Source: https://www.law.cornell.edu/cfr/text/12/1026.43
Timestamp: 2019-08-18 19:56:43
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12 CFR § 1026.43 - Minimum standards for transactions secured by a dwelling. | CFR | US Law | LII / Legal Information Institute
Section 1026.43. Minimum standards for transactions secured by a dwelling.
12 CFR § 1026.43 - Minimum standards for transactions secured by a dwelling.
(a)Scope. This section applies to any consumer credit transaction that is secured by a dwelling, as defined in § 1026.2(a)(19), including any real property attached to a dwelling, other than:
(1) A home equity line of credit subject to § 1026.40;
(i) A reverse mortgage subject to § 1026.33;
(vii)Consumer credit transactions that meet the following criteria are not considered in determining whether a creditor exceeds the credit extension limitation in paragraph (a)(3)(v)(D)(1) of this section:
(1)Downpayment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies;
(1)Covered transaction means a consumer credit transaction that is secured by a dwelling, as defined in § 1026.2(a)(19), including any real property attached to a dwelling, other than a transaction exempt from coverage under paragraph (a) of this section.
(2)Fully amortizing payment means a periodic payment of principal and interest that will fully repay the loan amount over the loan term.
(3)Fully indexed rate means the interest rate calculated using the index or formula that will apply after recast, as determined at the time of consummation, and the maximum margin that can apply at any time during the loan term.
(4)Higher-priced covered transaction means a covered transaction with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for a first-lien covered transaction, other than a qualified mortgage under paragraph (e)(5), (e)(6), or (f) of this section; by 3.5 or more percentage points for a first-lien covered transaction that is a qualified mortgage under paragraph (e)(5), (e)(6), or (f) of this section; or by 3.5 or more percentage points for a subordinate-lien covered transaction.
(5)Loan amount means the principal amount the consumer will borrow as reflected in the promissory note or loan contract.
(6)Loan term means the period of time to repay the obligation in full.
(7)Maximum loan amount means the loan amount plus any increase in principal balance that results from negative amortization, as defined in § 1026.18(s)(7)(v), based on the terms of the legal obligation assuming:
(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.
(9)Points and fees has the same meaning as in § 1026.32(b)(1).
(10)Prepayment penalty has the same meaning as in § 1026.32(b)(6).
(11)Recast means:
(i) For an adjustable-rate mortgage, as defined in § 1026.18(s)(7)(i), the expiration of the period during which payments based on the introductory fixed interest rate are permitted under the terms of the legal obligation;
(ii) For an interest-only loan, as defined in § 1026.18(s)(7)(iv), the expiration of the period during which interest-only payments are permitted under the terms of the legal obligation; and
(iii) For a negative amortization loan, as defined in § 1026.18(s)(7)(v), the expiration of the period during which negatively amortizing payments are permitted under the terms of the legal obligation.
(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.
(13)Third-party record means:
(i) A document or other record prepared or reviewed by an appropriate person other than the consumer, the creditor, or the mortgage broker, as defined in § 1026.36(a)(2), or an agent of the creditor or mortgage broker;
(c)Repayment ability -
(1)General requirement. A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.
(2)Basis for determination. Except as provided otherwise in paragraphs (d), (e), and (f) of this section, in making the repayment ability determination required under paragraph (c)(1) of this section, a creditor must consider the following:
(3)Verification using third-party records. A creditor must verify the information that the creditor relies on in determining a consumer's repayment ability under § 1026.43(c)(2) using reasonably reliable third-party records, except that:
(4)Verification of income or assets. A creditor must verify the amounts of income or assets that the creditor relies on under § 1026.43(c)(2)(i) to determine a consumer's ability to repay a covered transaction using third-party records that provide reasonably reliable evidence of the consumer's income or assets. A creditor may verify the consumer's income using a tax-return transcript issued by the Internal Revenue Service (IRS). Examples of other records the creditor may use to verify the consumer's income or assets include:
(ii)IRS Form W-2s or similar IRS forms used for reporting wages or tax withholding;
(v)Records from the consumer's employer or a third party that obtained information from the employer;
(vi)Records from a Federal, State, or local government agency stating the consumer's income from benefits or entitlements;
(5)Payment calculation -
(i)General rule. Except as provided in paragraph (c)(5)(ii) of this section, a creditor must make the consideration required under paragraph (c)(2)(iii) of this section using:
(ii)Special rules for loans with a balloon payment, interest-only loans, and negative amortization loans. A creditor must make the consideration required under paragraph (c)(2)(iii) of this section for:
(6)Payment calculation for simultaneous loans. For purposes of making the evaluation required under paragraph (c)(2)(iv) of this section, a creditor must consider, taking into account any mortgage-related obligations, a consumer's payment on a simultaneous loan that is:
(7)Monthly debt-to-income ratio or residual income -
(i)Definitions. For purposes of this paragraph (c)(7), the following definitions apply:
(A)Total monthly debt obligations. 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.
(B)Total monthly income. The term total monthly income means the sum of the consumer's current or reasonably expected income, including any income from assets, as required by paragraphs (c)(2)(i) and (c)(4) of this section.
(ii)Calculations -
(A)Monthly debt-to-income ratio. If a creditor considers the consumer's monthly debt-to-income ratio under paragraph (c)(2)(vii) of this section, the creditor must consider the ratio of the consumer's total monthly debt obligations to the consumer's total monthly income.
(B)Monthly residual income. If a creditor considers the consumer's monthly residual income under paragraph (c)(2)(vii) of this section, the creditor must consider the consumer's remaining income after subtracting the consumer's total monthly debt obligations from the consumer's total monthly income.
