# 12 CFR Appendix K to Part 226, Total Annual Loan Cost Rate Computations for Reverse Mortgage Transactions

(a)Introduction. Creditors are required to disclose a series of total annual loan cost rates for each reverse mortgage transaction. This appendix contains the equations creditors must use in computing the total annual loan cost rate for various transactions, as well as instructions, explanations, and examples for various transactions. This appendix is modeled after appendix J of this part (Annual Percentage Rates Computations for Closed-end Credit Transactions); creditors should consult appendix J of this part for additional guidance in using the formulas for reverse mortgages.

(b)Instructions and equations for the total annual loan cost rate -

(1)General rule. The total annual loan cost rate shall be the nominal total annual loan cost rate determined by multiplying the unit-period rate by the number of unit-periods in a year.

(2)Term of the transaction. For purposes of total annual loan cost disclosures, the term of a reverse mortgage transaction is assumed to begin on the first of the month in which consummation is expected to occur. If a loan cost or any portion of a loan cost is initially incurred beginning on a date later than consummation, the term of the transaction is assumed to begin on the first of the month in which that loan cost is incurred. For purposes of total annual loan cost disclosures, the term ends on each of the assumed loan periods specified in § 226.33(c)(6).

(3)Definitions of time intervals.

(i) A period is the interval of time between advances.

(ii) A common period is any period that occurs more than once in a transaction.

(iii) A standard interval of time is a day, week, semimonth, month, or a multiple of a week or a month up to, but not exceeding, 1 year.

(iv) All months shall be considered to have an equal number of days.

(4)Unit-period.

(i) In all transactions other than single-advance, single-payment transactions, the unit-period shall be that common period, not to exceed one year, that occurs most frequently in the transaction, except that:

(A) If two or more common periods occur with equal frequency, the smaller of such common periods shall be the unit-period; or

(B) If there is no common period in the transaction, the unit-period shall be that period which is the average of all periods rounded to the nearest whole standard interval of time. If the average is equally near two standard intervals of time, the lower shall be the unit-period.

(ii) In a single-advance, single-payment transaction, the unit-period shall be the term of the transaction, but shall not exceed one year.

(5)Number of unit-periods between two given dates.

(i) The number of days between two dates shall be the number of 24-hour intervals between any point in time on the first date to the same point in time on the second date.

(ii) If the unit-period is a month, the number of full unit-periods between two dates shall be the number of months. If the unit-period is a month, the number of unit-periods per year shall be 12.

(iii) If the unit-period is a semimonth or a multiple of a month not exceeding 11 months, the number of days between two dates shall be 30 times the number of full months. The number of full unit-periods shall be determined by dividing the number of days by 15 in the case of a semimonthly unit-period or by the appropriate multiple of 30 in the case of a multimonthly unit-period. If the unit-period is a semimonth, the number of unit-periods per year shall be 24. If the number of unit-periods is a multiple of a month, the number of unit-periods per year shall be 12 divided by the number of months per unit-period.

(iv) If the unit-period is a day, a week, or a multiple of a week, the number of full unit-periods shall be determined by dividing the number of days between the two given dates by the number of days per unit-period. If the unit-period is a day, the number of unit-periods per year shall be 365. If the unit-period is a week or a multiple of a week, the number of unit-periods per year shall be 52 divided by the number of weeks per unit-period.

(v) If the unit-period is a year, the number of full unit-periods between two dates shall be the number of full years (each equal to 12 months).

(6)Symbols. The symbols used to express the terms of a transaction in the equation set forth in paragraph (b)(8) of this appendix are defined as follows:

Symbols used in the examples shown in this appendix are defined as follows:

(7)General equation. The total annual loan cost rate for a reverse mortgage transaction must be determined by first solving the following formula, which sets forth the relationship between the advances to the consumer and the amount owed to the creditor under the terms of the reverse mortgage agreement for the loan cost rate per unit-period (the loan cost rate per unit-period is then multiplied by the number of unit-periods per year to obtain the total annual loan cost rate I; that is, I = wi):

(8)Solution of general equation by iteration process.

