Certain Mortgage and Variable-Rate Transactions

Mortgage Transactions Subject to RESPA

Time of Disclosures

In a mortgage transaction subject to RESPA that is secured by the consumer's dwelling, other than a home equity line of credit, a credit union must make good faith estimates of the required disclosures and deliver or place them in the mail not later than the third (3^rd) business day after the credit union receives the member's written application. For purposes of this section, the term “business day” means a day on which the credit union's offices are open to the public for substantially all of its business functions.

Only reasonable and bona fide fees may be imposed in connection with the member's application for a mortgage transaction before the member has received the required disclosures (for example, obtaining a member’s credit history). If the disclosures are mailed, the member is considered to have received them three (3) business days after they are mailed. For purposes of charging fees under this provision, the term “business day” means all calendar days except Sundays and legal public holidays

Waiting Periods for Early Disclosures and Corrected Disclosures

A credit union must deliver or place in the mail the good faith estimates no later than the seventh (7^th) business day before consummation of the transaction. For purposes of the waiting periods, “business day” means all calendar days except Sundays and the legal public holidays.

If the APR becomes inaccurate, the credit union must provide corrected disclosures with all changed terms. The member must receive the corrected disclosures no later than three (3) business days before consummation. If the corrected disclosures are mailed or delivered by means other than delivery in person, the member is deemed to have received the corrected disclosures three (3) business days after they are mailed or delivered.

Consumer's Waiver of Waiting Period Before Consummation

If the member determines that the extension of credit is needed to meet a bona fide personal financial emergency, the member may modify or waive the three-day or the seven-business-day waiting period after receiving the required disclosures. To modify or waive a waiting period, the member must give the credit union a dated written statement that describes the emergency, specifically modifies or waives the waiting period, and bears the signature of all the members who are primarily liable on the legal obligation. Printed forms for this purpose are prohibited.

Notice

The following disclosure statement is required: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”

Certain Variable-Rate Transactions

If the APR may increase after consummation in a transaction secured by the member's principal dwelling with a term greater than one year, the following disclosures must be provided at the time an application form is provided or before the member pays a non-refundable fee, whichever is earlier:

• The booklet titled Consumer Handbook on Adjustable Rate Mortgages available on the Bureau of Consumer Financial Protection website, or a suitable substitute.
• A loan program disclosure for each variable-rate program in which the member expresses an interest. The following disclosures, as applicable, must be provided:
   
  • The fact that the interest rate, payment, or term of the loan can change;
  • The index or formula used in making adjustments, and a source of information about the index or formula;
  • An explanation of how the interest rate and payment will be determined, including an explanation of how the index is adjusted, such as by the addition of a margin;
  • A statement that the member should ask about the current margin value and current interest rate.
  • The fact that the interest rate will be discounted, and a statement that the member should ask about the amount of the interest rate discount;
  • The frequency of interest rate and payment changes;
  • Any rules relating to changes in the index, interest rate, payment amount, and outstanding loan balance including, for example, an explanation of interest rate or payment limitations, negative amortization, and interest rate carryover;
  • At the option of the credit union, either of the following:
     
    • A historical example, based on a $10,000 loan amount, illustrating how payments and the loan balance would have been affected by interest rate changes implemented according to the terms of the loan program disclosure. The example must reflect the most recent 15 years of index values, as well as all significant loan program terms, such as negative amortization, interest rate carryover, interest rate discounts, and interest rate and payment limitations, that would have been affected by the index movement during the period;
       
    • The maximum interest rate and payment for a $10,000 loan originated at the initial interest rate (index value plus margin, adjusted by the amount of any discount or premium) in effect as of an identified month and year for the loan program disclosure assuming the maximum periodic increases in rates and payments under the program; and the initial interest rate and payment for that loan and a statement that the periodic payment may increase or decrease substantially depending on changes in the rate;
       
  • An explanation of how the member may calculate the payments for the loan amount to be borrowed based on either:
     
    • The most recent payment shown in the historical example; or
    • The initial interest rate used to calculate the maximum interest rate and payment;
       
  • The fact that the loan program contains a demand feature;
  • The type of information that will be provided in notices of adjustments and the timing of such notices; and
  • A statement that disclosure forms are available for the credit union's other variable-rate loan programs.

