Reverse Mortgage TableInversion of the mortgage table
Transitional rules on the publication of interest rates and mortgage payments schedules
As of August 16, 2010, the Board adopted two proposals and three definitive regulations for the provisions of the Truth-in-Lending Act ("TILA") for housing finance. The customer alert summarises the Board of Management's transitional provision requiring the release of an interest and mortgage loan overviews. Publication of the cash flow plan for committed credit is generally regulated in § 226.
18 (g) of Regulation Z, which provides for publication of the number, amount and date of repayments of the commitment. In the case of mortgage credit with initial interest charges, interest ceilings, maximum interest limits, maximum interest limits, pure interest functions, adverse amortisations, mortgage insurances, increments, step repayments or other one-of-a-kind characteristics, the repayment plan has several stages - often five or more - each of which is listed in a different row.
Under the Mortgage Disclosure Improvement Act of 2008, the Board of Managing Directors' transitional arrangement is amended to amend Regulation Z. The transitional arrangement covers entered into credits backed by immovable assets or an apartment, but does not cover credits backed by consumer interests in certain timesharing schemes. Further changes to the disclosure of payments are likely at a later date.
According to the intermediate regulation, the obligations of publication of the cash flow plan pursuant to § 226. 18 (s) will require an interest charge and a statement of payments for these mortgage operations and not a precise plan of payments to reflect each due date for each stage of the facility. 18 (s) require disclosures of interest levels that apply at different dates during the repayment period, as required by § 226.
18 (t) will demand publication that there is no assurance that the borrower will be able to repay the credit in order to reduce the interest rates or regularayments. Information must be provided in the format of a table with titles and formatting that is broadly similar to the model H-4 (E)[for fixed-rate mortgages], H-4(F)[for variable-rate ("ARMs") loans or incremental mortgages], H-4 (G)[for distressed loans, plus options for ARMs], and H-4 (H)[for fixed-rate loans with a pure interest characteristic ] provisions.
Any credit instrument must be published using the appropriate sample form. The table may only contain the information necessary under the transitional provision. This table must be placed in a clearly visible place in the publication of Regulation Z and must contain a typeface of at least 10 points. This transition is sufficiently adaptable to take into account a variety of lending attributes, and the number of column and table content depends on the particular attributes of the lending instrument.
Every row contains the interest applied at a given point in the repayment period and the different lines represent the repayments due. 18 (s) of Regulation Z and the corresponding terms of the Federal Reserve Commentary ("Comment") give guidance on the disclosure of interest charges at various points in history for both amortizable interest bearing borrowings (fixed interest bearing borrowings, variable interest bearing borrowings, incremental interest bearing borrowings and installments) and non-redemption borrowings.
Guidance is also provided on the disclosure of repayments of amortizable interest as well as interest only and amortizable borrowings. In the case of a straightforward, fixed-rate, fully amortising cash flow facility, for example, the table is very straightforward - a unique row showing the interest rates and then (in consecutive rows) the capital and interest paid, the tax and policy estimates (including mortgage insurance) if there is a trust fund, and the overall estimate made.
Conversely, a ''plain vanilla'' ARM with a cap interest will, in the first five years, disclose the same lines of payments for each of the three pillars - starting interest rates and payments, top rates and payments in the first five years, and the top possible interest rates and payments.
Also, if the interest term of the credit is a pure interest term, the lender must reveal the first repayment that will be applicable to both the capital and the interest. If the ARM, for example, has an introduction interest of five years and a pure interest of three years, there would be four rows - the starting interest and the payout (broken down according to the evidence that the payout is a pure interest), the interest and the payout after the pure interest, the top interest and the payout during the first five years, as well as the top possible interest and the payout.
It will be necessary to display four colums (depending on the other credit terms) for a standard Options ARM commodity with a 7.5% upper limit of payments except every five years, a maximal amount of 115% of the primary amount and no interest ceilings. In the first colum the starting point and the amount of the minimal pay is shown, in the second colum the starting point and the amount of the minimal pay at the beginning of the second year (taking into account the 7.5% pay cap), in the third colum the starting point and the amount of the minimal pay at the beginning of the third year (taking taking into account the 7.5% pay cap) and in the forth colum the starting point and the amount of the maximal pay and the amount of the total amortising pay.
