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6500 - Consumer Protection
Subpart D—Miscellaneous
§ 226.25 Record retention.
(a) General rule. A creditor shall retain evidence of
compliance with this regulation (other than advertising requirements
under §§ 226.16 and
226.24) for 2 years after the
date disclosures are required to be made or action is required to be
taken. The administrative agencies responsible for enforcing the
regulation may require creditors under their jurisdictions to retain
records for a longer period if necessary to carry out their enforcement
responsibilities under § 108 of the act.
(b) Inspection of records. A creditor shall permit the
agency responsible for enforcing this regulation with respect to that
creditor to inspect its relevant records for compliance.
[Codified to 12 C.F.R. § 226.25]
§ 226.26 Use of annual percentage rate in oral disclosures.
(a) Open-end credit. In an oral response to a
consumer's inquiry about the cost of open-end credit, only the annual
percentage rate or rates shall be stated, except that the periodic rate
or rates also may be stated. If the annual percentage rate cannot be
determined in advance because there are finance charges other than a
periodic rate, the corresponding annual percentage rate shall be
stated, and other cost information may be given.
(b) Closed-end credit. In an oral response to a
consumer's inquiry about the cost of closed-end credit, only the annual
percentage rate shall be stated, except that a simple annual rate or
periodic rate also may be stated if it is applied to an unpaid balance.
If the annual percentage rate cannot be determined in advance, the
annual percentage rate for a sample transaction shall be stated, and
other cost information for the consumer's specific transaction may be
given.
[Codified to 12 C.F.R.
§ 226.26]
§ 226.27 Language of disclosures.
Disclosures required by this regulation may be made in a language
other than English, provided that the disclosures are made available in
English upon the consumer's request. This requirement for providing
English disclosures on request does not apply to advertisements subject
to §§ 226.16 and 226.24.
[Codified to 12 C.F.R. § 226.27]
[Section 226.27 amended at 66 Fed. Reg. 17339, March 30, 2001,
effective March 30, 2001]
§ 226.28 Effect on state laws.
(a) Inconsistent disclosure requirements. (1) Except
as provided in paragraph (d) of this section, state law requirements
that are inconsistent with the requirements contained
{{8-29-08 p.6670.04-C}}in chapter 1 (General provisions),
chapter 2 (Credit transactions), or chapter 3 (Credit advertising) of
the act and the implementing provisions of this regulation are
preempted to the extent of the inconsistency. A state law is
inconsistent if it requires a creditor to make disclosures or take
actions that contradict the requirements of the federal law. A state
law is contradictory if it requires the use of the same term to
represent a different amount or a different meaning than the federal
law, or if it requires the use of a term different from that required
in the federal law to describe the same item. A creditor, state, or
other interested party may request the Board to determine whether a
state law requirement is inconsistent. After the Board determines that
a state law is inconsistent, a creditor may not make disclosures using
the inconsistent term or form.
(2)(i) State law requirements are inconsistent with the
requirements contained in
§§ 161 (Correction of billing
errors) or 162 (Regulation of
credit reports) of the act and the implementing provisions of this
regulation and are preempted if they provide rights, responsibilities,
or procedures for consumers or creditors that are different from those
required by the federal law. However, a state law that allows a
consumer to inquire about an open-end credit account and imposes on the
creditor an obligation to respond to such inquiry after the time
allowed in the federal law for the consumer to submit written notice of
a billing error shall not be preempted in any situation where the time
period for making written notice under this regulation has expired. If
a creditor gives written notice of a consumer's rights under such state
law, the notice shall state that reliance on the longer time period
available under state law may result in the loss of important rights
that could be preserved by acting more promptly under federal law; it
shall also explain that the state law provisions apply only after
expiration of the time period for submitting a proper written notice of
a billing error under the federal law. If the state disclosures are
made on the same side of a page as the required federal disclosures,
the state disclosures shall appear under a demarcation line below the
federal disclosures, and the federal disclosures shall be identified by
a heading indicating that they are made in compliance with federal law.
(ii) State law requirements are inconsistent with the
requirements contained in chapter 4 (Credit billing) of the act (other
than §§ 161 or 162) and the implementing provisions of this
regulation and are preempted if the creditor cannot comply with state
law without violating federal law.
(iii) A state may request the Board to determine whether its law
is inconsistent with chapter 4 of the act and its implementing
provisions.
