Reverse Mortgage AmortizationAmortization of reverse mortgages
However, the Federal Reserve Board has tabled proposals to amend Regulation Z to extend the coverage of the current repayment obligation, set new insurance thresholds and set new thresholds for advance payment penalty for mortgage lending. It aims to transpose changes to the Truth in Lending Act (TILA) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
As the TILA regulator will pass from the Fed to the Consumers Financial Protection Bureau on 21 July 2011, all commentaries will be passed on to the CFPB, which will finalise the proposed legislation. Repayability. It would require repayment of a'covered loan', which is a home backed retail mortgage operation that is not a home equity line of credit, time sharing scheme, reverse mortgage or 12 month or less bond.
T, such a condition shall apply only to "higher-priced" mortgage lending. To calculate the amount of cover for a Guaranteed Note, the lender must use (1) the higher of the fully indexed interest rates or an introduction interest and ( 2 ) essentially identical amounts of interest that amortise the amount of the Note over the life of the Note.
Specific algorithms would be applied to single pay mortgages, pure interest rate mortgages and negatively amortised mortgages. Funding of an "atypical mortgage" by the same lender would normally be exempted from the repayment obligation if the new mortgage was a "standard mortgage", the consumer's montly payments would be decreased and the user would be up-to-date with the mortgage in place.
An " non-standard " mortgage is a variable interest mortgage with an initial interest for the first year or longer, an interest only lending or a redemption credit. The " Standardhypothek " is a credit that does not (1) have a maturity of more than 40 years; (2) involve periodical recurring instalments that lead to a loss of amortization, postponement of capital repayments or a bonus payout; (3) have " points and charges " that are higher than those for the " qualifying mortgage " described below; (4) have an interest rates that is not set for at least the first five years; or (5) make available to the user means for discretionary expenses (i.e. it must be a " No ").
Qualifying mortgages. Dodd-Frank provides that a lender or assignor can "assume" that a mortgage that is a "qualified mortgage" satisfies the requirements of repayability. Qualifying mortgages" must meet certain requirements set out in the statutes, which include the fact that (1) they may not have a maturity longer than 30 years; (2) they must include periodical scheduled repayments that lead to a loss of amortization or, with certain exemptions, to a postponement of the capital redemption or a refund of a bonus; or (3) they must have "points and fees" that are above a specified threshold.
In order to counter the legal uncertainty as to whether a "qualified mortgage" provides a secure harbour or a refutable assumption of fulfilment of the repaymentability obligation, the proposed Directive contains two alternate interpretations. Defining a mortgage as a "qualified mortgage" only contains the legal criteria and would offer the creditor a secure harbour if these criteria were fulfilled.
Other definitions include further obligations arising from the repayability requirement, such as the consumer's activity level and the obligation to pay a concurrent amount of a month's rent, and would offer a refutable assumption of conformity. Dodd Frank Act limits the "points and fees" that can be levied for a "qualified loan" to 3 per cent of the amount of the credit, with the Fed being authorised to adapt this threshold for smaller credits.
There are two alternative ways to implement the "point and fee limit" for credits below $75,000. Everyone uses a "tiered approach" where the allowed percentages of the overall amount of the credit to be calculated in points and commissions would differ depending on the amount of the credit. Breaches of the obligation to repay are liable to increased legal compensation in the amount of the aggregate of all financing costs and penalties incurred, unless the lender proves that non-compliance was not substantial.
Penalties for advance payments. It would only allow an advance payment fine for a "covered transaction" which (1) has an APR which cannot be increased after consumption, (2) is a "qualifying mortgage" and (3) is not a higher-priced mortgage at all. Penalties must decrease from a ceiling of 3% of the first year' unpaid balances to no more than 2% or 1% of the second and third years' unpaid balances, respectively, and no advance payment penalties may be imposed after the third year.
A creditor who offers a mortgage credit to a customer with a repayment fee would also have to provide that customer with a mortgage credit without a repayment fee that meets certain covenants. It would not transpose the new costly mortgage requirement in the Dodd-Frank Act, which prohibits advance payment sanctions for such credits.
Infringements of the maximum amounts for early repayment compensation are based on the amount of damage actually suffered by TILA and the amount of compensation that TILA is entitled to by law. The Dodd-Frank Act extends the limitation period for civilian responsibility to three years in the event of a breach of the repayment obligation and the limitation of the early repayment fee, so the proposed Regulation would prolong the Regulation.
A Two to three year obligation to retain records that demonstrate adherence to these specified needs and limitations.