(a) Generally. These model clauses are the plain language
rendition of contract clauses that have typically been stated in technical
legal terms. Nothing in this regulation prohibits a contract from
including provisions that provide more favorable results for the borrower
than those that would result from the use of a model clause.
(b) Model clauses for a Chapter 342, Subchapter G second
lien home equity loan contract.
(1) Identification.
(A) The model identification clause lists the account
or contract number, the name and address of the lender, the date of
the note, and the name and address of the borrower. It also lists
the following items that must be included on the promissory note under
Regulation Z, 12 C.F.R. §1026.36(g):
(i) the lender's Nationwide Mortgage Licensing System
and Registry identification number (labeled "Creditor/Lender NMLS
ID");
(ii) the name of the individual residential mortgage
loan originator with primary responsibility for the origination (labeled
"Loan Originator"); and
(iii) the originator's Nationwide Mortgage Licensing
System and Registry identification number (labeled "Loan Originator
NMLS ID").
(B) The model clause identifying the pronouns used
for the borrower and the lender reads: "A word like "I" or "me" means
each person who signs as a Borrower. A word like "you" or "your" means
the Lender or "Note Holder." The Lender is _________. The Lender may
sell or transfer this Note. The Lender or anyone who is entitled to
receive payments under this Note is called the "Note Holder." You
will tell me in writing who is to receive my payments."
(2) Promise to pay. One permissible change to the model
language for the scheduled installment earnings method would be to
allow partial prepayments of the principal during the term of the
loan. This variation on the Texas scheduled installment earnings method
would allow periodic reductions of the principal balance by partial
prepayments. This variation would allow reductions of the principal
balance that were not originally scheduled. The model clause for the
borrower's promise to pay reads: "This loan is an Extension of Credit
defined by Section 50(a)(6), Article XVI of the Texas Constitution."
(A) For contracts using the scheduled installment earnings
method: "I promise to pay the Total of Payments to the order of you.
(The "principal" or "cash advance" is $________. This amount plus
interest must be paid by _________ (maturity date).) I will make payments
to you at the address above or as you direct. I will make the payments
on the dates and in the amounts shown in the Payment Schedule."
(B) For contracts using the true daily earnings method:
"I promise to pay the cash advance plus the accrued interest to the
order of you. (The "principal" or "cash advance" is $________. This
amount plus interest must be paid by _________ (maturity date).) I
will make payments to you at the address above or as you direct. I
will make the payments on the dates and in the amounts shown in the
Payment Schedule."
(C) The model payment schedule reads:
Attached Graphic
(3) Late charge.
(A) Generally. The general model late charge provision
for contracts using the scheduled installments earnings method or
the true daily earnings method reads: "If I don't pay all of a payment
within 10 days after it is due, you can charge me a late charge. The
late charge will be 5% of the scheduled payment."
(B) High-cost mortgage loans. The model late charge
provision for high-cost mortgage loans subject to the limitation on
late charges in Regulation Z, 12 C.F.R. §1026.34(a)(8), reads:
"If I don't pay all of a payment within 15 days after it is due, you
can charge me a late charge. The late charge will be 4% of the amount
of the payment past due."
(4) After maturity interest. The model provision for
after maturity interest for contracts using the scheduled installment
earnings method reads: "If I don't pay all I owe when the final payment
becomes due, I will pay interest on the amount that is still unpaid.
That interest will be the higher of the rate of 18% per year or the
maximum rate allowed by law. That interest will begin the day after
the final payment becomes due."
(5) Prepayment clause. The model prepayment clause
options read:
(A) For contracts using the scheduled installment earnings
method: "I can make a whole payment early. Unless you agree otherwise
in writing, I may not skip payments. If I make a payment early, my
next payment will still be due as scheduled."
(B) For contracts using the true daily earnings method:
"I can make any payment early. Unless you agree otherwise in writing,
I may not skip payments. If I make a payment early, my next payment
will still be due as scheduled."
(6) Finance charge earnings and refund method. The
model provision options specifying the finance charge earnings and
refund method read:
(A) For contracts using the scheduled installment earnings
method - Section 342.301 rate loans, the model language reads:
Attached Graphic
(B) For contracts using the scheduled installment earnings
method with prepayments option - Section 342.301 rate loans, the model
language reads:
Attached Graphic
(C) For contracts using the true daily earnings method
- Section 342.301 rate loans, the model language reads:
Attached Graphic
(7) Fee for dishonored check clause. The model clause
specifies the maximum allowable dishonored check fee. A licensee may
always choose a lesser amount. The fee for dishonored check model
clause reads: "I agree to pay you a fee of up to $30 for a returned
check. You may add the fee to the amount I owe or collect it separately."
(8) Default clause. The model provision specifying
the conditions causing default reads:
Attached Graphic
(9) Property insurance. The model provision regarding
property insurance reads:
Attached Graphic
(10) Credit insurance. If single premium credit insurance
is allowable, a permissible change to the disclosure can be to offer
a single charge for the entire term of the loan. The term for the
single premium charge should be shown for the original term of the
loan, unless otherwise specified. The licensee has the option of including
language that reads: "The insurance will cancel on the date when the
total past due premiums equal or exceed (insert number) times the
first month's premium." The industry standard regarding the relationship
between total past due premiums and the first month's premium in this
equation appears to be four times. However, if a different time frame
is more appropriate, that time frame may be used. The model credit
insurance disclosure box reads:
Attached Graphic
(11) Mailing of notices to borrower. The model provision
regarding the mailing of notices to the borrower reads: "You or I
may mail or deliver any notice to the address above. You or I may
change the notice address by giving written notice. Your duty to give
me notice will be satisfied when you mail it by first class mail."
(12) Due on sale clause, notice of intent to accelerate,
and notice of acceleration. The model provision regarding the due
on sale clause, notice of intent to accelerate, and notice of acceleration
reads: "If all or any interest in the homestead is sold or transferred
without your prior written consent, you may require immediate payment
in full of all that I owe under this Loan Agreement. You will not
exercise this option if prohibited by law. If you exercise this option,
you will give me notice of acceleration (i.e., payment of all I owe
at once). This notice will give me a period of not less than 21 days
from the date of the notice within which I must pay all that I owe
under this Loan Agreement. If I fail to pay all that I owe before
the end of this period, you may use any remedy allowed by the Loan
Agreement."
(13) No waiver of lender's rights. The model provision
expressing no waiver of the lender's rights reads: "If you don't enforce
your rights every time, you can still enforce them later."
(14) Collection expenses clause. The model collection
expenses clause reads: "If you require me to pay all that I owe at
once, you will have the right to be paid back by me for all of your
costs and expenses in enforcing this Loan Agreement to the extent
not prohibited by law, including Section 50(a)(6), Article XVI of
the Texas Constitution. These expenses include, for example, reasonable
attorneys' fees. I understand that these fees are not for maintaining
or servicing this Loan Agreement."
Cont'd... |