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rate loan, under guidelines that the department or agency shall establish for loans they make, guarantee, or issue. Regulations. ‘‘(E) The refinancing is subject to a payment schedule that will fully amortize the refinancing in accordance with the regulations prescribed by the department or agency making, guaranteeing, or insuring the refinancing. ‘‘(F) The terms of the refinancing do not result in a balloon payment, as defined in subsection (b)(2)(A)(ii). ‘‘(G) Both the residential mortgage loan being refinanced and the refinancing satisfy all requirements of the department or agency making, guaranteeing, or insuring the refinancing. ‘‘(6) NONSTANDARD LOANS.— ‘‘(A) VARIABLE RATE LOANS THAT DEFER REPAYMENT OF ANY PRINCIPAL OR INTEREST.—For purposes of deter- mining, under this subsection, a consumer’s ability to repay a variable rate residential mortgage loan that allows or requires the consumer to defer the repayment of any prin- cipal or interest, the creditor shall use a fully amortizing repayment schedule. ‘‘(B) INTEREST-ONLY LOANS.—For purposes of deter- mining, under this subsection, a consumer’s ability to repay a residential mortgage loan that permits or requires the payment of interest only, the creditor shall use the payment amount required to amortize the loan by its final maturity. ‘‘(C) CALCULATION FOR NEGATIVE AMORTIZATION.—In making any determination under this subsection, a creditor shall also take into consideration any balance increase that may accrue from any negative amortization provision. ‘‘(D) CALCULATION PROCESS.—For purposes of making any determination under this subsection, a creditor shall calculate the monthly payment amount for principal and interest on any residential mortgage loan by assuming— ‘‘(i) the loan proceeds are fully disbursed on the date of the consummation of the loan; ‘‘(ii) the loan is to be repaid in substantially equal monthly amortizing payments for principal and interest over the entire term of the loan with no balloon payment, unless the loan contract requires more rapid repayment (including balloon payment), in which case the calculation shall be made (I) in accordance with regulations prescribed by the Board, with respect to any loan which has an annual percentage rate that does not exceed the average prime offer rate for a comparable transaction, as of the date the interest rate is set, by 1.5 or more percentage points for a first lien residential mortgage loan; and by 3.5 or more percentage points for a subordinate lien residential mortgage loan; or (II) using the contract’s repayment schedule, with respect to a loan which has an annual percentage rate, as of the date the interest rate is set, that is at least 1.5 percentage points above the average prime offer rate for a first lien residential LAWS mortgage loan; and 3.5 percentage points above the average prime offer rate for a subordinate lien residen- tial mortgage loan; andPUBLIC with on anorris VerDate Nov 24 2008 22:28 Sep 03, 2010 Jkt 089139 PO 00203 Frm 00770 Fmt 6580 Sfmt 6581 E:\PUBLAW\PUBL203.111 PUBL203