428.203

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428.203 Prohibitions on and requirements of lenders and assignees.

428.203(2)(a)

(a) The customer’s failure to make payments required under the loan.

428.203(1)

(1) Balloon payments. Except as otherwise provided in this subsection, no lender may make a covered loan to a customer that requires, or that permits the lender to require, a payment that is more than twice as large as the average of all earlier scheduled payments. This subsection does not apply to a loan under which the payment schedule is adjusted to account for seasonal or irregular income of the customer or to a bridge loan with a maturity of less than one year that the customer obtains for the purpose of facilitating the acquisition or construction of a dwelling as the customer’s principal dwelling.

428.203(2)

(2) Call provision. No lender may make a covered loan to a customer that permits the lender or an assignee of the loan to demand payment of the outstanding balance before the original maturity date, except that a covered loan may permit a lender or assignee to so demand as a result of any of the following:

428.203(2)(b)

(b) A provision in the loan agreement permitting the lender or assignee to make such a demand after the sale of real property that is pledged as security for the loan.

428.203(2)(c)

(c) Fraud or material misrepresentation by the customer in connection with the loan.

428.203(2)(d)

(d) Any act or omission by the customer that adversely affects the lender’s or assignee’s security for the loan or any right of the lender or assignee in such security.

428.203(3)

(3) Negative amortization. No lender may make a covered loan to a customer with a payment schedule that causes the principal balance to increase, except that this subsection does not prohibit such a payment schedule as a result of a temporary forbearance or loan restructuring consented to by the customer.

428.203(4)

(4) Increased interest rate. No lender may make a covered loan to a customer that imposes or permits the lender or an assignee of the loan to impose an increase in the interest rate as a result of the customer’s default.

428.203(5)

(5) Advance payments. No lender may make a covered loan to a customer that includes a payment schedule that consolidates more than 2 scheduled payments and pays them in advance out of the proceeds of the loan.

428.203(6)

(6) Repayment ability. No lender may make covered loans to customers based on the customer’s collateral without regard to the customer’s ability to repay, including the customer’s current or expected income, current obligations, and employment. A lender is presumed to have violated this subsection if the lender engages in a pattern or practice of making covered loans without verifying and documenting the customer’s repayment ability.

428.203(7)

(7) Refinancing of existing covered loan. No lender may make a covered loan that refinances an existing covered loan that the lender made to the same customer, unless the refinancing takes place at least one year after the date on which the loan being refinanced was made or the refinancing is in the interest of the customer. No assignee or servicer of a covered loan may make a covered loan that refinances the covered loan, unless the refinancing takes place at least one year after the date on which the loan being refinanced was made or the refinancing is in the interest of the customer. No lender, assignee of a covered loan, or servicer may engage in a pattern or practice of arranging for the refinancing of covered loans by affiliates or unaffiliated creditors, modifying covered loans, or any other acts for the purpose of evading this subsection. This subsection does not apply to bridge loans.

428.203(8)

(8) Payments to home improvement contractors. No lender under a covered loan made to a customer may pay proceeds of the loan to a person who is under contract to make improvements to an existing dwelling, unless the payment is made by an instrument that is payable to the customer or jointly to the customer and the person who is under contract or, with the consent of the customer, the payment is made through a 3rd party in accordance with a written agreement signed by the customer, the lender, and the person under contract.

428.203(8g)

(8g) Single premium credit insurance products. A lender may not finance, directly or indirectly, through a covered loan, or finance to the same customer within 30 days of making a covered loan, any individual or group credit life, credit accident and health, credit disability, or credit unemployment insurance product on a prepaid single premium basis sold in conjunction with a covered loan. This prohibition does not include contracts issued by a government agency or private mortgage insurance company to insure the lender against loss caused by a customer’s default and does not apply to individual or group credit life, credit accident and health, credit disability, or credit unemployment insurance premium calculated and paid on a monthly or other periodic basis.

428.203(8m)

(8m) Refinancing of subsidized low-rate loans.

428.203(8m)(a)

(a) In this subsection, “subsidized low-rate loan” means a loan that carries a current interest rate at least 2 percentage points below the then current yield on treasury securities with a comparable maturity. If the loan’s current interest rate is either a discounted introductory rate or a rate that automatically steps up over time, the fully indexed rate or the fully stepped-up rate, as applicable, shall be used instead of the current rate to determine whether a loan is a subsidized low-rate loan.

428.203(8m)(b)

(b) A lender may not knowingly replace or consolidate a zero-interest rate or other subsidized low-rate loan made by a governmental or nonprofit lender with a covered loan within the first 10 years of the zero-interest rate or other subsidized low-rate loan unless the current holder of the loan consents in writing to the refinancing.

428.203(9)

(9) Unlicensed mortgage bankers and brokers. No lender may knowingly contract with any person for the performance of duties in violation of § 224.72 (1m).