LoanMortgage Loans

Section § 1918.5

Explanation

This section defines terms for understanding the chapter. 'Evidence of debt' refers to financial instruments like notes or negotiable instruments. The 'Secretary' is the Secretary of the Business, Consumer Services, and Housing, and their 'designee' is a department director related to compliance. A 'security document' is any mortgage, deed of trust, or similar contract used to finance living property with four or fewer units that is occupied or will be occupied by the borrower.

As used in this chapter:
(a)CA Civil Law Code § 1918.5(a) “Evidence of debt” means a note or negotiable instrument.
(b)CA Civil Law Code § 1918.5(b) “Secretary” means the Secretary of the Business, Consumer Services, and Housing.
(c)CA Civil Law Code § 1918.5(c) “Secretary’s designee” means the director of a department within the agency that licenses or regulates the institutions, organizations, or persons engaged in a business related to or affecting compliance with this chapter.
(d)CA Civil Law Code § 1918.5(d) “Security document” means a mortgage contract, deed of trust, real estate sales contract, or any note or negotiable instrument issued in connection therewith, when its purpose is to finance the purchase or construction of real property occupied or intended to be occupied by the borrower, containing four or fewer residential units or on which four or fewer residential units are to be constructed.
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Section § 1920

Explanation

This law outlines requirements for mortgages with adjustable interest rates. It says that any changes in interest rates or monthly payments must consider the borrower's ability to pay. These changes must be clearly explained in the mortgage documents. Before rates change, lenders must notify borrowers about certain details like the new interest rate and any changes to payments. Borrowers can pay off their loans early without penalty, and no extra fees can be charged if rates or payments change. Rate changes should match a specific index. Borrowers must be informed if their monthly payment doesn't cover the interest and have full disclosure of the mortgage's nature and costs before signing.

Any mortgage instrument that is made pursuant to the provisions of this chapter shall meet the following requirements:
(a)CA Civil Law Code § 1920(a) Standards for the adjustment of interest rates or monthly payments shall consider factors which can reasonably be deemed to affect the ability of borrowers to meet their mortgage obligations.
(b)CA Civil Law Code § 1920(b) No change in interest provided for in any provision for a variable interest rate contained in a security document, or evidence of debt issued in connection therewith, shall be valid unless the provision is set forth in the security document, and in any evidence of debt issued in connection therewith, and the document or documents contain the following provisions:
(1)CA Civil Law Code § 1920(b)(1) A statement attached to the security document and to any evidence of debt issued in connection therewith printed or written in a size equal to at least 10-point bold type, consisting of language authorized by the secretary or the secretary’s designee notifying the borrower that the mortgage may provide for changes in interest, principal loan balance, payment, or the loan term.
(2)CA Civil Law Code § 1920(b)(2) Before the due date of the first monthly installment following each change in the interest rate, notice shall be mailed to the borrower of the following:
(A)CA Civil Law Code § 1920(b)(2)(A) The base index.
(B)CA Civil Law Code § 1920(b)(2)(B) The most recently published index at the date of the change in the rate.
(C)CA Civil Law Code § 1920(b)(2)(C) The interest rate in effect as a result of the change.
(D)CA Civil Law Code § 1920(b)(2)(D) Any change in the monthly installment.
(E)CA Civil Law Code § 1920(b)(2)(E) The amount of the unpaid principal balance.
(F)CA Civil Law Code § 1920(b)(2)(F) If the interest scheduled to be paid on the due date exceeds the amount of the installment, a statement to that effect and the amount of the excess, and the address and telephone number of the office of the lender to which inquiries may be made.
(c)CA Civil Law Code § 1920(c) The borrower is permitted to prepay the loan in whole or in part without a prepayment charge at any time, and no fee or other charge may be required by the lender of the borrower as a result of any change in the interest rate, the payment, the outstanding principal loan balance, or the loan term.
(d)CA Civil Law Code § 1920(d) Changes in the rate of interest on the loan shall reflect the movement of an index, which shall be authorized by the secretary or the secretary’s designee.
(e)CA Civil Law Code § 1920(e) To the extent that any monthly installment is less than the amount of interest accrued during the month with respect to which the installment is payable, the borrower shall be notified of such instance in a form and manner prescribed by the secretary or the secretary’s designee. Such notice shall include, but not be limited to, the amount of interest exceeding the monthly installment, and any borrower options under these circumstances.
(f)CA Civil Law Code § 1920(f) The lender shall provide to the borrower, prior to the execution by the borrower of any mortgage payment instrument authorized pursuant to this chapter, full and complete disclosure, as specified by the secretary or the secretary’s designee, of the nature and effect of the mortgage payment instrument, and all costs or savings attributed to the mortgage instrument.
mortgage instrument adjustable interest rates variable interest rate ...

Section § 1921

Explanation

This law requires lenders who offer adjustable-rate residential mortgage loans to provide potential borrowers with a copy of a guide from the Federal Reserve Board about these types of loans. This must happen either when the borrower asks for it or when first giving out written loan information. If lenders don't follow these rules, they can be taken to court, and may have to pay damages, costs, and attorney fees. Lenders who already follow certain federal disclosure rules can meet these state requirements by sharing the guide at the same time they make other required disclosures, and they must also make this information available in their offices.

(a)CA Civil Law Code § 1921(a) As used in this section:
(1)CA Civil Law Code § 1921(a)(1) “Adjustable-rate residential mortgage loan” means any loan or credit sale which is primarily for personal, family, or household purposes which bears interest at a rate subject to change during the term of the loan, whether predetermined or otherwise, and which is made upon the security of real property containing not less than one nor more than four dwelling units.
(2)CA Civil Law Code § 1921(a)(2) “Lender” means any person, association, corporation, partnership, limited partnership, or other business entity making, in any 12-month period, more than 10 loans or credit sales upon the security of residential real property containing not less than one nor more than four dwelling units.
(b)CA Civil Law Code § 1921(b) Any lender offering adjustable-rate residential mortgage loans shall provide to prospective borrowers a copy of the most recent available publication of the Federal Reserve Board that is designed to provide the public with descriptive information concerning adjustable-rate mortgages (currently entitled “Consumer Handbook on Adjustable Rate Mortgages”), either upon the prospective borrower’s request or at the same time the lender first provides written information, other than direct-mail advertising, concerning any adjustable-rate residential mortgage loan or credit sale to the prospective borrower, whichever is earlier. Any lender who fails to comply with the requirements of this section may be enjoined by any court of competent jurisdiction and shall be liable for actual damages, the costs of the action, and reasonable attorney’s fees as determined by the court. The court may make those orders as may be necessary to prevent future violations of this section.
(c)CA Civil Law Code § 1921(c) A lender that makes adjustable-rate mortgage loan disclosures pursuant to either Part 29 of Chapter I of, or Part 563 of Chapter V of, Title 12 of the Code of Federal Regulations, may comply with this section by providing the descriptive information required by subdivision (b) at the same time and under the same circumstances that it makes disclosures in accordance with those federal regulations. Such a lender shall also display and make the descriptive information available to the public in an area of the lender’s office that is open to the public.
adjustable-rate mortgage Federal Reserve Board Consumer Handbook on Adjustable Rate Mortgages ...