[Code of Federal Regulations]
[Title 12, Volume 3]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR226.34]

[Page 297]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 226--TRUTH IN LENDING (REGULATION Z)--Table of Contents
 
     Subpart E--Special Rules for Certain Home Mortgage Transactions
 
Sec. 226.34  Prohibited acts or practices in connection with credit secured by a consumer's dwelling.

    (a) Prohibited acts or practices for loans subject to Sec. 226.32. A 
creditor extending mortgage credit subject to Sec. 226.32 shall not--
    (1) Home improvement contracts. Pay a contractor under a home 
improvement contract from the proceeds of a mortgage covered by 
Sec. 226.32, other than:
    (i) By an instrument payable to the consumer or jointly to the 
consumer and the contractor; or
    (ii) At the election of the consumer, through a third-party escrow 
agent in accordance with terms established in a written agreement signed 
by the consumer, the creditor, and the contractor prior to the 
disbursement.
    (2) Notice to assignee. Sell or otherwise assign a mortgage subject 
to Sec. 226.32 without furnishing the following statement to the 
purchaser or assignee: ``Notice: This is a mortgage subject to special 
rules under the federal Truth in Lending Act. Purchasers or assignees of 
this mortgage could be liable for all claims and defenses with respect 
to the mortgage that the borrower could assert against the creditor.''
    (3) Refinancings within one-year period. Within one year of having 
extended credit subject to Sec. 226.32, refinance any loan subject to 
Sec. 226.32 to the same borrower into another loan subject to 
Sec. 226.32, unless the refinancing is in the borrower's interest. An 
assignee holding or servicing an extension of mortgage credit subject to 
Sec. 226.32, shall not, for the remainder of the one-year period 
following the date of origination of the credit, refinance any loan 
subject to Sec. 226.32 to the same borrower into another loan subject to 
Sec. 226.32, unless the refinancing is in the borrower's interest. A 
creditor (or assignee) is prohibited from engaging in acts or practices 
to evade this provision, including a pattern or practice of arranging 
for the refinancing of its own loans by affiliated or unaffiliated 
creditors, or modifying a loan agreement (whether or not the existing 
loan is satisfied and replaced by the new loan) and charging a fee.
    (4) Repayment ability. Engage in a pattern or practice of extending 
credit subject to Sec. 226.32 to a consumer based on the consumer's 
collateral without regard to the consumer's repayment ability, including 
the consumer's current and expected income, current obligations, and 
employment. There is a presumption that a creditor has violated this 
paragraph (a)(4) if the creditor engages in a pattern or practice of 
making loans subject to Sec. 226.32 without verifying and documenting 
consumers' repayment ability.
    (b) Prohibited acts or practices for dwelling-secured loans; open-
end credit. In connection with credit secured by the consumer's dwelling 
that does not meet the definition in Sec. 226.2(a)(20), a creditor shall 
not structure a home-secured loan as an open-end plan to evade the 
requirements of Sec. 226.32.

[Reg. Z, 66 FR 65618, Dec. 20, 2001]

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