what loans are covered under reg z

(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. Assume that the subject property is located in an area where flood insurance is required by Federal law, and assume further that the flood insurance policy premium is paid every three years following consummation. 1. A creditor need not determine whether the mortgage loan modification is considered a refinancing under 1026.20(a) for purposes of determining applicability of 1026.43; if the transaction is made in connection with these programs, the requirements of 1026.43(c) through (f) do not apply. 2. The non-standard mortgage is consummated on February 15, 2014, and the first monthly payment is due on April 1, 2014. ii. Regulation Z protects people when they use consumer credit. Accordingly, for purposes of 1026.43(c)(2)(iii), the creditor must determine the consumer's ability to repay the loan based on the balloon payment of $193,367. (8) Mortgage-related obligations mean property taxes; premiums and similar charges identified in 1026.4(b)(5), (7), (8), and (10) that are required by the creditor; fees and special assessments imposed by a condominium, cooperative, or homeowners association; ground rent; and leasehold payments. The loan agreement provides that the first rate adjustment occurs on April 1, 2017 (the due date of the 36th monthly payment); the second rate adjustment occurs on April 1, 2018 (the due date of the 48th monthly payment); and the third rate adjustment occurs on April 1, 2019 (the due date of the 60th monthly payment). Reg Z - Flashcards | Quizlet See 1026.43(b)(5). Obligations that are related to the ownership or use of real property and paid to a taxing authority, whether on a monthly, quarterly, annual, or other basis, are property taxes for purposes of 1026.43(b)(8). General. 2. A. Section 1026.43(c)(2)(vi) requires creditors to consider a consumer's current debt obligations and any alimony or child support the consumer is required to pay. Section 1026.43(c)(2)(v) includes these recurring mortgage insurance payments in the evaluation of the consumer's monthly payment for mortgage-related obligations. Adjustable-rate mortgage with discount for three years. Under 1026.43(g)(3)(v), the alternative covered transaction without a prepayment penalty the creditor must offer under 1026.43(g)(3) must be a transaction for which the creditor has a good faith belief the consumer likely qualifies. 1026.41 Periodic statements for residential mortgage loans. See interpretation of Paragraph 43(e)(1) Safe harbor and presumption of compliance in Supplement I. A creditor is not required to comply with the requirements of paragraph (c) of this section if: 1. Application to subsequent transferees. Whether a particular ability-to-repay determination is reasonable and in good faith will depend not only on the underwriting standards adopted by the creditor, but on the facts and circumstances of an individual extension of credit and how a creditor's underwriting standards were applied to those facts and circumstances. This creditor complies with 1026.43(d)(4) by offering the consumer the discounted rate in connection with the refinancing made pursuant to 1026.43(d), even if the consumer would not normally qualify for that discounted rate, provided that the offer of the discounted rate is not prohibited by applicable State or Federal law. 1831o, 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; (2) The covered transaction may be sold, assigned, or otherwise transferred pursuant to a merger of the creditor with another person or acquisition of the creditor by another person or of another person by the creditor; or. Simultaneous loan is defined in 1026.43(b)(12). See interpretation of Paragraph 43(g)(2) Limits on prepayment penalties in Supplement I, (i) Must not apply after the three-year period following consummation; and. 1. C. The remaining loan term as of March 1, 2016, the date of the recast, which is 28 years (336 monthly payments). If Creditor B sells the qualified mortgage, it will lose its qualified mortgage status under 1026.43(f)(1) unless the sale qualifies for one of the 1026.43(f)(2) exceptions for sales three or more years after consummation, to another qualifying institution, as required by supervisory action, or pursuant to a merger or acquisition. For example (all amounts are rounded): Assume a higher-priced covered transaction with a fixed interest rate of 7 percent. (5) Qualified mortgage definedsmall creditor portfolio loans. 