Variable rate contracts. 138.055(1)
Required contract provisions.
No contract between a borrower and a lender secured by a first lien real estate mortgage on, or an equivalent security interest in, an owner-occupied residential property containing not more than 4 dwelling units may contain a variable interest rate clause unless the contract provides that:
When an increase in the interest rate is permitted by a movement upward of a prescribed index, a decrease in the interest rate is also required by a downward movement of the prescribed index subject to pars. (b)
The rate of interest shall not change more than once during any 6-month period;
Any singular change in the interest rate shall not exceed the rate of $1 per $200 for one year computed upon the declining principal balance and the total variance in such rate shall at no time exceed a rate equal to $2.50 per $100 for one year computed on the declining principal balance greater or lesser than the rate originally in effect;
Decreases required by the downward movement of the prescribed index shall be mandatory. Increases permitted by the upward movement of the prescribed index shall be optional with the lender. Changes in the interest rate shall only be made when the prescribed index changes a minimum of one-tenth of one percent;
The fact that a lender may not have invoked an increase, in whole or in part, shall not be deemed a waiver of the lender's right to invoke an increase at any time thereafter within the limits imposed by this section;
The rate shall not change during the first semiannual period of the loan; and
The borrower may prepay the loan in whole or in part within 90 days of notification of any increase in the rate of interest without a prepayment charge.
(2) Disclosures required.
No lender may make a loan secured by a first lien real estate mortgage on, or an equivalent security interest in, an owner-occupied residential property containing not more than 4 dwelling units containing a variable interest rate provision unless it has clearly and conspicuously disclosed to the borrower in writing prior to execution of the loan documents:
That the loan contract contains a variable interest rate;
The index used in applying any variable interest rate changes contemplated in the note and its current base; and
Any prepayment rights of the borrower upon receiving notice of any such change.
(3) Notice of interest adjustment.
When a change in the interest rate is required or permitted by a movement in the prescribed index, the lender shall give notice to the borrower by mail, addressed to the borrower's last-known post-office address, not less than 30 days prior to any change in interest rate, which notice shall clearly and concisely disclose:
The effective date of the interest rate change;
The interest rate change, and if an increase, the extent to which the increased rate will exceed the rate in effect immediately before the increase;
The changes in the index which caused the interest rate change;
The amount of the borrower's contractual monthly principal and interest payments before and after the effective date of the change in the interest rate;
Whether as a result of an increase in the interest rate a lump sum payment may be necessary at the end of the loan term; and
The borrower's right to prepay the loan within 90 days after said notice without a prepayment charge if the notice required an increase in interest rate.
In determining any variable interest rate changes permitted under this section, a lender shall use either the index published by the federal home loan bank of Chicago based on the cost of all funds to Wisconsin member institutions or an index approved by:
The office of credit unions, if the lender is a credit union;
The commissioner of insurance, if the lender is an insurance company; or
This section does not apply to loans or forbearances to corporations or limited liability companies.
This section applies only to transactions initially entered into on or after June 12, 1976 and before November 1, 1981.
Variable rate mortgages: The transition phase. 61 MLR 140.
Variable rate loans. 138.056(1)(a)1.
The national average mortgage contract rate for major lenders on the purchase of previously occupied homes, as computed by the federal home loan bank board.
The monthly average of weekly auction rates on U.S. treasury bills with a maturity of 3 months or 6 months made available by the federal reserve board.
The monthly average yield on U.S. treasury securities adjusted to a constant maturity of 1, 2, 3 or 5 years, made available by the federal reserve board.
An index readily verifiable by borrowers and beyond the control of an individual lender and approved by:
The commissioner of insurance, if the lender is an insurance company; or
"Dwelling" includes a cooperative housing unit and a mobile home or manufactured home.
"Manufactured home transaction" means a consumer credit sale, as defined in s. 421.301 (9)
, of or a consumer loan, as defined in s. 421.301 (12)
, secured by a first lien or equivalent security interest in a mobile home or manufactured home.
"Variable rate loan" means a manufactured home transaction or a loan as defined in s. 138.052 (1) (b)
, the terms of which permits the interest rate to be increased or decreased.
(2) Required terms.
