Restrictions on negative amortization loans
- verification of borrower income
- prepayment penalties
(1)Intentionally left blank —Ed.
(a)As used in this section, “negative amortization loan” means a mortgage loan or mortgage banking loan that is structured in such a way that a borrower in any period may make a scheduled loan payment that is insufficient to pay accruing interest.
(b)“Negative amortization loan” does not include:
(A)A loan commonly known as a bridge loan, the terms of which specify that:
(i)The maturity period for the loan is less than 18 months; and
(ii)The borrower may pay only interest until a time when the entire unpaid loan balance is due and payable.
(B)A mortgage loan in which:
(i)The principal amount is not more than $50,000; and
(ii)The combined loan to value ratio between all mortgage loans that are secured by the same property and the value of the securing property is not more than 50 percent.
(C)A loan commonly known as a reverse mortgage, the terms of which specify that the loan:
(i)Is a non-recourse loan secured by real property;
(ii)Provides cash advances to the borrower based on the equity or value in the borrower’s owner-occupied principal residence;
(iii)Requires no payment of principal or interest until the entire loan becomes due and payable; and
(iv)Is made by a mortgage lender licensed in this state or licensed under the laws of the United States.
(D)A loan commonly known as a home equity line of credit, in which:
(i)The amounts borrowed and the interest and other charges are debited to an account that is secured by an interest in real estate;
(ii)Interest on the account is computed periodically;
(iii)The borrower has the right to pay in full at any time without penalty or to pay in installments that are specified in the loan agreement; and
(iv)The lender agrees to permit a borrower from time to time to borrow money, with the maximum limit on the amount of each borrowing established by the loan agreement.
(2)A mortgage banker, mortgage broker or mortgage loan originator may not negotiate or make, or offer to negotiate or make, a negative amortization loan without regard to the borrower’s repayment ability at the time the loan is made, including the borrower’s current and reasonably expected income, employment, assets other than the collateral, current obligations and mortgage related obligations. The mortgage banker, mortgage broker or mortgage loan originator shall verify the income and assets of the borrower that will be relied on to evaluate the borrower’s repayment ability. The borrower’s repayment ability must be evaluated and the borrower’s income and assets must be verified in a manner that is consistent with the requirements of 12 C.F.R. 226.34, as promulgated on January 1, 2010.
(3)A negative amortization loan may not contain a prepayment penalty beyond the first 24 months after the date on which the loan is made.
(4)A creditor may not collect a prepayment penalty on an existing negative amortization loan in return for or as a consequence of refinancing or providing funds to refinance the negative amortization loan. [2009 c.603 §2; 2009 c.863 §38]
Section 86A.195 — Restrictions on negative amortization loans; verification of borrower income; prepayment penalties,