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Article 6. Real Estate Loans of California Financial Code >> Division 2. >> Chapter 6. >> Article 6.
(a) Subject to limitations, if any, within this chapter, an
association may originate, invest in, sell, purchase, service,
participate, or otherwise deal in (including brokerage or
warehousing) loans, including construction loans, made on the
security of residential or nonresidential real property, or interests
in these loans.
(b) No investment in real property or a real estate loan shall be made by an association until one or more written appraisal reports, prepared at the request of an association or its agent, have been submitted to the association by a person or persons meeting the qualification standards for an appraiser as set forth in the commissioner's regulations. No commitment to disburse shall be made by the association until the person or persons have been duly appointed and qualified as appraisers by the association. Such a person or persons shall have made a physical inspection and submitted to the association a fully documented appraisal of the real estate that would secure the loan or constitute the investment, or, in the case of a purchased loan, the person or persons have reviewed and approved an appraisal report in support of the loan. If the balance of any purchased loan is one million dollars ($1,000,000) or more, the person or persons reviewing and approving the appraisal report shall have inspected the real estate. Each appraisal report submitted to an association pursuant to this subdivision shall be signed and shall include the tax identification number, social security number, or other form of verifiable identification of the person or persons signing the appraisal report.
(c) For the purpose of determining appraised value, unimproved property without offsite improvements shall be evaluated as though offsite improvements have been installed if a subdivision map has been recorded and a bond or other instrument guaranteeing installation of the offsite improvements has been accepted by the governing authorities in connection with the recording of the subdivision map.
(b) No investment in real property or a real estate loan shall be made by an association until one or more written appraisal reports, prepared at the request of an association or its agent, have been submitted to the association by a person or persons meeting the qualification standards for an appraiser as set forth in the commissioner's regulations. No commitment to disburse shall be made by the association until the person or persons have been duly appointed and qualified as appraisers by the association. Such a person or persons shall have made a physical inspection and submitted to the association a fully documented appraisal of the real estate that would secure the loan or constitute the investment, or, in the case of a purchased loan, the person or persons have reviewed and approved an appraisal report in support of the loan. If the balance of any purchased loan is one million dollars ($1,000,000) or more, the person or persons reviewing and approving the appraisal report shall have inspected the real estate. Each appraisal report submitted to an association pursuant to this subdivision shall be signed and shall include the tax identification number, social security number, or other form of verifiable identification of the person or persons signing the appraisal report.
(c) For the purpose of determining appraised value, unimproved property without offsite improvements shall be evaluated as though offsite improvements have been installed if a subdivision map has been recorded and a bond or other instrument guaranteeing installation of the offsite improvements has been accepted by the governing authorities in connection with the recording of the subdivision map.
Each real estate loan shall be evidenced by a note or
instrument of obligation for the amount of the loan. The note or
instrument shall specify the amount and terms of repayment including
any penalty or charge for late payment, and may contain all other
terms of the loan contract.
(a) Each real estate loan shall be secured by a deed of
trust, mortgage, or other transaction or instrument constituting a
lien or claim, or its equivalent, upon the real estate securing the
loan, according to any lawful and recognized practice that is suited
to the transaction. Any deed of trust or other instrument or
transaction constituting a lien or claim is included in the term
"mortgage" in this division.
(b) A mortgage shall provide specifically for full protection to the association with respect to the loan and additional advances, including any terms and conditions that the association deems necessary and appropriate to state the agreement between the parties.
(b) A mortgage shall provide specifically for full protection to the association with respect to the loan and additional advances, including any terms and conditions that the association deems necessary and appropriate to state the agreement between the parties.
Except as specified by the loan contract or by Section 2954.8
of the Civil Code, an association shall have no obligation to pay
interest to the borrower upon funds credited to an impound, trust, or
other type of account for payment of taxes, insurance, or other
charges relating to the property, or to invest them for the benefit
of the borrower, unless the funds have been placed in an interest
bearing savings account under the terms of the loan contract.
Notwithstanding any other provision of law, an association
may adjust the interest rate, payment, balance, or term-to-maturity
on any loan secured by real property as authorized by the loan
contract, and may receive a portion of the consideration for making a
real estate loan in the form of a percentage of the amount by which
the current market value of the property during the loan term or at
maturity exceeds the original appraised value, subject to the
limitations of subdivision (b) and Section 341 of P.L. 97-320 (H.R.
6267, the Garn-St. Germain Depository Institutions Act of 1982).
(a) For the purposes of this section:
(1) "Fully amortized loan" means a loan in which, at inception of the loan, the entire principal balance, together with accrued interest, shall be payable with the scheduled term of the loan in substantially equal installments (excepting the last payment, which may be smaller than a regular scheduled payment).
