§1639 — Title 15 Commerce and Trade | U.S. Code

Summary

Lenders must follow extra rules and give special warnings for high-cost home loans. Before the loan closes, the lender must give clear written warnings and show the loan’s annual percentage rate (APR) and regular monthly payment. If the rate can change, the lender must also say the payment may rise and show the highest possible payment based on the highest allowed rate. Those written disclosures must be given at least 3 business days before closing. If the lender changes terms that would make the disclosures wrong, the lender must give new disclosures. A second offer with a lower APR can close without waiting the 3 days. The consumer must get counseling from a HUD-approved counselor (not tied to the lender) before the lender may make the loan. Payoff balances must be given free within 5 business days, though a small fee is allowed for fax or courier if the consumer was told such fees could apply. High-cost loans may not charge prepayment penalties. Any method of refunding prepaid interest must be at least as favorable as the actuarial method. The interest rate after a default may not be higher than before default. Lenders may not let the unpaid balance grow because regular payments do not cover the interest. No scheduled payment can be more than twice the average earlier payments unless the schedule matches the borrower’s seasonal or irregular income. Lenders may not roll more than 2 scheduled payments into the loan proceeds. Lenders must decide borrowers can repay by looking at income, debts, and job. Lenders may not pay a contractor directly from the loan except by a check to the borrower, a joint check, or a third-party escrow agreed to in writing. Lenders may not tell borrowers to stop paying existing debts to get a new high-cost loan. Late fees are limited to 4 percent of the past-due amount, must be written in the loan papers, cannot be charged until after 15 days (or 30 days if interest for a payment is paid in advance), and cannot be charged more than once for the same late payment. Lenders cannot accelerate the loan (call it due) except for default, a due-on-sale clause, or a serious contract breach not about payment. Lenders cannot hide the loan to avoid these rules or split it to evade them. The Bureau can exempt some loan types or ban abusive practices. A lender that pays fees the law forbids or otherwise breaks these rules is treated as having failed to give required disclosures. Creditors who act in good faith and correct mistakes quickly can avoid being treated as violating the rules if they notify the borrower, fix the problem, and make fair restitution within the time limits allowed (usually 30 or 60 days). Affiliate: has the meaning given in 12 U.S.C. 1841(k).

Title 15, §1639

Commerce and Trade — Source: USLM XML via OLRC

(a)(1)In addition to other disclosures required under this subchapter, for each mortgage referred to in section 1602(aa) 11 See References in Text note below. of this title, the creditor shall provide the following disclosures in conspicuous type size:

(A)“You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application.”.

(B)“If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.”.

(2)In addition to the disclosures required under paragraph (1), the creditor shall disclose—

(A)in the case of a credit transaction with a fixed rate of interest, the annual percentage rate and the amount of the regular monthly payment; or

(B)in the case of any other credit transaction, the annual percentage rate of the loan, the amount of the regular monthly payment, a statement that the interest rate and monthly payment may increase, and the amount of the maximum monthly payment, based on the maximum interest rate allowed pursuant to section 3806 of title 12.

(b)(1)The disclosures required by this section shall be given not less than 3 business days prior to consummation of the transaction.

(2)(A)After providing the disclosures required by this section, a creditor may not change the terms of the extension of credit if such changes make the disclosures inaccurate, unless new disclosures are provided that meet the requirements of this section.

(B)A creditor may provide new disclosures pursuant to subparagraph (A) by telephone, if—

(i)the change is initiated by the consumer; and

(ii)at the consummation of the transaction under which the credit is extended—

(I)the creditor provides to the consumer the new disclosures, in writing; and

(II)the creditor and consumer certify in writing that the new disclosures were provided by telephone, by not later than 3 days prior to the date of consummation of the transaction.

(3)If a creditor extends to a consumer a second offer of credit with a lower annual percentage rate, the transaction may be consummated without regard to the period specified in paragraph (1) with respect to the second offer.

(4)The Bureau may, if it finds that such action is necessary to permit homeowners to meet bona fide personal financial emergencies, prescribe regulations authorizing the modification or waiver of rights created under this subsection, to the extent and under the circumstances set forth in those regulations.

