US Laws, Codes, Statutes & Cases

From the U.S. Code Online via GPO Access
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[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
  January 24, 2002 and December 19, 2002]
[CITE: 15USC1639]

 
                      TITLE 15--COMMERCE AND TRADE
 
                 CHAPTER 41--CONSUMER CREDIT PROTECTION
 
              SUBCHAPTER I--CONSUMER CREDIT COST DISCLOSURE
 
                       Part B--Credit Transactions
 
Sec. 1639. Requirements for certain mortgages


(a) Disclosures

                      (1) Specific disclosures

        In addition to other disclosures required under this subchapter, 
    for each mortgage referred to in section 1602(aa) 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) Annual percentage rate

        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) Time of disclosures

                           (1) In general

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

                    (2) New disclosures required

        (A) In general

            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) Telephone disclosure

            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) Modifications

        The Board 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) No Prepayment penalty

                           (1) In general

        (A) Limitation on terms

            A mortgage referred to in section 1602(aa) 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) Construction

            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).

                            (2) Exception

        Notwithstanding paragraph (1), a mortgage referred to in section 
    1602(aa) of this title may contain a prepayment penalty (including 
    terms calculating a refund by a method that is not prohibited under 
    section 1615(b) of this title for the transaction in question) if--
            (A) at the time the mortgage is consummated--
                (i) the consumer is not liable for an amount of monthly 
            indebtedness payments (including the amount of credit 
            extended or to be extended under the transaction) that is 
            greater than 50 percent of the monthly gross income of the 
            consumer; and
                (ii) the income and expenses of the consumer are 
            verified by a financial statement signed by the consumer, by 
            a credit report, and in the case of employment income, by 
            payment records or by verification from the employer of the 
            consumer (which verification may be in the form of a copy of 
            a pay stub or other payment record supplied by the 
            consumer);

            (B) the penalty applies only to a prepayment made with 
        amounts obtained by the consumer by means other than a 
        refinancing by the creditor under the mortgage, or an affiliate 
        of that creditor;
            (C) the penalty does not apply after the end of the 5-year 
        period beginning on the date on which the mortgage is 
        consummated; and
            (D) the penalty is not prohibited under other applicable 
        law.

(d) Limitations after default

    A mortgage referred to in section 1602(aa) 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 \1\ 1602(aa) 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).
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(e) No balloon payments

    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.

(f) No negative amortization

    A mortgage referred to in section 1602(aa) 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) No prepaid payments

    A mortgage referred to in section 1602(aa) 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) Prohibition on extending credit without regard to payment ability of 
        consumer

    A creditor shall not engage in a pattern or practice of extending 
credit to consumers under mortgages referred to in section 1602(aa) 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) Requirements for payments under home improvement contracts

    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) 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) Consequence of failure to comply

    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.

(k) ``Affiliate'' defined

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

(l) Discretionary regulatory authority of Board

                           (1) Exemptions

        The Board 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) of this 
    section, if the Board 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) Prohibitions

        The Board, by regulation or order, shall prohibit acts or 
    practices in connection with--
            (A) mortgage loans that the Board finds to be unfair, 
        deceptive, or designed to evade the provisions of this section; 
        and
            (B) refinancing of mortgage loans that the Board finds to be 
        associated with abusive lending practices, or that are otherwise 
        not in the interest of the borrower.

(Pub. L. 90-321, title I, Sec. 129, as added Pub. L. 103-325, title I, 
Sec. 152(d), Sept. 23, 1994, 108 Stat. 2191.)


                            Prior Provisions

    A prior section 1639, Pub. L. 90-321, title I, Sec. 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, Sec. 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.

                  Section Referred to in Other Sections

    This section is referred to in sections 1602, 1610, 1640 of this 
title.