(a)
(1) A home equity line of credit subject to § 1026.40;
(2) A mortgage transaction secured by a consumer's interest in a timeshare plan, as defined in 11 U.S.C. 101(53(D)); or
(3) For purposes of paragraphs (c) through (f) of this section:
(i) A reverse mortgage subject to § 1026.33;
(ii) A temporary or “bridge” loan with a term of 12 months or less, such as a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months or a loan to finance the initial construction of a dwelling;
(iii) A construction phase of 12 months or less of a construction-to-permanent loan;
(iv) An extension of credit made pursuant to a program administered by a Housing Finance Agency, as defined under 24 CFR 266.5;
(v) An extension of credit made by:
(A) A creditor designated as a Community Development Financial Institution, as defined under 12 CFR 1805.104(h);
(B) A creditor designated as a Downpayment Assistance through Secondary Financing Provider, pursuant to 24 CFR 200.194(a), operating in accordance with regulations prescribed by the U.S. Department of Housing and Urban Development applicable to such persons;
(C) A creditor designated as a Community Housing Development Organization provided that the creditor has entered into a commitment with a participating jurisdiction and is undertaking a project under the HOME program, pursuant to the provisions of 24 CFR 92.300(a), and as the terms community housing development organization, commitment, participating jurisdiction, and project are defined under 24 CFR 92.2; or
(D) A creditor with a tax exemption ruling or determination letter from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3); 26 CFR 1.501(c)(3)-1), provided that:
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(
(
(
(vi) An extension of credit made pursuant to a program authorized by sections 101 and 109 of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5211; 5219);
(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)(
(A) The transaction is secured by a subordinate lien;
(B) The transaction is for the purpose of:
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(
(
(
(C) The credit contract does not require payment of interest;
(D) The credit contract provides that repayment of the amount of the credit extended is:
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(
(
(
(E) The total of costs payable by the consumer in connection with the transaction at consummation is less than 1 percent of the amount of credit extended and includes no charges other than:
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(F) The creditor complies with all other applicable requirements of this part in connection with the transaction.
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(i) The consumer makes only the minimum periodic payments for the maximum possible time, until the consumer must begin making fully amortizing payments; and
(ii) The maximum interest rate is reached at the earliest possible time.
(8)
(9)
(10)
(11)
(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)
(13)
(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;
(ii) A copy of a tax return filed with the Internal Revenue Service or a State taxing authority;
(iii) A record the creditor maintains for an account of the consumer held by the creditor; or
(iv) If the consumer is an employee of the creditor or the mortgage broker, a document or other record maintained by the creditor or mortgage broker regarding the consumer's employment status or employment income.
(c)
(2)
(i) The consumer's current or reasonably expected income or assets, other than the value of the dwelling, including any real property attached to the dwelling, that secures the loan;
(ii) If the creditor relies on income from the consumer's employment in determining repayment ability, the consumer's current employment status;
(iii) The consumer's monthly payment on the covered transaction, calculated in accordance with paragraph (c)(5) of this section;
(iv) The consumer's monthly payment on any simultaneous loan that the creditor knows or has reason to know will be made, calculated in accordance with paragraph (c)(6) of this section;
(v) The consumer's monthly payment for mortgage-related obligations;
(vi) The consumer's current debt obligations, alimony, and child support;
(vii) The consumer's monthly debt-to-income ratio or residual income in accordance with paragraph (c)(7) of this section; and
(viii) The consumer's credit history.
(3)
(i) For purposes of paragraph (c)(2)(i) of this section, a creditor must verify a consumer's income or assets that the creditor relies on in accordance with § 1026.43(c)(4);
(ii) For purposes of paragraph (c)(2)(ii) of this section, a creditor may verify a consumer's employment status orally if the creditor prepares a record of the information obtained orally; and
(iii) For purposes of paragraph (c)(2)(vi) of this section, if a creditor relies on a consumer's credit report to verify a consumer's current debt obligations and a consumer's application states a current debt obligation not shown in the consumer's credit report, the creditor need not independently verify such an obligation.
(4)
(i) Copies of tax returns the consumer filed with the IRS or a State taxing authority;
(ii) IRS Form W-2s or similar IRS forms used for reporting wages or tax withholding;
(iii) Payroll statements, including military Leave and Earnings Statements;
(iv) Financial institution records;
(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;
(vii) Receipts from the consumer's use of check cashing services; and
(viii) Receipts from the consumer's use of a funds transfer service.
(5)
(A) The fully indexed rate or any introductory interest rate, whichever is greater; and
(B) Monthly, fully amortizing payments that are substantially equal.
