38 U.S.C. § 3707A — Hybrid adjustable rate mortgages

Page 893 TITLE 38—VETERANS’ BENEFITS § 3707A teeing loans in a manner similar to the manner in which the Secretary of Housing and Urban Development insures adjustable rate mortgages under section 251 of the National Housing Act. (b) Interest rate adjustment provisions of a mortgage guaranteed under this section shall— (1) correspond to a specified national inter- est rate index approved by the Secretary, in- formation on which is readily accessible to mortgagors from generally available published sources; (2) be made by adjusting the monthly pay- ment on an annual basis; (3) be limited, with respect to any single an- nual interest rate adjustment, to a maximum increase or decrease of 1 percentage point; and (4) be limited, over the term of the mort- gage, to a maximum increase of 5 percentage points above the initial contract interest rate. (c) The Secretary shall promulgate under- writing standards for loans guaranteed under this section, taking into account— (1) the status of the interest rate index re- ferred to in subsection (b)(1) and available at the time an underwriting decision is made, re- gardless of the actual initial rate offered by the lender; (2) the maximum and likely amounts of in- creases in mortgage payments that the loans would require; (3) the underwriting standards applicable to adjustable rate mortgages insured under title II of the National Housing Act; and (4) such other factors as the Secretary finds appropriate. (d) The Secretary shall require that the mort- gagee make available to the mortgagor, at the time of loan application, a written explanation of the features of the adjustable rate mortgage, including a hypothetical payment schedule that displays the maximum potential increases in monthly payments to the mortgagor over the first five years of the mortgage term. (Added Pub. L. 102–547, § 3(a)(1), Oct. 28, 1992, 106 Stat. 3634; amended Pub. L. 103–78, § 7, Aug. 13, 1993, 107 Stat. 769; Pub. L. 108–454, title IV, § 404, Dec. 10, 2004, 118 Stat. 3616; Pub. L. 110–389, title V, § 505(a), Oct. 10, 2008, 122 Stat. 4176; Pub. L. 112–154, title II, § 208, Aug. 6, 2012, 126 Stat. 1179.) Editorial Notes REFERENCES IN TEXT The National Housing Act, referred to in subsecs. (a) and (c)(3), is act June 27, 1934, ch. 847, 48 Stat. 1246. Title II of the Act is classified generally to subchapter II (§ 1707 et seq.) of chapter 13 of Title 12, Banks and Banking. Section 251 of the Act is classified to section 1715z–16 of Title 12. For complete classification of this Act to the Code, see section 1701 of Title 12 and Tables. AMENDMENTS 2012—Subsec. (a). Pub. L. 112–154 substituted ‘‘project under this section’’ for ‘‘demonstration project under this section during fiscal years 1993 through 2012’’. 2008—Subsec. (a). Pub. L. 110–389 substituted ‘‘2012’’ for ‘‘2008’’. 2004—Subsec. (a). Pub. L. 108–454 substituted ‘‘during fiscal years 1993 through 2008’’ for ‘‘during fiscal years 1993, 1994, and 1995’’. 1993—Subsec. (b)(2). Pub. L. 103–78 struck out before semicolon at end ‘‘on the anniversary of the date on which the loan was closed’’. Statutory Notes and Related Subsidiaries ANNUAL REPORT ON DOCUMENT DISCLOSURE AND CONSUMER EDUCATION Pub. L. 115–174, title III, § 309(d), May 24, 2018, 132 Stat. 1351, provided that: ‘‘Not less frequently than once each year, the Secretary of Veterans Affairs shall issue a publicly available report that— ‘‘(1) examines, with respect to loans provided to veterans under chapter 37 of title 38, United States Code— ‘‘(A) the refinancing of fixed-rate mortgage loans to adjustable rate mortgage loans; ‘‘(B) whether veterans are informed of the risks and disclosures associated with that refinancing; and ‘‘(C) whether advertising materials for that refi- nancing are clear and do not contain misleading statements or assertions; and ‘‘(2) includes findings based on any complaints re- ceived by veterans and on an ongoing assessment of the refinancing market by the Secretary.’’ ANNUAL REPORTS ON ADJUSTABLE RATE MORTGAGES GUARANTEED UNDER THIS SECTION Pub. L. 102–547, § 3(b), Oct. 28, 1992, 106 Stat. 3635, di- rected Secretary of Veterans Affairs to transmit ad- justable rate mortgage report to Committees on Vet- erans’ Affairs of Senate and House of Representatives no later than Dec. 31, 1993, containing description of project carried out under this section and thereafter to transmit annual reports to such committees with re- spect to default rates and other information concerning loans guaranteed under this section prior to repeal by Pub. L. 104–110, title II, § 201(b), Feb. 13, 1996, 110 Stat. 770. § 3707A. Hybrid adjustable rate mortgages (a) The Secretary shall carry out a project under this section for the purpose of guaran- teeing loans in a manner similar to the manner in which the Secretary of Housing and Urban Development insures adjustable rate mortgages under section 251 of the National Housing Act in accordance with the provisions of this section with respect to hybrid adjustable rate mort- gages described in subsection (b). (b) Adjustable rate mortgages that are guaran- teed under this section shall be adjustable rate mortgages (commonly referred to as ‘‘hybrid ad- justable rate mortgages’’) having interest rate adjustment provisions that— (1) specify an initial rate of interest that is fixed for a period of not less than the first three years of the mortgage term; (2) provide for an initial adjustment in the rate of interest by the mortgagee at the end of the period described in paragraph (1); and (3) comply in such initial adjustment, and any subsequent adjustment, with subsection (c). (c) Interest rate adjustment provisions of a mortgage guaranteed under this section shall— (1) correspond to a specified national inter- est rate index approved by the Secretary, in- formation on which is readily accessible to mortgagors from generally available published sources; (2) be made by adjusting the monthly pay- ment on an annual basis; (3) in the case of the initial contract interest rate adjustment— (A) if the initial contract interest rate re- mained fixed for less than 5 years, be limited Page 894 TITLE 38—VETERANS’ BENEFITS § 3708 to a maximum increase or decrease of 1 per- centage point; or (B) if the initial contract interest rate re- mained fixed for 5 years or more, be limited to a maximum increase or decrease of such percentage point or points as the Secretary may prescribe; (4) in the case of any single annual interest rate adjustment after the initial contract in- terest rate adjustment, be limited to a max- imum increase or decrease of such percentage points as the Secretary may prescribe; and (5) be limited, over the term of the mort- gage, to a maximum increase of such number of percentage points as the Secretary shall prescribe for purposes of this section. (d) The Secretary shall promulgate under- writing standards for loans guaranteed under this section, taking into account— (1) the status of the interest rate index re- ferred to in subsection (c)(1) and available at the time an underwriting decision is made, re- gardless of the actual initial rate offered by the lender; (2) the maximum and likely amounts of in- creases in mortgage payments that the loans would require; (3) the underwriting standards applicable to adjustable rate mortgages insured under title II of the National Housing Act; and (4) such other factors as the Secretary finds appropriate. (e) The Secretary shall require that the mort- gagee make available to the mortgagor, at the time of loan application, a written explanation of the features of the adjustable rate mortgage, including a hypothetical payment schedule that displays the maximum potential increases in monthly payments to the mortgagor over the first five years of the mortgage term. (Added Pub. L. 107–330, title III, § 303(a), Dec. 6, 2002, 116 Stat. 2825; amended Pub. L. 108–454, title IV, § 405(a), (b), Dec. 10, 2004, 118 Stat. 3616; Pub. L. 109–233, title I, § 102, June 15, 2006, 120 Stat. 399; Pub. L. 110–389, title V, § 505(b), Oct. 10, 2008, 122 Stat. 4176; Pub. L. 112–154, title II, § 209, Aug. 6, 2012, 