These required disclosures may be delivered or placed in the mail not later than three (3) business days following receipt of a member's application when the application reaches the credit union by telephone, or through an intermediary agent or broker.

Electronic Disclosures

For an application that is accessed by the member in electronic form, the required disclosures may be provided to the member in electronic form on or with the application. Whether disclosures must be in electronic form depends upon the following:

• If a member accesses a home equity credit line application electronically, such as online at a home computer, the credit union must provide the disclosures in electronic form (such as with the application form on its Web site) in order to meet the requirement to provide disclosures in a timely manner on or with the application. If the credit union instead mailed paper disclosures to the member, this requirement would not be met.
• In contrast, if a member is physically present in the credit union's office, and accesses a home equity credit line application electronically, such as via a terminal or kiosk (or if the member uses a terminal or kiosk located on the premises of an affiliate or third party that has arranged with the credit union to provide applications to members), the credit union may provide disclosures in either electronic or paper form, provided the credit union complies with the timing, delivery, and retainability requirements of the regulation.

Subsequent Disclosure Requirements

Refinancings

A refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same member. A refinancing is a new transaction requiring new disclosures to the member. The new finance charge must include any unearned portion of the old finance charge that is not credited to the existing obligation. In any form, the new obligation must completely replace the prior one.

Variable-Rate Adjustments

Unless a variable-rate feature is disclosed, an adjustment to the interest rate with or without a corresponding adjustment to the payment in a variable-rate transaction (for transactions secured by the consumer's principal dwelling with a term greater than one year) is an event requiring new disclosures to the member. At least once each year during which an interest rate adjustment is implemented without an accompanying payment change, and at least 25, but no more than 120, calendar days before a payment at a new level is due, the following disclosures, as applicable, must be delivered or placed in the mail:

• The current and prior interest rates.
• The index values upon which the current and prior interest rates are based.
• The extent to which the credit union has foregone any increase in the interest rate.
• The contractual effects of the adjustment, including the payment due after the adjustment is made, and a statement of the loan balance.
• The payment, if different from that disclosed (in the fourth bullet point above), that would be required to fully amortize the loan at the new interest rate over the remainder of the loan term.

Treatment of Credit Balances

When a credit balance in excess of $1 is created in connection with a transaction (through transmittal of funds to a credit union in excess of the total balance due on an account, through rebates of unearned finance charges or insurance premiums, or through amounts otherwise owed to or held for the benefit of a member), the credit union must do the following:

• Credit the amount of the credit balance to the member’s account;
• Refund any part of the remaining credit balance upon the written request of the member; and
• Make a good faith effort to refund to the member by cash, check, or money order, or credit to a deposit account of the member, any part of the credit balance remaining in the account for more than 6 months, except that no further action is required if the member's current location is not known to the credit union and cannot be traced through the member's last known address or telephone number.

Determination of Annual Percentage Rate

Accuracy of Annual Percentage Rate

The APR is a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the member to the amount and timing of payments made. The APR must be determined in accordance with either the actuarial method or the United States Rule method. Explanations, equations and instructions for determining the APR in accordance with the actuarial method are set forth in Appendix J to the regulation.

An error in disclosure of the APR or finance charge is not, in itself, considered a violation of this regulation if:

• The error resulted from a corresponding error in a calculation tool used in good faith by the credit union; and
• Upon discovery of the error, the credit union promptly discontinues use of that calculation tool for disclosure purposes and notifies the BCFP in writing of the error in the calculation tool.

As a general rule, the APR will be considered accurate if it is not more than 1/8 of 1 percentage point above or below the APR determined in accordance with this section.