(2) "Home loans" means loans made on the security of one- to four-unit residential dwellings (including condominiums and cooperatives), combinations of these dwellings and business property (where no more than 20 percent of the total appraised value of the real estate is attributable to the business use), farm residences and combinations of farm residences and commercial farm real property.
(3) "Nonamortized loan" means a loan in which none of the principal balance shall be payable prior to the maturity of the loan.
(4) "Open end line of credit" means a loan plan in which the association reasonably contemplates repeated transactions; the association may impose interest from time to time on the unpaid principal of the loan plan, and the amount of credit that may be extended to the borrower during the term of the loan plan (up to any limit set by the association) is generally made available to the extent that any outstanding principal balance is repaid.
(5) "Partially amortized loan" means a loan in which some but not all of the principal balance, together with accrued interest, shall be payable prior to the maturity of the loan.
(6) "Reverse annuity mortgage" means an instrument which provides for periodic payments to be made to a homeowner based on accumulated equity. The payments are made monthly directly by the association, or are made through the purchase of an annuity from an insurance company. The loan becomes due on a specified date after disbursement of the entire principal amount of the loan or when a specified event occurs, such as sale of the property or death of the borrower. The interest rate on this instrument may be fixed, or may be adjusted periodically as provided by this section.
(b) Adjustments to the interest rate, payment, balance, or term-to-maturity on home loans shall be subject to the limitations of this subdivision.
(1) The loan term shall not exceed 40 years, with interest payable at least semiannually, except as expressly authorized by this section.
(2) The loan balance for other than nonamortized and open end line of credit loans shall be repayable in at least semiannual installments; provided, that loans on the security of farm residences and combinations of farm residences and commercial farm real property may be repayable in annual installments.
(3) The loan may be fully amortized, partially amortized, nonamortized, a reverse annuity mortgage, or an open end line of credit loan. The loan contract may provide for the deferral of principal and capitalization of a portion of interest, or of all interest, in the case of loans to natural persons secured by borrower-occupied real property and on which periodic advances are being made.
(4) (A) At origination, the loan-to-value ratio may not exceed the maximum permitted by Section 7509, as determined by the association' s board of directors (but not more than 100 percent). During the term of the loan, the loan-to-value ratio may increase above the maximum percentage otherwise permissible if the increase results from an adjustment described in paragraph (3) or (5). The commissioner shall assume continued compliance with applicable loan-to-value limitations where the original loan-to-value ratio met the requirements of this paragraph, but in no event may the loan balance exceed 125 percent of the original appraised value of the security property during the term of the loan unless pursuant to clause (i) of subparagraph (B) of paragraph (5) of subdivision (b) or unless the loan contract provides that the payment shall be adjusted at least once every five years, beginning no later than the 10th year of the loan, to a level sufficient to amortize the loan at the then existing interest rate and loan balance over the remaining term of the loan. However, this 125 percent limitation shall not apply to the portion of a loan balance that is interest received in the form of a percentage of the appreciation in value of the security property.
(B) If, at maturity of a loan secured by a home that provides for adjustments pursuant to paragraph (3) or (5), the ratio of the loan balance to the current market value of the security property exceeds the maximum permissible amount under Section 7509, the association may offer to refinance the loan if (i) the refinanced loan complies with subdivision (b) of Section 7509 and (ii) the loan contract for the refinanced loan requires that, in addition to full or partial amortization of the loan, the pro rata portion, based on the number of installments due annually, of estimated annual taxes and assessments on the security property be paid in advance to the association with each installment payment.
(5) For any home loan secured by borrower-occupied property or property to be occupied by the borrower, adjustments to the interest rate, payment, balance, or term-to-maturity shall comply with the limitations of this paragraph.
(A) Adjustments to the interest rate shall correspond directly to the movement of an interest rate index or of a national or regional index that measures the rate of inflation or the rate of change in consumer disposable income, which index is readily available to, and verifiable by, the borrower and is beyond the direct control of the association. An association also may increase the interest rate pursuant to a formula or schedule that specifies the amount of the increase and the time at which it may be made and which is set forth in the loan contract. An association, in its sole discretion, may decrease the interest rate at any time.
