However, 1026.43(e)(3)(iv) provides that, for purposes of 1026.43(e)(3)(iii), the creditor or assignee can pay to the consumer an amount that exceeds the sum of the amounts described in 1026.43(e)(3)(iv)(A) and (B). Official interpretation of Paragraph 43(b)(12) Simultaneous loan. For transactions not covered by RESPA, the Loan Estimate and Closing Disclosure may be considered a model form. First five years after the date on which the first regular periodic payment will be due. Transactions for which the consumer likely qualifies. For such a loan, the construction phase and the permanent phase may be treated as separate transactions for the purpose of compliance with 1026.43(c) through (f), and the construction phase of the loan is exempt from 1026.43(c) through (f), provided the initial term is 12 months or less. Examples of loans with a balloon payment that are not higher-priced covered transactions. The consumer made no other late payments on the non-standard mortgage between May 1, 2013, and May 1, 2014. Interest rate adjustment caps. The loan agreement provides that the consumer can make minimum monthly payments that cover only part of the interest accrued each month until the date on which the principal balance reaches 115 percent of its original balance (i.e., a negative amortization cap of 115 percent) or for the first five years of the loan (60 monthly payments), whichever occurs first. The exception contained in 1026.43(e)(7)(iii)(B)(3) may be used only one time for a covered transaction. For a loan amount greater than or equal to $114,847: 3 percent of the total loan amount; B. 3. For the meaning of the term balloon payment, see 1026.18(s)(5)(i). Assuming you are financing the mobile home, the dwelling, both RESPA and Reg. stipulates which transactions are covered and which are exempt from the regulation. For a loan amount greater than or equal to $64,648 but less than $107,747: $3,232; C. For a loan amount greater than or equal to $21,549 but less than $64,648: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $13,468 but less than $21,549: $1,077; E. For a loan amount less than $13,468: 8 percent of the total loan amount. (2) Qualified mortgage definedgeneral. In this example, the loan amount is $200,000. For example, a creditor may have information indicating that a credit report is subject to a fraud alert, extended alert, active duty alert, or similar alert identified in 15 U.S.C. The following are examples of how to determine the consumer's repayment ability based on substantially equal, monthly payments of principal and interest under 1026.43(c)(5)(ii)(B) (all amounts shown are rounded, and all amounts are calculated using non-rounded values): i. . The minimum monthly payment is $690 in the first year, $742 in the second year, $798 in the third year, $857 in the fourth year, and $922 in the fifth year. ii. So long as a creditor complies with the provisions of 1026.43(c)(3) with respect to debt obligations, alimony, and child support and 1026.43(c)(4) with respect to income and assets, the creditor is permitted to use any reasonable verification methods and criteria. Assume further that, based on the calculation of the maximum loan amount required under 1026.43(b)(7) and associated commentary, the negative amortization cap of 115 percent would be reached on June 1, 2016, the due date of the 27th monthly payment. 2. The loan agreement provides for a fixed interest rate of 7 percent, and permits interest-only payments for the first five years. Meeting the standards in the following manuals for verifying current debt obligations, alimony, and child support using third-party records provides a creditor with reasonably reliable evidence of the consumers debt obligations, alimony, and child support obligations. The definition of loan originator in 1026.36(a)(1) applies for purposes of 1026.43(g)(5). 3, 2016). The creditor complies with 1026.43(c)(2)(v) by dividing the $1,200 special assessment by 12 months and including the resulting $100 monthly amount in the determination of the consumer's monthly payment for mortgage-related obligations. An ATR Exempt Loan is, with certain exceptions, a loan that either is not subject to TILA or is exempt from the ability to repay requirements in Regulation Z (12 CFR 1026.43 (a) or (d)). This means that the scheduled payments need to be similar, but need not be equal. The loan is recast on the due date of the 60th monthly payment, after which the scheduled monthly payments increase to $1,414, a monthly payment that repays the loan amount of $200,000 over the 25 years remaining as of the date the loan is recast (300 months). Assume a loan is consummated on October 15, 2022, that the consumers periodic payment is due on the 1st of each month, and that the consumer timely made the first periodic payment due on December 1, 2022. See Application Process for Designation of Rural Area under Federal Consumer Financial Law; Procedural Rule, 81 FR 11099 (Mar. See comment 35(a)(2)-2. For purposes of calculating the consumers total monthly debt obligations under 1026.43(f)(1)(iii), the creditor must calculate the monthly payment on the covered transaction using the payment calculation rules in 1026.43(f)(1)(iv)(A), together with all mortgage-related obligations and excluding the balloon payment. Such an agreement