(c)(1)(A)A mortgage referred to in section 1602(aa) 1 of this title may not contain terms under which a consumer must pay a prepayment penalty for paying all or part of the principal before the date on which the principal is due.

(B)For purposes of this subsection, any method of computing a refund of unearned scheduled interest is a prepayment penalty if it is less favorable to the consumer than the actuarial method (as that term is defined in section 1615(d) of this title).

(d)A mortgage referred to in section 1602(aa) 1 of this title may not provide for an interest rate applicable after default that is higher than the interest rate that applies before default. If the date of maturity of a mortgage referred to in subsection 33 So in original. Probably should be “section”. 1602(aa) 1 of this title is accelerated due to default and the consumer is entitled to a rebate of interest, that rebate shall be computed by any method that is not less favorable than the actuarial method (as that term is defined in section 1615(d) of this title).

(e)No high-cost mortgage may contain a scheduled payment that is more than twice as large as the average of earlier scheduled payments. This subsection shall not apply when the payment schedule is adjusted to the seasonal or irregular income of the consumer.

(f)A mortgage referred to in section 1602(aa) 1 of this title may not include terms under which the outstanding principal balance will increase at any time over the course of the loan because the regular periodic payments do not cover the full amount of interest due.

(g)A mortgage referred to in section 1602(aa) 1 of this title may not include terms under which more than 2 periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the consumer.

(h)A creditor shall not engage in a pattern or practice of extending credit to consumers under mortgages referred to in section 1602(aa) 1 of this title based on the consumers’ collateral without regard to the consumers’ repayment ability, including the consumers’ current and expected income, current obligations, and employment.

(i)A creditor shall not make a payment to a contractor under a home improvement contract from amounts extended as credit under a mortgage referred to in section 1602(aa) 1 of this title, other than—

(1)in the form of an instrument that is payable to the consumer or jointly to the consumer and the contractor; or

(2)at the election of the consumer, by a third party escrow agent in accordance with terms established in a written agreement signed by the consumer, the creditor, and the contractor before the date of payment.

(j)No creditor shall recommend or encourage default on an existing loan or other debt prior to and in connection with the closing or planned closing of a high-cost mortgage that refinances all or any portion of such existing loan or debt.

(k)(1)No creditor may impose a late payment charge or fee in connection with a high-cost mortgage—

(A)in an amount in excess of 4 percent of the amount of the payment past due;

(B)unless the loan documents specifically authorize the charge or fee;

(C)before the end of the 15-day period beginning on the date the payment is due, or in the case of a loan on which interest on each installment is paid in advance, before the end of the 30-day period beginning on the date the payment is due; or

(D)more than once with respect to a single late payment.

(2)If a payment is otherwise a full payment for the applicable period and is paid on its due date or within an applicable grace period, and the only delinquency or insufficiency of payment is attributable to any late fee or delinquency charge assessed on any earlier payment, no late fee or delinquency charge may be imposed on such payment.

(3)If, in the case of a loan agreement the terms of which provide that any payment shall first be applied to any past due principal balance, the consumer fails to make an installment payment and the consumer subsequently resumes making installment payments but has not paid all past due installments, the creditor may impose a separate late payment charge or fee for any principal due (without deduction due to late fees or related fees) until the default is cured.

(l)No high-cost mortgage may contain a provision which permits the creditor to accelerate the indebtedness, except when repayment of the loan has been accelerated by default in payment, or pursuant to a due-on-sale provision, or pursuant to a material violation of some other provision of the loan document unrelated to payment schedule.

(m)No creditor may directly or indirectly finance, in connection with any high-cost mortgage, any of the following:

(1)Any prepayment fee or penalty payable by the consumer in a refinancing transaction if the creditor or an affiliate of the creditor is the noteholder of the note being refinanced.

(2)Any points or fees.

(n)Any mortgage that contains a provision prohibited by this section shall be deemed a failure to deliver the material disclosures required under this subchapter, for the purpose of section 1635 of this title.

(o)For purposes of this section, the term “affiliate” has the same meaning as in section 1841(k) of title 12.

