prepayment penalty,
as defined in paragraph (b)(6)(ii) of this section, that may be charged
or collected under the terms of the open-end credit plan;
(vi) The total prepayment
penalty, as defined in paragraph (b)(6)(i) or (ii) of this section,
as applicable, incurred by the consumer if the consumer refinances
an existing closed-end credit transaction with an open-end credit
plan, or terminates an existing open-end credit plan in connection
with obtaining a new open-end credit plan, with the current holder
of the existing transaction or plan, a servicer acting on behalf of
the current holder, or an affiliate of either;
(vii) Any fees charged for participation
in an open-end credit plan, payable at or before account opening,
as described in section 1026.4(c)(4); and
(viii) Any transaction fee, including
any minimum fee or per-transaction fee, that will be charged for a
draw on the credit line, where the creditor must assume that the consumer
will make at least one draw during the term of the plan.
(3) Bona fide discount point.
(i) Closed-end credit. The term bona fide discount point means
an amount equal to 1 percent of the loan amount paid by the consumer
that reduces the interest rate or time-price differential applicable
to the transaction based on a calculation that is consistent with
established industry practices for determining the amount of reduction
in the interest rate or time-price differential appropriate for the
amount of discount points paid by the consumer.
(ii) Open-end
credit. The term bona fide discount point means an amount
equal to 1 percent of the credit limit for the plan when the account
is opened, paid by the consumer, and that reduces the interest rate
or time-price differential applicable to the transaction based on
a calculation that is consistent with established industry practices
for determining the amount of reduction in the interest rate or time-price
differential appropriate for the amount of discount points paid by
the consumer. See comment 32(b)(3)(i)-1 for additional guidance
in determining whether a discount point is bona fide.
(4) Total loan amount.
(i) Closed-end credit. The total loan amount
for a closed-end credit transaction is calculated by taking the amount
financed, as determined according to section 1026.18(b), and deducting
any cost listed in section 1026.32(b)(1)(iii), (iv), or (vi) that
is both included as points and fees under section 1026.32(b)(1) and
financed by the creditor.
(ii) Open-end credit. The total loan
amount for an open-end credit plan is the credit limit for the plan
when the account is opened.
(5) 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
U.S.C. 1841 et seq.).
(6) Prepayment
penalty.
(i) Closed-end
credit transactions. For a closed-end credit transaction, prepayment
penalty means a charge imposed for paying all or part of the transaction’s
principal before the date on which the principal is due, other than
a waived, bona fide third-party charge that the creditor imposes
if the consumer prepays all of the transaction’s principal sooner
than 36 months after consummation, provided, however, that interest
charged consistent with the monthly interest accrual amortization
method is not a prepayment penalty for extensions of credit insured
by the Federal Housing Administration that are consummated before
January 21, 2015.
(ii) Open-end credit. For an open-end
credit plan, prepayment penalty means a charge imposed by the creditor
if the consumer terminates the open-end credit plan prior to the end
of its term, other than a waived, bona fide third-party charge
that the creditor imposes if the consumer terminates the open-end
credit plan sooner than 36 months after account opening.
(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; minimum periodic payment example;
balloon payment.
(i) For a closed-end credit transaction,
the amount of the regular monthly (or other periodic) payment and
the amount of any balloon payment provided in the credit contract,
if permitted under paragraph (d)(1) of this section. 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.
(ii) For an open-end credit plan:
(A) An example showing the first minimum periodic payment for the
draw period, the first minimum periodic payment for any repayment
period, and the balance outstanding at the beginning of any repayment
period. The example must be based on the following assumptions:
(1) The consumer borrows the full
credit line, as disclosed in paragraph (c)(5) of this section, at
account opening and does not obtain any additional extensions of credit;
(2) The consumer
makes only minimum periodic payments during the draw period and any
repayment period; and
(3) The annual percentage rate used to calculate the example
payments remains the same during the draw period and any repayment
period. The creditor must provide the minimum periodic payment example
based on the annual percentage rate for the plan, as described in
paragraph (c)(2) of this section, except that if an introductory annual
percentage rate applies, the creditor must use the rate that will
apply to the plan after the introductory rate expires.
(B) If the credit contract
provides for a balloon payment under the plan as permitted under paragraph
(d)(1) of this section, a disclosure of that fact and an example showing
the amount of the balloon payment based on the assumptions described in
paragraph (c)(3)(ii)(A) of this section.
(C) A statement that the example payments
show the first minimum periodic payments at the current annual percentage
rate if the consumer borrows the maximum credit available when the
account is opened and does not obtain any additional extensions of
credit, or a substantially similar statement.
(D) A statement that the example payments
are not the consumer’s actual payments and that the actual minimum
periodic payments will depend on the amount the consumer borrows,
the interest rate applicable to that period, and whether the consumer
pays more than the required minimum periodic payment, or a substantially
similar statement.
(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
included in the contract by section 1026.30.
(5) Amount borrowed;
credit limit.
(i) For a closed-end credit transaction,
the total amount the consumer will borrow, as reflected by the face
amount of the note. Where the amount borrowed includes financed charges
that are not prohibited under section 1026.34(a)(10), 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.
(ii)
For an open-end credit plan, the credit limit for the plan when the
account is opened.
(1) (i) Balloon payment. Except as provided by
paragraphs (d)(1)(ii) and (iii) of this section, a payment schedule
with a payment that is more than two times a regular periodic payment.
(ii) Exceptions. The limitations in paragraph
(d)(1)(i) of this section do not apply to:
(A) A mortgage transaction
with a payment schedule that is adjusted to the seasonal or irregular
income of the consumer;
(B) A loan with maturity of 12 months or less, 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;
or
(C) A loan that meets
the criteria set forth in sections 1026.43(f)(1)(i) through (vi) and
1026.43(f)(2), or the conditions set forth in section 1026.43(e)(6).
(iii) Open-end credit plans. If the terms of
an open-end credit plan provide for a repayment period during which
no further draws may be taken, the limitations in paragraph (d)(1)(i)
of this section do not apply to any adjustment in the regular periodic
payment that results solely from the credit plan’s transition from
the draw period to the repayment period. If the terms of an open-end
credit plan do not provide for any repayment period, the limitations
in paragraph (d)(1)(i) of this section apply to all periods of the
credit plan.
(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.
6-5971.7
(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 U.S.C. 1615(d)), for rebates of interest
arising from a loan acceleration due to default.
(6) Prepayment
penalties. A prepayment penalty, as defined in paragraph (b)(6)
of this section.
(7)
[Reserved]
(8) Acceleration of debt. A demand feature
that permits the creditor to accelerate the indebtedness by terminating
the high-cost mortgage 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 or open-end credit agreement;
(ii) The consumer
fails to meet the repayment terms of the agreement for any outstanding
balance that results in a default in payment under the loan; 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.
