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Hard Money Regulations
Section 32 (Regulation Z; 12 CFR 226.32)
Regulation Z can be accessed here.
Coverage: Section 32 applies to
consumer credit transactions secured by a consumer's principal
dwelling. Excluded from coverage are:
·
residential mortgage transactions (means a transaction in which a
security interest is created or retained in the consumer's principal
dwelling to finance the
acquisition or initial construction of that dwelling)
·
reverse mortgage transactions
·
open-end credit plans
Thresholds: A Section 32 loan
is a loan that satisfies either or both of the following tests:
1.
APR Test:
The loan's APR at consummation will exceed by more than either 8%
(for first liens) or 10% (for subordinate liens), the
yield on Treasury securities having comparable periods of
maturity on the 15th day of the month immediately preceding the
month in which the application is received by the creditor; or
2.
Points and Fees Test:
The total points and fees payable by the consumer at or before loan
closing will exceed the greater of eight percent (8%) of the total
loan amount, or a specified
dollar amount that is subject to change annually.
The
Points and Fees Test: Points
and fees are defined as follows:
|
|
Prepaid Finance Charge
(the total amount of prepaid finance charges)
|
|
- |
Prepaid Interest
(to be deducted from prepaid finance charge)
|
|
+ |
Other Mortgage Broker Compensation
(the total amount of any non-prepaid finance charge paid to
broker by borrower (does not include YSPs and other
lender-paid compensation to broker))
|
|
|
Other Charges Paid to Creditor/Affiliate
(the total amount of all Regulation Z Section 226.4(c)(7)
charges not included as a part of the Prepaid Finance Charge
if paid to the creditor or creditor affiliate)
|
|
+ |
Optional Credit Insurance/Related Products Paid at or Before
Closing
(optional credit life/accident/health/loss of income/debt
cancellation coverage costs, regardless of how named or paid
(in cash or financed) and regardless if a single premium or
initial payment)
|
|
+/- |
Creditor Requested Adjustments
(the total amount of all customer requested overrides) |
Total Loan Amount:
Total loan amount is defined in the Federal Reserve Board commentary
to Section 32 to mean the following:
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Amount Financed
(loan amount - prepaid finance charges) |
|
- |
Other Charges Paid to Creditor/Affiliate and Financed
(the total amount of all Regulation Z Section
226.4(c)(7) charges not included as a part of the
Prepaid Finance Charge if paid to the creditor or
creditor affiliate and financed) |
|
- |
Optional Credit Insurance/Related Products Finance by
Creditor
(optional credit life/accident/health/loss of
income/debt cancellation coverage costs if financed
(i.e., excludes paid amounts) |
|
+/- |
Creditor Requested Adjustments
(the total amount of all customer requested overrides) |
Disclosures:
A. Notice to Borrower.
The following disclosures must be given at least 3 days prior to
consummation (the date the borrower signs the loan documents) in
conspicuous type size:
1.
Notices.
The following statement: "You are not required to complete this
agreement merely because you have received these disclosures or have
signed a loan application. 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.
The annual percentage rate.
3.
Regular payment; balloon payment.
The amount of the regular monthly (or other periodic) payment and
the amount of any balloon payment. The regular payment disclosed
under this paragraph shall be treated as accurate if it is based on
an amount borrowed that is deemed accurate and is disclosed under
paragraph (c)(5) of Section 226.32. See Amount borrowed below.
4.
Variable-rate.
For variable-rate transactions, a statement that the interest rate
and monthly payment may increase, and the amount of the single
maximum monthly payment, based on the maximum interest rate required
to be disclosed.
5.
Amount borrowed.
For a mortgage refinancing, the total amount the consumer will
borrow, as reflected by the face amount of the note; and where the
amount borrowed includes premiums or other charges for optional
credit insurance or debt-cancellation coverage, that fact shall be
stated, grouped together with the disclosure of the amount borrowed.
The disclosure of the amount borrowed shall be treated as accurate
if it is not more than $100 above or below the amount required to be
disclosed.
B. Notice to assignee.
The following statement must be provided to the purchaser or
assignee:
"Notice: This is a mortgage subject to special rules under the
federal Truth in Lending Act. Purchasers or assignees of this
mortgage could be liable for all claims and defenses with respect to
the mortgage that the borrower could assert against the creditor."
Prohibitions and Limitations:
·
No balloon loans with terms of less than 5 years (excluding bridge
loans)
·
No negative amortization
·
No more than 2 payments collected in advance
·
No default rates of interest
·
No prepayment penalty after 5 years; prepayments only permitted if
source of prepayment funds is not a refinancing by the creditor or
creditor affiliate, and if at consummation, consumer's total monthly
debts do not exceed 50% of the consumer's verified monthly gross
income
·
No due-on-demand clause
·
Limitations on payments under home improvement contracts - must be
paid either to the contractor and the consumer jointly, or at the
consumer's election, through a third-party escrow agent pursuant to
a written agreement signed by the consumer, creditor and contractor
·
No refinancing by the same lender or an assignee or servicer of one
Section 32 loan into another Section 32 loan within one year unless
the refinancing is in the borrower's interest
·
No engaging in pattern or practice of extending credit based on the
consumer's collateral without regard to the consumer's repayment
ability
Private Funding of
- Hard Money Loans
- Private Money Loans
- Commercial Loans
- Bad Credit Loans
- Land Loans
- Investor Rehab Loans
- Residential Loans
- Home Loans
- Refinance Loans
- Home Equity Loans