(b) Equivalent disclosure requirements. If the Board
determines that a disclosure required by state law (other than a
requirement relating to the finance charge, annual percentage rate, or
the disclosures required under § 226.32) is substantially the same in
meaning as a disclosure required under the act or this regulation,
creditors in that state may make the state disclosure in lieu of the
federal disclosure. A creditor, state, or other interested party may
request the Board to determine whether a state disclosure is
substantially the same in meaning as a federal disclosure.
(c) Request for determination. The procedures under
which a request for a determination may be made under this section are
set forth in appendix A.
(d) Special rule for credit and charge cards. State
law requirements relating to the disclosure of credit information in
any credit or charge card application or solicitation that is subject
to the requirements of section
127(c) of chapter 2 of the act
(§ 226.5a of the regulation)
or in any renewal notice for a credit or charge card that is subject to
the requirements of section 127(d) of chapter 2 of the act
(§ 226.9(e) of the
regulation) are preempted. State laws relating to the enforcement of
section 127(c) and (d) of the act are not preempted.
[Codified to 12 C.F.R. § 226.28]
[Section 226.28 amended at 54 Fed. Reg. 13867, April 6,
1989, effective April 3, 1989, but compliance is optional until August
31, 1989; 60 Fed. Reg. 15471, March 24, 1995, effective March 22, 1995,
but compliance is optional until October 1, 1995]
{{8-29-08 p.6670.04-D}}
§ 226.29 State exemptions.
(a) General rule. Any state may apply to the Board to
exempt a class of transactions within the state from the requirements
of chapter 2 (Credit transactions) or chapter 4 (Credit billing) of the
act and the corresponding provisions of this regulation. The Board
shall grant an exemption if it determines that:
(1) The state law is substantially similar to the federal law or,
in the case of chapter 4, affords the consumer greater protection than
the federal law; and
(2) There is adequate provision for enforcement.
(b) Civil liability. (1) No exemptions granted under
this section shall extend to the civil liability provisions of
§§ 130 and 131 of the act.
(2) If an exemption has been granted, the disclosures required by
the applicable state law (except any additional requirements not
imposed by federal law) shall constitute the disclosures required by
this act.
(c) Applications. The procedures under which a state
may apply for an exemption under this section are set forth in appendix
B.
[Codified to 12 C.F.R. § 226.29]
[Section 226.29 amended at 46 Fed. Reg. 29246, June 1,
1981]
§ 226.30 Limitation on rates.
A creditor shall include in any consumer credit contract secured by
a dwelling and subject to the act and this regulation the maximum
interest rate that may be imposed during the term of the
obligation 50
when:
(a) In the case of closed-end credit, the annual percentage rate
may increase after consummation, or
(b) In the case of open-end credit, the annual percentage rate may
increase during the plan.
[Codified to 12 C.F.R. § 226.30]
[Section 226.30 added at 52 Fed. Reg. 43181, November 9,
1987, effective December 9, 1987]
Subpart E—Special Rules for Certain Home Mortgage
Transactions
§ 226.31 General rules.
(a) Relation to other subparts in this part. The
requirements and limitations of this subpart are in addition to and not
in lieu of those contained in other subparts of this part.
(b) Form of disclosures. The creditor shall make the
disclosures required by this subpart clearly and conspicuously in
writing, in a form that the consumer may keep. The disclosures required
by this subpart may be provided to the consumer in electronic form,
subject to compliance with the consumer consent and other applicable
provisions of the Electronic Signatures in Global and National Commerce
Act (E-Sign Act) (15 U.S.C. § 7001 et seq.).
(c) Timing of disclosure--(1) Disclosures for
certain closed-end home mortgages. The creditor shall furnish the
disclosures required by § 226.32 at least three business days prior
to consummation of a mortgage transaction covered by § 226.32.
(i) Change in terms. After complying with paragraph
(c)(1) of this section and prior to consummation, if the creditor
changes any term that makes the disclosures inaccurate, new disclosures
shall be provided in accordance with the requirements of this subpart.
(ii) Telephone disclosures. A creditor may provide new
disclosures by telephone if the consumer initiates the change and if,
at consummation:
(A) The creditor provides new written disclosures;
and
{{8-29-08 p.6670.04-E}}
(B) The consumer and creditor sign a statement that the new
disclosures were provided by telephone at least three days prior to
consummation.
(iii) Consumer's waiver of waiting period before
consummation. The consumer may, after receiving the disclosures
required by paragraph (c)(1) of this section, modify or waive the
three-day waiting period between delivery of those disclosures and
consummation if the consumer determines that the extension of credit is
needed to meet a bona fide personal financial emergency. To modify or
waive the right, the consumer shall give the creditor a dated written
statement that describes the emergency, specifically modifies or waives
the waiting period, and bears the signature of all the consumers
entitled to the waiting period. Printed forms for this purpose are
prohibited, except when creditors are permitted to use printed forms
pursuant to § 226.23(e)(2).
