Federal Reserve System 22633

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Federal Reserve System 22633 Powered By Docstoc
					                                                                     Federal Reserve System                                                                              § 226.33
                                                                     provide for a prepayment penalty (including               loan cost rates,’’ using that term, in
                                                                     a refund calculated according to the rule of              accordance with appendix K of this
                                                                     78s) otherwise permitted by law if, under the             part.
                                                                     terms of the loan:
                                                                        (i) The penalty will not apply after the                 (3) Itemization of pertinent information.
                                                                     two-year period following consummation;                   An itemization of loan terms, charges,
                                                                        (ii) The penalty will not apply if the source          the age of the youngest borrower and
                                                                     of the prepayment funds is a refinancing by               the appraised property value.
                                                                     the creditor or an affiliate of the creditor;               (4) Explanation of table. An expla-
                                                                        (iii) At consummation, the consumer’s                  nation of the table of total annual loan
                                                                     total monthly debt payments (including                    cost rates as provided in the model
                                                                     amounts owed under the mortgage) do not
                                                                     exceed 50 percent of the consumer’s monthly
                                                                                                                               form found in paragraph (d) of appendix
                                                                     gross income, as verified in accordance with              K of this part.
                                                                     § 226.34(a)(4)(ii); and                                     (c) Projected total cost of credit. The
                                                                        (iv) The amount of the periodic payment of             projected total cost of credit shall re-
                                                                     principal or interest or both may not change              flect the following factors, as applica-
                                                                     during the four-year period following con-                ble:
                                                                     summation.
                                                                                                                                 (1) Costs to consumer. All costs and
                                                                                                                               charges to the consumer, including the
                                                                           *          *         *        *          *          costs of any annuity the consumer pur-
                                                                                                                               chases as part of the reverse mortgage
                                                                     § 226.33 Requirements        for   reverse                transaction.
                                                                           mortgages.
                                                                                                                                 (2) Payments to consumer. All ad-
                                                                        (a) Definition. For purposes of this                   vances to and for the benefit of the
                                                                     subpart, reverse mortgage transaction                     consumer, including annuity payments
                                                                     means a nonrecourse consumer credit                       that the consumer will receive from an
                                                                     obligation in which:                                      annuity that the consumer purchases
                                                                        (1) A mortgage, deed of trust, or                      as part of the reverse mortgage trans-
                                                                     equivalent consensual security interest                   action.
                                                                     securing one or more advances is cre-                       (3) Additional creditor compensation.
                                                                     ated in the consumer’s principal dwell-                   Any shared appreciation or equity in
                                                                     ing; and                                                  the dwelling that the creditor is enti-
                                                                        (2) Any principal, interest, or shared                 tled by contract to receive.
                                                                     appreciation or equity is due and pay-
                                                                                                                                 (4) Limitations on consumer liability.
                                                                     able (other than in the case of default)
                                                                                                                               Any limitation on the consumer’s li-
                                                                     only after:
                                                                                                                               ability (such as nonrecourse limits and
                                                                        (i) The consumer dies;
                                                                                                                               equity conservation agreements).
                                                                        (ii) The dwelling is transferred; or
                                                                                                                                 (5) Assumed annual appreciation rates.
                                                                        (iii) The consumer ceases to occupy
                                                                                                                               Each of the following assumed annual
                                                                     the dwelling as a principal dwelling.
                                                                                                                               appreciation rates for the dwelling:
                                                                        (b) Content of disclosures. In addition
                                                                     to other disclosures required by this                       (i) 0 percent.
                                                                     part, in a reverse mortgage transaction                     (ii) 4 percent.
                                                                     the creditor shall provide the following                    (iii) 8 percent.
                                                                     disclosures in a form substantially                         (6) Assumed loan period. (i) Each of
                                                                     similar to the model form found in                        the following assumed loan periods, as
                                                                     paragraph (d) of appendix K of this                       provided in appendix L of this part:
                                                                     part:                                                       (A) Two years.
                                                                        (1) Notice. A statement that the con-                    (B) The actuarial life expectancy of
                                                                     sumer is not obligated to complete the                    the consumer to become obligated on
                                                                     reverse mortgage transaction merely                       the reverse mortgage transaction (as of
                                                                     because the consumer has received the                     that consumer’s most recent birthday).
                                                                     disclosures required by this section or                   In the case of multiple consumers, the
                                                                     has signed an application for a reverse                   period shall be the actuarial life ex-
                                                                     mortgage loan.                                            pectancy of the youngest consumer (as
                                                                        (2) Total annual loan cost rates. A                    of that consumer’s most recent birth-
                                                                     good-faith projection of the total cost                   day).
                                                                     of the credit, determined in accordance                     (C) The actuarial life expectancy
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                                                                     with paragraph (c) of this section and                    specified by paragraph (c)(6)(i)(B) of
                                                                     expressed as a table of ‘‘total annual                    this section, multiplied by a factor of

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                                                                     § 226.34                                                               12 CFR Ch. II (1–1–09 Edition)