(p)(1)The Bureau may, by regulation or order, exempt specific mortgage products or categories of mortgages from any or all of the prohibitions specified in subsections (c) through (i), if the Bureau finds that the exemption—

(A)is in the interest of the borrowing public; and

(B)will apply only to products that maintain and strengthen home ownership and equity protection.

(2)The Bureau, by regulation or order, shall prohibit acts or practices in connection with—

(A)mortgage loans that the Bureau finds to be unfair, deceptive, or designed to evade the provisions of this section; and

(B)refinancing of mortgage loans that the Bureau finds to be associated with abusive lending practices, or that are otherwise not in the interest of the borrower.

(q)For purposes of enforcement by the Federal Trade Commission, any violation of a regulation issued by the Bureau pursuant to subsection (l)(2) shall be treated as a violation of a rule promulgated under section 57a of this title regarding unfair or deceptive acts or practices.

(r)A creditor may not take any action in connection with a high-cost mortgage—

(1)to structure a loan transaction as an open-end credit plan or another form of loan for the purpose and with the intent of evading the provisions of this subchapter; or

(2)to divide any loan transaction into separate parts for the purpose and with the intent of evading provisions of this subchapter.

(s)A creditor, successor in interest, assignee, or any agent of any of the above, may not charge a consumer any fee to modify, renew, extend, or amend a high-cost mortgage, or to defer any payment due under the terms of such mortgage.

(t)(1)(A)Except as provided in subparagraph (B), no creditor or servicer may charge a fee for informing or transmitting to any person the balance due to pay off the outstanding balance on a high-cost mortgage.

(B)When payoff information referred to in subparagraph (A) is provided by facsimile transmission or by a courier service, a creditor or servicer may charge a processing fee to cover the cost of such transmission or service in an amount not to exceed an amount that is comparable to fees imposed for similar services provided in connection with consumer credit transactions that are secured by the consumer’s principal dwelling and are not high-cost mortgages.

(C)Prior to charging a transaction fee as provided in subparagraph (B), a creditor or servicer shall disclose that payoff balances are available for free pursuant to subparagraph (A).

(D)If a creditor or servicer has provided payoff information referred to in subparagraph (A) without charge, other than the transaction fee allowed by subparagraph (B), on 4 occasions during a calendar year, the creditor or servicer may thereafter charge a reasonable fee for providing such information during the remainder of the calendar year.

(2)Payoff balances shall be provided within 5 business days after receiving a request by a consumer or a person authorized by the consumer to obtain such information.

(u)(1)A creditor may not extend credit to a consumer under a high-cost mortgage without first receiving certification from a counselor that is approved by the Secretary of Housing and Urban Development, or at the discretion of the Secretary, a State housing finance authority, that the consumer has received counseling on the advisability of the mortgage. Such counselor shall not be employed by the creditor or an affiliate of the creditor or be affiliated with the creditor.

(2)No counselor may certify that a consumer has received counseling on the advisability of the high-cost mortgage unless the counselor can verify that the consumer has received each statement required (in connection with such loan) by this section or the Real Estate Settlement Procedures Act of 1974 [12 U.S.C. 2601 et seq.] with respect to the transaction.

(3)The Board 44 So in original. Probably should be “Bureau”. may prescribe such regulations as the Board determines to be appropriate to carry out the requirements of paragraph (1).

(v)A creditor or assignee in a high-cost mortgage who, when acting in good faith, fails to comply with any requirement under this section will not be deemed to have violated such requirement if the creditor or assignee establishes that either—

(1)within 30 days of the loan closing and prior to the institution of any action, the consumer is notified of or discovers the violation, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the consumer—

(A)make the loan satisfy the requirements of this part; or

(B)in the case of a high-cost mortgage, change the terms of the loan in a manner beneficial to the consumer so that the loan will no longer be a high-cost mortgage; or

(2)within 60 days of the creditor’s discovery or receipt of notification of an unintentional violation or bona fide error and prior to the institution of any action, the consumer is notified of the compliance failure, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the consumer—

(A)make the loan satisfy the requirements of this part; or

(B)in the case of a high-cost mortgage, change the terms of the loan in a manner beneficial so that the loan will no longer be a high-cost mortgage.