It must be disclosed that the minipayment facility will pay only part of the interest, will not pay back the capital and will result in an increased amount of the loans. If the credit instrument allows this facility, a second line must represent the fully amortising ability to pay for each interest period.
If the credit instrument offers other means of settlement (as is common with these instruments), these may not be divulged. If there is an trust fund, the amounts paid must contain the tax and insurances estimates (including mortgage insurances). Supplementary information is necessary if it is a launch instalment (i.e. an instalment below the fully-indexed instalment ) or a payout in a ballon (i.e. a payout more than twice as high as a normal payout).
Moreover, in all cases - even in the case of a straight forward interest fix that fully repays the credit - it must be disclosed that there is no assurance that the debtor will be able to obtain refinancing in order to reduce its interest rates and make lower sums. This information, contained in Annexes H-4(I), H-4(J) and H-4(K), shall be given below the table.
E.g. a ballon which is due at the same moment as another ballon must be entered in the table and not below the table. Interest ceilings must be taken into account when indicating the ceiling for the first five years and for the duration of the credit. Both an ARM and a phased credit must indicate the highest interest rates that can be applied.
Loans with a purely interest-dependent characteristic, but which allow positive amortisation, are shown using the positive amortisation table. In the case of an amortisable lending facility (both floating and floating ), where the disbursement may rise without any interest adjustments being taken into account, it is necessary to specify the disbursement corresponding to the first such rise and to the earliest date at which it could be made, except where the general principle is that no more than five column may be revealed.
It is necessary to know the "fully subscribed course" when preparing the initial course revelation for an ARM. "The fully induced price is the index plus the spread at the time of consumption. To this end,'at consummation' shall refer to the information provided when the credit facility is drawn down (or three workingdays before drawdown if re-disclosure pursuant to § 229 is available).
In the case of early publication under Rule X, the fully subscribed price may be determined on the basis of the index in force at the time of publication. Where the credit instrument provides a "retrospective period" for the calculation of interest rates adjustment, this can be used to determine the index value in order to determine the fully indexed interest rat.
If, for example, the credit provides for a 45-day review term, the lender may use any index value valid during the 45-day term prior to consumption (or an earlier date of disclosure) to calculate the fully Indexed Interest Rates. If there is to be an Escrow Agreement, the amount of tax and insurances must be stated in the table as described above.
Trustee amount must contain mortgage policy premium even if not deposited and even if no trust deposit has been made. To determine the amount of the mortgage premium listed in the table, the lender must consider that the mortgage premium will remain calculated (in the amount required) until the date on which the lender must end the cover in accordance with the legislation in force.
The same applies if the Mortgagor has the statutory right to terminate the mortgage cover at an early date. If, for example, the home contents protection law applies to the mortgage loans, this means that the lender must expect that the mortgage premium will be calculated up to the "termination date" and not up to the previous "termination date" on which the lender can demand notice under certain circumstances.
In the table for repayable borrowings, the amount of tax and insurances estimates must be disclosed separately. The rate should represent the amount of mortgage credit that will be withdrawn at the beginning of the repayment period. On the other hand, the mortgage payment figures in the table should be computed on the basis of the provisions summarised in the previous subparagraph.
This transitional provision provides for an exceptional deviation from the Management Board's historic method of disclosing the borrower's cash flows. Rather than require a precise repayment plan that reflects each due date for each stage of the credit, the intermediate rules provide a synopsis of interest rate and principal amounts that are due at crucial points during the planned repayment period.
A basic hypothesis of the new spreadsheets is that borrower should not be overburdened with information and that sometimes less information is better than more. Briefly, the transitional provision gives the borrower what they say they want and need, rather than giving them a full account of all the information relating to the payments for their loan.
Since each credit instrument has its own particularities, the intermediate guideline and commentary offer general guidelines and some samples, rather than trying to give instructions specifically for each possible kind of credit. "For most credit commodities, it will be less challenging to fill the charts than it seems at first sight.
