Missouri Code of State Regulations › Title 20 - DEPARTMENT OF COMMERCE AND INSURANCE › Division 1140 - Division of Finance › Chapter 20 - Association Loans › Section 20 CSR 1140-20.072 - Alternative Mortgage Instruments

Current through Register Vol. 49, No. 14, July 15, 2024
PURPOSE: This rule provides for certain conditions,
				  limitations, provisions, disclosures and notification requirements placed upon
				  associations when making alternate mortgage instrument loans.
(1) General. Associations originating,
				investing in, selling, purchasing, participating or otherwise dealing in
				residential real estate loans secured by borrower-occupied property may use the
				alternative mortgage instruments described in this rule, including their use in
				connection with the assumption or refinancing of loans authorized by other
				rules of this chapter, subject to the conditions set out as follows. An
				association using an alternative mortgage instrument described in this rule
				shall obtain and retain in the loan application file a certificate signed by
				the prospective borrower indicating that s/he has received the disclosure
				materials specified in this rule before electing to take the alternative
				mortgage instrument. An association using an alternative mortgage instrument
				described in this rule may not impose a penalty on any prepayment made within
				ninety (90) days following notice of an adjustment. In addition, in accordance
				with section
				408.036,
				RSMo, no prepayment penalty shall be charged or exacted by an association when
				the full principal balance of the residential real estate loan is paid after
				five (5) years from the origination date and prior to maturity. In no event
				shall any prepayment penalty on a residential real estate loan exceed two
				percent (2%) of the balance at the time of prepayment.
(2) Adjustable Mortgage Loans. An adjustable
				mortgage loan is a loan that permits adjustment of the interest rate, the
				payment amount, the outstanding principal balance, the loan term or a
				combination of these methods. An association is authorized to originate, invest
				in, sell, purchase, participate or otherwise deal in adjustable mortgage loans
				subject to the following limitations and disclosures:
(A) Adjustments to the interest rate shall
				correspond directly to the movement of an interest-rate index or of a national
				or regional index that measures the rate of inflation or the rate of change in
				consumer disposable income, which index is readily available to and verifiable
				by the borrower and is beyond the control of the association. An association
				also may increase the interest rate pursuant to a formula or schedule that
				specifies the amount of the increase, the time at which it may be made and
				which is set forth in the loan contract. An association may decrease the
				interest rate at any time;
(B)
				Adjustments to the payment and the loan balance that do not reflect an interest
				rate adjustment may be made if-1) the adjustments reflect a change in a
				national or regional index that measures the rate of inflation or the rate of
				change in consumer disposable income, is readily available to and verifiable by
				the borrower and is beyond the control of the association, 2) in the case of a
				payment adjustment, the adjustment reflects a change in the loan balance or is
				made pursuant to a formula or to a schedule specifying the percentage or dollar
				change in the payment as set forth in the loan contract, or 3) in the case of
				an open-end line-of-credit loan, the adjustment reflects an advance taken by
				the borrower under the line-of-credit and is permitted by the loan
				contract;
(C) Any combination of
				indices or a moving average of index values may be used as an index, and an
				association may use more than one (1) index during the term of a loan, if set
				forth in the loan contract;
(D) At
				least thirty (30) but not more than one hundred twenty (120) days prior to an
				adjustment and at least ninety (90) but not more than one hundred twenty (120)
				days prior to the expected maturity of a non- or partially-amortized loan, an
				association shall provide the borrower with notice of the adjustment or of
				maturity. However, where the loan contract provides that changes in the
				interest rate shall occur more frequently than changes in the payment, the
				association need not notify the borrower of changes in the rate, nor of changes
				in the loan balance or term resulting from a rate change, until notice of a
				payment adjustment is given. (For purposes of notification, a payment
				adjustment is considered to occur as of the date of the interest-rate change
				immediately preceding the due date of the adjusted payment.) In addition, where
				the loan contract sets out a schedule of payment adjustments, notice need not
				be given of payment changes made pursuant to that schedule. In the case of an
				open-end line-of-credit loan, notice of an adjustment to the payment or the
				balance need not be given if the adjustment reflects advances taken by the
				borrower under the line-of-credit and notice of a change in the interest rate
				permitted by the loan contract (and any resulting change in the payment) need
				not be given;
(E) The loan term may
				be adjusted only to reflect a change in the interest rate, the payment or the
				loan balance. A loan contract may provide an association with the right to call
				the loan due and payable either after a specified number of years has elapsed
				following closing or upon the occurrence of a specified event external to the
				loan; and
(F) Not later than three
				(3) business days following receipt of a written application, an association
				shall disclose to each applicant the following:
1. The initial interest rate, if known, or
				the manner in which the initial interest rate will be established;
2. The amount of the initial payment, if
				known, and an explanation of how the amount of the payment is determined by
				reference to the initial loan balance, the interest rate and the term over
				which the balance is scheduled to be repaid;
3. A full explanation of how the adjustments
				may be made, including identification of the index(es) to be used and how index
				values may be obtained by the borrower and how the adjustment of one (1) item
				may affect the others; and
4. What
				information will be contained in each notice of an adjustment.