PRIA, Government Policy, Made Personal

Summary

The Secretary may insure adjustable-rate home loans for one- to four-family homes. Lenders can change the loan’s interest rate using a national interest-rate index the Secretary approves. Rate changes happen once a year. A single yearly increase cannot be more than 1 percent of the outstanding balance. Over the life of the loan, the rate cannot rise more than 5 percentage points above the original rate. Lenders may change the monthly payment, the remaining principal, the loan term, or a mix of these, but the total loan term may never be longer than 40 years. The index used must be easy for borrowers to find in public sources. Lenders must give borrowers a written explanation of how the adjustable loan works when they apply, using the same kind of variable-rate disclosure required by the Truth in Lending Act. In any fiscal year, adjustable loans insured under this rule may not exceed 30 percent of all loans the Secretary insured in the previous fiscal year. There is a special type that stays fixed for at least the first 3 years, then adjusts annually; the rule about a 1 percent limit on the first adjustment applies only if the rate was fixed for 3 years or less.

Title 12, §1715z–16

Banks and Banking, Source: USLM XML via OLRC

(a)The Secretary may insure under any provision of this subchapter a mortgage involving property upon which there is located a dwelling designed principally for occupancy by one to four families, where the mortgage provides for periodic adjustments by the mortgagee in the effective rate of interest charged. Such interest rate adjustments may be accomplished through adjustments in the monthly payment amount, the outstanding principal balance, or the mortgage term, or a combination of these factors, except that in no case may any extension of a mortgage term result in a total term in excess of 40 years. Adjustments in the effective rate of interest shall correspond to a specified national interest rate index approved in regulations by the Secretary, information on which is readily accessible to mortgagors from generally available published sources. Adjustments in the effective rate of interest shall (1) be made on an annual basis; (2) be limited, with respect to any single interest rate increase, to no more than 1 percent on the outstanding loan balance; and (3) be limited to a maximum increase of 5 percentage points above the initial contract interest rate over the term of the mortgage.

(b)The Secretary shall require that the mortgagee make available to the mortgagor, at the time of loan application, a written explanation of the features of an adjustable rate mortgage consistent with the disclosure requirements applicable to variable rate mortgages secured by a principal dwelling under the Truth in Lending Act [15 U.S.C. 1601 et seq.].

(c)The aggregate number of mortgages and loans insured under this section in any fiscal year may not exceed 30 percent of the aggregate number of mortgages and loans insured by the Secretary under this subchapter during the preceding fiscal year.

(d)(1)The Secretary may insure under this subsection a mortgage that meets the requirements of subsection (a), except that the effective rate of interest—

(A)shall be fixed for a period of not less than the first 3 years of the mortgage term;

(B)shall be adjusted by the mortgagee initially upon the expiration of such period and annually thereafter; and

(C)in the case of the initial interest rate adjustment, is subject to the 1 percent limitation only if the interest rate remained fixed for 3 or fewer years.

(2)The disclosure required under subsection (b) shall be required for a mortgage insured under this subsection.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The Truth in Lending Act, referred to in subsec. (b), is title I of Pub. L. 90–321, May 29, 1968, 82 Stat. 146, which is classified generally to subchapter I (§ 1601 et seq.) of chapter 41 of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see

Short Title

note set out under section 1601 of Title 15 and Tables.

Amendments

2003—Subsec. (d)(1)(C). Pub. L. 108–186 substituted “3” for “five” 2001—Subsec. (b). Pub. L. 107–73, § 206(1), substituted “require that the mortgagee make available to the mortgagor, at the time of loan application, a written explanation of the features of an adjustable rate mortgage consistent with the disclosure requirements applicable to variable rate mortgages secured by a principal dwelling under the Truth in Lending Act” for “issue

Regulations

requiring that the mortgagee make available to the mortgagor, at the time of loan application, a written explanation of the features of the adjustable rate mortgage, including a hypothetical payment schedule that displays the maximum potential increases in monthly payments to the mortgagor over the first 5 years of the mortgage term”. Subsec. (d). Pub. L. 107–73, § 206(2), added subsec. (d). 1988—Subsec. (c). Pub. L. 100–242 amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: “The aggregate number of mortgages and loans insured under this section, section 1715z–10(c) of this title, and section 1715z–17 of this title in any fiscal year may not exceed 10 percent of the aggregate number of mortgages and loans insured by the Secretary under this subchapter during the preceding fiscal year.”

Statutory Notes and Related Subsidiaries

Effective Date

of 2003 Amendment Pub. L. 108–186, title III, § 301(b), Dec. 16, 2003, 117 Stat. 2692, provided that: “The amendment made by subsection (a) [amending this section] shall apply to mortgages executed on or after the date of the enactment of this title [Dec. 16, 2003].”

§1715z–16 Adjustable Rate Single Family Mortgages