(1) A covered loan is subject to the following limitations:
Limitation on balloon payment. No covered loan may contain a provision for a scheduled payment that is more than twice as large as the average of earlier regularly scheduled payments, unless such balloon payment becomes due and payable not less than one hundred twenty months after the date of execution of the loan. This prohibition does not apply when the payment schedule is adjusted to account for the seasonal or irregular income of the obligor or if the purpose of the loan is a bridge loan connected with, or related to, the acquisition or construction of a dwelling intended to become the obligor's principal dwelling.
No call provision. No covered loan may contain a call provision that permits the lender, in its sole discretion, to accelerate the indebtedness. This prohibition shall not apply when:
(I) Acceleration of repayment of the loan is justified:
By default in which the obligor fails to meet the repayment terms of the agreementfor any outstanding balance; or
Pursuant to a due-on-sale provision;
There is fraud or material misrepresentation by an obligor in connection with theloan;
There is a provision permitting acceleration if the lender, in good faith, believesitself to be materially insecure or believes that the prospect of future payment has become materially impaired; or
There is any action or inaction by the obligor that adversely affects the lender'ssecurity for the loan or any rights of the lender in such security.
No negative amortization. No covered loan may contract for a payment schedule with regular periodic payments that cause the principal balance to increase; except that this paragraph (c) shall not prohibit negative amortization as a consequence of a temporary forbearance or restructure sought by the obligor.
No increased interest rate upon default. No covered loan may contract for any increase in the interest rate as a result of a default; except that this paragraph (d) shall not apply to periodic interest rate changes in a variable rate loan that is otherwise consistent with the provisions of the loan agreement if the change in the interest rate is not occasioned by the event of default or a permissible acceleration of the indebtedness.
Limitations on mandatory arbitration clauses. No covered loan may be subject to a mandatory arbitration clause that:
Does not comply with rules set forth by a nationally recognized arbitration organization such as the American arbitration association;
Does not require the arbitration proceeding to be conducted:
Within the federal judicial district in which the subject property is located;
In the city nearest the obligor's residence where a federal district court is located; or
At such other location as may be mutually agreed upon by the parties;
Does not require the lender to contribute at least fifty percent of the amount of anyfiling fee; and
Does not require the lender to pay standard daily arbitration fees, both its own andthose of the obligor, for at least the first day of arbitration.
No advance payments. No covered loan may include terms under which any periodic payments required under the loan are paid in advance from the loan proceeds provided to the obligor.
Limitations on prepayment fees. (I) First thirty-six months only. A prepayment fee or penalty shall be permitted only on a refinance to a different lender other than pursuant to a sale and only during the first thirty-six months after the date of execution of a covered loan. Prepayment fees and penalties shall not exceed six months' interest for prepayment within the first three years of the loan. The prepayment fees or penalties permitted by this paragraph (g) shall apply only to covered loans that are secured by a first mortgage, deed of trust, or security interest to refinance, by amendment, payoff, or otherwise, an existing loan made to finance the acquisition or construction of a dwelling, including a refinance loan providing additional sums of money for any purpose, regardless of whether related to acquisition or construction. No prepayment fees or penalties shall be included in the loan documents or charged to the obligor for prepayment:
After the third year of the loan;
Pursuant to a refinance with the same lender; or(C) That is partial.
No prepayment fees for certain refinancing. No prepayment fee or penalty may be charged on a refinancing of a covered loan if the covered loan being refinanced is owned by the refinancing lender at the time of such refinancing.
Lender must offer choice. A lender shall not include a prepayment penalty fee in a covered loan unless the lender offers the obligor the option of choosing a loan product without a prepayment penalty fee. A lender shall be deemed to have complied with this requirement if the obligor receives and executes the following disclosure, which may be incorporated with any other required disclosure:
LOAN PRODUCT CHOICE
I was provided with an offer to accept a product both with and without a prepayment penalty provision. I have chosen to accept the product with / without a prepayment penalty.
Source: L. 2002: Entire article added, p. 1595, § 1, effective June 7. L. 2003: (1)(a) amended, p. 1894, § 9, effective July 1.