---
kind: "section"
citation: "12 C.F.R. § 1004.4"
title: "12"
number: "1004.4"
heading: "Requirements for alternative mortgage transactions."
url: "https://uscodex.org/cfr/12/1004.4"
---

# §1004.4. Requirements for alternative mortgage transactions.

- (a) **Mortgages with adjustable rates or finance charges and home equity lines of credit.** A creditor that makes an alternative mortgage transaction with an adjustable rate or finance charge may only increase the interest rate or finance charge as follows:
  - (1) If the transaction is subject to [12 CFR 226.5b](/cfr/12/226.5b.md), the creditor must comply with [12 CFR 226.5b(f)(1)](/cfr/12/226.5b.md?p=f-1).
  - (2) For all other transactions, the creditor must use either:
    - (i) An index to which changes in the interest rate are tied that is readily available to and verifiable by the borrower and beyond the control of the creditor; or
    - (ii) A formula or schedule identifying the amount that the interest rate or finance charge may increase and the times at which, or circumstances under which, a change may be made.
- (b) **Renegotiable rates for renewable balloon-payment mortgages.** A creditor that makes an alternative mortgage transaction with payments based on an amortization period and a large final payment due after a shorter term may negotiate an increase or decrease in the interest rate when the transaction is renewed only if the creditor makes a written commitment to renew the transaction at specified intervals throughout the amortization period. However, the creditor is not required to renew the transaction if:
  - (1) Any action or inaction by the consumer materially and adversely affects the creditor's security for the transaction or any right of the creditor in such security;
  - (2) There is a material failure by the consumer to meet the repayment terms of the transaction;
  - (3) There is fraud or a willful or knowing material misrepresentation by the consumer in connection with the transaction; or
  - (4) Federal law dealing with credit extended by a depository institution to its executive officers specifically requires that as a condition of the extension the credit shall become due and payable on demand, provided that the creditor includes such a provision in the initial agreement.
- (c) **Requirements for high-cost and higher-priced mortgage loans.**
  - (1) If an alternative mortgage transaction is subject to [12 CFR 226.32](/cfr/12/226.32.md), the creditor must comply with 12 CFR [226.32](/cfr/12/226.32.md) and [12](/cfr/12/12.md) CFR 226.34.
  - (2) If an alternative mortgage transaction is subject to [12 CFR 226.35](/cfr/12/226.35.md), the creditor must comply with [12 CFR 226.35](/cfr/12/226.35.md).
- (d) **Other applicable law.** Notwithstanding [paragraphs (a) through (c)](#a..c) of this section, a housing creditor that is not making an alternative mortgage transaction pursuant to [§ 1004.3](/cfr/12/1004.3.md) of this part may make that transaction consistent with applicable State or Federal law other than this section.
- (e) **Reductions in interest rate or finance charge.** Nothing in this section prohibits a creditor from decreasing the interest rate or finance charge on an alternative mortgage transaction.

## Notes

### Authority

Authority: 12 U.S.C. 3802, 3803; 15 U.S.C. 1604, 1639b; Pub. L. No. 111-203, 124 Stat. 1376.

### Source

Source: 76 FR 44242, July 22, 2011, unless otherwise noted.