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

*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.

*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.

*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).

*Definitions of time intervals.*

*period*is the interval of time between advances.

*common period*is any period that occurs more than once in a transaction.

*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.

*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:

*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.

*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:

*j*=The amount of each periodic or lump-sum advance to the consumer under the reverse mortgage transaction.

*n*=Min (Bal

*n*, Val

*n*). This is the maximum amount that the creditor can be repaid at the specified loan term.

*n*=Loan balance at time of repayment, including all costs and fees incurred by the consumer (including any shared appreciation or shared equity amount) compounded to time n at the creditor's contract rate of interest.

*n*=Val

*0*(1 σ)

^{y}, where Val

*0*is the property value at consummation, σ is the assumed annual rate of appreciation for the dwelling, and y is the number of years in the assumed term. Val

*n*must be reduced by the amount of any equity reserved for the consumer by agreement between the parties, or by 7 percent (or the amount or percentage specified in the credit agreement), if the amount required to be repaid is limited to the net proceeds of sale.

*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):

*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:

*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.

*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.

*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.

*Examples of total annual loan cost rate computations*—(1)

*Lump-sum advance at consummation.*

*10*= Min (103,385.84, 137,662.72)

*Monthly advance beginning at consummation.*

*Lump sum advance at consummation and monthly advances thereafter.*

*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% | [] |

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% |

**Title 12 published on 2015-01-01**.

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.

**Title 12 published on 2015-01-01**

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. 2015-30097 RIN 1557-AD99 Docket No. R-1443 Docket No. OCC-2015-0021 DEPARTMENT OF THE TREASURY, FEDERAL RESERVE SYSTEM, BUREAU OF CONSUMER FINANCIAL PROTECTION, Office of the Comptroller of the Currency Final rule; official interpretations; technical amendment. This final rule is effective January 1, 2016. 12 CFR Part 34 The OCC, the Board and the Bureau are publishing final 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. Based on the annual percentage decrease in the CPI-W as of June 1, 2015, the exemption threshold will remain at $25,500 through December 31, 2016.

GPO FDSys XML | Text type regulations.gov FR Doc. 2015-30091 RIN 7100 AE36 Docket No. R-1520 FEDERAL RESERVE SYSTEM, BUREAU OF CONSUMER FINANCIAL PROTECTION Final rules, official interpretations and commentary. This final rule is effective January 1, 2016. 12 CFR Part 226 The Board and the Bureau are publishing final rules amending 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. Based on the annual percentage decrease in the CPI-W as of June 1, 2015, the exemption threshold will remain at $54,600 through December 31, 2016. 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 making similar amendments to each of their respective regulations implementing the Consumer Leasing Act elsewhere in this issue of the Federal Register .