12 U.S.C. § 1715z–16: Adjustable rate single…

Summary

Allows the federal agency to insure adjustable-rate mortgages for homes built for one to four families. Lenders may change the loan’s interest rate by changing the monthly payment, the remaining balance, the loan term, or a mix of those. No loan term can be extended beyond 40 years. Rate changes must follow a national interest-rate index the agency approves, and borrowers must be able to find that index in common published sources. Rate changes happen once a year. Any single annual rate increase can be no more than 1 percent on the outstanding balance. Over the life of the loan the rate cannot rise more than 5 percentage points above the starting interest rate. Lenders must give borrowers a written explanation of the adjustable-rate features when the borrower applies, like the disclosures required under the Truth in Lending Act. No more than 30 percent of the agency’s insured mortgages in any fiscal year may be these adjustable-rate loans compared to the total insured the year before. The agency may also insure loans that keep a fixed interest rate for at least the first 3 years, then switch to annual adjustments. For that first adjustment, the 1 percent single-year cap applies only if the rate stayed fixed for 3 years or less. The same written disclosure is required for these loans.

Title 12, §1715z–16

Banks and Banking, Source: USLM XML via OLRC

(a)One

to four-family dwellings; maximum term of mortgage; adjustments in effective rate of interest

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)Written explanation of mortgage features

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)Number of mortgages and loans

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)Adjustable rate mortgage with initial fixed rate of interest

(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