(i) The general equation in paragraph (b)(7) of this appendix, when applied to a simple transaction for a reverse mortgage loan of equal monthly advances of $350 each, and with a total amount owed of $14,313.08 at an assumed repayment period of two years, takes the special form:

(ii) In using these iteration procedures, it is expected that calculators or computers will be programmed to carry all available decimals throughout the calculation and that enough iterations will be performed to make virtually certain that the total annual loan cost rate obtained, when rounded to two decimals, is correct. Total annual loan cost rates in the examples below were obtained by using a 10-digit programmable calculator and the iteration procedure described in appendix J of this part.

(9)Assumption for discretionary cash advances. If the consumer controls the timing of advances made after consummation (such as in a credit line arrangement), the creditor must use the general formula in paragraph (b)(7) of this appendix. The total annual loan cost rate shall be based on the assumption that 50 percent of the principal loan amount is advanced at closing, or in the case of an open-end transaction, at the time the consumer becomes obligated under the plan. Creditors shall assume the advances are made at the interest rate then in effect and that no further advances are made to, or repayments made by, the consumer during the term of the transaction or plan.

(10)Assumption for variable-rate reverse mortgage transactions. If the interest rate for a reverse mortgage transaction may increase during the loan term and the amount or timing is not known at consummation, creditors shall base the disclosures on the initial interest rate in effect at the time the disclosures are provided.

(11)Assumption for closing costs. In calculating the total annual loan cost rate, creditors shall assume all closing and other consumer costs are financed by the creditor.

(c)Examples of total annual loan cost rate computations -

(1)Lump-sum advance at consummation.

(2)Monthly advance beginning at consummation.

(3)Lump sum advance at consummation and monthly advances thereafter.

(d)Reverse mortgage model form and sample form -

(1)Model form.

Assumed annual appreciation | Total annual loan cost rate | |||
---|---|---|---|---|

2-year loan term | [ ]-year loan term] | [ ]-year loan term | [ ]-year loan term | |

0% | [ ] | |||

4% | [ ] | |||

8% | [ ] |

The cost of any reverse mortgage loan depends on how long you keep the loan and how much your house appreciates in value. Generally, the longer you keep a reverse mortgage, the lower the total annual loan cost rate will be.

This table shows the estimated cost of your reverse mortgage loan, expressed as an annual rate. It illustrates the cost for three [four] loan terms: 2 years, [half of life expectancy for someone your age,] that life expectancy, and 1.4 times that life expectancy. The table also shows the cost of the loan, assuming the value of your home appreciates at three different rates: 0%, 4% and 8%.

The total annual loan cost rates in this table are based on the total charges associated with this loan. These charges typically include principal, interest, closing costs, mortgage insurance premiums, annuity costs, and servicing costs (but not costs when you sell the home).

The rates in this table are estimates. Your actual cost may differ if, for example, the amount of your loan advances varies or the interest rate on your mortgage changes.

(2) Sample Form.

Assumed annual appreciation | Total annual loan cost rate | |||
---|---|---|---|---|

2-year loan term | [6-year loan term] | 12-year loan term | 17-year loan term | |

0% | 39.00% | [14.94%] | 9.86% | 3.87% |

4% | 39.00% | [14.94%] | 11.03% | 10.14% |

8% | 39.00% | [14.94%] | 11.03% | 10.20% |

The cost of any reverse mortgage loan depends on how long you keep the loan and how much your house appreciates in value. Generally, the longer you keep a reverse mortgage, the lower the total annual loan cost rate will be.

This table shows the estimated cost of your reverse mortgage loan, expressed as an annual rate. It illustrates the cost for three [four] loan terms: 2 years, [half of life expectancy for someone your age,] that life expectancy, and 1.4 times that life expectancy. The table also shows the cost of the loan, assuming the value of your home appreciates at three different rates: 0%,4% and 8%.

The total annual loan cost rates in this table are based on the total charges associated with this loan. These charges typically include principal, interest, closing costs, mortgage insurance premiums, annuity costs, and servicing costs (but not disposition costs - costs when you sell the home).

The rates in this table are estimates. Your actual cost may differ if, for example, the amount of your loan advances varies or the interest rate on your mortgage changes.

**Title 12 published on 2015-12-05**

The following are **ALL** rules, proposed rules, and notices (chronologically) published in the Federal Register relating to *12 CFR Part 226* **after** this date.

