Annual Survey of Consumer Financial Services Law: Adjustable Rate Credit

Consumer lenders are turning to variable rate loans to cope with a fluctuating money market. The federal mortgage loan regulatory agencies have adopted regulations dealing with the variable rate mortgage, all purporting to preempt state laws. All these sets of regulations prohibit prepayment penalties, are silent as to the permissibility of ''due-on-sale'' clauses, and permit negative amortization. The regulations adopted by the Office of the Comptroller of the Currency are the most stringent, and those adopted by the National Credit Union Administration are the most flexible. However, the announcement by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association that they will purchase only specified types of variable mortgage plans may render the variations allowed by the regulations moot. Some states have specifically approved variable rate loans, acting either through statute or regulation, but others have remained silent, allowing such loans to be made as long as they do not conflict with existing regulations. Courts have allowed wide variations in the index, but usury problems have frequently arisen. Additional litigation seems likely.