(B) Adjustments to the payment and the loan balance that do not reflect an interest rate adjustment may be made if: (i) the adjustments reflect a change in a national or regional index that measures the rate of inflation or the rate of change in consumer disposable income, is readily available to and verifiable by the borrower, and is beyond the direct control of the association; (ii) in the case of a payment adjustment, the adjustment reflects a change in the loan balance or is made pursuant to a formula, or to a schedule specifying the percentage or dollar change in the payment as set forth in the loan contract; or (iii) in the case of an open end line of credit loan, the adjustment reflects an advance taken by the borrower under the line of credit, or a payment made by the borrower, that is permitted by the loan contract.
(C) Any combination of indices or a moving average of index values may be used as an index, and an association (i) may use more than one index during the term of a loan, if set forth in the loan contract and (ii) may provide for the selection of a substitute index by the association in the event the index being used is no longer available to or verifiable by the borrower or as otherwise provided in the loan contract.
(D) The loan term may be adjusted only to reflect a change in the interest rate, the payment or the loan balance. A loan contract may provide an association with the right to call the loan due and payable either after a specified period of time has elapsed following the date of the loan contract or as specified in a reverse annuity mortgage.
(6) For any home loan secured by borrower-occupied property and on which the interest rate may be adjusted pursuant to paragraph (5), an association may not impose a prepayment charge on any prepayment made within 90 days of a required notice of an interest-rate increase with respect to the loan.
(c) Disclosure and notices for loans made pursuant to this section shall comply with the regulations codified in Section 563.99 of Title 12 of the Code of Federal Regulations.
(a) For the purposes of this section:
(1) "Fully amortized loan" means a loan in which, at inception of the loan, the entire principal balance, together with accrued interest, shall be payable with the scheduled term of the loan in substantially equal installments (excepting the last payment, which may be smaller than a regular scheduled payment).
(2) "Home loans" means loans made on the security of one- to four-unit residential dwellings (including condominiums and cooperatives), combinations of these dwellings and business property (where no more than 20 percent of the total appraised value of the real estate is attributable to the business use), farm residences and combinations of farm residences and commercial farm real property.
(3) "Nonamortized loan" means a loan in which none of the principal balance shall be payable prior to the maturity of the loan.
(4) "Open end line of credit" means a loan plan in which the association reasonably contemplates repeated transactions; the association may impose interest from time to time on the unpaid principal of the loan plan, and the amount of credit that may be extended to the borrower during the term of the loan plan (up to any limit set by the association) is generally made available to the extent that any outstanding principal balance is repaid.
(5) "Partially amortized loan" means a loan in which some but not all of the principal balance, together with accrued interest, shall be payable prior to the maturity of the loan.
(6) "Reverse annuity mortgage" means an instrument which provides for periodic payments to be made to a homeowner based on accumulated equity. The payments are made monthly directly by the association, or are made through the purchase of an annuity from an insurance company. The loan becomes due on a specified date after disbursement of the entire principal amount of the loan or when a specified event occurs, such as sale of the property or death of the borrower. The interest rate on this instrument may be fixed, or may be adjusted periodically as provided by this section.
(b) Adjustments to the interest rate, payment, balance, or term-to-maturity on home loans shall be subject to the limitations of this subdivision.
(1) The loan term shall not exceed 40 years, with interest payable at least semiannually, except as expressly authorized by this section.
(2) The loan balance for other than nonamortized and open end line of credit loans shall be repayable in at least semiannual installments; provided, that loans on the security of farm residences and combinations of farm residences and commercial farm real property may be repayable in annual installments.
(3) The loan may be fully amortized, partially amortized, nonamortized, a reverse annuity mortgage, or an open end line of credit loan. The loan contract may provide for the deferral of principal and capitalization of a portion of interest, or of all interest, in the case of loans to natural persons secured by borrower-occupied real property and on which periodic advances are being made.
(4) (A) At origination, the loan-to-value ratio may not exceed the maximum permitted by Section 7509, as determined by the association' s board of directors (but not more than 100 percent). During the term of the loan, the loan-to-value ratio may increase above the maximum percentage otherwise permissible if the increase results from an adjustment described in paragraph (3) or (5). The commissioner shall assume continued compliance with applicable loan-to-value limitations where the original loan-to-value ratio met the requirements of this paragraph, but in no event may the loan balance exceed 125 percent of the original appraised value of the security property during the term of the loan unless pursuant to clause (i) of subparagraph (B) of paragraph (5) of subdivision (b) or unless the loan contract provides that the payment shall be adjusted at least once every five years, beginning no later than the 10th year of the loan, to a level sufficient to amortize the loan at the then existing interest rate and loan balance over the remaining term of the loan. However, this 125 percent limitation shall not apply to the portion of a loan balance that is interest received in the form of a percentage of the appreciation in value of the security property.