is sometimes known as a forward commitment. A mortgage that will be acquired by a purchaser pursuant to a forward commitment does not satisfy the requirements of 1026.43(e)(5), whether the forward commitment provides for the purchase and sale of the specific transaction or for the purchase and sale of transactions with certain prescribed criteria that the transaction meets. Accordingly, a creditor complies with 1026.43(e)(2)(v)(B) if it complies with verification standards in one or more of the following manuals: A. These transactions are covered by Reg Z if the are consumer. For purposes of this section, the creditor must use the loan amount of $200,000, even though the loan agreement provides that only $100,000 will be disbursed to the consumer at consummation. General. (opens new page).) To illustrate, assume an adjustable-rate mortgage has an initial fixed rate of 5 percent for the first three years of the loan, after which the rate will adjust annually to a specified index plus a margin of 3 percent. Thus, a loan originator includes any creditor that satisfies the definition of loan originator but makes use of table-funding by a third party. If that mortgage meets the purchase criteria of an investor with which the creditor has an agreement to sell loans after consummation, then the loan does not meet the definition of a qualified mortgage under 1026.43(e)(5). Further, a creditor need verify only the income (or assets) relied on to determine the consumer's repayment ability. Seasonal or irregular income. 3. The creditor complies with 1026.43(c)(2)(v) by dividing the full amount that will be owed by the number of months in the assessment period, and including the resulting amount in the calculation of monthly mortgage-related obligations. Z, the disclosures governed by that loan type will apply. (1) A home equity line of credit subject to 1026.40; (2) A mortgage transaction secured by a consumer's interest in a timeshare plan, as defined in 11 U.S.C. 3. Reviewed record. In July 2008, Regulation Z was amended to protect consumers in the mortgage market from unfair, abusive, or deceptive lending and servicing practices. That is, monthly payments of principal and interest that repay the loan amount over the loan term need not be equal, but the monthly payments should be substantially the same without significant variation in the monthly combined payments of both principal and interest. Notwithstanding paragraph (e)(2) of this section, a qualified mortgage may provide for a balloon payment, provided: (i) The loan satisfies the requirements for a qualified mortgage in paragraphs (e)(2)(i)(A) and (e)(2)(ii) and (iii) of this section; 1. The following examples further illustrate how a creditor may determine the pro rata monthly amount of mortgage-related obligations, pursuant to 1026.43(c)(2)(v): i. The transaction will meet the definition of a qualified mortgage if the creditor underwrites the loan using the monthly payment of principal and interest of $1,199 to repay the loan amount of $200,000 over the 30-year loan term using the maximum interest rate during the first five years after the date on which the first regular periodic payment will be due of 6 percent. 1. The monthly payment of $1,167 scheduled for the first five years would cover only the interest due. (A) A creditor designated as a Community Development Financial Institution, as defined under 12 CFR 1805.104(h); (B) A creditor designated as a Downpayment Assistance through Secondary Financing Provider, pursuant to 24 CFR 200.194(a), operating in accordance with regulations prescribed by the U.S. Department of Housing and Urban Development applicable to such persons; (C) A creditor designated as a Community Housing Development Organization provided that the creditor has entered into a commitment with a participating jurisdiction and is undertaking a project under the HOME program, pursuant to the provisions of 24 CFR 92.300(a), and as the terms community housing development organization, commitment, participating jurisdiction, and project are defined under 24 CFR 92.2; or. For a loan amount greater than or equal to $107,747: 3 percent of the total loan amount; B. Insurance premiums and similar charges. Section 1026.43(c)(2)(v) includes only payments that occur on an ongoing or recurring basis in the evaluation of the consumer's monthly payment for mortgage-related obligations. (B) Monthly residual income. 1. (i) The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to another person three years or more after consummation of the balloon-payment qualified mortgage; 1. For purposes of paragraph (e)(7) of this section: (A) Delinquency means the failure to make a periodic payment (in one full payment or in two or more partial payments) sufficient to cover principal, interest, and escrow (if applicable) for a given billing cycle by the date the periodic payment is due under the terms of the legal obligation. A creditor making a covered transaction under this paragraph (d) may offer to the consumer rate discounts and terms that are the same as, or better than, the rate discounts and terms that the creditor offers to new consumers, consistent with the creditor's documented underwriting practices and to the extent not prohibited by applicable State or Federal law. iii. Section 1026.43(c) does not