From a historical point of view, the lenders had the option of incorporating escorrows into the planned payments per month demanded by § 226. Very few lenders have in fact chosen to incorporate the Escrows into their revealed PSP. You must report the estimate of the amount of the monthly fiduciary claim for tax and insurances (including mortgage insurances) in all spreadsheets.
With the exception of the table for repayable loan, the lender is obliged to show the repayment/interest per month, the escrow per month and the overall amount per month in all the charts. The table for repayable adverse notes requires the lender to indicate disbursements for the fully amortising disbursement facility (if applicable) and the minimal disbursement facility at both disbursement rates, inclusive of fiduciary credits.
TILA's Wall Street Reform and Consumer Financial Protection Act of 2010 ("Dodd-Frank Act") changes TILA's reporting obligations for secured mortgages in several ways. 1419 of the Dodd-Frank Act modifies 128(a) TILA to provide for the requirement to disclose the original capital and interest payments and the amount of such payments together with the deposit for the payments of all payable tax, insurances and other tax in the case of a variable-rate mortgage on housing.
It is also necessary to reveal the fully-indexed monthly capital and interest rate repayments and the amount of such repayments together with the respective monetary escrrows for the purpose of paying all relevant tax, insurances and other sums. On the contrary, Section 1465 of the Dodd-Frank Act modifies Section 128(b)(4) of TILA to provide for a repayment plan that reflects the amount of the periodical trust accounts in the case of a mortgage backed retail loan business in a main residence (with the exception of open loan schedules and reverse mortgages) for which a trust deposit accounts is needed.
Comments state that it is not permitted to add premium for loan insurances or suspensions of debts or termination arrangements to the table as part of the revealed trust fund. 18 (g) of Regulation Z, these premia shall be indicated in the context of the payments plan. 18 (s) does not contain an obligation to disclose such compulsory awards as part of the aggregation of the cash flow statement.
There is no provision in the Regulation and Commentary as to whether it is permitted to take other trust property, such as land rent, as part of the revealed trust claim. Presumably, the express reprimand in the regulation and commentary on the incorporation of tax and insurances into the revealed escrow settlement means just that.
In the case of high-priced mortgage loans, the creditor must make an extra disclosures at least three workingdays prior to the conclusion of the lending agreement. These disclosures shall contain, inter alia, a precise plan of payments which reflects all payments due for each stage of the credit. Bondholders who take out a mortgage at high costs are obliged to submit both the interest rates and the overview of payments in accordance with the new § 226.
18 (s) and the precise terms of reference in accordance with § 226. 18 (g) shall continue to be applicable and the precise terms of payments shall be made public in accordance with the conditions set out in this Section and the relevant terms of the commentary. reverse mortgage loans are governed by § 226. However, reverse mortgage loans are exempted from the definitions of a "negative amortisation mortgage" for the purpose of the transitional provision.
An overwhelming proportion of reverse mortgage loans that are concluded bear a static interest which means that these loans are shown using the static interest table. If there is an introduction price (i.e. a price that is lower than the fully Indexed price), further information is needed, as mentioned above. Often, the lender determines the ARM' starting interest rates in accordance with prevailing credit terms.
In the event that the starting interest is lower than the fully reindexed interest rates, it is necessary to disclose the starting interest rates. These results also apply if the lender does not wish to provide a'teaser rate' to win the borrower over to the credit. In the case of adverse amortisation mortgage, only two lines of credit are permitted - one for the current fully amortising payment) and one for the MIP.
In the additional information of the Management Board, it is stated that information about other means of payments "may be placed outside the separate information necessary under [Section 226.18(s)]". "Regardless of this idiom, it can be dangerous to put information about other ways of paying in the so-called "Federal Box". "Only " directly related " information can be added to the Federal Box, and the item listing that represents " directly related information " does not contain such billing methods.
It would be advisable for a lender to make this information available outside the Federal Box if it wished to reveal information about the extra means of paying. 18 (s) and (t) of Regulation Z shall apply to credit granted to a person who is secure by immovable property which does not contain a home or other building. In the Board's supplementary information, it is stated that both consumers' attorneys and some sector commentators reasoned that the spreadsheets should mirror tax and policy estimations even if trust funds are not used.