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Truth in Lending: 31(h) Corrections and unintentional violations.

Editor’s Note264

1. Notice requirements.265 Notice of a violation pursuant to § 1026.31(h)(1) or (2) should be in writing. The notice should make the consumer aware of the choices available under § 1026.31(h)(1)(iii) and (2)(iii). For notice to be adequate, the consumer should have at least 60 days in which to consider the available options and communicate a choice to the creditor or assignee.

Truth in Lending: Amendment History

[66 Fed. Reg. 65,620 (Dec. 20, 2001); 74 Fed. Reg. 23,305 (May 19, 2009); 76 Fed. Reg. 79,772 (Dec. 22, 2011); 78 Fed. Reg. 6856 (Jan. 31, 2013)]

Truth in Lending: 32(a)(3) Determination of annual percentage rate.

Editor’s Note308

1. In general.309 The guidance set forth in the commentary to § 1026.17(c)(1) and in § 1026.40 addresses calculation of the annual percentage rate disclosures for closed-end credit transactions and open-end credit plans, respectively. Section 1026.32(a)(3) requires a different calculation of the annual percentage rate solely to determine coverage under § 1026.32(a)(1)(i).

Truth in Lending: 32(b) Definitions.

Paragraph 32(b)(1).314

1. Known at or before consummation.315 Section 1026.32(b)(1) includes in points and fees for closed-end credit transactions those items listed in § 1026.32(b)(1)(i) through (vi) that are known at or before consummation. The following examples clarify how to determine whether a charge or fee is known at or before consummation.

Truth in Lending: 32(b)(4)(i) Closed-end credit.

Editor’s Note374

Editor’s Note375

1. Total loan amount; examples.376 Below are several examples showing how to calculate the total loan amount for closed-end mortgage loans, each using a $10,000 amount borrowed, a $300 appraisal fee, and $400 in prepaid finance charges. A $500 single premium for optional credit unemployment insurance is used in one example.

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.