1. This is the substantially equal, monthly payment of principal and interest required to repay the loan amount at the fully indexed rate over the remaining term. What Is Regulation Z? - Check Your Free Credit Report & FICO Score However, 1026.43(e)(7)(i)(A) does not prohibit a qualifying change as defined in 1026.43(e)(7)(iv)(B) that is entered into during or after a temporary payment accommodation in connection with a disaster or pandemic-related national emergency, even if such a qualifying change involves a balloon payment or lengthened loan term. The index value in effect at consummation is 4.5 percent; the fully indexed rate is 7.5 percent (4.5 percent plus 3 percent). Finally, each of these considerations must be viewed in the context of all facts and circumstances relevant to a particular extension of credit. For example, a definition used in underwriting that is reasonable in isolation may lead to ability-to-repay determinations that are unreasonable or not in good faith when considered in the context of a creditor's underwriting standards or when adopted or applied in bad faith. (ii) The creditor has considered whether the standard mortgage likely will prevent a default by the consumer on the non-standard mortgage once the loan is recast. (2) Scope. The creditor used underwriting standards that have historically resulted in comparatively high levels of delinquency and default during adverse economic conditions; 3. The creditor may also reasonably and in good faith determine that a consumer has the ability to repay despite a higher debt-to-income ratio in light of the consumers residual income. 2. 7. Fully indexed rate is defined in 1026.43(b)(3). For example, if the loan amount is $55,000, the loan falls into the tier for loans greater than or equal to $20,000 but less than $60,000, to which a 5 percent cap on points and fees applies. The creditor used underwriting standards that have historically resulted in comparatively low rates of delinquency and default during adverse economic conditions; or. 2. See interpretation of Paragraph 43(e)(1)(i)(A) Safe harbor for transactions that are not higher-priced covered transactions in Supplement I. If the terms of the legal obligation contain a periodic interest rate adjustment cap that would prevent the initial rate, at the time of the first adjustment, from changing to the rate determined using the index or formula value at consummation (i.e., the fully indexed rate), the creditor must not give any effect to that rate cap when determining the fully indexed rate. See interpretation of Paragraph 43(f)(1)(ii) in Supplement I. Creditors must use the maximum rate that could apply at any time during the first five years after the date on which the first regular periodic payment will be due, regardless of whether the maximum rate is reached at the first or subsequent adjustment during the five year period. However, 1026.43(c) and the accompanying commentary do not provide comprehensive guidance on definitions and other technical underwriting criteria necessary for evaluating these factors in practice. Example of payment calculation for a standard mortgage. See also comment 43(a)(3)-2. Under 1026.43(c)(3)(iii), if a creditor relies on a consumer's credit report to verify a consumer's current debt obligations and the consumer's application lists a debt obligation not shown on the credit report, the creditor may consider the existence and amount of the obligation as it is stated on the consumer's application. Under 1026.18(s)(7)(iii), the term fixed-rate mortgage means a transaction secured by real property or a dwelling that is not an adjustable-rate mortgage or a step-rate mortgage. 2. A. Selling Guide Announcement SEL-2013-10 - Fannie Mae 101(53(D)); or. 2. 5211; 5219); 1. Mortgage Loan Originator Compensation Rules under Reg. Whether you're buying a mortgage or comparing credit cards, you're probably benefiting from the law in some way. (1) General requirement. ** Mortgages for which the creditor received the consumers application prior to October 1, 2022. For example, a premium for insurance against loss or damage to the property written in connection with the credit transaction is a premium identified in 1026.4(b)(8). Some aspects of a consumer's credit history, whether positive or negative, may not be directly indicative of the consumer's ability to repay. Section 1026.43(b)(4) requires, only for the purposes of a qualified mortgage under 1026.43(e)(2), a different determination of the annual percentage rate for purposes of 1026.43(b)(4) 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. 