[Code of Federal Regulations]

[Title 12, Volume 3]

[Revised as of January 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 12CFR226.34]



[Page 314]

 

                       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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