|Next Info Memo||List of Info Memos|
|Subject:||Three Amendments to Regulation Z, Truth in Lending|
|Date of Memorandum:||01/27/2011|
|Signed By:||Coleman, Robert|
|FCA Contact Person:||Cohn, Jennifer|
|List of Attachments:||Regulation Z, Notice to Consumers; Loan Originator Compensation; Dec Closed-End Mortgage Disclosure; Sept Closed-End Mortgage Disclosure|
In addition, a link to the press release announcing the FRB’s adoption of the rule is provided here: Press Release on Compensation Practices
The press release provides additional information that may be of interest and also contains a link to a document setting forth highlights of the rule.
Interim Rule Revising Disclosure Requirements for Closed-End Mortgage Loans
The FRB adopted an interim rule (the “December interim rule”) clarifying certain aspects of a September 24, 2010 interim rule (the “September interim rule”) that revised the disclosure requirements for closed-end mortgage loans. The September interim rule implements provisions of the Mortgage Disclosure Improvement Act (MDIA), which amended the TILA to require mortgage lenders to disclose examples of how a loan’s interest rate or monthly payments can change. Those statutory amendments will become effective on January 30, 2011.
The MDIA seeks to alert borrowers to the risk of payment increases before they take out mortgage loans with variable rates or payments. Under the September interim rule, lenders’ cost disclosures must include a payment summary in the form of a table stating the initial rate and corresponding periodic payment and, for adjustable rate loans, the maximum rate and payment that can occur during the first five years as well as a “worst case” example showing the maximum rate and payment possible over the life of the loan.
The December interim rule clarifies that creditors’ disclosure should reflect the first rate adjustment for a “5/1 ARM” loan because the new rate typically becomes effective within 5 years after the first regular payment due date. The December interim rule also corrects the requirements for interest-only loans to clarify that creditors’ disclosures should show the earliest date the consumer’s interest rate can change rather than the due date for making the first payment under the new rate. The rule also clarifies which mortgage transactions are covered by the special disclosure requirements for loans that allow minimum payments that cause the loan balance to increase.
The December interim rule is effective January 31, 2011. Creditors have the option of complying with either the September interim rule or the December interim rule until October 1, 2011, at which time compliance with the December interim rule will become mandatory. The FRB is soliciting comment before it considers adopting a final rule. See the copy of the rule, published at 75 FR 81836, which is attached and titled Dec Closed-End Mortgage Disclosure. A copy of the rule, published at 75 FR 58470, is attached and titled Sept Closed-End Mortgage Disclosure.
In addition, a link to the press release announcing the FRB’s adoption of the September interim rule, which provides additional information that may be of interest, is provided here: Press Release on Closed-End Mortgage Disclosure
If you have any questions about this Informational Memorandum, please contact Jennifer A. Cohn, Senior Counsel, Office of General Counsel, at (703) 883-4028, or by e-mail at email@example.com; and/or David Stephens, Office of Examination, at (703) 883-4412, or by e-mail at firstname.lastname@example.org.