prescribe a specific monthly debt-to-income ratio with which creditors must comply. See interpretation of Paragraph 43(f)(2)(iii) in Supplement I. However, 1026.43(c)(2)(v) does not require a creditor to include in the evaluation of the consumer's monthly payment for mortgage-related obligations payments to such associations imposed in connection with the extension of credit, or imposed as an incident to the transfer of ownership, if such obligations are fully satisfied at or before consummation. The term total monthly debt obligations means the sum of: the payment on the covered transaction, as required to be calculated by paragraphs (c)(2)(iii) and (c)(5) of this section; simultaneous loans, as required by paragraphs (c)(2)(iv) and (c)(6) of this section; mortgage-related obligations, as required by paragraph (c)(2)(v) of this section; and current debt obligations, alimony, and child support, as required by paragraph (c)(2)(vi) of this section. For a loan for which the interest rate may or will change within the first five years after the date on which the first regular periodic payment will be due, a creditor must treat the maximum interest rate that could apply at any time during that five-year period as the interest rate for the full term of the loan to determine the annual percentage rate for purposes of 1026.43(e)(2)(vi), regardless of whether the maximum interest rate is reached at the first or subsequent adjustment during the five-year period. Section 1026.43(b)(8) includes obligations that are equivalent to property taxes, even if such obligations are not denominated as taxes. For example, governments may establish or allow independent districts with the authority to impose levies on properties within the district to fund a special purpose, such as a local development bond district, water district, or other public purpose. Regulation Z is a law that protects consumers from abusive lending practices. Answer: HELOCs are not exempt from RESPA; it is just that specific sections are exempted (GFE, HUD1/1a). For example: i. To illustrate: i. See 1026.43(e)(3)(i)(B). Creditors may rely on guidance provided under comment 17(c)(2)(i)-1 in determining if information is reasonably available. See interpretation of Paragraph 43(e)(7)(i)(A) in Supplement I. Transfer three years after consummation. Therefore, a creditor or assignee may, for example, elect to calculate interest using the maximum interest rate that may apply during the period from consummation until payment is made to the consumer. For example, where the creditor's policies and procedures require the source of down payment to be verified, and the creditor verifies that a simultaneous loan that is a HELOC will provide the source of down payment for the first-lien covered transaction, the creditor must consider the periodic payment on the HELOC by assuming the amount drawn is at least the down payment amount. BAI LEARNING & DEVELOPMENT WHITEPAPER . However, 1026.43(d) applies to the refinancing of a non-standard mortgage loan into a standard mortgage loan, regardless of whether the non-standard mortgage loan was made in compliance with 1026.43(c) or (e), if the non-standard mortgage loan was consummated prior to January 10, 2014. Example of payment calculation for an adjustable-rate mortgage with an introductory fixed rate. The following example illustrates the rule described in comment 43(d)(5)(i)-4: i. 5. For a loan amount greater than or equal to $63,095 but less than $105,158: $3,155; C. For a loan amount greater than or equal to $21,032 but less than $63,095: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $13,145 but less than $21,032: $1,052; E. For a loan amount less than $13,145: 8 percent of the total loan amount. (2) Substantially equal, monthly payments of principal and interest that will repay the maximum loan amount over the term of the loan remaining as of the date the loan is recast. 1. Under 1026.43(d)(5)(i), the monthly periodic payment for an interest-only loan must be calculated based on several assumptions: i. When two or more consumers apply for an extension of credit as joint obligors with primary liability on an obligation, 1026.43(c)(2)(viii) requires a creditor to consider the credit history of all such joint applicants. Where a creditor documents a loan as open-end credit but the features and terms, or other circumstances, demonstrate that the loan does not meet the definition of open-end credit in 1026.2(a)(20), the loan is subject to the rules for closed-end credit, including 1026.43. Section 1026.35(b)(2)(iii)(B) requires that, during the preceding calendar year, or, if the application for the transaction was received before April 1 of the current calendar year, during either of the two preceding calendar years, the creditor and its affiliates together extended no more than 2,000 covered transactions, as defined by 1026.43(b)(1), secured by first liens, that were sold, assigned, or otherwise transferred to another person, or that were subject at the time of consummation to a commitment to be acquired by another person. Sample determination of allowable points and fees. The minimum monthly payment is $690 in the first year, $742 in the second year, and $797 in the first part of the third year. 1831o; the actions or instructions of any person acting as