3. For categories with a percentage limit, the creditor must apply the allowable points and fees percentage to the total loan amount, which may be different than the loan amount. ii. That is, the creditor must determine substantially equal, monthly payments of principal and interest that will repay the maximum loan amount based on the period of time that remains after any negative amortization cap is triggered or any period permitting minimum periodic payments expires, whichever occurs first. For example, if a co-applicant is repaying a student loan at the time of underwriting, the creditor complies with 1026.43(c)(2)(vi) by considering the co-applicant's student loan obligation. The maximum interest rate during the first five years after the date on which the first regular periodic payment will be due is 11 percent (the rate on the due date of the 60th monthly payment). ** Covered transactions that met the requirements of 1026.43(e)(2)(i) through (iii), were eligible for purchase or guarantee by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) (or any limited-life regulatory entity succeeding the charter of either) operating under the conservatorship or receivership of the Federal Housing Finance Agency pursuant to section 1367 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. (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. (viii) Receipts from the consumer's use of a funds transfer service. For the meaning of the term mortgage-related obligations, see 1026.43(b)(8) and associated commentary. The loan agreement provides that future interest rate adjustments will be calculated based on a specific index plus a 3 percent margin. Federal Register :: Truth in Lending (Regulation Z) The creditor should use the last date the interest rate is set before consummation. (A) That satisfies the requirements of paragraph (f) of this section other than the requirements of paragraph (f)(1)(vi); and. For a loan amount greater than or equal to $101,749: 3 percent of the total loan amount; B. 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. For transactions not covered by RESPA, the Loan Estimate and Closing Disclosure may be considered a model form. Assume an adjustable-rate mortgage in the amount of $200,000 with a 30-year loan term. Example of payment calculation for a negative amortization loan if only minimum payments made. This paragraph (g) applies only if a covered transaction is consummated with a prepayment penalty and is not violated if: (i) A covered transaction is consummated without a prepayment penalty; or. Section 1026.43(b)(8) does not include premiums or similar charges identified in 1026.4(b)(5), (7), (8), or (10) that are not required by the creditor and that the consumer purchases voluntarily. See interpretation of 43(c)(5)(i) General rule. In general, 1026.43 applies to consumer credit transactions secured by a dwelling, but certain dwelling-secured consumer credit transactions are exempt or partially exempt from coverage under 1026.43(a)(1) through (3). ** Requirement to consider monthly debt-to-income ratio or residual income. For example, if a creditor originated a non-standard mortgage on or after January 10, 2014 that did not comply with the requirements of 1026.43(c) and was not a qualified mortgage pursuant to 1026.43(e), 1026.43(d) would not apply to the refinancing of the non-standard mortgage loan into a standard mortgage loan. 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 Payment calculation for a standard mortgage. The introductory interest rate at consummation is 1.5 percent. See commentary to 1026.43(c)(2)(iv) and (c)(6), discussing the requirement to consider the consumer's payment obligation on any simultaneous loan for purposes of determining the consumer's ability to repay the covered transaction subject to this section. For example, assume a consumer receives seasonal income from the sale of crops or from agricultural employment. 1. The non-standard mortgage is consummated on February 15, 2014, and the first monthly payment is due on April 1, 2014. A standard mortgage must have an interest rate that is fixed for at least the first five years (60 months) after consummation. For example, assume an adjustable-rate mortgage with a 30-year loan term. The term total loan amount is defined in 1026.32(b)(4)(i). (vi) For which the annual percentage rate does not exceed the average prime offer rate for a comparable transaction as of the date the interest rate is set by the amounts specified in paragraphs (e)(2)(vi)(A) through (F) of this section. General. The 2021 General QM Amendments removed that requirement and replaced it with the annual percentage rate thresholds in 1026.43(e)(2)(vi), among other revisions. Records, other than those discussed above, may be reasonably reliable for purposes of 1026.43(c)(2)(v) if the source provided the information objectively. 