GPO FDSys XML | Text type regulations.gov FR Doc. 2016-28699 RIN 1557-AD99 Docket No. R-1443 Docket No. OCC-2015-0021 Docket No. CFPB-2016-0035 DEPARTMENT OF THE TREASURY, FEDERAL RESERVE SYSTEM, BUREAU OF CONSUMER FINANCIAL PROTECTION, Office of the Comptroller of the Currency Final rules, official interpretations and commentary. This final rule is effective January 1, 2017. 12 CFR Part 34 The OCC, the Board, and the Bureau are finalizing amendments to the official interpretations for their regulations that implement section 129H of the Truth in Lending Act (TILA). Section 129H of TILA establishes special appraisal requirements for “higher-risk mortgages,” termed “higher-priced mortgage loans” or “HPMLs” in the agencies' regulations. The OCC, the Board, the Bureau, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA) and the Federal Housing Finance Agency (FHFA) (collectively, the Agencies) issued joint final rules implementing these requirements, effective January 18, 2014. The Agencies' rules exempted, among other loan types, transactions of $25,000 or less, and required that this loan amount be adjusted annually based on any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If there is no annual percentage increase in the CPI-W, the OCC, the Board and the Bureau will not adjust this exemption threshold from the prior year. The final rule will memorialize this as well as the agencies' calculation method for determining the adjustment in years following a year in which there is no annual percentage increase in the CPI-W. Based on the CPI-W in effect as of June 1, 2016, the exemption threshold will remain at $25,500 through 2017.

GPO FDSys XML | Text type regulations.gov FR Doc. 2016-28718 RIN 7100 AE57 Docket No. R-1546 Docket No. CFPB-2016-0037 FEDERAL RESERVE SYSTEM, BUREAU OF CONSUMER FINANCIAL PROTECTION Final rules, official interpretations and commentary. This final rule is effective January 1, 2017. 12 CFR Part 226 The Board and the Bureau are finalizing amendments to the official interpretations and commentary for the agencies' regulations that implement the Truth in Lending Act (TILA). The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended TILA by requiring that the dollar threshold for exempt consumer credit transactions be adjusted annually by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If there is no annual percentage increase in the CPI-W, the Board and Bureau will not adjust this exemption threshold from the prior year. The final rule memorializes this as well as the agencies' calculation method for determining the adjustment in years following a year in which there is no annual percentage increase in the CPI-W. Based on the CPI-W in effect as of June 1, 2016, the exemption threshold will remain at $54,600 through 2017. The Dodd-Frank Act also requires similar adjustments in the Consumer Leasing Act's threshold for exempt consumer leases. Accordingly, the Board and the Bureau are adopting similar amendments to the commentaries to each of their respective regulations implementing the Consumer Leasing Act elsewhere in this issue of the Federal Register .

GPO FDSys XML | Text type regulations.gov FR Doc. 2016-18058 RIN 1557-AD99 Docket No. R-1443 Docket No. OCC-2015-0021 Docket No. CFPB-2016-0035 DEPARTMENT OF THE TREASURY, FEDERAL RESERVE SYSTEM, BUREAU OF CONSUMER FINANCIAL PROTECTION, Office of the Comptroller of the Currency Proposed rule; request for public comment. Comments must be received on or before September 6, 2016. 12 CFR Part 34 The OCC, the Board and the Bureau are publishing proposed rules amending the official interpretations for their regulations that implement section 129H of the Truth in Lending Act (TILA). Section 129H of TILA establishes special appraisal requirements for “higher-risk mortgages,” termed “higher-priced mortgage loans” or “HPMLs” in the agencies' regulations. The OCC, the Board, the Bureau, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA) and the Federal Housing Finance Agency (FHFA) (collectively, the Agencies) issued joint final rules implementing these requirements, effective January 18, 2014. The Agencies' rules exempted, among other loan types, transactions of $25,000 or less, and required that this loan amount be adjusted annually based on any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If there is no annual percentage increase in the CPI-W, the OCC, the Board and the Bureau will not adjust this exemption threshold from the prior year. The proposal would memorialize this as well as the agencies' calculation method for determining the adjustment in years following a year in which there is no annual percentage increase in the CPI-W.

