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U.S. Code as of:
01/19/04
Section 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 (!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).
(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
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(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.
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