The following are prohibited acts and limitations for covered loans: (a) (1) A covered loan shall not include a prepayment fee or penalty after the first 36 months after the date of consummation of the loan. (2) A covered loan may include a prepayment fee or penalty up to the first 36 months after the date of consummation of the loan if: (A) The person who originates the covered loan has also offered the consumer a choice of another product without a prepayment fee or penalty. (B) The person who originates the covered loan has disclosed in writing to the consumer at least three business days prior to loan consummation the terms of the prepayment fee or penalty to the consumer for accepting a covered loan with the prepayment penalty and the rates, points, and fees that would be available to the consumer for accepting a covered loan without a prepayment penalty. (C) The person who originates the covered loan has limited the amount of the prepayment fee or penalty to an amount not to exceed the payment of six monthsâ advance interest, at the contract rate of interest then in effect, on the amount prepaid in any 12-month period in excess of 20 percent of the original principal amount. (D) A covered loan will not impose the prepayment fee or penalty if the covered loan is accelerated as a result of default. (E) The person who originates the covered loan will not finance a prepayment penalty through a new loan that is originated by the same person. (b) (1) A covered loan with a term of five years or less may not provide at origination for a payment schedule with regular periodic payments that when aggregated do not fully amortize the principal balance as of the maturity date of the loan. (2) For a payment schedule that is adjusted to account for the seasonal or irregular income of the consumer, the total installments in any year shall not exceed the amount of one yearâs worth of payments on the loan. This prohibition does not apply to a bridge loan. For purposes of this paragraph, âbridge loanâ means a loan with a maturity of less than 18 months that only requires payments of interest until the time when the entire unpaid balance is due and payable. (c) A covered loan shall not contain a provision for negative amortization such that the payment schedule for regular monthly payments causes the principal balance to increase, unless the covered loan is a first mortgage and the person who originates the loan discloses to the consumer that the loan contains a negative amortization provision that may add principal to the balance of the loan. (d) A covered loan shall not include terms under which periodic payments required under the loan are consolidated and paid in advance from the loan proceeds. (e) A covered loan shall not contain a provision that increases the interest rate as a result of a default. This provision does not apply to interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan documents, provided the change in the interest rate is not triggered by the event of default or the acceleration for the indebtedness. (f) (1) A person who originates covered loans shall not make or arrange a covered loan unless at the time the loan is consummated, the person reasonably believes the consumer, or consumers, when considered collectively in the case of multiple consumers, will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources, other than the consumerâs equity in the dwelling that secures repayment of the loan. In the case of a covered loan that is structured to increase to a specific designated rate, stated as a number or formula, at a specific predetermined date not exceeding 37 months from the date of application, this evaluation shall be based upon the fully indexed rate of the loan calculated at the time of application. The consumer shall
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