12 CFR 1004.4 - Requirements for alternative mortgage transactions.
(a)Mortgages with adjustable rates or finance charges and home equity lines of credit. A creditor that makes an alternative mortgage transaction with an adjustable rate or finance charge may only increase the interest rate or finance charge as follows:
(2) For all other transactions, the creditor must use either:
(i) An index to which changes in the interest rate are tied that is readily available to and verifiable by the borrower and beyond the control of the creditor; or
(ii) A formula or schedule identifying the amount that the interest rate or finance charge may increase and the times at which, or circumstances under which, a change may be made.
(b)Renegotiable rates for renewable balloon-payment mortgages. A creditor that makes an alternative mortgage transaction with payments based on an amortization period and a large final payment due after a shorter term may negotiate an increase or decrease in the interest rate when the transaction is renewed only if the creditor makes a written commitment to renew the transaction at specified intervals throughout the amortization period. However, the creditor is not required to renew the transaction if:
(1) Any action or inaction by the consumer materially and adversely affects the creditor's security for the transaction or any right of the creditor in such security;
(2) There is a material failure by the consumer to meet the repayment terms of the transaction;
(3) There is fraud or a willful or knowing material misrepresentation by the consumer in connection with the transaction; or
(4) Federal law dealing with credit extended by a depository institution to its executive officers specifically requires that as a condition of the extension the credit shall become due and payable on demand, provided that the creditor includes such a provision in the initial agreement.
(c)Requirements for high-cost and higher-priced mortgage loans.
(d)Other applicable law. Notwithstanding paragraphs (a) through (c) of this section, a housing creditor that is not making an alternative mortgage transaction pursuant to § 1004.3 of this part may make that transaction consistent with applicable State or Federal law other than this section.
(e)Reductions in interest rate or finance charge. Nothing in this section prohibits a creditor from decreasing the interest rate or finance charge on an alternative mortgage transaction.