(2) Disclosures for reverse mortgages. The creditor
shall furnish the disclosures required by § 226.33 at least three
business days prior to:
(i) Consummation of a closed-end credit transaction; or
(ii) The first transaction under an open-end credit plan.
(d) Basis of disclosures and use of
estimates.--(1) Legal Obligation. Disclosures shall
reflect the terms of the legal obligation between the parties.
(2) Estimates. If any information necessary for an
accurate disclosure is unknown to the creditor, the creditor shall make
the disclosure based on the best information reasonably available at
the time the disclosure is provided, and shall state clearly that the
disclosure is an estimate.
(3) Pre-diem interest. For a transaction in which a
portion of the interest is determined on a per-diem basis and collected
at consummation, any disclosure affected by the per-diem interest shall
be considered accurate if the disclosure is based on the information
known to the creditor at the time that the disclosure documents are
prepared.
(e) Multiple creditors; multiple consumers. If a
transaction involves more than one creditor, only one set of
disclosures shall be given and the creditors shall agree among
themselves which creditor must comply with the requirements that this
part imposes on any or all of them. If there is more than one consumer,
the disclosures may be made to any consumer who is primarily liable on
the obligation. If the transaction is rescindable under
§ 226.15 or
§ 226.23, however, the
disclosures shall be made to each consumer who has the right to
rescind.
(f) Effect of subsequent events. If a disclosure becomes
inaccurate because of an event that occurs after the creditor delivers
the required disclosures, the inaccuracy is not a violation of
Regulation Z (12 CFR part 226), although new disclosures may be
required for mortgages covered by § 226.32 under paragraph (c) of
this section, § 226.9(c),
§ 226.19, or
§ 226.20.
(g) Accuracy of annual percentage rate. For purposes of
§ 226.32, the annual percentage rate shall be considered accurate,
and may be used in determining whether a transaction is covered by
§ 226.32, if it is accurate according to the requirements and within
the tolerances under § 226.22. The finance charge tolerances for
rescission under § 226.23(g) or (h) shall not apply for this purpose.
[Codified to 12 C.F.R. § 226.31]
[Section 226.31 added at 60 Fed. Reg. 15471, March 24,
1995, effective March 22, 1995, but compliance is optional until
October 1, 1995; 61 Fed. Reg. 49247, September 19, 1996, effective
October 21, 1996; amended at 66 Fed. Reg. 17339, March 30, 2001,
effective March 30, 2001; 72 Fed. Reg. 63475, November 9, 2007,
effective December 10, 2007, the mandatory compliance date is October
1, 2008]
§ 226.32 Requirements for certain closed-end home mortgages.
(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:
{{8-29-08 p.6670.04-F}}
(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 fifteenth 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 § 226.33.
(iii) An open-end credit plan subject to subpart B of this part.
(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 mean:
(i) All items required to be disclosed under
§ 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 § 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
U.S.C. 1841 et seq.)
(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 no 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 § 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.
(d) Limitations. A mortgage transaction subject to this
section shall 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
{{8-29-08 p.6670.04-G}}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.
(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. 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
§ 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.
[Codified to 12 C.F.R. § 226.32]
[Section 226.32 added at 60 Fed. Reg. 15472, March 24,
1995, effective March 22, 1995, but compliance is optional until
October 1, 1995; as amended at 66 Fed. Reg. 65617, December 20, 2001,
effective December 20, 2001, but compliance mandatory as of October 1,
2002; 73 Fed. Reg. 44603, July 30, 2008, effective October 1,
2009]
§ 226.33 Requirements for reverse mortgages.
(a) Definition. For purposes of this subpart,
reverse mortgage transaction means a nonrecourse consumer
credit obligation in which:
(1) A mortgage, deed of trust, or equivalent consensual security
interest securing one or more advances is created in the consumer's
principal dwelling; and
(2) Any principal, interest, or shared appreciation or equity is
due and payable (other than in the case of default) only after:
(i) The consumer dies;
(ii) The dwelling is transferred; or
(iii) The consumer ceases to occupy the dwelling as a principal
dwelling.
(b) Content of disclosures. In addition to other
disclosures required by this part, in a reverse mortgage transaction
the creditor shall provide the following disclosures in a form
substantially similar to the model form found in paragraph (d) of
Appendix K of this part:
(1) Notice. A statement that the consumer is not
obligated to complete the reverse mortgage transaction merely because
the consumer has received the disclosures required by this section or
has signed an application for a reverse mortgage loan.