                                                                     1.4 and rounded to the nearest full                       arranging for the refinancing of its own
                                                                     year.                                                     loans by affiliated or unaffiliated credi-
                                                                       (ii) At the creditor’s option, the actu-                tors, or modifying a loan agreement
                                                                     arial life expectancy specified by para-                  (whether or not the existing loan is
                                                                     graph (c)(6)(i)(B) of this section, multi-                satisfied and replaced by the new loan)
                                                                     plied by a factor of .5 and rounded to                    and charging a fee.
                                                                     the nearest full year.                                      (4) Repayment ability. Engage in a pat-
                                                                                                                               tern or practice of extending credit
                                                                     § 226.34 Prohibited acts or practices in                  subject to § 226.32 to a consumer based
                                                                         connection with credit secured by a                   on the consumer’s collateral without
                                                                         consumer’s dwelling.                                  regard to the consumer’s repayment
                                                                        (a) Prohibited acts or practices for loans             ability, including the consumer’s cur-
                                                                     subject to § 226.32. A creditor extending                 rent and expected income, current obli-
                                                                     mortgage credit subject to § 226.32 shall                 gations, and employment. There is a
                                                                     not—                                                      presumption that a creditor has vio-
                                                                        (1) Home improvement contracts. Pay a                  lated this paragraph (a)(4) if the cred-
                                                                     contractor under a home improvement                       itor engages in a pattern or practice of
                                                                     contract from the proceeds of a mort-                     making loans subject to § 226.32 with-
                                                                     gage covered by § 226.32, other than:                     out verifying and documenting con-
                                                                        (i) By an instrument payable to the                    sumers’ repayment ability.
                                                                     consumer or jointly to the consumer                         (b) Prohibited acts or practices for
                                                                     and the contractor; or                                    dwelling-secured loans; open-end credit.
                                                                        (ii) At the election of the consumer,                  In connection with credit secured by
                                                                     through a third-party escrow agent in                     the consumer’s dwelling that does not
                                                                     accordance with terms established in a                    meet the definition in § 226.2(a)(20), a
                                                                     written agreement signed by the con-                      creditor shall not structure a home-se-
                                                                     sumer, the creditor, and the contractor                   cured loan as an open-end plan to evade
                                                                     prior to the disbursement.                                the requirements of § 226.32.
                                                                        (2) Notice to assignee. Sell or other-                 [Reg. Z, 66 FR 65618, Dec. 20, 2001]
                                                                     wise assign a mortgage subject to
                                                                     § 226.32 without furnishing the fol-                        EFFECTIVE DATE NOTE: At 73 FR 44603,
                                                                     lowing statement to the purchaser or                      July 30, 2008, § 226.34 was amended by revising
                                                                                                                               the heading and paragraph (a)(4), effective
                                                                     assignee: ‘‘Notice: This is a mortgage                    Oct. 1, 2009. For the convenience of the user,
                                                                     subject to special rules under the fed-                   the revised text is set forth as follows:
                                                                     eral Truth in Lending Act. Purchasers
                                                                     or assignees of this mortgage could be                    § 226.34 Prohibited acts or practices in con-
                                                                     liable for all claims and defenses with                         nection with credit subject to § 226.32.
                                                                     respect to the mortgage that the bor-                        (a) * * *
                                                                                                                                  (4) Repayment ability. Extend credit subject
                                                                     rower could assert against the cred-
                                                                                                                               to § 226.32 to a consumer based on the value
                                                                     itor.’’                                                   of the consumer’s collateral without regard
                                                                        (3) Refinancings within one-year pe-                   to the consumer’s repayment ability as of
                                                                     riod. Within one year of having ex-                       consummation, including the consumer’s
                                                                     tended credit subject to § 226.32, refi-                  current and reasonably expected income, em-
                                                                     nance any loan subject to § 226.32 to the                 ployment, assets other than the collateral,
                                                                     same borrower into another loan sub-                      current obligations, and mortgage-related
                                                                     ject to § 226.32, unless the refinancing is               obligations.
                                                                                                                                  (i) Mortgage-related obligations. For pur-
                                                                     in the borrower’s interest. An assignee
                                                                                                                               poses of this paragraph (a)(4), mortgage-re-
                                                                     holding or servicing an extension of                      lated obligations are expected property
                                                                     mortgage credit subject to § 226.32,                      taxes, premiums for mortgage-related insur-
                                                                     shall not, for the remainder of the one-                  ance required by the creditor as set forth in
                                                                     year period following the date of origi-                  § 226.35(b)(3)(i), and similar expenses.
                                                                     nation of the credit, refinance any loan                     (ii) Verification of repayment ability. Under
                                                                     subject to § 226.32 to the same borrower                  this paragraph (a)(4) a creditor must verify
                                                                     into another loan subject to § 226.32,                    the consumer’s repayment ability as follows:
                                                                                                                                  (A) A creditor must verify amounts of in-
                                                                     unless the refinancing is in the bor-
                                                                                                                               come or assets that it relies on to determine
                                                                     rower’s interest. A creditor (or as-                      repayment ability, including expected in-
                                                                     signee) is prohibited from engaging in                    come or assets, by the consumer’s Internal
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                                                                     acts or practices to evade this provi-                    Revenue Service Form W–2, tax returns, pay-
                                                                     sion, including a pattern or practice of                  roll receipts, financial institution records, or

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