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Truth in Lending: 32(c)(4) Variable-rate.

1. Calculating “worst-case” payment example.388 For a closed-end credit transaction, creditors may rely on instructions in § 1026.19(b)(2)(viii)(B) for calculating the maximum possible increases in rates in the shortest possible timeframe, based on the face amount of the note (not the hypothetical loan amount of $10,000 required by § 1026.19(b)(2)(viii)(B)).

Truth in Lending: 32(c)(5) Amount Borrowed.

1. Optional insurance; debt-cancellation coverage. This disclosure is required when the amount borrowed in a refinancing includes premiums or other charges for credit life, accident, health, or loss-of-income insurance, or debt-cancellation coverage (whether or not the debt-cancellation coverage is insurance under applicable law) that provides for cancellation of all or part of the consumer’s liability in the event of the loss of life, health, or income or in the case of accident. See comment 4(d)(3)-2 and comment app.

Truth in Lending: 32(d) Limitations.

1. Additional prohibitions applicable under other sections.389 Section 1026.34 sets forth certain prohibitions in connection with mortgage credit subject to § 1026.32, in addition to the limitations in § 1026.32(d). Further, § 1026.35 prohibits certain practices in connection with transactions that meet the coverage test in § 1026.35(a).

Truth in Lending: 32(d)(1)(i) Balloon Payment.

1. Regular periodic payments.390 The repayment schedule for a high-cost mortgage must fully amortize the outstanding principal balance through “regular periodic payments.” A payment is a “regular periodic payment” if it is not more than two times the amount of other payments. For purposes of open-end credit plans, the term “regular periodic payment” or “periodic payment” means the required minimum periodic payment.

Truth in Lending: 32(d)(2) Negative Amortization.

1. Negative amortization.393 The prohibition against negative amortization in a high-cost mortgage does not preclude reasonable increases in the principal balance that result from events permitted by the legal obligation unrelated to the payment schedule.

Truth in Lending: 32(d)(4) Increased Interest Rate.

1. Variable-rate transactions. The limitation on interest rate increases does not apply to rate increases resulting from changes in accordance with the legal obligation in a variable-rate transaction, even if the increase occurs after default by the consumer.

Truth in Lending: 32(d)(5) Rebates.

1. Calculation of refunds. The limitation applies only to refunds of precomputed (such as add-on) interest and not to any other charges that are considered finance charges under § 1026.4 (for example, points and fees paid at closing). The calculation of the refund of interest includes odd-days interest, whether paid at or after consummation.

Truth in Lending: Amendment History

[65 Fed. Reg. 17,132 (Mar. 31, 2000); 65 Fed. Reg. 70,465 (Nov. 24, 2000); 66 Fed. Reg. 57,849 (Nov. 19, 2001); 66 Fed. Reg. 65,620 (Dec. 20, 2001); 67 Fed. Reg. 16,982 (Apr. 9, 2002); 67 Fed. Reg. 61,769 (Oct. 2, 2002); 68 Fed. Reg. 16,190 (Apr. 3, 2003); 68 Fed. Reg. 50,965 (Aug. 25, 2003); 69 Fed. Reg. 16,769 (Mar. 31, 2004); 69 Fed. Reg. 50,298 (Aug. 16, 2004); 70 Fed. Reg. 46,067 (Aug. 9, 2005); 71 Fed. Reg. 46,388 (Aug. 14, 2006); 72 Fed. Reg. 44,033 (Aug. 7, 2007); 73 Fed. Reg. 44,610 (July 30, 2008); 73 Fed. Reg. 46,191 (Aug. 8, 2008); 74 Fed. Reg. 40,478 (Aug. 12, 2009); 75 Fed.

Truth in Lending: 33(a) Definition.

1. Nonrecourse transaction. A nonrecourse reverse mortgage transaction limits the homeowner’s liability to the proceeds of the sale of the home (or any lesser amount specified in the credit obligation). If a transaction structured as a closed-end reverse mortgage transaction allows recourse against the consumer, and the annual percentage rate or the points and fees exceed those specified under § 1026.32(a)(1), the transaction is subject to all the requirements of § 1026.32, including the limitations concerning balloon payments and negative amortization.

Truth in Lending: 33(c)(1) Costs to Consumer.

1. Costs and charges to consumer—relation to finance charge. All costs and charges to the consumer that are incurred in a reverse mortgage transaction are included in the projected total cost of credit, and thus in the total annual loan cost rates, whether or not the cost or charge is a finance charge under § 1026.4.