In an irregular transaction (i.e., one that has one or more of the following features: multiple advances, irregular payment periods, or irregular payment amounts [other than an irregular first period, or first or final payment]), the APR will be considered accurate if it is not more than 1/4 of 1 percentage point above or below the APR determined in accordance with this section.

Mortgage Loans

If the APR disclosed in a transaction secured by real property or a dwelling varies from the actual rate determined in accordance with this section, in addition to the tolerances, the disclosed APR will also be considered accurate if:

• The rate results from the disclosed finance charge; and
• The disclosed finance charge would be considered accurate under the regulation.

Right of Rescission

See “Right of Rescission” under “Open-End Credit.”

Advertising

Subpart D - Miscellaneous

Record Retention

A credit union must retain evidence of compliance with this regulation (other than the advertising requirements) for two (2) years after the date disclosures are required to be made or action is required to be taken.

A credit union must permit NCUA to enforce this regulation by inspecting its relevant records for compliance.

For home equity lines of credit plans, written procedures for compliance with those requirements as well as a sample disclosure form and contract for each home equity program represent adequate evidence of compliance.

Use of APR in Oral Disclosures

Open-End Credit

In an oral response to a member's inquiry about the cost of open-end credit, only the APR(s) may be stated, except that the periodic rate or rates also may be stated. If the APR cannot be determined in advance because there are finance charges other than a periodic rate, the corresponding APR must be stated, and other cost information may be given.

Closed-End Credit

In an oral response to a member's inquiry about the cost of closed-end credit, only the APR(s) may be stated, except that a simple annual rate or periodic rate also may be stated if it is applied to an unpaid balance. If the APR cannot be determined in advance, the APR for a sample transaction shall be stated, and other cost information for the member's specific transaction may be given.

Language of Disclosures

The required disclosures may be made in a language other than English, so long as the disclosures are made available in English upon a member’s request. The requirement for providing English disclosures on request does not apply to advertisements.

Effect on State Laws

Inconsistent Disclosure Requirements

State law requirements that are inconsistent with the requirements of this regulation are generally preempted to the extent of the inconsistency. A state law is inconsistent if it requires a creditor to make disclosures or take actions that contradict the requirements of this regulation.

A credit union, State, or other interested party may request the BCFP to determine whether a State law requirement is inconsistent. After the BCFP determines that a State law is inconsistent, a credit union may not make disclosures using the inconsistent term or form. The procedures under which a request for a determination may be made under this section are set forth in Appendix A.

The Official Staff Commentary to §1026.28 lists the specific state exemptions (Arizona, Florida, Missouri, Mississippi, South Carolina, Indiana and Wisconsin).

State Exemptions

Any State may apply to the BCFP to exempt a class of transactions within the State from the requirements of chapter 2 (Credit transactions) or chapter 4 (Credit billing) of the Truth-in-Lending Act (TILA) and the corresponding provisions of Regulation Z. The BCFP will grant an exemption if it determines that:

• The State law is substantially similar to the Federal law or, in the case of chapter 4, affords the member greater protection than the Federal law; and
• There is adequate provision for enforcement.

No exemptions will extend to the civil liability provisions of sections 130 and 131 of the Act.

If an exemption has been granted, the disclosures required by the applicable State law (except any additional requirements not imposed by Federal law) will constitute the disclosures required by the TILA.

The procedures under which a State may apply for an exemption under this section are set forth in Appendix B.

The Official Staff Commentary to §1026.29 lists the specific state exemptions (Maine, Connecticut, Massachusetts, Oklahoma and Wyoming).

Limitation on Rates

A credit union must include in any consumer credit contract secured by a dwelling and subject to the TILA and Regulation Z the maximum interest rate that may be imposed during the term of the obligation when:

• In the case of closed-end credit, the APR may increase after consummation, or
• In the case of open-end credit, the APR may increase during the plan.