Mortgage Lending: 9.12 Loan Maturity
The statute governing federal credit unions places restrictions on the maturity of loans.
The statute governing federal credit unions places restrictions on the maturity of loans.
Defendants generally have the right to remove a case to federal court, if there is a basis for federal jurisdiction.
Mandatory arbitration clauses are less pervasive in mortgage loans than in other consumer transactions, but they are still found in certain mortgage loans. Mandatory arbitration clauses make consumer litigation difficult, restricting class actions, punitive damages, attorney fees, and homeowners’ ability to engage in discovery. Arbitration can also be far more costly than a court proceeding, the results are largely secret, and questions have arisen concerning the impartiality of the arbitration forum and arbitrators.
Under a typical mortgage, before the borrower may file any suit arising from the mortgage, the borrower must notify the mortgage holder of the borrower’s claim and give the holder an opportunity to cure the breach leading to the claim. The relevant section of the Fannie Mae/Freddie Mac Uniform Security Instrument reads:
Up to this point, we have focused on common law or judicially created limits on land installment contracts. But a minority of states have enacted legislative protections and limitations on the terms of these agreements as well. In this section, we will discuss the various forms these statutory protections take and the remedies imposed for noncompliance.
DIDA preempts only state limitations on costs that are included in a first mortgage loan’s annual percentage rate (APR).55 Office of the Comptroller of the Currency (OCC) regulations state that DIDA does not preempt “limitations on state laws on prepayment charges, attorneys’ fees, late charges or other provisions designed to protect borrowers.”56 Nor does it preempt state statutes that prohibit certain closing costs and fees,57 fees paid to
By federal statute, in Texas DIDA only preempts state usury caps as to purchase-money first mortgages.74 The federal statute, enacted in 1994, provides that federal law does not preempt a state constitutional provision prohibiting non-purchase-money mortgages or any amendment to that constitution.75 Until 1998, the Texas Constitution prohibited non-purchase-money mortgages,76 so DIDA does not preempt that provision or any amendment to it.
DIDA first lien preemption applies to a first mortgage loan if made by a qualifying lender. A loan is made by a qualifying lender if:
Congress tempered DIDA’s interest cap preemption by giving states the right to “opt out,” and reassert primary control over credit charges.98 Colorado, Georgia, Hawaii, Idaho, Iowa, Kansas, Maine, Massachusetts, Minnesota, Nebraska, North Carolina, Puerto Rico, South Carolina, and South Dakota have exercised this right to opt out of interest rate preemption.99
The most-favored-lender doctrine provides that when certain depository institutions use their home state’s interest rate ceiling, it may use the highest ceiling in the state for that class of loans, irrespective of the type of lender to whom the law applies. For example, when a California national bank makes a mortgage loan, rate exportation provides that the California rate cap applies, whether the mortgage loan is made in California or another state. The most-favored-lender doctrine determines which California rate cap applies.
AMTPA does not apply in states that have opted out of AMTPA through legislation.163 Maine, Massachusetts, New York, South Carolina, and Wisconsin have opted out of AMTPA.164 The deadline to opt out passed in 1985, so no additional states can opt out. Only these five states are free to impose restrictions on state housing creditors regardless of whether the mortgage loan is an “alternative mortgage transaction.”
The Dodd-Frank Act sharply limits the scope of AMTPA preemption for mortgage applications received after July 21, 2011, the “designated transfer date.”170 For loan applications received after that, the Dodd-Frank Act amends AMPTA’s definition of “alternative mortgage transactions” so it applies only to loans in which the interest rate may be adjusted or renegotiated.171 For lenders complying with AMTPA regulations—the Consumer Financial Protection Bureau’s Regulation D—AMTPA now only preempt
The Dodd-Frank Act specifies that its AMTPA amendments do not affect any transaction entered into on or before the designated transfer date (July 21, 2011).189 For those transactions, the preexisting rules continue to apply.
Prior to the designated transfer date, the definition of an alternative mortgage transaction under AMTPA was quite different than it is now. “Alternative mortgage transactions” were defined in the statute as:
The federal Home Ownership and Equity Protection Act207 imposes heightened regulation on a subset of high-cost mortgages. HOEPA does not impose any limitations on the interest rate or amount of finance charges that a lender may impose, but it does subject loans that exceed an annual percentage rate (APR) or a points-and-fees threshold to additional restrictions and requirements.
For Federal Housing Administration (FHA) Title I loans (available for property improvement or manufactured homes), FHA regulations allow the lender and the borrower to negotiate the number of discount points, if any, to be paid as part of the borrower’s initial payment.267 The lender is prohibited from requiring or allowing any party other than the borrower to pay any discount points or other financing charges in connection with the loan.268
If a mortgage loan meets the interest rate or points and fees trigger for Home Ownership and Equity Protection Act (HOEPA) loans, then HOEPA requires that any points or fees that count towards the points and fees trigger cannot be financed in the loan.294 This restriction was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
Some state statutes limit points or other origination charges to a closed list for certain categories of mortgage loans.297 Some cap the total number of points that a lender may charge.298 And some statutes relating to real estate mortgages limit the fees that lenders or their attorneys may pass on to borrowers.299 For example, the Texas Constitution caps some points and fees at two percent for non-purchase-money first mortgages.
Adjustable (sometimes called variable) rate mortgage loans, or ARMs, can be complex, with floors and caps on rate changes and a variety of ways of coordinating rate changes with changes in the borrower’s monthly payment. The structure of ARM contracts and related mathematical issues are addressed in Chapter 2, supra, and in another NCLC treatise.329
Federal law requires adjustable rate mortgage loans to include a limitation on the maximum interest rate that may apply during the term of the loan.334 This provision is applicable to any “creditor,” defined as a person who regularly extends credit for personal, family, or household use.335 It applies to both closed-end and open-end credit as long as the obligation is secured by a dwelling and carries an adjustable rate that may increase after consummation of the loan.
A home equity line of credit (sometimes called a HELOC) is an open-end form of credit secured by a home mortgage. Under TILA a HELOC that has an adjustable interest rate must base the adjustments on an index that is publicly available and that is not controlled by the creditor.341 This requirement is discussed in detail in NCLC’s Truth in Lending.342
A CFPB rule requires that the index for all adjustable rate mortgages be readily available to, and verifiable by, the borrower and beyond the control of the creditor.354 Instead of tying the rate to an index, the creditor has the alternative of specifying a formula or schedule of rate changes in advance.355 Unlike the earlier OCC and OTS regulations, there is no provision for a bank or savings association to avoid these restrictions by sending the OCC a notice or obtaining an excuse from the
Regulations for Federal Housing Administration (FHA) Title I loans for home improvements and manufactured homes require that the interest rate be fixed for the full term of the loan.362 There is no exactly comparable requirement for FHA Title II (single family) loans, but a regulation requires that the sum of principal and interest payments required each month shall be substantially the same.363 This requirement precludes ARMs unless the loan contract allows the term of the loan to be length
Department of Veterans Affairs (VA) insured or guaranteed loans may have adjustable rates, but only if they comply with detailed requirements.365 The rates must be tied to an interest rate based on Treasury bills, which is specified in the regulation. Interest rate adjustments must occur annually, except that the first may occur no sooner than thirty-six months after the date of the borrower’s first mortgage payment. The borrower’s monthly payment amount must be adjusted to reflect interest rate changes.