(a)The Secretary shall carry out a demonstration project under this section during fiscal years 1993 through 2012 for the purpose of guaranteeing loans in a manner similar to the manner in which the Secretary of Housing and Urban Development insures adjustable rate mortgages under section 251 of the National Housing Act.
(b)Interest rate adjustment provisions of a mortgage guaranteed under this section shall—
(1)correspond to a specified national interest rate index approved by the Secretary, information on which is readily accessible to mortgagors from generally available published sources;
(2)be made by adjusting the monthly payment on an annual basis;
(3)be limited, with respect to any single annual interest rate adjustment, to a maximum increase or decrease of 1 percentage point; and
(4)be limited, over the term of the mortgage, to a maximum increase of 5 percentage points above the initial contract interest rate.
(c)The Secretary shall promulgate underwriting standards for loans guaranteed under this section, taking into account—
(1)the status of the interest rate index referred to in subsection (b)(1) and available at the time an underwriting decision is made, regardless of the actual initial rate offered by the lender;
(2)the maximum and likely amounts of increases in mortgage payments that the loans would require;
(3)the underwriting standards applicable to adjustable rate mortgages insured under title II of the National Housing Act; and
(4)such other factors as the Secretary finds appropriate.
(d)The Secretary shall require that the mortgagee make available to the mortgagor, at the time of loan application, a written explanation of the features of the adjustable rate mortgage, including a hypothetical payment schedule that displays the maximum potential increases in monthly payments to the mortgagor over the first five years of the mortgage term.
The National Housing Act, referred to in subsecs. (a) and (c)(3), is act June 27, 1934, ch. 847, 48 Stat. 1246, as amended. Title II of the Act is classified generally to subchapter II (§ 1707 et seq.) of chapter
13 of Title
12, Banks and Banking. Section 251 of the Act is classified to section
1715z–16 of Title
12. For complete classification of this Act to the Code, see section
1701 of Title
12 and Tables.
Amendments
2008—Subsec. (a). Pub. L. 110–389substituted “2012” for “2008”.
2004—Subsec. (a). Pub. L. 108–454substituted “during fiscal years 1993 through 2008” for “during fiscal years 1993, 1994, and 1995”.
1993—Subsec. (b)(2). Pub. L. 103–78struck out before semicolon at end “on the anniversary of the date on which the loan was closed”.
Annual Reports on Adjustable Rate Mortgages Guaranteed Under This Section
Section 3(b) ofPub. L. 102–547directed Secretary of Veterans Affairs to transmit adjustable rate mortgage report to Committees on Veterans’ Affairs of Senate and House of Representatives no later than Dec. 31, 1993, containing description of project carried out under this section and thereafter to transmit annual reports to such committees with respect to default rates and other information concerning loans guaranteed under this section prior to repeal by Pub. L. 104–110, title II, § 201(b),Feb. 13, 1996, 110 Stat. 770.
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