Truth in Lending Act
Subpart E--Special Rules for Certain Home Mortgage Transactions
Section 226.31 - General rules.
Section 226.32 - Requirements for certain closed-end
Section 226.33 - Requirements for reverse mortgages.
Subpart E--Special Rules for Certain Home Mortgage Transactions
Sec. 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.
(c) Timing of disclosure--(1) Disclosures
for certain closed-end home mortgages. The creditor shall furnish
the disclosures required by Sec. 226.32 at least three business
days prior to consummation of a mortgage transaction covered by
(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
(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 Sec. 226.23(e)(2).
(2) Disclosures for reverse mortgages.
The creditor shall furnish the disclosures required by Sec. 226.33
at least three business days prior to:
(i) Consummation of a closed-end credit
(ii) The first transaction under an open-end
(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) Per-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 Sec. 226.15 or Sec. 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 Sec.
226.32 under paragraph (c) of this section, Sec. 226.9(c), Sec.
226.19, or Sec. 226.20.
(g) Accuracy of annual percentage rate.
For purposes of Sec. 226.32, the annual percentage rate shall
be considered accurate, and may be used in determining whether
a transaction is covered by Sec. 226.32, if it is accurate according
to the requirements and within the tolerances under Sec. 226.22.
The finance charge tolerances for rescission under Sec. 226.23(g)
or (h) shall not apply for this purpose.
Sec. 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:
(i) The annual percentage rate at consummation
will exceed by more than 10 percentage points 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
[The dollar amount, as adjusted by the Federal
Reserve Board for January 1, 1999 through December 31, 1999 is
(2) This section does not apply to the
(i) A residential mortgage transaction.
(ii) A reverse mortgage transaction subject
to Sec. 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 Sec. 226.4(a) and 226.4(b), except interest or the time-price
(ii) All compensation paid to mortgage
(iii) All items listed in Sec. 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.
(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:
(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
(3) Regular payment. The amount of the
regular monthly (or other periodic) payment.
(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
(d) Limitations. A mortgage transaction
subject to this section may not provide for 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 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.
(7) Prepayment penalty exception. A mortgage
transaction subject to this section may provide for a prepayment
penalty otherwise permitted by law (including a refund calculated
according to the rule of 78s) if:
(i) The penalty can be exercised only
for the first five years following consummation;
(ii) The source of the prepayment funds
is not a refinancing by the creditor or an affiliate of the creditor;
(iii) At consummation, the consumer's
total monthly debts (including amounts owed under the mortgage)
do not exceed 50 percent of the consumer's monthly gross income,
as verified by the consumer's signed financial statement, a credit
report, and payment records for employment income.
(e) Prohibited acts and practices. A
creditor extending mortgage credit subject to this section may
(1) Repayment ability. Engage in a pattern
or practice of extending such credit to a consumer based on the
consumer's collateral if, considering the consumer's current and
expected income, current obligations, and employment status, the
consumer will be unable to make the scheduled payments to repay
(2) Home improvement contracts. Pay a
contractor under a home improvement contract from the proceeds
of a mortgage covered by this section, 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.
(3) Notice to assignee. Sell or otherwise
assign a mortgage subject to this section 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.''
Sec. 226.33 Requirements for reverse
(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
(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,
(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
(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.
SubPart A - General
SubPart B - Open-End Credit
- (Large File - May Load Slowly)
SubPart C - Closed-End Credit
SubPart D - Miscellaneous
Appendices A - L
Credit And Banking