10 Pa. Code § 13.33

Current through Register Vol. 54, No. 45, November 9, 2024

Section 13.33 - Protective provisions with respect to certain renegotiable rate or rollover mortgage loans

(a)Applicability. Mortgage loan documents containing provisions for rollover or renegotiation of the mortgage which pertain to loans secured by a lien on real property located within this Commonwealth containing not more than two residential units or on which not more than two residential units are to be constructed, including residential condominium units, shall be subject to the provisions of this section.

(b)Description. The renegotiable rate or rollover mortgage loan shall be issued for a term of 3, 4 or 5 years, secured by a long-term mortgage of up to 30 years and automatically renewable at equal intervals except as provided in subsection (c)(1). During each term the loan shall be repayable in equal monthly installments of principal and interest in an amount at least sufficient to amortize a loan with the same principal balance at the then effective interest rate over the remaining term of the long-term mortgage. At renewal, no change other than in the interest rate may be made in the terms or conditions of the initial loan, except as provided in subsection (c)(1). Prepayment in full or on part of the loan balance secured by the mortgage may be made without penalty at any time on those loans which meet the definition of a "residential mortgage" in section 101 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 101).

(c)Interest rate changes at renewal. Interest rate changes at renewal shall include the following:

(1) The interest rate offered at renewal shall reflect the movement, in reference to the date of the original loan, of the contract interest rate on the purchase of previously occupied homes in the most recent monthly national average mortgage rate index of the Federal Home Loan Bank Board for major lenders; provided that the lender may alter the initial term of loans originated within a 6-month period so that they mature on the same date, 3, 4 or 5 years after the end of that period, in which case the interest rate offered at renewal shall reflect the movement of the index from the end of that period, that is, as though all loans in the group had originated at the end of the period.

(2) The maximum rate increase or decrease at each renewal shall be .5% per year multiplied by the number of years in each loan term, with a maximum increase or decrease of 5% over the life of the mortgage. Lenders may offer a borrower a renegotiable rate or rollover mortgage loan with maximum annual and total interest rate decreases smaller than the maximum set out in this paragraph; provided, however, that the maximum annual and total interest rate increases offered may not exceed the maximum annual and total decreases set out in the loan contract.

(3) Interest rate decreases from the previous loan term shall be mandatory. Interest rate increases shall be optional with the lender, but the lender may obligate itself to a third party to take the maximum increase permitted by this subsection.

(d)Cost of renewal. Charges in connection with the loan shall be collected when the loan is initiated. At the time of a renewal of the loan, the borrower may not be charged costs or fees in connection with the renewal.

(e)Renewal notice. At least 90 days before the due date of the loan, the lender shall send written notification in the following form to the borrower:

NOTICE

Your loan with secured by a (mortgage/deed of trust) on property located at (address), is due and payable on (90 days from date of notice).

If you do not pay by that date, your loan will be renewed automatically for years, upon the same terms and conditions as the current loan, except that the interest rate will be %. (See accompanying Truth-in-Lending statement for further credit information. The foregoing reference to Truth-in-Lending may be omitted from the notice if under applicable Federal laws the lender will not be giving a Truth-in-Lending statement.)

Your monthly payment, based on that rate, will be $ beginning with the payment due on, 19.

You may pay off the entire loan or a part of it without penalty at any time.

If you have questions about this notice, please contact (title and telephone number of mutual savings bank employe).

(f)Application disclosure. An applicant for a renegotiable rate mortgage loan shall be given, at the time he requests an application, a disclosure notice in the following form:

INFORMATION ABOUT THE RENEGOTIABLE-RATE MORTGAGE

You have received an application form for a renegotiable-rate mortgage ("RRM") loan. The RRM differs from the fixed-rate mortgage loan with which you may be familiar. In the fixed-rate mortgage loan, the length of the loan and the length of the underlying mortgage are the same, but in the RRM the loan is short-term (3-5 years) and is automatically renewable for a period equal to the mortgage (up to 30 years). Therefore, instead of having an interest rate that is set at the beginning of the mortgage and remains the same, the RRM has an interest rate that may increase or decrease at each renewal of the short-term loan. This means that the amount of your monthly payment may also increase or decrease.

The term of the RRM loan is years, and the length of the underlying mortgage is years. The initial loan term may be up to 6 months longer than later terms.

The lender must offer to renew the loan, and the only loan provision that may be changed at renewal is the interest rate. The interest rate offered at renewal is based on changes in an index rate. The index used is computed monthly by the Federal Home Loan Bank Board, an agency of the Federal government. The index is based on the national average contract rate for all major lenders for the purchase of previously-occupied, single-family homes.

At renewal, if the index has moved higher than it was at the beginning of the mortgage, the lender has the right to offer a renewal of the loan at an interest rate equalling the original interest rate plus the increase in the index rate. This is the maximum increase permitted to the lender. Although taking such an increase is optional with the lender, you should be aware that the lender has this right and may become contractually obligated to exercise it.

If the index has moved down, the lender must at renewal reduce the original interest rate by the decrease in the index rate no matter how much the index rate increases or decreases. THE LENDER, AT RENEWAL, MAY NOT INCREASE OR DECREASE THE INTEREST RATE ON YOUR RRM LOAN BY AN AMOUNT GREATER THAN OF ONE PERCENTAGE POINT PER YEAR OF THE LOAN AND THE TOTAL INCREASE OR DECREASE OVER THE LIFE OF THE MORTGAGE MAY NOT BE MORE THAN PERCENTAGE POINTS.

As the borrower, you have the right to decline the lender's offer of renewal. If you decide not to renew, you will, of course, have to pay off the remaining balance of the mortgage. Even if you decide to renew, you have the right to prepay the loan in part or in full without penalty at any time. To give you enough time to make this decision, the lender, ninety (90) days before renewal, will send a notice stating the due date of the loan, the new interest rate and the monthly payment amount. If you do not respond to the notice, the loan will be automatically renewed at the new rate. You will not have to pay any fees or charges at renewal time.

The maximum interest rate increase at the first renewal is percentage points. On a $50,000 mortgage with an original term of years and an original interest rate of (lender's current commitment rate) percent, this rate change would increase the monthly payment (principal and interest) from $ to $ . Using the same example, the highest interest rate you might have to pay over the life of the mortgage would be percent, and the lowest would be percent.

10 Pa. Code § 13.33

The provisions of this §13.33 adopted December 5, 1980, effective 12/6/1980, 10 Pa.B. 4592.