Truth in Lending: 33(c)(2) Payments to Consumer.

1. Payments upon a specified event. The projected total cost of credit should not reflect contingent payments in which a credit to the outstanding loan balance or a payment to the consumer’s estate is made upon the occurrence of an event (for example, a “death benefit” payable if the consumer’s death occurs within a certain period of time). Thus, the table of total annual loan cost rates required under § 1026.33(b)(2) would not reflect such payments.

Truth in Lending: 33(c)(3) Additional Creditor Compensation.

1. Shared appreciation or equity. Any shared appreciation or equity that the creditor is entitled to receive pursuant to the legal obligation must be included in the total cost of a reverse mortgage loan. For example, if a creditor agrees to a reduced interest rate on the transaction in exchange for a portion of the appreciation or equity that may be realized when the dwelling is sold, that portion is included in the projected total cost of credit.

Truth in Lending: 33(c)(4) Limitations on Consumer Liability.

1. In general. Creditors must include any limitation on the consumer’s liability (such as a nonrecourse limit or an equity conservation agreement) in the projected total cost of credit. These limits and agreements protect a portion of the equity in the dwelling for the consumer or the consumer’s estate. For example, the following are limitations on the consumer’s liability that must be included in the projected total cost of credit:

Truth in Lending: 34(a)(1) Home-Improvement Contracts.

Paragraph 34(a)(1)(i)

1. Joint payees. If a creditor pays a contractor with an instrument jointly payable to the contractor and the consumer, the instrument must name as payee each consumer who is primarily obligated on the note.

Truth in Lending: 34(a)(2) Notice to Assignee.

1. Subsequent sellers or assignors. Any person, whether or not the original creditor, that sells or assigns a mortgage subject to § 1026.32 must furnish the notice of potential liability to the purchaser or assignee.

2. Format. While the notice of potential liability need not be in any particular format, the notice must be prominent. Placing it on the face of the note, such as with a stamp, is one means of satisfying the prominence requirement.

Truth in Lending: 34(a)(3) Refinancings Within One-Year Period.

1. In the borrower’s interest. The determination of whether or not a refinancing covered by § 1026.34(a)(3) is in the borrower’s interest is based on the totality of the circumstances, at the time the credit is extended. A written statement by the borrower that “this loan is in my interest” alone does not meet this standard.

i. A refinancing would be in the borrower’s interest if needed to meet the borrower’s “bona fide personal financial emergency” (see generally § 1026.23(e) and § 1026.31(c)(1)(iii)).

Truth in Lending: 34(a)(4)(i) Mortgage-Related Obligations.

1. Mortgage-related obligations.406 A creditor must include in its repayment ability analysis the expected property taxes and premiums for mortgage-related insurance required by the creditor as set forth in § 1026.35(b), as well as similar mortgage-related expenses. Similar mortgage-related expenses include homeowners’ association dues and condominium or cooperative fees.

Truth in Lending: 34(a)(4)(ii) Verification of Repayment Ability.

1. Income and assets relied on. A creditor must verify the income and assets the creditor relies on to evaluate the consumer’s repayment ability. For example, if a consumer earns a salary and also states that he or she is paid an annual bonus, but the creditor only relies on the applicant’s salary to evaluate repayment ability, the creditor need only verify the salary.

Truth in Lending: 34(a)(4)(iii) Presumption of Compliance.

1. In general.408 A creditor is presumed to have complied with § 1026.34(a)(4) if the creditor follows the three underwriting procedures specified in paragraph 34(a)(4)(iii) for verifying repayment ability, determining the payment obligation, and measuring the relationship of obligations to income.

Truth in Lending: 34(a)(5)(i) Certification of counseling required.

Editor’s Note410

Editor’s Note411

1. HUD-approved counselor.412 For purposes of § 1026.34(a)(5), counselors approved by the Secretary of the U.S. Department of Housing and Urban Development are homeownership counselors certified pursuant to section 106(e) of the Housing and Urban Development Act of 1968 (12 U.S.C. 1701x(e)), or as otherwise determined by the Secretary.

Truth in Lending: 34(a)(5)(ii) Timing of counseling.

Editor’s Note417

1. Disclosures for open-end credit plans.418 Section 1026.34(a)(5)(ii) permits receipt of either the disclosure required by section 5(c) of RESPA or the disclosures required under § 1026.40 to allow counseling to occur. Pursuant to 12 CFR 1024.7(h), the disclosures required by § 1026.40 can be provided for open-end plans in lieu of the usual disclosure required by section 5(c) of RESPA.