1. At the time a creditor offers a consumer an alternative covered transaction without a prepayment penalty under 1026.43(g)(3), the creditor may know the amount of some, but not all, of the points and fees that will be charged for the transaction. Section 1026.43(b)(8) includes ground rent and leasehold payments in the definition of mortgage-related obligations. The requirements of 1026.43(c)(2)(viii) do not affect the disclosure requirements of this part, such as, for example, 1026.17(d), 1026.23(b), 1026.31(e), 1026.39(b)(3), and 1026.46(f). Accordingly, before determining the substantially equal, monthly payments the creditor must first determine the maximum loan amount and the period of time that remains in the loan term after the loan is recast. For 2023, reflecting an 8.3 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transactions total points and fees do not exceed: A. Consumer credit. B. Accordingly, the scheduled payment amounts are $1,264 for the first two years, $1,328 for the next three years, and $1,388 thereafter for the remainder of the term. i. The creditor's policies and procedures must require the consumer to state the source of the down payment and provide verification. If Creditor B sells the covered transaction before the end of the seasoning period, the covered transaction is not eligible to season into a qualified mortgage under 1026.43(e)(7) unless the sale falls within an exception set forth in 1026.43(e)(7)(iii)(B)(1) or (2) (i.e., the transfer is required by supervisory action or pursuant to a merger or acquisition). Notwithstanding paragraph (e)(2) of this section, a qualified mortgage is a covered transaction that is defined as a qualified mortgage by the U.S. Department of Housing and Urban Development under 24 CFR 201.7 and 24 CFR 203.19, the U.S. Department of Veterans Affairs under 38 CFR 36.4300 and 38 CFR 36.4500, or the U.S. Department of Agriculture under 7 CFR 3555.109. However, in some cases a creditor may know or have reason to know that a credit report may be inaccurate in whole or in part. 2. For individual actions, you might have to pay not less than $100 or more than $1,000. 2. This loan meets the criterion for a standard mortgage under 1026.43(d)(1)(ii)(D) because the interest rate is fixed until September 1, 2018, which is more than five years after consummation. For example, a profit-and-loss statement prepared by a self-employed consumer and reviewed by a third-party accountant is a third-party record under 1026.43(b)(13)(i). (6) Payment calculation for simultaneous loans. Whatever the loan term, the amortization period used to determine the scheduled periodic payments that the consumer must pay under the terms of the legal obligation may not exceed 30 years. What does Reg Z say? The creditor complies by using this calculation even if the consumer intends to pay the special assessment in a manner other than that used by the creditor in determining the monthly pro rata amount, such as where the consumer intends to pay six $200 installments. loans extended to covered borrowers that are covered by Regulation Z, including: Under 1026.43(b)(3) the fully indexed rate is calculated at the time of consummation. (7) Qualified mortgage definedseasoned loans. For purposes of determining the fully indexed rate where the initial interest rate is not determined using the index or formula for subsequent interest rate adjustments, the creditor must use the interest rate that would have applied had the creditor used such index or formula plus margin at the time of consummation. Payment calculation for a non-standard mortgage. First five years after the date on which the first regular periodic payment will be due. PDF Regulation Z Truth in Lending Introduction Background and Summary See Application Process for Designation of Rural Area under Federal Consumer Financial Law; Procedural Rule, 81 FR 11099 (Mar. vii. The consumer made no other late payments on the non-standard mortgage between May 1, 2013, and May 1, 2014. 2. 1. Forward commitments. For example, a third-party record includes the creditor's records for a first-lien mortgage to a consumer who applies for a subordinate-lien home equity loan. 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 $1,436 to repay the outstanding principal balance at the end of the fifth year of $186,109 over the remaining 25 years of the loan term (300 months), using the maximum interest rate during the first five years after the date on which the first regular periodic payment will be due of 8 percent. See interpretation of Paragraph 43(b)(6) Loan term in Supplement I. (B) To rebut the presumption of compliance described in paragraph (e)(1)(ii)(A) of this section, it must be proven that, despite meeting the prerequisites of paragraph (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, the creditor did not make a reasonable and good faith determination of the consumer's repayment ability at the time of consummation, by showing that the consumer's income, debt obligations, alimony, child support, and the consumer's monthly payment (including mortgage-related obligations) on the covered transaction and on any simultaneous loans of which the creditor was aware at consummation would leave the consumer with insufficient residual income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan with which to meet living expenses, including any recurring and material non-debt obligations of which the creditor was aware at the time of consummation.
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