Current through Register Vol. 49, No. 6, March 15, 2024
PURPOSE: This rule provides for certain conditions,
limitations, provisions, disclosures and notification requirements placed upon
associations when making alternate mortgage instrument loans.
(1) General. Associations originating,
investing in, selling, purchasing, participating or otherwise dealing in
residential real estate loans secured by borrower-occupied property may use the
alternative mortgage instruments described in this rule, including their use in
connection with the assumption or refinancing of loans authorized by other
rules of this chapter, subject to the conditions set out as follows. An
association using an alternative mortgage instrument described in this rule
shall obtain and retain in the loan application file a certificate signed by
the prospective borrower indicating that s/he has received the disclosure
materials specified in this rule before electing to take the alternative
mortgage instrument. An association using an alternative mortgage instrument
described in this rule may not impose a penalty on any prepayment made within
ninety (90) days following notice of an adjustment. In addition, in accordance
with section
408.036,
RSMo, no prepayment penalty shall be charged or exacted by an association when
the full principal balance of the residential real estate loan is paid after
five (5) years from the origination date and prior to maturity. In no event
shall any prepayment penalty on a residential real estate loan exceed two
percent (2%) of the balance at the time of prepayment.
(2) Adjustable Mortgage Loans. An adjustable
mortgage loan is a loan that permits adjustment of the interest rate, the
payment amount, the outstanding principal balance, the loan term or a
combination of these methods. An association is authorized to originate, invest
in, sell, purchase, participate or otherwise deal in adjustable mortgage loans
subject to the following limitations and disclosures:
(A) Adjustments to the interest rate shall
correspond directly to the movement of an interest-rate index or of a national
or regional index that measures the rate of inflation or the rate of change in
consumer disposable income, which index is readily available to and verifiable
by the borrower and is beyond the control of the association. An association
also may increase the interest rate pursuant to a formula or schedule that
specifies the amount of the increase, the time at which it may be made and
which is set forth in the loan contract. An association may decrease the
interest rate at any time;
(B)
Adjustments to the payment and the loan balance that do not reflect an interest
rate adjustment may be made if-1) the adjustments reflect a change in a
national or regional index that measures the rate of inflation or the rate of
change in consumer disposable income, is readily available to and verifiable by
the borrower and is beyond the control of the association, 2) in the case of a
payment adjustment, the adjustment reflects a change in the loan balance or is
made pursuant to a formula or to a schedule specifying the percentage or dollar
change in the payment as set forth in the loan contract, or 3) in the case of
an open-end line-of-credit loan, the adjustment reflects an advance taken by
the borrower under the line-of-credit and is permitted by the loan
contract;
(C) Any combination of
indices or a moving average of index values may be used as an index, and an
association may use more than one (1) index during the term of a loan, if set
forth in the loan contract;
(D) At
least thirty (30) but not more than one hundred twenty (120) days prior to an
adjustment and at least ninety (90) but not more than one hundred twenty (120)
days prior to the expected maturity of a non- or partially-amortized loan, an
association shall provide the borrower with notice of the adjustment or of
maturity. However, where the loan contract provides that changes in the
interest rate shall occur more frequently than changes in the payment, the
association need not notify the borrower of changes in the rate, nor of changes
in the loan balance or term resulting from a rate change, until notice of a
payment adjustment is given. (For purposes of notification, a payment
adjustment is considered to occur as of the date of the interest-rate change
immediately preceding the due date of the adjusted payment.) In addition, where
the loan contract sets out a schedule of payment adjustments, notice need not
be given of payment changes made pursuant to that schedule. In the case of an
open-end line-of-credit loan, notice of an adjustment to the payment or the
balance need not be given if the adjustment reflects advances taken by the
borrower under the line-of-credit and notice of a change in the interest rate
permitted by the loan contract (and any resulting change in the payment) need
not be given;
(E) The loan term may
be adjusted only to reflect a change in the interest rate, the payment or the
loan balance. A loan contract may provide an association with the right to call
the loan due and payable either after a specified number of years has elapsed
following closing or upon the occurrence of a specified event external to the
loan; and
(F) Not later than three
(3) business days following receipt of a written application, an association
shall disclose to each applicant the following:
1. The initial interest rate, if known, or
the manner in which the initial interest rate will be established;
2. The amount of the initial payment, if
known, and an explanation of how the amount of the payment is determined by
reference to the initial loan balance, the interest rate and the term over
which the balance is scheduled to be repaid;
3. A full explanation of how the adjustments
may be made, including identification of the index(es) to be used and how index
values may be obtained by the borrower and how the adjustment of one (1) item
may affect the others; and
4. What
information will be contained in each notice of an adjustment.
(3) Roll-Over Mortgage
Loans. A roll-over mortgage loan is a loan that provides for interest rate
adjustments at regular intervals with any interest rate changes being
implemented through changes in the payment amount or term of the loan.
Roll-over mortgages may be either short- or long-term notes secured by
long-term mortgages. A roll-over mortgage loan differs from an adjustable
mortgage loan in that an association is not required to use an interest-rate
index that is readily available to and verifiable by the borrower and is beyond
the control of the association as is required in subsection (2)(A) of this
rule. Associations are authorized to originate, invest in, sell, purchase,
participate or otherwise deal in roll-over mortgage loans, provided, however,
that roll-over mortgage loans on owner-occupied single-family dwellings and
homes shall be subject to the following requirements:
(A) The minimum term of the loan shall be six
(6) months, during which time the interest rate and payments may be
adjusted;
(B) Payment adjustments
shall be contemporaneous with any interest-rate adjustments in an amount
sufficient to amortize the loan over its remaining term;
(C) The borrower of a roll-over loan shall be
given an option to renew the loan;
(D) Not later than three (3) business days
following receipt of an application, an applicant, under this section, shall be
given materials explaining the basic terms of the rollover mortgage offered to
them, a description of the options available to the borrower in the event of an
interest-rate increase and the formula or schedule to be used by the
association to determine interest-rate adjustments. The association shall
obtain a signed statement from the borrower acknowledging receipt of these
materials and retain this statement in the loan file; and
(E) All notices of adjustment shall be
provided to the borrower at least thirty (30) days before the adjustment
becomes effective.
(4)
In addition to the other required disclosures, an association making adjustable
rate mortgage loans under this rule shall provide a clear and concise
description of the nature of adjustable rate mortgage loans to each applicant
for this loan as is required in applicable federal regulations. The booklet
entitled Consumer Handbook on Adjustable Rate Mortgages,
published by the Federal Reserve Board or other appropriate federal agency,
shall constitute a disclosure in compliance with this section. This disclosure
is not required in connection with the extension of consumer credit even if it
is secured by a home or in connection with any other loan if the home is not
the primary security for the loan.
(5) The disclosure provisions of this
regulation shall apply only to alternative mortgage instruments used in
connection with residential real estate loans secured by borrower-occupied
property. Nothing in this regulation prevents the use of an adjustable-rate
loan in connection with other real estate loans, commercial loans, consumer
loans or other authorized loans.
Copies of all referenced federal regulations are available
at a cost established by state law to any interested party at the Division of
Finance, Room 630, 301 West High Street, Jefferson City, Missouri or the Office
of the Secretary of State at a cost established by state
law.
*Original authority: 369.144, RSMo 1971, amended 1982,
1983, 1984, 1989, 1994; 369.229, RSMo 1971, amended 1983, 1994; and 369.249 and
369.299, RSMo 1971, amended 1994.
