| (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 purchase money 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, the name and address of the borrower, and the property address.
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 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 options
for the borrower's promise to pay read:
(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 installment 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 clause specifies
the maximum interest rate allowed by law for after maturity interest
for contracts using the scheduled installment earnings method. A licensee
may always choose a lower rate. The model provision for after maturity
interest 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 model fee for dishonored check
provision 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 offered, 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 duty to give
notice is satisfied when it is mailed by first class mail. 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."
(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 Property 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 that you are demanding immediate payment of
all that I owe. 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 Applicable Law. These expenses include, for example,
reasonable attorneys' fees."
(15) Joint liability. The model provision providing
for joint liability reads: "I understand that you may seek payment
from only me without first looking to any other Borrower."
(16) Usury savings clause. The model usury savings
clause reads: "I do not have to pay interest or other amounts that
are more than Applicable Law allows."
Cont'd... |