(B) If, at maturity of a loan secured by a home that provides for adjustments pursuant to paragraph (3) or (5), the ratio of the loan balance to the current market value of the security property exceeds the maximum permissible amount under Section 7509, the association may offer to refinance the loan if (i) the refinanced loan complies with subdivision (b) of Section 7509 and (ii) the loan contract for the refinanced loan requires that, in addition to full or partial amortization of the loan, the pro rata portion, based on the number of installments due annually, of estimated annual taxes and assessments on the security property be paid in advance to the association with each installment payment.
(5) For any home loan secured by borrower-occupied property or property to be occupied by the borrower, adjustments to the interest rate, payment, balance, or term-to-maturity shall comply with the limitations of this paragraph.
(A) Adjustments to the interest rate shall correspond directly to the movement of an interest rate index or of a national or regional index that measures the rate of inflation or the rate of change in consumer disposable income, which index is readily available to, and verifiable by, the borrower and is beyond the direct control of the association. An association also may increase the interest rate pursuant to a formula or schedule that specifies the amount of the increase and the time at which it may be made and which is set forth in the loan contract. An association, in its sole discretion, may decrease the interest rate at any time.
(B) Adjustments to the payment and the loan balance that do not reflect an interest rate adjustment may be made if: (i) the adjustments reflect a change in a national or regional index that measures the rate of inflation or the rate of change in consumer disposable income, is readily available to and verifiable by the borrower, and is beyond the direct control of the association; (ii) in the case of a payment adjustment, the adjustment reflects a change in the loan balance or is made pursuant to a formula, or to a schedule specifying the percentage or dollar change in the payment as set forth in the loan contract; or (iii) in the case of an open end line of credit loan, the adjustment reflects an advance taken by the borrower under the line of credit, or a payment made by the borrower, that is permitted by the loan contract.
(C) Any combination of indices or a moving average of index values may be used as an index, and an association (i) may use more than one index during the term of a loan, if set forth in the loan contract and (ii) may provide for the selection of a substitute index by the association in the event the index being used is no longer available to or verifiable by the borrower or as otherwise provided in the loan contract.
(D) The loan term may be adjusted only to reflect a change in the interest rate, the payment or the loan balance. A loan contract may provide an association with the right to call the loan due and payable either after a specified period of time has elapsed following the date of the loan contract or as specified in a reverse annuity mortgage.
(6) For any home loan secured by borrower-occupied property and on which the interest rate may be adjusted pursuant to paragraph (5), an association may not impose a prepayment charge on any prepayment made within 90 days of a required notice of an interest-rate increase with respect to the loan.
(c) Disclosure and notices for loans made pursuant to this section shall comply with the regulations codified in Section 563.99 of Title 12 of the Code of Federal Regulations.
(a) Notwithstanding any other provision of law, an
association may originate, invest in, sell, purchase, service,
participate, or otherwise deal in loans (including construction
loans) on the security of real property for primarily residential
(other than a one- to four-unit dwelling) or nonresidential use,
subject to the limitations of this article.
(b) An association's aggregate investment in real property loans for primarily nonresidential use under this section shall not exceed 40 percent of assets.
(b) An association's aggregate investment in real property loans for primarily nonresidential use under this section shall not exceed 40 percent of assets.
(a) A savings association may make loans the principal
purpose of which is to provide financing with respect to what is, or
what is to become, primarily residential real estate, for which the
association relies substantially on the borrower's general credit
standing and projected future income for repayment, without other
security, or relies on other assurances for repayment, including
guarantees or other obligations of third parties.
(b) An association's aggregate investment in residential real estate loans described in subdivision (a) shall not exceed an amount equal to 5 percent of the association's assets.
(b) An association's aggregate investment in residential real estate loans described in subdivision (a) shall not exceed an amount equal to 5 percent of the association's assets.
Notwithstanding any other provision of the law, an
association may make a loan secured by an assignment of a loan or
loans to the extent that it could, under applicable law and
regulations, make or purchase the underlying assigned loan or loans.
(a) An association may make loans or advances of credit, or
invest in interests therein, on the security of real property, which
loans, advances of credit, or investments are not otherwise
authorized under the law because of the following reasons:
(1) The loan-to-value ratio, stated maturity, or loan amount is in excess of the maximum allowable limits.
(2) Lack of any required borrower certification or required private mortgage insurance.
(3) The loan would cause an applicable percentage-of-assets category to be exceeded.
(4) A combination of the foregoing factors.
(b) Investments made under the authority of this section are subject to the following restrictions:
(1) No association shall have investments under this section aggregating at any one time more than 5 percent of its total assets.