{{8-29-08 p.6670.04-H}}
(2) Total annual loan cost rates. A good-faith
projection of the total cost of the credit, determined in accordance
with paragraph (c) of this section and expressed as a table of
"total annual loan cost rates," using that term, in accordance
with Appendix K of
this part.
(3) Itemization of pertinent information. An
itemization of loan terms, charges, the age of the youngest borrower
and the appraised property value.
(4) Explanation of table. An explanation of the table
of total annual loan cost rates as provided in the model form found in
paragraph (d) of Appendix K of this part.
(c) Projected total cost of credit. The projected total
cost of credit shall reflect the following factors, as applicable:
(1) Costs to consumer. All costs and charges to the
consumer, including the costs of any annuity the consumer purchases as
part of the reverse mortgage transaction.
(2) Payments to consumer. All advances to and for the
benefit of the consumer, including annuity payments that the consumer
will receive from an annuity that the consumer purchases as part of the
reverse mortgage transaction.
(3) Additional creditor compensation. Any shared
appreciation or equity in the dwelling that the creditor is entitled by
contract to receive.
(4) Limitations on consumer liability. Any limitation
on the consumer's liability (such as nonrecourse limits and equity
conservation agreements).
(5) Assumed annual appreciation rates. Each of the
following assumed annual appreciation rates for the dwelling:
(i) 0 percent.
(ii) 4 percent.
(iii) 8 percent.
(6) Assumed loan period. (i) Each of the following
assumed loan periods, as provided in Appendix L of this part:
(A) Two years.
(B) The actuarial life expectancy of the consumer to become
obligated on the reverse mortgage transaction (as of that consumer's
most recent birthday). In the case of multiple consumers, the period
shall be the actuarial life expectancy of the youngest consumer (as of
that consumer's most recent birthday).
(C) The actuarial life expectancy specified by paragraph
(c)(6)(i)(B) of this section, multiplied by a factor of 1.4 and rounded
to the nearest full year.
(ii) At the creditor's option, the actuarial life expectancy
specified by paragraph (c)(6)(i)(B) of this section, multiplied by a
factor of .5 and rounded to the nearest full year.
[Codified to 12 C.F.R. § 226.33]
[Section 226.33 added at 60 Fed. Reg. 15473, March 24, 1995,
effective March 22, 1995, but compliance is optional until October 1,
1995]
§ 226.34 Prohibited acts or practices in connection with credit
subject to § 226.32.
(a) Prohibited acts or practices for loans subject to
§ 226.32. A creditor extending mortgage credit subject to
§ 226.32 shall not--
(1) Home improvement contracts. Pay a contractor under
a home improvement contract from the proceeds of a mortgage covered by
§ 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 § 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 § 226.32, refinance any
loan subject to § 226.32 to the same borrower into another loan
subject to § 226.32, unless the refinancing is in the borrower's
interest. An assignee holding or servicing an extension of mortgage
credit subject to § 226.32, shall not,
{{8-29-08 p.6670.04-I}}for the remainder of the one-year period
following the date of origination of the credit, refinance any loan
subject to § 226.32 to the same borrower into another loan subject to
§ 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
§ 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 § 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.
[Codified to 12 C.F.R. § 226.34]
[Section 226.34 added at 66 Fed. Reg. 65618, December 20, 2001,
effective December 20, 2001, but compliance mandatory as of October 1,
2002; 73 Fed. Reg. 44603, July 30, 2008, effective October 1,
2009]
§ 226.35 Prohibited acts or practices in connection with
higher-priced mortgage loans.
(a) Higher-priced mortgage loans--(1) For purposes 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 price 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.
{{8-29-08 p.6670.04-J}}
(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 § 226.33, or a home equity line of credit subject to
§ 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
§ 226.34(a)(4).
(2) Prepayment penalties. A loan may not include a
penalty described by § 226.32(d)(6) unless:
(i) The penalty is otherwise permitted by law, including
§ 226.32(d)(7) if the loan is a mortgage transaction described in
§ 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 fourt-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.
(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 § 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.
[Codified to 12 C.F.R. § 226.35]
[Section 226.35 added at 73 Fed. Reg. 44603, July, 30,
2008, effective October 1, 2009, except for § 226.35(b)(c), effective
October 1, 2010]
{{8-29-08 p.6670.04-K}}
§ 226.36 Prohibited acts or practices in connection with credit
secured by a consumer's principal dwelling.