126 Stat. 1179.) Editorial Notes REFERENCES IN TEXT The National Housing Act, referred to in subsecs. (a) and (d)(3), is act June 27, 1934, ch. 847, 48 Stat. 1246. Title II of the Act is classified generally to subchapter II (§ 1707 et seq.) of chapter 13 of Title 12, Banks and Banking. Section 251 of the Act is classified to section 1715z–16 of Title 12. For complete classification of this Act to the Code, see section 1701 of Title 12 and Tables. AMENDMENTS 2012—Subsec. (a). Pub. L. 112–154 substituted ‘‘project under this section’’ for ‘‘demonstration project under this section during fiscal years 2004 through 2012’’. 2008—Subsec. (a). Pub. L. 110–389 substituted ‘‘2012’’ for ‘‘2008’’. 2006—Subsec. (c)(4). Pub. L. 109–233 substituted ‘‘such percentage points as the Secretary may prescribe’’ for ‘‘1 percentage point’’. 2004—Subsec. (a). Pub. L. 108–454, § 405(a), substituted ‘‘during fiscal years 2004 through 2008’’ for ‘‘during fis- cal years 2004 and 2005’’. Subsec. (c)(3). Pub. L. 108–454, § 405(b)(2), added par. (3) and struck out former par. (3) which read as follows: ‘‘be limited, with respect to any single annual interest rate adjustment, to a maximum increase or decrease of 1 percentage point; and’’. Subsec. (c)(4). Pub. L. 108–454, § 405(b)(2), added par. (4). Former par. (4) redesignated (5). Subsec. (c)(5). Pub. L. 108–454, § 405(b)(1), (3), redesig- nated par. (4) as (5) and substituted ‘‘such number of percentage points as the Secretary shall prescribe for purposes of this section’’ for ‘‘5 percentage points above the initial contract interest rate’’. Statutory Notes and Related Subsidiaries NO EFFECT ON GUARANTEE OF LOANS UNDER HYBRID ADJUSTABLE RATE MORTGAGE GUARANTEE DEM- ONSTRATION PROJECT Pub. L. 108–454, title IV, § 405(c), Dec. 10, 2004, 118 Stat. 3616, provided that: ‘‘The amendments made by this section [amending this section] shall not be construed to affect the force or validity of any guarantee of a loan made by the Secretary of Veterans Affairs under the demonstration project for the guarantee of hybrid adjustable rate mortgages under section 3707A of title 38, United States Code, as in effect on the day before the date of the enactment of this Act [Dec. 10, 2004].’’ § 3708. Authority to buy down interest rates: pilot program (a) In order to enable the purchase of housing in areas where the supply of suitable military housing is inadequate, the Secretary may con- duct a pilot program under which the Secretary may make periodic or lump sum assistance pay- ments on behalf of an eligible veteran for the purpose of buying down the interest rate on a loan to that veteran that is guaranteed under this chapter for a purpose described in para- graph (1), (6), or (10) of section 3710(a) of this title. (b) An individual is an eligible veteran for the purposes of this section if— (1) the individual is a veteran, as defined in section 3701(b)(4) of this title; (2) the individual submits an application for a loan guaranteed under this chapter within one year of an assignment of the individual to duty at a military installation in the United States designated by the Secretary of Defense as a housing shortage area; (3) at the time the loan referred to in sub- section (a) is made, the individual is an en- listed member, warrant officer, or an officer (other than a warrant officer) at a pay grade of O–3 or below; (4) the individual has not previously used any of the individual’s entitlement to housing loan benefits under this chapter; and (5) the individual receives comprehensive prepurchase counseling from the Secretary (or the designee of the Secretary) before making application for a loan guaranteed under this chapter. (c) Loans with respect to which the Secretary may exercise the buy down authority under sub- section (a) shall— (1) provide for a buy down period of not more than three years in duration; (2) specify the maximum and likely amounts of increases in mortgage payments that the loans would require; and (3) be subject to such other terms and condi- tions as the Secretary may prescribe by regu- lation.