(2) Each investment made under this section shall be fully documented to support the conclusion that it was made on a prudent basis.
(3) Loans made pursuant to this section shall comply with subparagraph (D) of paragraph (5), and paragraph (6), of subdivision (b), of Section 7504, where applicable.
(1) The loan-to-value ratio, stated maturity, or loan amount is in excess of the maximum allowable limits.
(2) Lack of any required borrower certification or required private mortgage insurance.
(3) The loan would cause an applicable percentage-of-assets category to be exceeded.
(4) A combination of the foregoing factors.
(b) Investments made under the authority of this section are subject to the following restrictions:
(1) No association shall have investments under this section aggregating at any one time more than 5 percent of its total assets.
(2) Each investment made under this section shall be fully documented to support the conclusion that it was made on a prudent basis.
(3) Loans made pursuant to this section shall comply with subparagraph (D) of paragraph (5), and paragraph (6), of subdivision (b), of Section 7504, where applicable.
(a) (1) At the time of origination, a real estate loan may
not exceed 100 percent of the market value of security property. An
association shall, by vote of its board of directors, establish
maximum loan-to-value ratios for loans made on the security of real
estate, and the resolution adopting those ratios shall be included in
the minutes of the directors' meeting. Home loans, as defined in
Section 7504, made on the combined security of real estate and
savings accounts may be made in excess of the maximum loan-to-value
ratios adopted pursuant to this subdivision with the excess secured
by the savings account.
(2) However, for loans originated in excess of 90 percent of the initial appraised value of the security property, the savings account shall consist only of funds belonging to the borrower, the borrower' s family, or the borrower's employer, and the loans shall not exceed the appraised value of the real estate.
(b) With respect to home loans originated or refinanced in excess of 90 percent of the appraised value of the security property, that part of the unpaid balance that exceeds 80 percent of the property value shall be insured or guaranteed by a mortgage insurance company that the Federal Home Loan Mortgage Corporation has determined to be a "qualified private insurer."
(c) With respect to all other loans on the security of real estate originated in excess of 90 percent of the appraised value of the security property, an association's board of directors shall approve each of these loans prior to its origination and that approval shall be recorded in the minutes of its meeting.
(d) An association shall not make a loan secured by unimproved real property if the loan-to-value ratio would exceed 80 percent of the appraised value of the unimproved real property securing the loan.
(e) In determining compliance with maximum loan-to-value-ratio limitations for real estate loans, at the time of making a loan, an association shall add together the unpaid amount, or in the case of a line-of-credit loan, the approved credit limit, of all recorded loans secured by prior mortgages, liens, or other encumbrances on the security property that would have priority over the association's lien, and shall not make the loan unless the total amount of those loans, including the loan to be made but excluding loans that will be paid off out of the proceeds of the new loan, does not exceed the applicable maximum loan-to-value-ratio limitations prescribed in this subdivision. In determining the value of the real estate security, an association shall use the current appraised value of the security property, which may include any expected value of improvements to be financed.
(f) "Value" for a real estate loan means the market value of the real estate.
(2) However, for loans originated in excess of 90 percent of the initial appraised value of the security property, the savings account shall consist only of funds belonging to the borrower, the borrower' s family, or the borrower's employer, and the loans shall not exceed the appraised value of the real estate.
(b) With respect to home loans originated or refinanced in excess of 90 percent of the appraised value of the security property, that part of the unpaid balance that exceeds 80 percent of the property value shall be insured or guaranteed by a mortgage insurance company that the Federal Home Loan Mortgage Corporation has determined to be a "qualified private insurer."
(c) With respect to all other loans on the security of real estate originated in excess of 90 percent of the appraised value of the security property, an association's board of directors shall approve each of these loans prior to its origination and that approval shall be recorded in the minutes of its meeting.
(d) An association shall not make a loan secured by unimproved real property if the loan-to-value ratio would exceed 80 percent of the appraised value of the unimproved real property securing the loan.
(e) In determining compliance with maximum loan-to-value-ratio limitations for real estate loans, at the time of making a loan, an association shall add together the unpaid amount, or in the case of a line-of-credit loan, the approved credit limit, of all recorded loans secured by prior mortgages, liens, or other encumbrances on the security property that would have priority over the association's lien, and shall not make the loan unless the total amount of those loans, including the loan to be made but excluding loans that will be paid off out of the proceeds of the new loan, does not exceed the applicable maximum loan-to-value-ratio limitations prescribed in this subdivision. In determining the value of the real estate security, an association shall use the current appraised value of the security property, which may include any expected value of improvements to be financed.
(f) "Value" for a real estate loan means the market value of the real estate.
