12 U.S.C. § 4905

Current through P.L. 118-106 (published on www.congress.gov on 10/04/2024)

Section 4905 - Disclosure requirements for lender paid mortgage insurance

(a) Definitions

For purposes of this section-

(1) the term "borrower paid mortgage insurance" means private mortgage insurance that is required in connection with a residential mortgage transaction, payments for which are made by the borrower;

(2) the term "lender paid mortgage insurance" means private mortgage insurance that is required in connection with a residential mortgage transaction, payments for which are made by a person other than the borrower; and

(3) the term "loan commitment" means a prospective mortgagee's written confirmation of its approval, including any applicable closing conditions, of the application of a prospective mortgagor for a residential mortgage loan.

(b) Exclusion

Sections 4902 through 4904 of this title do not apply in the case of lender paid mortgage insurance.

(c) Notices to mortgagor

In the case of lender paid mortgage insurance that is required in connection with a residential mortgage transaction-

(1) not later than the date on which a loan commitment is made for the residential mortgage transaction, the prospective mortgagee shall provide to the prospective mortgagor a written notice-

(A) that lender paid mortgage insurance differs from borrower paid mortgage insurance, in that lender paid mortgage insurance may not be canceled by the mortgagor, while borrower paid mortgage insurance could be cancelable by the mortgagor in accordance with section 4902(a) of this title, and could automatically terminate on the termination date in accordance with section 4902(b) of this title;

(B) that lender paid mortgage insurance-

(i) usually results in a residential mortgage having a higher interest rate than it would in the case of borrower paid mortgage insurance; and

(ii) terminates only when the residential mortgage is refinanced (under the meaning given such term in the regulations issued by the Board of Governors of the Federal Reserve System to carry out the Truth in Lending Act ( 15 U.S.C. 1601 et seq.)), paid off, or otherwise terminated; and

(C) that lender paid mortgage insurance and borrower paid mortgage insurance both have benefits and disadvantages, including a generic analysis of the differing costs and benefits of a residential mortgage in the case lender paid mortgage insurance versus borrower paid mortgage insurance over a 10-year period, assuming prevailing interest and property appreciation rates;

(D) that lender paid mortgage insurance may be tax-deductible for purposes of Federal income taxes, if the mortgagor itemizes expenses for that purpose; and

(2) not later than 30 days after the termination date that would apply in the case of borrower paid mortgage insurance, the servicer shall provide to the mortgagor a written notice indicating that the mortgagor may wish to review financing options that could eliminate the requirement for private mortgage insurance in connection with the residential mortgage transaction.

(d) Standard forms

The servicer of a residential mortgage transaction may develop and use a standardized form or forms for the provision of notices to the mortgagor, as required under subsection (c).

12 U.S.C. § 4905

Pub. L. 105-216, §6, July 29, 1998, 112 Stat. 904; Pub. L. 106-569, title IV, §§403(c), Dec. 27, 2000, 406, Dec. 27, 2000, 114 Stat. 2957, 2959.

EDITORIAL NOTES

REFERENCES IN TEXTThe Truth in Lending Act, referred to in subsec.(c)(1)(B)(ii), is title I of Pub. L. 90-321, May 29, 1968, 82 Stat. 146, which is classified generally to subchapter I (§1601 et seq.) of chapter 41 of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see Short Title note set out under section 1601 of Title 15 and Tables.

AMENDMENTS2000-Subsec. (c). Pub. L. 106-569, §403(c)(1)(A), struck out "a residential mortgage or" before "a residential mortgage transaction" in introductory provisions.Subsec. (c)(1)(B)(ii). Pub. L. 106-569, §406(a), inserted "(under the meaning given such term in the regulations issued by the Board of Governors of the Federal Reserve System to carry out the Truth in Lending Act ( 15 U.S.C. 1601 et seq.))" after "refinanced". Subsec. (c)(2). Pub. L. 106-569, §403(c)(1)(B), inserted "transaction" before period at end.Subsec. (d). Pub. L. 106-569, §403(c)(2), inserted "transaction" after "residential mortgage".

STATUTORY NOTES AND RELATED SUBSIDIARIES

EFFECTIVE DATESection effective 1 year after July 29, 1998, see section 13 of Pub. L. 105-216 set out as a note under section 4901 of this title.

mortgage insurance: The term "mortgage insurance" means insurance, including any mortgage guaranty insurance, against the nonpayment of, or default on, an individual mortgage or loan involved in a residential mortgage transaction.
mortgagee: The term "mortgagee" means the holder of a residential mortgage at the time at which that mortgage transaction is consummated.
mortgagor: The term "mortgagor" means the original borrower under a residential mortgage or his or her successors or assignees.
person: The term "person" means an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity.
private mortgage insurance: The term "private mortgage insurance" means mortgage insurance other than mortgage insurance made available under the National Housing Act [ 12 U.S.C. 1701 et seq.], title 38, or title V of the Housing Act of 1949 [ 42 U.S.C. 1471 et seq.].
residential mortgage transaction: The term "residential mortgage transaction" means a transaction consummated on or after the date that is 1 year after July 29, 1998, in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained against a single-family dwelling that is the principal residence of the mortgagor to finance the acquisition, initial construction, or refinancing of that dwelling.
residential mortgage: The term "residential mortgage" means a mortgage, loan, or other evidence of a security interest created with respect to a single-family dwelling that is the principal residence of the mortgagor.
termination date: The term "termination date" means-(A) with respect to a fixed rate mortgage, the date on which the principal balance of the mortgage, based solely on the initial amortization schedule for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 78 percent of the original value of the property securing the loan; and(B) with respect to an adjustable rate mortgage, the date on which the principal balance of the mortgage, based solely on the amortization schedule then in effect for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 78 percent of the original value of the property securing the loan.