(d)Refinancing of non-standard mortgages -
(1)Definitions. For purposes of this paragraph (d), the following definitions apply:
(i)Non-standard mortgage. The term non-standard mortgage means a covered transaction that is:
(ii)Standard mortgage. The term standard mortgage means a covered transaction:
(2) To pay closing or settlement charges required to be disclosed under the Real Estate Settlement Procedures Act, 12 U.S.C. 2601et seq.
(iii)Refinancing. The term refinancing has the same meaning as in § 1026.20(a).
(2)Scope. The provisions of this paragraph (d) apply to the refinancing of a non-standard mortgage into a standard mortgage when the following conditions are met:
(3)Exemption from repayment ability requirements. A creditor is not required to comply with the requirements of paragraph (c) of this section if:
(4)Offer of rate discounts and other favorable terms. 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.
(5)Payment calculations. For purposes of determining whether the consumer's monthly payment for a standard mortgage will be materially lower than the monthly payment for the non-standard mortgage, the following provisions shall be used:
(i)Non-standard mortgage. For purposes of the comparison conducted pursuant to paragraph (d)(2)(ii) of this section, the creditor must calculate the monthly payment for a non-standard mortgage based on substantially equal, monthly, fully amortizing payments of principal and interest using:
(ii)Standard mortgage. For purposes of the comparison conducted pursuant to paragraph (d)(2)(ii) of this section, the monthly payment for a standard mortgage must be based on substantially equal, monthly, fully amortizing payments based on the maximum interest rate that may apply during the first five years after consummation.
(e)Qualified mortgages -
(1)Safe harbor and presumption of compliance -
(i)Safe harbor for loans that are not higher-priced covered transactions. A creditor or assignee of a qualified mortgage, as defined in paragraphs (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, that is not a higher-priced covered transaction, as defined in paragraph (b)(4) of this section, complies with the repayment ability requirements of paragraph (c) of this section.
(ii)Presumption of compliance for higher-priced covered transactions.
(2)Qualified mortgage defined - general. Except as provided in paragraph (e)(4), (e)(5), (e)(6), or (f) of this section, a qualified mortgage is a covered transaction:
(3)Limits on points and fees for qualified mortgages.
(i) Except as provided in paragraph (e)(3)(iii) of this section, a covered transaction is not a qualified mortgage unless the transaction's total points and fees, as defined in § 1026.32(b)(1), do not exceed:
(4)Qualified mortgage defined - special rules -
(i)General. Notwithstanding paragraph (e)(2) of this section, a qualified mortgage is a covered transaction that satisfies:
(ii)Eligible loans. A qualified mortgage under this paragraph (e)(4) must be one of the following at consummation:
(B) A loan that is eligible to be insured, except with regard to matters wholly unrelated to ability to repay, by the U.S. Department of Housing and Urban Development under the National Housing Act (12 U.S.C. 1707et seq.);
(iii)Sunset of special rules.
(A) Each respective special rule described in paragraph (e)(4)(ii)(B), (C), (D), or (E) of this section shall expire on the effective date of a rule issued by each respective agency pursuant to its authority under TILA section 129C(b)(3)(ii) to define a qualified mortgage.
(5)Qualified mortgage defined - small creditor portfolio loans.
(i) Notwithstanding paragraph (e)(2) of this section, a qualified mortgage is a covered transaction:
(D) For which the creditor satisfies the requirements stated in § 1026.35(b)(2)(iii)(B) and (C).
(6)Qualified mortgage defined - temporary balloon-payment qualified mortgage rules.
(B) For which the creditor satisfies the requirements stated in § 1026.35(b)(2)(iii)(B) and (C).
(f)Balloon-payment qualified mortgages made by certain creditors -
(1)Exemption. Notwithstanding paragraph (e)(2) of this section, a qualified mortgage may provide for a balloon payment, provided:
(vi) The creditor satisfies the requirements stated in § 1026.35(b)(2)(iii)(A), (B), and (C).
(2)Post-consummation transfer of balloon-payment qualified mortgage. A balloon-payment qualified mortgage, extended pursuant to paragraph (f)(1), immediately loses its status as a qualified mortgage under paragraph (f)(1) if legal title to the balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to another person except when:
(g)Prepayment penalties -
(1)When permitted. A covered transaction must not include a prepayment penalty unless:
(C) Is not a higher-priced mortgage loan, as defined in § 1026.35(a).
(2)Limits on prepayment penalties. A prepayment penalty:
(3)Alternative offer required. A creditor must not offer a consumer a covered transaction with a prepayment penalty unless the creditor also offers the consumer an alternative covered transaction without a prepayment penalty and the alternative covered transaction:
(A) Is a fixed-rate mortgage, as defined in § 1026.18(s)(7)(iii); or
(B) Is a step-rate mortgage, as defined in § 1026.18(s)(7)(ii);
(4)Offer through a mortgage broker. If the creditor offers a covered transaction with a prepayment penalty to the consumer through a mortgage broker, as defined in § 1026.36(a)(2), the creditor must:
(5)Creditor that is a loan originator. If the creditor is a loan originator, as defined in § 1026.36(a)(1), and the creditor presents the consumer a covered transaction offered by a person to which the creditor would assign the covered transaction after consummation, the creditor must present the consumer an alternative covered transaction without a prepayment penalty that satisfies the requirements of paragraph (g)(3) of this section, offered by:
(6)Applicability. This paragraph (g) applies only if a covered transaction is consummated with a prepayment penalty and is not violated if:
(h)Evasion; open-end credit. In connection with credit secured by a consumer's dwelling that does not meet the definition of open-end credit in § 1026.2(a)(20), a creditor shall not structure the loan as an open-end plan to evade the requirements of this section.