(a) Prior to
accepting an application for a loan, a lender must disclose in writing or via
electronic media to each loan applicant, in one or more documents, and in plain
language, the terms of the type(s) of loan(s) sought by the applicant. The
disclosure statement provided to an applicant shall include at least such of
the following information as is relevant to the type of loan being offered:
(1) the term to maturity;
(2) the initial interest rate, if known, or
the manner in which the initial interest rate will be established;
(3) the amount of the initial payment, if
known, and an explanation of the lender's amortization schedule for the loan,
including how the lender determines both the amount of each payment and the
proportion of each payment which will be credited to interest;
(4) a full explanation of how the interest
rate, the payment, the loan balance, or the term to maturity may be adjusted
(including identification of the index/indices to be used and how index values
may be obtained by the borrower), and how the adjustment of one may affect the
others including disclosure of the intervals at which the lender may change the
rate on the loan, the time(s) or date(s) at which the lender calculates the
rate with respect to the index/indices, and any conditions or events on which
the changes in rate are contingent;
(5) the fact that the borrower will receive
notification in writing or via electronic media from the lender of increases in
the rate or changes in the term of payment, and what information will be
contained in each notice of an adjustment and, in the case of a nonamortizing
or partially amortizing loan, in the notice of maturity, and how far in advance
of an adjustment or maturity each notice will be provided;
(6) where a valid prepayment penalty will be
provided for in the loan contract, a description of such penalty;
(7) if the loan contract will provide for
escrow payments, a statement of that fact and an explanation of the purpose of
requiring escrow payments and how the amount of such payments is
established;
(8) a hypothetical
example, illustrative of the type of credit being offered, of the effect or the
combination of effects that an increase in the rate on the loan may have on the
amount of the monthly payment, or the number of monthly payments or the amount
of the final payment; and
(9) the
history of the movements in the index chosen for the loan, including the
highest and lowest interest rates reached by the index, and the dates at which
these levels were reached, for each of the three calendar years preceding the
year in which the loan is made, provided further that if a loan is made after
August 31st of any calendar year, the disclosures shall include the high and
low figures for the index's performance through June 30th of that year and such
disclosure may be used as the disclosure of the high and low in index
performance for the calendar year next preceding the calendar year in which the
loan is made for any loan made prior to March 1st of a calendar year.
If an application is accepted by telephone, the lender shall
mail, deliver or transmit by electronic media the required disclosure statement
within three business days.
(b) In the case of a balloon-payment mortgage
loan, the disclosure required to be given pursuant to subdivision (a) of this
section shall include the following notice, or a notice to like effect, as
applicable, which notice may be given in writing or via electronic media and
which shall also be included in the loan contract:
THE TERM OF THE LOAN IS ________ YEARS. AS A RESULT, YOU WILL
BE REQUIRED TO REPAY THE ENTIRE PRINCIPAL BALANCE AND ANY ACCRUED INTEREST THEN
OWING ________ YEARS FROM THE DATE ON WHICH THE LOAN IS MADE.
THE LENDER HAS NO OBLIGATION TO REFINANCE THIS LOAN AT THE
END OF ITS TERM. THEREFORE, YOU MAY BE REQUIRED TO REPAY THE LOAN OUT OF ASSETS
YOU OWN OR YOU MAY HAVE TO FIND ANOTHER LENDER WILLING TO REFINANCE THE
LOAN.
ASSUMING THIS LENDER OR ANOTHER LENDER REFINANCES THIS LOAN
AT MATURITY, YOU WILL PROBABLY BE CHARGED INTEREST AT MARKET RATES PREVAILING
AT THAT TIME AND SUCH RATES MAY BE HIGHER THAN THE INTEREST RATE ON THIS LOAN.
YOU MAY ALSO HAVE TO PAY SOME OR ALL OF THE CLOSING COSTS NORMALLY ASSOCIATED
WITH A NEW MORTGAGE LOAN.
If the lender guarantees refinancing of the loan for
additional terms until the principal balance has been repaid but does not
provide for the recalculation of the interest rate at the time of each
refinancing according to a prespecified index, the disclosures and the loan
contracts shall include the following notice, or a notice to like effect, as
applicable which notice may be given in writing or via electronic media
and:
THE TERM OF THE LOAN IS ________ YEARS. AT MATURITY,
________YEARS FROM THE DATE ON WHICH THE LOAN IS MADE, AND AT THE TIME OF EACH
FURTHER REFINANCING, THE LOAN WILL BE REFINANCED AT AN INTEREST RATE
ESTABLISHED BY THE LENDER WITH REFERENCE TO MARKET RATES. SUCH INTEREST RATE(S)
MAY BE HIGHER THAN THE INTEREST RATE PAID ON THIS LOAN.
In addition, at the time it commits itself to make the loan,
the lender must inform the applicant in writing or via electronic media of the
principal balance which will be due at maturity of the loan or the initial term
of the loan (assuming all scheduled principal payments, if any, are made in
accordance with the loan contract) and the fact that the borrower will receive
notice of maturity in writing or, where the borrower has consented in advance,
via electronic media from the lender and the time periods within which such
notice will be sent.
(c)
The lender shall include in the disclosures a statement, in bold face type at
least ten point in size, as follows:
YOU SHOULD CHECK WITH YOUR LEGAL ADVISOR AND WITH OTHER
MORTGAGE LIEN HOLDERS AS TO WHETHER ANY PRIOR LIENS CONTAIN ACCELERATION
CLAUSES WHICH WOULD BE ACTIVATED BY A JUNIOR ENCUMBRANCE.
(d) With regard to the electronic
transmission of disclosures, a hard-copy of such disclosure shall be mailed to
each applicant who indicates that he or she does not have the computer capacity
to down-load and print such disclosure. In those instances in which a hard-copy
of the disclosure is not mailed to the applicant, the lender must be able to
demonstrate that information was obtained as to the applicant's computer
capacity to down-load and print such disclosure.