Notes & Related Subsidiaries

Editorial Notes

References in Text

section 1602(aa) of this title, referred to in text, was redesignated section 1602(bb) of this title by Pub. L. 111–203, title X, § 1100A(1)(A), July 21, 2010, 124 Stat. 2107. The Real Estate Settlement Procedures Act of 1974, referred to in subsec. (u)(2), is Pub. L. 93–533, Dec. 22, 1974, 88 Stat. 1724, which is classified principally to chapter 27 (§ 2601 et seq.) of Title 12, Banks and Banking. For complete classification of this Act to the Code, see

Short Title

note set out under section 2601 of Title 12 and Tables.

Prior Provisions

A prior section 1639, Pub. L. 90–321, title I, § 129, May 29, 1968, 82 Stat. 156, related to consumer loans not under open end credit plans, prior to repeal by Pub. L. 96–221, title VI, § 614(d)(1), Mar. 31, 1980, 94 Stat. 180. Repeal effective on expiration of two years and six months after Mar. 31, 1980, with all

Regulations

, forms, and clauses required to be prescribed to be promulgated at least one year prior to such

Effective Date

, and allowing any creditor to comply with any

Amendments

, in accordance with the

Regulations

, forms, and clauses prescribed by the Board prior to such

Effective Date

, see section 625 of Pub. L. 96–221, set out as an

Effective Date

of 1980 Amendment note under section 1602 of this title.

Amendments

2018—Subsec. (b)(3), (4). Pub. L. 115–174 added par. (3) and redesignated former par. (3) as (4). 2010—Pub. L. 111–203, § 1100A(2), substituted “Bureau” for “Board” wherever appearing. Subsec. (c)(2). Pub. L. 111–203, § 1432(a), struck out par. (2) which related to exception to prepayment penalty prohibition. Subsec. (e). Pub. L. 111–203, § 1432(b), amended subsec. (e) generally. Prior to amendment, text read as follows: “A mortgage referred to in section 1602(aa) of this title having a term of less than 5 years may not include terms under which the aggregate amount of the regular periodic payments would not fully amortize the outstanding principal balance.” Subsecs. (j) to (l). Pub. L. 111–203, § 1433(a)(2), added subsecs. (j) to (l). Former subsecs. (j) to (l) redesignated (n) to (p), respectively. Subsec. (m). Pub. L. 111–203, § 1433(a)(2), added subsec. (m). Former subsec. (m) redesignated (q). Pub. L. 111–203, § 1100A(9), added subsec. (m) and struck out former subsec. (m). Prior to amendment, text read as follows: “For purposes of

Enforcement

by the Federal Trade Commission, any violation of a regulation issued by the Federal Reserve Board pursuant to subsection (l)(2) of this section shall be treated as a violation of a rule promulgated under section 57a of this title regarding unfair or deceptive acts or practices.” Subsecs. (n) to (q). Pub. L. 111–203, § 1433(a)(1), redesignated former subsecs. (j) to (m) as (n) to (q), respectively. Subsecs. (r) to (v). Pub. L. 111–203, § 1433(b)–(f), added subsecs. (r) to (v). 2009—Subsec. (m). Pub. L. 111–8 added subsec. (m).

Statutory Notes and Related Subsidiaries

Effective Date

of 2010 AmendmentAmendment by section 1100A(2), (9) of Pub. L. 111–203 effective on the designated transfer date, see section 1100H of Pub. L. 111–203, set out as a note under section 552a of Title 5, Government Organization and Employees. Amendment by section 1432 and 1433 of Pub. L. 111–203 effective on the date on which final

Regulations

implementing that amendment take effect, or on the date that is 18 months after the designated transfer date if such

Regulations

have not been issued by that date, see section 1400(c) of Pub. L. 111–203, set out as a note under section 1601 of this title.

§1639 Requirements for certain mortgages

Summary

Title 15, §1639

Notes & Related Subsidiaries

Editorial Notes

References in Text

Short Title

Prior Provisions

Regulations

Effective Date

Amendments

Regulations

Effective Date

Effective Date

Amendments

Enforcement

Statutory Notes and Related Subsidiaries

Effective Date

Regulations

Regulations

Citations & Metadata