GPO FDSys XML | Text type regulations.gov FR Doc. 2016-18062 RIN 7100 AE57 Docket No. R-1546 Docket No. CFPB-2016-0037 FEDERAL RESERVE SYSTEM, BUREAU OF CONSUMER FINANCIAL PROTECTION Proposed rule; official interpretations. Comments must be received on or before September 6, 2016. 12 CFR Part 226 The Board and the Bureau are proposing to amend the official interpretations and commentary for the agencies' regulations that implement the Truth in Lending Act (TILA). The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended TILA by requiring that the dollar threshold for exempt consumer credit transactions be adjusted annually by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If there is no annual percentage increase in the CPI-W, the Board and Bureau will not adjust this exemption threshold from the prior year. The proposal would memorialize this as well as the agencies' calculation method for determining the adjustment in years following a year in which there is no annual percentage increase in the CPI-W. Because the Dodd-Frank Act also requires similar adjustments in the Consumer Leasing Act's threshold for exempt consumer leases, the Board and the Bureau are proposing similar amendments to the commentaries to each of their respective regulations implementing the Consumer Leasing Act elsewhere in the Federal Register .

**Title 12 published on 2015-12-05**.

The following are only the Rules published in the Federal Register **after** the published date of Title 12.

For a complete list of all Rules, Proposed Rules, and Notices view the Rulemaking tab.

GPO FDSys: XML | Text type regulations.gov FR Doc. 2016-28699 RIN 1557-AD99 Docket No. R-1443 Docket No. OCC-2015-0021 Docket No. CFPB-2016-0035 DEPARTMENT OF THE TREASURY, FEDERAL RESERVE SYSTEM, BUREAU OF CONSUMER FINANCIAL PROTECTION, Office of the Comptroller of the Currency Final rules, official interpretations and commentary. This final rule is effective January 1, 2017. 12 CFR Part 34 The OCC, the Board, and the Bureau are finalizing amendments to the official interpretations for their regulations that implement section 129H of the Truth in Lending Act (TILA). Section 129H of TILA establishes special appraisal requirements for “higher-risk mortgages,” termed “higher-priced mortgage loans” or “HPMLs” in the agencies' regulations. The OCC, the Board, the Bureau, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA) and the Federal Housing Finance Agency (FHFA) (collectively, the Agencies) issued joint final rules implementing these requirements, effective January 18, 2014. The Agencies' rules exempted, among other loan types, transactions of $25,000 or less, and required that this loan amount be adjusted annually based on any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If there is no annual percentage increase in the CPI-W, the OCC, the Board and the Bureau will not adjust this exemption threshold from the prior year. The final rule will memorialize this as well as the agencies' calculation method for determining the adjustment in years following a year in which there is no annual percentage increase in the CPI-W. Based on the CPI-W in effect as of June 1, 2016, the exemption threshold will remain at $25,500 through 2017.

GPO FDSys: XML | Text type regulations.gov FR Doc. 2016-28718 RIN 7100 AE57 Docket No. R-1546 Docket No. CFPB-2016-0037 FEDERAL RESERVE SYSTEM, BUREAU OF CONSUMER FINANCIAL PROTECTION Final rules, official interpretations and commentary. This final rule is effective January 1, 2017. 12 CFR Part 226 The Board and the Bureau are finalizing amendments to the official interpretations and commentary for the agencies' regulations that implement the Truth in Lending Act (TILA). The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended TILA by requiring that the dollar threshold for exempt consumer credit transactions be adjusted annually by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If there is no annual percentage increase in the CPI-W, the Board and Bureau will not adjust this exemption threshold from the prior year. The final rule memorializes this as well as the agencies' calculation method for determining the adjustment in years following a year in which there is no annual percentage increase in the CPI-W. Based on the CPI-W in effect as of June 1, 2016, the exemption threshold will remain at $54,600 through 2017. The Dodd-Frank Act also requires similar adjustments in the Consumer Leasing Act's threshold for exempt consumer leases. Accordingly, the Board and the Bureau are adopting similar amendments to the commentaries to each of their respective regulations implementing the Consumer Leasing Act elsewhere in this issue of the Federal Register .