15 USC Sec. 1639 (01/16/96)

§ 1639. Requirements for certain mortgages

(a) Disclosures
- (1) Specific disclosures
  In addition to other disclosures required under this subchapter, for each mortgage referred to in section 1602(aa) of this title, the creditor shall provide the following disclosures in conspicuous type size:
  - (A) "You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application.".
  - (B) "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
  In addition to the disclosures required under paragraph (1), the creditor shall disclose -
  - (A) in the case of a credit transaction with a fixed rate of interest, the annual percentage rate and the amount of the regular monthly payment; or
  - (B) in the case of any other credit transaction, the annual percentage rate of the loan, the amount of the regular monthly payment, a statement that the interest rate and monthly payment may increase, and the amount of the maximum monthly payment, based on the maximum interest rate allowed pursuant to section 3806 of title 12.
(b) Time of disclosures
- (1) In general
  The disclosures required by this section shall be given not less than 3 business days prior to consummation of the transaction.
- (2) New disclosures required
  - (A) In general
    After providing the disclosures required by this section, a creditor may not change the terms of the extension of credit if such changes make the disclosures inaccurate, unless new disclosures are provided that meet the requirements of this section.
  - (B) Telephone disclosure
    A creditor may provide new disclosures pursuant to subparagraph (A) by telephone, if -
    - (i) the change is initiated by the consumer; and
    - (ii) at the consummation of the transaction under which the credit is extended - (I) the creditor provides to the consumer the new disclosures, in writing; and (II) the creditor and consumer certify in writing that the new disclosures were provided by telephone, by not later than 3 days prior to the date of consummation of the transaction.
    - (3) Modifications
      The Board may, if it finds that such action is necessary to permit homeowners to meet bona fide personal financial emergencies, prescribe regulations authorizing the modification or waiver of rights created under this subsection, to the extent and under the circumstances set forth in those regulations.
(c) No Prepayment penalty
- (1) In general
  - (A) Limitation on terms
    A mortgage referred to in section 1602(aa) of this title may not contain terms under which a consumer must pay a prepayment penalty for paying all or part of the principal before the date on which the principal is due.
  - (B) Construction
    For purposes of this subsection, any method of computing a refund of unearned scheduled interest is a prepayment penalty if it is less favorable to the consumer than the actuarial method (as that term is defined in section 1615(d) of this title).
- (2) Exception
  Notwithstanding paragraph (1), a mortgage referred to in section 1602(aa) of this title may contain a prepayment penalty (including terms calculating a refund by a method that is not prohibited under section 1615(b) of this title for the transaction in question) if -
  - (A) at the time the mortgage is consummated -
    - (i) the consumer is not liable for an amount of monthly indebtedness payments (including the amount of credit extended or to be extended under the transaction) that is greater than 50 percent of the monthly gross income of the consumer; and
    - (ii) the income and expenses of the consumer are verified by a financial statement signed by the consumer, by a credit report, and in the case of employment income, by payment records or by verification from the employer of the consumer (which verification may be in the form of a copy of a pay stub or other payment record supplied by the consumer);
  - (B) the penalty applies only to a prepayment made with amounts obtained by the consumer by means other than a refinancing by the creditor under the mortgage, or an affiliate of that creditor;
  - (C) the penalty does not apply after the end of the 5-year period beginning on the date on which the mortgage is consummated; and
  - (D) the penalty is not prohibited under other applicable law.
(d) Limitations after default
A mortgage referred to in section 1602(aa) of this title may not provide for an interest rate applicable after default that is higher than the interest rate that applies before default. If the date of maturity of a mortgage referred to in subsection (FOOTNOTE 1) 1602(aa) of this title is accelerated due to default and the consumer is entitled to a rebate of interest, that rebate shall be computed by any method that is not less favorable than the actuarial method (as that term is defined in section 1615(d) of this title).
(FOOTNOTE 1) So in original. Probably should be "section".
(e) No balloon payments
A mortgage referred to in section 1602(aa) of this title having a term of less than 5 years may not include terms under which the aggregate amount of the regular periodic payments would not fully amortize the outstanding principal balance.
(f) No negative amortization
A mortgage referred to in section 1602(aa) of this title may not include terms under which the outstanding principal balance will increase at any time over the course of the loan because the regular periodic payments do not cover the full amount of interest due.
(g) No prepaid payments
A mortgage referred to in section 1602(aa) of this title may not include terms under which more than 2 periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the consumer.
(h) Prohibition on extending credit without regard to payment ability of consumer
A creditor shall not engage in a pattern or practice of extending credit to consumers under mortgages referred to in section 1602(aa) of this title based on the consumers' collateral without regard to the consumers' repayment ability, including the consumers' current and expected income, current obligations, and employment.
(i) Requirements for payments under home improvement contracts
A creditor shall not make a payment to a contractor under a home improvement contract from amounts extended as credit under a mortgage referred to in section 1602(aa) of this title, other than -
- (1) in the form of an instrument that is payable to the consumer or jointly to the consumer and the contractor; or
- (2) at the election of the consumer, by a third party escrow agent in accordance with terms established in a written agreement signed by the consumer, the creditor, and the contractor before the date of payment.
(j) Consequence of failure to comply
Any mortgage that contains a provision prohibited by this section shall be deemed a failure to deliver the material disclosures required under this subchapter, for the purpose of section 1635 of this title.
(k) "Affiliate" defined
For purposes of this section, the term "affiliate" has the same meaning as in section 1841(k) of title 12.
(l) Discretionary regulatory authority of Board
- (1) Exemptions
  The Board may, by regulation or order, exempt specific mortgage products or categories of mortgages from any or all of the prohibitions specified in subsections (c) through (i) of this section, if the Board finds that the exemption -
  - (A) is in the interest of the borrowing public; and
  - (B) will apply only to products that maintain and strengthen home ownership and equity protection.
- (2) Prohibitions
  The Board, by regulation or order, shall prohibit acts or practices in connection with -
  - (A) mortgage loans that the Board finds to be unfair, deceptive, or designed to evade the provisions of this section; and
  - (B) refinancing of mortgage loans that the Board finds to be associated with abusive lending practices, or that are otherwise not in the interest of the borrower.