A variable rate loan contract shall:
Use an approved index if it provides for adjustments to the interest rate corresponding to an index. The initial index value shall be the most recently available value of the index prior to the date of closing of the loan. The interest rate at adjustment shall reflect the difference, in reference to the interest rate of the variable rate loan at the date of closing, between the initial index value and the index value most recently available as of the date notice of the interest rate adjustment is mailed under sub. (4)
except the lender may decrease the interest rate or decline to increase the interest rate at any time. The interest rate shall be decreased to reflect any downward movement of the index except to the extent the decrease offsets increases in the index not implemented as interest rate increases. An increase in the index permitting the lender to increase the interest rate but declined by the lender for any rate adjustment interval may be carried over and applied in succeeding interest rate adjustment intervals to the extent the increase is not offset by subsequent decreases in the index. The variable rate loan contract may provide for minimum interest rate change increments which shall apply to both increases and decreases. The variable rate loan contract may limit interest rate decreases only if interest rate increases are restricted at least to the same extent.
Provide for no more than a one percent increase in the interest rate not more than once each 6 months and permit decreases in the interest rate to be made at any time, if it does not provide for adjustments to the interest rate corresponding to an approved index. If an increase is waived, the lender may at any time increase the interest rate to a rate equal to the interest rate if all increases were made at the first opportunity.
(3) Fees prohibited.
No costs or fees may be charged in connection with adjustment to the interest rate of a variable rate loan or an adjustment to the payment, principal balance or term implementing an interest rate adjustment.
Notwithstanding s. 138.052 (2) (a)
, and except as provided in s. 428.207
, a lender may not include a prepayment penalty in a variable rate loan using an approved index unless all of the following are satisfied:
The lender also makes variable rate loans without prepayment penalties and the lender provides the borrower with a written statement that the lender also makes variable rate loans without prepayment penalties.
At the time of the offer of the variable rate loan, and the borrower acknowledges, in writing, receipt of the statement specified in subd. 1.
The penalty is limited to prepayment that is made within 3 years of the date of the loan.
The prepayment is not made in connection with the sale of a dwelling or manufactured home securing the loan.
This subsection applies to variable rate loans made, refinanced, renewed, extended, or modified on or after March 25, 2006.
(4) Notice of interest payment changes. 138.056(4)(a)(a)
If a change in the interest rate occurs, the lender shall give the borrower notice of the change:
At least 15 days before the change if an increase in periodic payments other than the final payment is required.
The notice shall be mailed to the borrower's last-known address and shall contain all of the following information:
The changes in any index which cause the interest rate change.
The amount of the contractual monthly principal and interest payments required as a result of the change.
This subsection does not apply to a loan secured by an equivalent security interest as determined as of the date that the loan is made.
(5) Negative amortization.
The principal balance of a variable rate loan may be increased to implement an interest rate adjustment only if within 10 years after the loan is made, and at least every 5 years thereafter, the payment amount is adjusted to a level at least sufficient to amortize the loan at the then existing interest rate and principal balance over the remaining term of the loan. The payment amount shall be maintained at least at that level until subsequently adjusted under this subsection, except that the payment amount shall be decreased to reflect any decrease in the interest rate.
Before making a variable rate loan, the lender shall disclose all of the following information to at least one of the borrowers:
That the loan contract contains a variable interest rate provision.
An identification of any approved index used in the loan contract and the current base of the approved index.
The borrower's prepayment rights on receiving notice of a change in the interest rate.
That a notice of any interest rate increase must be given to the borrower.
Any interest accrued or added to the principal of a variable rate loan to implement an interest rate adjustment retains the priority of the original mortgage or equivalent security interest.
This section does not apply to any of the following:
A loan or forbearance to a corporation or a limited liability company.
A loan that is primarily for a business purpose or for an agricultural purpose, as defined in s. 421.301 (4)
A transaction initially entered into before November 1, 1981.
Any lender who intentionally violates s. 138.053
is liable to the borrower for all excess interest collected, plus interest thereon at the rate of 5% per year. In addition, the borrower may recover actual damages, including incidental and consequential damages, sustained by reason of the violation.
History: 1975 c. 387
; 1977 c. 26
; 1981 c. 45
Reverse mortgage loans. 138.058(1)(a)
"Qualified lender" means a lender approved by the federal department of housing and urban development to enter into a loan insured by the federal government under 12 USC 1715z-20
"Reverse mortgage loan" means a loan, or an agreement to lend, which is secured by a first mortgage on the borrower's principal residence, is insured by the federal government under 12 USC 1715z-20
and requires repayment as specified in the loan agreement under any of the following conditions:
All the borrowers have sold the residence or conveyed title to the residence.