(a) Mortgage broker defined. For purposes of this
section, the term "mortgage broken" means a person, other than an
employe of a creditor, who for compensation or other monetary gain, or
in expectation of compensation or other monetary gain, arranges,
negotiates, or otherwise obtains an extension of consumer credit for
another person. The term includes a person meeting this definition,
even if the consumer credit obligation is initially payable to such
person, unless the person provides the funds for the transaction at
consummation out of the person's own resources, out of deposits held
by the person, or by drawing on a bona fide warehouse line of credit.
(b) Misrepresentation of value of consumer's
dwelling--(1) Coercion of appraiser. In connection
with a consumer credit transaction secured by a consumer's principal
dwelling, no creditor or mortgage broker, and no affiliate of a
creditor or mortgage broker shall directly or indirectly coerce,
influence, or otherwise encourage an appraiser to misstate or
misrepresent the value of such dwelling.
(i) Examples of actions that violate this paragraph (b)(1)
include:
(A) Implying to an appraiser that current or future retention of
the appraiser depends on the amount at which the appraiser values a
consumer's principal dwelling;
(B) Excluding an appraiser from consideration for future
engagement because the appraiser reports a value of a consumer's
principal dwelling that does not meet or exceed a minimum threshold;
(C) Telling an appraiser a minimum reported value of a
consumer's principal dwelling that is needed to approve the loan;
(D) Failing to compensate an appraiser because the appraiser does
not value a consumer's principal dwelling at or above a certain
amount; and
(E) Conditioning an appraiser's compensation on loan
consummation.
(ii) Examples of actions that do not violate this paragraph
(b)(1) include:
(A) Asking an appraiser to consider additional information about
a consumer's principal dwelling or about comparable properties;
(B) Requesting that an appraiser provide additional information
about the basis for a valuation;
(C) Requesting that an appraiser correct factual errors in a
valuation;
(D) Obtaining multiple appraisals of a consumer's principal
dwelling, so long as the creditor adheres to a policy of selecting the
most reliable appraisal, rather than the appraisal that states the
highest value;
(E) Withholding compensation from an appraiser for breach of
contract or substandard performance of services as provided by
contract; and
(F) Taking action permitted or required by applicable federal or
state statute, regulation, or agency guidance.
(2) When extension of credit prohibited. In
connection with a consumer credit transaction secured by a consumer's
principal dwelling, a creditor who knows, at or before loan
consummation, of a violation of paragraph (b)(1) of this section in
connection with an appraisal shall not extend credit based on such
appraisal unless the creditor documents that it has acted with
reasonable diligence to determine that the appraisal does not
materially misstate or misrepresent the value of such dwelling.
(3) Appraiser defined. As used in this paragraph (b),
an appraiser is a person who engages in the business of providing
assessments of the value of dwellings. The term "appraiser"
includes persons that employ, refer, or manage appraisers and
affiliates of such persons.
(c) Servicing practices. (1) In connection with a
consumer credit transaction secured by a consumer's principal
dwelling, no servicer shall--
(i) Fail to credit a payment to the consumer's loan account as
of the date of receipt, except when a delay in crediting does not
result in any charge to the consumer or in the reporting of negative
information to a consumer reporting agency, or except as provided in
paragraph (c)(2) of this section;
{{8-29-08 p.6670.04-L}}
(ii) Impose on the consumer any late fee or delinquency charge in
connection with a payment, when the only delinquency is attributable to
late fees or delinquency charges assessed on an earlier payment, and
the payment is otherwise a full payment for the applicable period and
is paid on its due date or within any applicable grace period; or
(iii) Fail to provide, within a reasonable time after receiving a
request from the consumer or any person acting on behalf of the
consumer, an accurate statement of the total outstanding balance that
would be required to satisfy the consumer's obligation in full as of a
specified date.
(2) If a servicer specifies in writing requirements for the
consumer to follow in making payments, but accepts a payment that does
not conform to the requirements, the servicer shall credit the payment
as of 5 days after receipt.
(3) For purposes of this paragraph (c), the terms
"servicer" and "servicing" have the same meanings as
provided in 24 CFR 3500.2(b), as amended.
(d) This section does not apply to a home equity line of credit
subject to § 226.5b.
[Codified to 12 C.F.R. § 226.36]
[Section 226.36 added at 73 Fed. Reg. 44604, July, 30, 2008,
effective October 1,
2009]
50 Compliance with this section will constitute compliance
with the disclosure requirements on limitations on increases in
footnote 12 to §§ 226.6(a)(2) and 226.18(f)(2) until October 1,
1988. Go Back to Text
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