Cal. Civ. Code § 1916.8

Current through the 2024 Legislative Session.

Section 1916.8 - Renegotiable rate mortgage loans

Any lender may make, purchase or participate in a renegotiable rate mortgage loan under this section if the loan complies with the provisions of this section pertaining to one- to four-family home loans.

(a) For purposes of this section, a renegotiable rate mortgage loan is a loan issued for a term of three, four or five years, secured by a long-term mortgage or deed of trust of up to 30 years, and automatically renewable at equal intervals except as provided in paragraph (1) of subdivision (b). The loan must be repayable in equal monthly installments of principal and interest during the loan term, in an amount at least sufficient to amortize a loan with the same principal and at the same interest rate over the remaining term of the mortgage or deed of trust. Only one of the indices described in paragraph (1) of subdivision (b) shall be used and no other index shall be used during the term of the mortgage or deed of trust securing the loan. At renewal, no change other than in the interest rate may be made in the terms or conditions of the initial loan. Prepayment in full or in part of the loan balance secured by the mortgage or deed of trust may be made without penalty at any time after the beginning of the minimum notice period for the first renewal, or at any earlier time specified in the loan contract.

(b) Interest rate changes at renewal shall be determined as follows:

(1) Subject to the provisions of subdivision (a) the interest rate offered at renewal shall reflect the movement, in reference to the date of the original loan, of an index, which may be either (i) the contract interest rate on the purchase of previously occupied homes in the most recent monthly national average mortgage rate index for all major lenders published by the Federal Home Loan Bank Board, or (ii) the weighted average cost of funds for the 11th District Savings and Loan Associations as computed by the Federal Home Loan Bank of San Francisco; provided that a lender may extend the initial terms of loans for a period less than six months so that they may mature on the same date three, four or five years after the end of such period of extension, in which case the interest rate offered at renewal shall reflect the movement of the index from the end of such period so that loans may be grouped as though all loans of such group had originated at the end of the extension period.

(2) The maximum rate increase or decrease shall be ¹/₂ of 1 percentage point per year multiplied by the number of years in the loan term, with a maximum increase or decrease of 5 percentage points over the life of the mortgage or deed of trust. The lender may offer a borrower a renegotiable rate mortgage loan with maximum annual and total interest rate decreases smaller than the maximum set out in this paragraph, except that in such a case the maximum annual and total interest rate increases offered shall not exceed the maximum annual and total decreases set out in the loan contract.

(3) Interest rate decreases from the previous loan term shall be mandatory. Interest rate increases are optional with the lender, but the lender may obligate itself to a third party to take the maximum increase permitted by this paragraph.

(c) The borrower may not be charged any costs or fees in connection with the renewal of such loan.

(d) At least 90 days before the due date of the loan, the lender shall send written notification in the following form to the borrower:

NOTICE

Your loan with [name of lender], secured by a [mortgage/deed of trust] on property located at [address], is due and payable on [90 days from the date of notice].

If you do not pay by that date, your loan will be renewed automatically for ____ years, upon the same terms and conditions as the current loan, except that the interest rate will be ____%. (See accompanying Truth-In-Lending statement for further credit information.)

Your monthly payment, based on that rate, will be $____, beginning with the payment due on ____, 19_.

You may pay off the entire loan or a part of it without penalty at any time.

If you have questions about this notice, please contact [title and telephone number of lender's employee].

(e) An applicant for a renegotiable rate mortgage loan must be given, at the time he or she requests an application, a disclosure notice in the following form:

INFORMATION ABOUT THE RENEGOTIABLE-RATE MORTGAGE

You have received an application form for a renegotiable-rate mortgage ("RRM"). The RRM differs from the fixed-rate mortgage with which you may be familiar. In the fixed-rate mortgage the length of the loan and the length of the underlying mortgage are the same, but in the RRM the loan is short-term (3-5 years) and is automatically renewable for a period equal to the mortgage (up to 30 years). Therefore, instead of having an interest rate that is set at the beginning of the mortgage and remains the same, the RRM has an interest rate that may increase or decrease at each renewal of the short-term loan. This means that the amount of your monthly payment may also increase or decrease.

The term of the RRM loan is ____ years, and the length of the underlying mortgage is ____ years. The initial loan term may be up to six months longer than later terms.

The lender must offer to renew the loan, and the only loan provision that may be changed at renewal is the interest rate. The interest rate offered at renewal is based on changes in an index rate. The index used is (either of the following statements shall be given): [computed monthly by the Federal Home Loan Bank Board, an agency of the federal government. The index is based on the national average contract rate for all major lenders for the purchase of previously occupied, single-family homes.] [the weighted average cost of savings, borrowings and Federal Home Loan Bank advances to California members of the Federal Home Loan Bank Board of San Francisco as computed from statistics tabulated by the Federal Home Loan Bank of San Francisco. The index used is computed by the Federal Home Loan Bank of San Francisco.]

At renewal, if the index has moved higher than it was at the beginning of the mortgage, the lender has the right to offer a renewal of the loan at an interest rate equaling the original interest rate plus the increase in the index rate. This is the maximum increase permitted to the lender. Although taking such an increase is optional with the lender, you should be aware that the lender has this right and may become contractually obligated to exercise it.

If the index has moved down, the lender must at renewal reduce the original interest rate by the decrease in the index rate. No matter how much the index rate increases or decreases, THE LENDER, AT RENEWAL, MAY NOT INCREASE OR DECREASE THE INTEREST RATE ON YOUR RRM LOAN BY AN AMOUNT GREATER THAN ____ OF ONE PERCENTAGE POINT PER YEAR OF THE LOAN, AND THE TOTAL INCREASE OR DECREASE OVER THE LIFE OF THE MORTGAGE MAY NOT BE MORE THAN ____ PERCENTAGE POINTS.

As the borrower, you have the right to decline the lender's offer of renewal. If you decide not to renew, you will have to pay off the remaining balance of the mortgage. Even if you decide to renew, you have the right to prepay the loan in part or in full without penalty at any time after the beginning of the minimum notice period for the first renewal. To give you enough time to make this decision, the lender, 90 days before renewal, will send a notice stating the due date of the loan, the new interest rate and the monthly payment amount. If you do not respond to the notice, the loan will be automatically renewed at the new rate. You will not have to pay any fees or charges at renewal time.

The maximum interest rate increase at the first renewal is ____ percentage points. On a $50,000 mortgage with a loan term of ____ years and an original interest rate of [lender's current commitment rate] percent, this rate change would increase the monthly payment (principal and interest) from $____ to $____. Using the same example, the highest rate you might have to pay over the life of the mortgage would be ____ percent, and the lowest would be ____ percent.

Ca. Civ. Code § 1916.8

Added by Stats. 1980, Ch. 1139, Sec. 2.