conservator, receiver or bankruptcy trustee; an order of a State or Federal government agency with jurisdiction to examine the creditor pursuant to State or Federal law; or an agreement between the creditor and such an agency. (For an explanation of written application and how to determine the payment due date, see comments 43(d)(2)-1 and 43(d)(2)(iv)-2.) Consider. General. Government benefits. These tests are assessed based on transactions and assets from the calendar year preceding the current calendar year or from either of the two calendar years preceding the current calendar year if the application for the transaction was received before April 1 of the current calendar year. To illustrate: i. 3. For discussion regarding the fully indexed rate and the meaning of substantially equal, see comments 43(b)(3)-1 through -5 and 43(c)(5)(i)-4, respectively. A. See commentary to 1026.43(c)(2)(v) regarding the requirement to take into account any mortgage-related obligations for purposes of determining a consumer's ability to repay. The creditor is not required to further verify the existence or amount of the obligation, absent circumstances described in comment 43(c)(3)-3. Rate set. Under the exemption, the requirements of 1026.43(c) through (f) do not apply to extensions of credit made by housing finance agencies and extensions of credit made by intermediaries (e.g., private creditors) pursuant to a program administered by a housing finance agency. For example, a creditor would not meet the requirements of 1026.43(c)(4) where it observes an unidentified $5,000 deposit in the consumers account but fails to take any measures to confirm or lacks any basis to conclude that the deposit represents the consumers personal income and not, for example, proceeds from the disbursement of a loan. A creditor may make a mortgage loan that will be transferred or sold to a purchaser pursuant to an agreement that has been entered into at or before the time the transaction is consummated. (i) General rule. Using the same example above, the creditor will meet the definition of qualified mortgage if it underwrites the covered transaction using the monthly payment of principal and interest of $1,609 to repay the loan amount of $200,000 over the 30-year loan term using the maximum interest rate during the first five years of 9 percent. Z-covered, closed-end loans secured by a dwelling (regardless of lien position or whether it is the consumer's primary dwelling), including purchases, refinancings, home equity Non-standard mortgage loan made in accordance with ability-to-repay or qualified mortgage requirements. (12) Simultaneous loan means another covered transaction or home equity line of credit subject to 1026.40 that will be secured by the same dwelling and made to the same consumer at or before consummation of the covered transaction or, if to be made after consummation, will cover closing costs of the first covered transaction. C. The remaining loan term as of June 1, 2016, the date of the recast, which is 27 years and nine months (333 monthly payments). i. If the income or assets of one applicant are sufficient to support the creditor's repayment ability determination, the creditor is not required to consider the income or assets of the other applicant. Renewable balloon-payment mortgage; loan term. For example, where a covered transaction is a home purchase loan, the creditor must consider the consumer's periodic payment obligation for any piggyback second-lien loan that the creditor knows or has reason to know will be used to finance part of the consumer's down payment. All persons that jointly acquire legal title to the loan are covered persons under this section, and under 226.39(b)(5), a single disclosure must be provided on behalf of all such covered persons. Maximum interest rate during the first five years. 4. Under Regulation Z, 12 CFR 1026.17(c)(6)(ii), a creditor may treat a construction -permanent loan as either one, combined transaction or as two or more separate transactions. 4. Fixed-rate mortgage. Reg Z says a loan to acquire non-owner-occupied rental property is automatically business purpose. (ii) Special rules for loans with a balloon payment, interest-only loans, and negative amortization loans. A creditor must determine that the consumer is able to make all scheduled payments other than the balloon payment to satisfy 1026.43(f)(1)(ii), in accordance with the legal obligation, together with the consumer's monthly payments for all mortgage-related obligations and excluding the balloon payment, to meet the repayment ability requirements of 1026.43(f)(1)(ii). The minimum monthly payment for the first year is based on the initial interest rate of 1.5 percent. For example, if a creditor extended during 2017 a first-lien covered transaction that is secured by a property that is located in an area that meets the definition of rural or underserved under 1026.35(b)(2)(iv), the creditor meets this element of the exception for any transaction consummated during 2018. A loan in an amount of $200,000 has a 30-year loan term. For transactions subject to 1026.19(e), (f), or (g), creditors determine the date the creditor received the consumers application, for purposes of this comment, in accordance with 1026.2(a)(3)(ii).
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