(ii)
(A) A loan with a balloon payment, as defined in § 1026.18(s)(5)(i), using:
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(B) An interest-only loan, as defined in § 1026.18(s)(7)(iv), using:
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(C) A negative amortization loan, as defined in § 1026.18(s)(7)(v), using:
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(6)
(i) A covered transaction, by following paragraph (c)(5)of this section; or
(ii) A home equity line of credit subject to § 1026.40, by using the periodic payment required under the terms of the plan and the amount of credit to be drawn at or before consummation of the covered transaction.
(7)
(A)
(B)
(ii)
(B)
(d)
(i)
(A) An adjustable-rate mortgage, as defined in § 1026.18(s)(7)(i), with an introductory fixed interest rate for a period of one year or longer;
(B) An interest-only loan, as defined in § 1026.18(s)(7)(iv); or
(C) A negative amortization loan, as defined in § 1026.18(s)(7)(v).
(ii)
(A) That provides for regular periodic payments that do not:
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(B) For which the total points and fees payable in connection with the transaction do not exceed the amounts specified in paragraph (e)(3) of this section;
(C) For which the term does not exceed 40 years;
(D) For which the interest rate is fixed for at least the first five years after consummation; and
(E) For which the proceeds from the loan are used solely for the following purposes:
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(iii)
(2)
(i) The creditor for the standard mortgage is the current holder of the existing non-standard mortgage or the servicer acting on behalf of the current holder;
(ii) The monthly payment for the standard mortgage is materially lower than the monthly payment for the non-standard mortgage, as calculated under paragraph (d)(5) of this section.
(iii) The creditor receives the consumer's written application for the standard mortgage no later than two months after the non-standard mortgage has recast.
(iv) The consumer has made no more than one payment more than 30 days late on the non-standard mortgage during the 12 months immediately preceding the creditor's receipt of the consumer's written application for the standard mortgage.
(v) The consumer has made no payments more than 30 days late during
(vi) If the non-standard mortgage was consummated on or after January 10, 2014, the non-standard mortgage was made in accordance with paragraph (c) or (e) of this section, as applicable.
(3)
(i) The conditions in paragraph (d)(2) of this section are met; and
(ii) The creditor has considered whether the standard mortgage likely will prevent a default by the consumer on the non-standard mortgage once the loan is recast.
(4)
(5)
(i)
(A) The fully indexed rate as of a reasonable period of time before or after the date on which the creditor receives the consumer's written application for the standard mortgage;
(B) The term of the loan remaining as of the date on which the recast occurs, assuming all scheduled payments have been made up to the recast date and the payment due on the recast date is made and credited as of that date; and
(C) A remaining loan amount that is:
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(ii)
(e)
(ii)
(B) To rebut the presumption of compliance described in paragraph (e)(1)(ii)(A) of this section, it must be proven that, despite meeting the prerequisites of paragraph (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, the
(2)
(i) That provides for regular periodic payments that are substantially equal, except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage, that do not:
(A) Result in an increase of the principal balance;
(B) Allow the consumer to defer repayment of principal, except as provided in paragraph (f) of this section; or
(C) Result in a balloon payment, as defined in § 1026.18(s)(5)(i), except as provided in paragraph (f) of this section;
(ii) For which the loan term does not exceed 30 years;
(iii) For which the total points and fees payable in connection with the loan do not exceed the amounts specified in paragraph (e)(3) of this section;
(iv) For which the creditor underwrites the loan, taking into account the monthly payment for mortgage-related obligations, using:
(A) The maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due; and
(B) Periodic payments of principal and interest that will repay either:
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(
(v) For which the creditor considers and verifies at or before consummation the following:
(A) The consumer's current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan, in accordance with appendix Q and paragraphs (c)(2)(i) and (c)(4) of this section; and
(B) The consumer's current debt obligations, alimony, and child support in accordance with appendix Q and paragraphs (c)(2)(vi) and (c)(3) of this section; and
(vi) For which the ratio of the consumer's total monthly debt to total monthly income at the time of consummation does not exceed 43 percent. For purposes of this paragraph (e)(2)(vi), the ratio of the consumer's total monthly debt to total monthly income is determined:
(A) Except as provided in paragraph (e)(2)(vi)(B) of this section, in accordance with the standards in appendix Q;
(B) Using the consumer's monthly payment on:
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(3)
(A) For a loan amount greater than or equal to $100,000 (indexed for inflation): 3 percent of the total loan amount;
(B) For a loan amount greater than or equal to $60,000 (indexed for inflation) but less than $100,000 (indexed for inflation): $3,000 (indexed for inflation);
(C) For a loan amount greater than or equal to $20,000 (indexed for inflation) but less than $60,000 (indexed for inflation): 5 percent of the total loan amount;
(D) For a loan amount greater than or equal to $12,500 (indexed for inflation) but less than $20,000 (indexed for inflation): $1,000 (indexed for inflation);
(E) For a loan amount less than $12,500 (indexed for inflation): 8 percent of the total loan amount.
