38 U.S.C. § 3707: Adjustable rate mortgages

Summary

The Secretary must run a program to guarantee adjustable-rate home loans like HUD’s adjustable-rate mortgage program. The loans must use a national interest-rate index the Secretary approves and that borrowers can find in usual published sources. Rates are changed by adjusting the monthly payment once a year. Any single yearly change can go up or down by at most 1 percentage point, and the rate can rise at most 5 percentage points above the first contract rate over the life of the loan. The Secretary must create loan-approval rules that look at the index available when the loan is approved, the likely and maximum payment increases, the underwriting rules used under title II of the National Housing Act, and other relevant factors. Lenders must give borrowers, when they apply, a written explanation of the adjustable-rate features and a sample payment schedule showing the biggest possible monthly increases during the first five years.

Title 38, §3707

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(a)The Secretary shall carry out a project under this section for the purpose of guaranteeing loans in a manner similar to the manner in which the Secretary of Housing and Urban Development insures adjustable rate mortgages under section 251 of the National Housing Act.

(b)Interest rate adjustment provisions of a mortgage guaranteed under this section shall—

(1)correspond to a specified national interest rate index approved by the Secretary, information on which is readily accessible to mortgagors from generally available published sources;

(2)be made by adjusting the monthly payment on an annual basis;

(3)be limited, with respect to any single annual interest rate adjustment, to a maximum increase or decrease of 1 percentage point; and

(4)be limited, over the term of the mortgage, to a maximum increase of 5 percentage points above the initial contract interest rate.

(c)The Secretary shall promulgate underwriting standards for loans guaranteed under this section, taking into account—

(1)the status of the interest rate index referred to in subsection (b)(1) and available at the time an underwriting decision is made, regardless of the actual initial rate offered by the lender;

(2)the maximum and likely amounts of increases in mortgage payments that the loans would require;

(3)the underwriting standards applicable to adjustable rate mortgages insured under title II of the National Housing Act; and

(4)such other factors as the Secretary finds appropriate.

(d)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 the adjustable rate mortgage, including a hypothetical payment schedule that displays the maximum potential increases in monthly payments to the mortgagor over the first five years of the mortgage term.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The National Housing Act, referred to in subsecs. (a) and (c)(3), is act June 27, 1934, ch. 847, 48 Stat. 1246. Title II of the Act is classified generally to subchapter II (§ 1707 et seq.) of chapter 13 of Title 12, Banks and Banking. section 251 of the Act is classified to section 1715z–16 of Title 12. For complete classification of this Act to the Code, see section 1701 of Title 12 and Tables.

Amendments

2012—Subsec. (a). Pub. L. 112–154 substituted “project under this section” for “demonstration project under this section during fiscal years 1993 through 2012”. 2008—Subsec. (a). Pub. L. 110–389 substituted “2012” for “2008”. 2004—Subsec. (a). Pub. L. 108–454 substituted “during fiscal years 1993 through 2008” for “during fiscal years 1993, 1994, and 1995”. 1993—Subsec. (b)(2). Pub. L. 103–78 struck out before semicolon at end “on the anniversary of the date on which the loan was closed”.

Statutory Notes and Related Subsidiaries

Annual Report on Document Disclosure and Consumer Education Pub. L. 115–174, title III, § 309(d), May 24, 2018, 132 Stat. 1351, provided that: “Not less frequently than once each year, the Secretary of Veterans Affairs shall issue a publicly available report that— “(1) examines, with respect to loans provided to veterans under chapter 37 of title 38, United States Code—“(A) the refinancing of fixed-rate mortgage loans to adjustable rate mortgage loans; “(B) whether veterans are informed of the risks and disclosures associated with that refinancing; and “(C) whether advertising materials for that refinancing are clear and do not contain misleading statements or assertions; and “(2) includes findings based on any complaints received by veterans and on an ongoing assessment of the refinancing market by the Secretary.” Annual Reports on Adjustable Rate Mortgages Guaranteed Under This Section Pub. L. 102–547, § 3(b), Oct. 28, 1992, 106 Stat. 3635, directed Secretary of Veterans Affairs to transmit adjustable rate mortgage report to Committees on Veterans’ Affairs of Senate and House of Representatives no later than Dec. 31, 1993, containing description of project carried out under this section and thereafter to transmit annual reports to such committees with respect to default rates and other information concerning loans guaranteed under this section prior to repeal by Pub. L. 104–110, title II, § 201(b), Feb. 13, 1996, 110 Stat. 770.

§3707 Adjustable Rate Mortgages