Covered transaction
(1) Covered transaction means a consumer credit transaction that is secured by a dwelling, as defined in 1026.2(a)(19), including any real property attached to a dwelling, other than a transaction exempt from coverage under paragraph (a) of this section. (2) Fully amortizing payment means a periodic payment of principal and interest that will fully repay the loan amount over the loan term. (3) Fully indexed rate means the interest rate calculated using the index or formula that will apply after recast, as determined at the time of consummation, and the maximum margin that can apply at any time during the loan term. (4) Higher-priced covered transaction means a covered transaction with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for a first-lien covered transaction, other than a qualified mortgage under paragraph (e)(5), (e)(6), or (f) of this section; by 3.5 or more percentage points for a first-lien covered transaction that is a qualified mortgage under paragraph (e)(5), (e)(6), or (f) of this section; or by 3.5 or more percentage points for a subordinate-lien covered transaction. For purposes of a qualified mortgage under paragraph (e)(2) of this section, for a loan for which the interest rate may or will change within the first five years after the date on which the first regular periodic payment will be due, the creditor must determine the annual percentage rate for purposes of this paragraph (b)(4) by treating the maximum interest rate that may apply during that five-year period as the interest rate for the full term of the loan. (5) Loan amount means the principal amount the consumer will borrow as reflected in the promissory note or loan contract. (6) Loan term means the period of time to repay the obligation in full. (7) Maximum loan amount means the loan amount plus any increase in principal balance that results from negative amortization, as defined in 1026.18(s)(7)(v), based on the terms of the legal obligation assuming: (i) The consumer makes only the minimum periodic payments for the maximum possible time, until the consumer must begin making fully amortizing payments; and (ii) The maximum interest rate is reached at the earliest possible time. (8) Mortgage-related obligations mean property taxes; premiums and similar charges identified in 1026.4(b)(5), (7), (8), and (10) that are required by the creditor; fees and special assessments imposed by a condominium, cooperative, or homeowners association; ground rent; and leasehold payments. (9) Points and fees has the same meaning as in 1026.32(b)(1). (10) Prepayment penalty has the same meaning as in 1026.32(b)(6). (11) Recast means: (i) For an adjustable-rate mortgage, as defined in 1026.18(s)(7)(i), the expiration of the period during which payments based on the introductory fixed interest rate are permitted under the terms of the legal obligation; (ii) For an interest-only loan, as defined in 1026.18(s)(7)(iv), the expiration of the period during which interest-only payments are permitted under the terms of the legal obligation; and (iii) For a negative amortization loan, as defined in 1026.18(s)(7)(v), the expiration of the period during which negatively amortizing payments are permitted under the terms of the legal obligation. (12) Simultaneous loan means another covered transaction or home equity line of credit subject to 1026.40 that will be secured by the same dwelling and made to the same consumer at or before consummation of the covered transaction or, if to be made after consummation, will cover closing costs of the first covered transaction. (13) Third-party record means: (i) A document or other record prepared or reviewed by an appropriate person other than the consumer, the creditor, or the mortgage broker, as defined in 1026.36(a)(2), or an agent of the creditor or mortgage broker; (ii) A copy of a tax return filed with the Internal Revenue Service or a State taxing authority; (iii) A record the creditor maintains for an account of the consumer held by the creditor; or (iv) If the consumer is an employee of the creditor or the mortgage broker, a document or other record maintained by the creditor or mortgage broker regarding the consumer's employment status or employment income. (14) PACE company means a person, other than a natural person or a government unit, that administers the program through which a consumer applies for or obtains a PACE transaction. (15) PACE transaction means financing to cover the costs of home improvements that results in a tax assessment on the real property of the consumer.