(ii) The dollar amounts, including the loan amounts, in paragraph (e)(3)(i) of this section shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index for All Urban Consumers (CPI-U) that was reported on the preceding June 1. See the official commentary to this paragraph (e)(3)(ii) for the current dollar amounts.
(iii) For covered transactions consummated on or before January 10, 2021, if the creditor or assignee determines after consummation that the transaction's total points and fees exceed the applicable limit under paragraph (e)(3)(i) of this section, the loan is not precluded from being a qualified mortgage, provided:
(A) The loan otherwise meets the requirements of paragraphs (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, as applicable;
(B) The creditor or assignee pays to the consumer the amount described in paragraph (e)(3)(iv) of this section within 210 days after consummation and prior to the occurrence of any of the following events:
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(C) The creditor or assignee, as applicable, maintains and follows policies and procedures for post-consummation review of points and fees and for making payments to consumers in accordance with paragraphs (e)(3)(iii)(B) and (e)(3)(iv) of this section.
(iv) For purposes of paragraph (e)(3)(iii) of this section, the creditor or assignee must pay to the consumer an amount that is not less than the sum of the following:
(A) The dollar amount by which the transaction's total points and fees exceeds the applicable limit under paragraph (e)(3)(i) of this section; and
(B) Interest on the dollar amount described in paragraph (e)(3)(iv)(A) of this section, calculated using the contract interest rate applicable during the period from consummation until the payment described in this paragraph (e)(3)(iv) is made to the consumer.
(4)
(A) The requirements of paragraphs (e)(2)(i) through (iii) of this section; and
(B) One or more of the criteria in paragraph (e)(4)(ii) of this section.
(ii)
(A) A loan that is eligible, except with regard to matters wholly unrelated to ability to repay:
(
(
(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. 1707
(C) A loan that is eligible to be guaranteed, except with regard to matters wholly unrelated to ability to repay, by the U.S. Department of Veterans Affairs;
(D) A loan that is eligible to be guaranteed, except with regard to matters wholly unrelated to ability to repay, by the U.S. Department of Agriculture pursuant to 42 U.S.C. 1472(h); or
(E) A loan that is eligible to be insured, except with regard to matters wholly unrelated to ability to repay, by the Rural Housing Service.
(iii)
(B) Unless otherwise expired under paragraph (e)(4)(iii)(A) of this section, the special rules in this paragraph (e)(4) are available only for covered transactions consummated on or before January 10, 2021.
(5)
(A) That satisfies the requirements of paragraph (e)(2) of this section other than the requirements of paragraph (e)(2)(vi) and without regard to the standards in appendix Q to this part;
(B) For which the creditor considers at or before consummation the consumer's monthly debt-to-income ratio or residual income and verifies the debt obligations and income used to determine that ratio in accordance with paragraph (c)(7) of this section, except that the calculation of the payment on the covered transaction for purposes of determining the consumer's total monthly debt obligations in paragraph (c)(7)(i)(A) shall be determined in accordance with paragraph (e)(2)(iv) of this section instead of paragraph (c)(5) of this section;
(C) That is not subject, at consummation, to a commitment to be acquired by another person, other than a person that satisfies the requirements of paragraph (e)(5)(i)(D) of this section; and
(D) For which the creditor satisfies the requirements stated in § 1026.35(b)(2)(iii)(B) and (C).
(ii) A qualified mortgage extended pursuant to paragraph (e)(5)(i) of this section immediately loses its status as a qualified mortgage under paragraph (e)(5)(i) if legal title to the qualified mortgage is sold, assigned, or otherwise transferred to another person except when:
(A) The qualified mortgage is sold, assigned, or otherwise transferred to another person three years or more after consummation of the qualified mortgage;
(B) The qualified mortgage is sold, assigned, or otherwise transferred to a creditor that satisfies the requirements of paragraph (e)(5)(i)(D) of this section;
(C) The qualified mortgage is sold, assigned, or otherwise transferred to another person pursuant to a capital restoration plan or other action under 12 U.S.C. 1831o, actions or instructions of any person acting as conservator, receiver, or bankruptcy trustee, an order of a State or Federal government agency with jurisdiction to examine the creditor pursuant to State or Federal law, or an agreement between the creditor and such an agency; or
(D) The qualified mortgage is sold, assigned, or otherwise transferred pursuant to a merger of the creditor with another person or acquisition of the creditor by another person or of another person by the creditor.
(6)
(A) That satisfies the requirements of paragraph (f) of this section other than the requirements of paragraph (f)(1)(vi); and
(B) For which the creditor satisfies the requirements stated in § 1026.35(b)(2)(iii)(B) and (C).
(ii) The provisions of this paragraph (e)(6) apply only to covered transactions for which the application was received before April 1, 2016.
(f)
(i) The loan satisfies the requirements for a qualified mortgage in paragraphs (e)(2)(i)(A), (e)(2)(ii), (e)(2)(iii), and (e)(2)(v) of this section, but without regard to the standards in appendix Q;
(ii) The creditor determines at or before consummation that the consumer can make all of the scheduled payments under the terms of the legal obligation, as described in paragraph (f)(1)(iv) of this section, together with the consumer's monthly payments for all mortgage-related obligations and excluding the balloon payment, from the consumer's current or reasonably expected income or assets other than the dwelling that secures the loan;
(iii) The creditor considers at or before consummation the consumer's monthly debt-to-income ratio or residual income and verifies the debt obligations and income used to determine that ratio in accordance with paragraph (c)(7) of this section, except that the calculation of the payment on the covered transaction for purposes of determining the consumer's total monthly debt obligations in (c)(7)(i)(A) shall be determined in accordance with paragraph (f)(iv)(A) of this section, together with the consumer's monthly payments for all mortgage-related obligations and excluding the balloon payment;
(iv) The legal obligation provides for:
(A) Scheduled payments that are substantially equal, calculated using an amortization period that does not exceed 30 years;
(B) An interest rate that does not increase over the term of the loan; and
(C) A loan term of five years or longer.
(v) The loan is not subject, at consummation, to a commitment to be acquired by another person, other than a person that satisfies the requirements of paragraph (f)(1)(vi) of this section; and
(vi) The creditor satisfies the requirements stated in § 1026.35(b)(2)(iii)(A), (B), and (C).
(2)
(i) The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to another person three years or more after consummation of the balloon-payment qualified mortgage;
(ii) The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to a creditor that satisfies the requirements of paragraph (f)(1)(vi) of this section;
(iii) The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to another person pursuant to a capital restoration plan or other action under 12 U.S.C. 1831o, actions or instructions of any person acting as conservator, receiver or bankruptcy trustee, an order of a State or Federal governmental agency with jurisdiction to examine the creditor pursuant to State or Federal law, or an agreement between the creditor and such an agency; or
(iv) The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred pursuant to a merger of the creditor with another person or acquisition of the creditor by another person or of another person by the creditor.
(g)
(i) The prepayment penalty is otherwise permitted by law; and
(ii) The transaction:
(A) Has an annual percentage rate that cannot increase after consummation;
(B) Is a qualified mortgage under paragraph (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section; and
(C) Is not a higher-priced mortgage loan, as defined in § 1026.35(a).
(2)
(i) Must not apply after the three-year period following consummation; and
(ii) Must not exceed the following percentages of the amount of the outstanding loan balance prepaid:
(A) 2 percent, if incurred during the first two years following consummation; and
(B) 1 percent, if incurred during the third year following consummation.
(3)
(i) Has an annual percentage rate that cannot increase after consummation and has the same type of interest rate as the covered transaction with a prepayment penalty; for purposes of this paragraph (g), the term “type of interest rate” refers to whether a 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);
(ii) Has the same loan term as the loan term for the covered transaction with a prepayment penalty;
(iii) Satisfies the periodic payment conditions under paragraph (e)(2)(i) of this section;
(iv) Satisfies the points and fees conditions under paragraph (e)(2)(iii) of this section, based on the information known to the creditor at the time the transaction is offered; and
(v) Is a transaction for which the creditor has a good faith belief that the consumer likely qualifies, based on the information known to the creditor at the time the creditor offers the covered transaction without a prepayment penalty.
(4)
(i) Present the mortgage broker an alternative covered transaction without a prepayment penalty that satisfies the requirements of paragraph (g)(3) of this section; and
(ii) Establish by agreement that the mortgage broker 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:
(A) The creditor; or
(B) Another creditor, if the transaction offered by the other creditor has a lower interest rate or a lower total dollar amount of discount points and origination points or fees.
(5)
(i) The assignee; or
(ii) Another person, if the transaction offered by the other person has a lower interest rate or a lower total dollar amount of origination discount points and points or fees.
(6)
(i) A covered transaction is consummated without a prepayment penalty; or
(ii) The creditor and consumer do not consummate a covered transaction.
(h)