Five Regulation Z Federal Register Notices Issued

August 23, 2010 — The Federal Reserve Board issued five Federal Register notices for rules related to Regulation Z, Mortgage Transactions.

Proposed Rule - Revise escrow account requirements for jumbo mortgages
This proposed rule revises the escrow account requirements for higher-priced, first-lien "jumbo" mortgage loans. It implements a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and would increase the annual percentage rate (APR) threshold used to determine whether a mortgage lender is required to establish an escrow account for property taxes and insurance for first-lien jumbo mortgage loans. Jumbo loans are loans exceeding the conforming loan-size limit for purchase by Freddie Mac, as specified by the legislation.

Final Rule - Protecting mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices
These final rules protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices. The new rules apply to mortgage brokers and the companies that employ them, as well as mortgage loan officers employed by depository institutions and other lenders. The final rule also prohibits a loan originator that receives compensation directly from the consumer from also receiving compensation from the lender or another party.

Proposed Rule - Enhanced consumer protections and disclosures for home mortgage transactions
The proposed rule includes significant changes to Regulation Z (Truth in Lending - TILA). The proposed rules would:

  • Improve the disclosures consumers receive for reverse mortgages and impose rules for reverse mortgage advertising to ensure advertisements contain accurate and balanced information;
  • Prohibit certain unfair practices in the sale of financial products with reverse mortgages;
  • Improve the disclosures that explain a consumer's right to rescind certain mortgage transactions and clarify the responsibilities of the creditor if a consumer exercises the right; and
  • Ensure that consumers receive new disclosures when the parties agree to modify the key terms of an existing closed-end mortgage loan.

Final Rules - Consumer notification of mortgage loan sales or transfers
This final rule implements a statutory amendment to TILA requiring that consumers receive notice when their mortgage loan has been sold or transferred. The new disclosure requirement became effective in May 2009, upon enactment of the Helping Families Save Their Homes Act. Under that act, a purchaser or assignee that acquires a mortgage loan must provide the required disclosures in writing within 30 days.

Interim Final Rule - Revising disclosure requirements for closed-end mortgages
The interim rule implements provisions of the Mortgage Disclosure Improvement Act (MDIA) that require lenders to disclose how borrowers' regular mortgage payments can change over time. Under the interim rule, lenders' cost disclosures must include a payment summary in the form of a table, stating the following:

  • The initial interest rate together with the corresponding monthly payment;
  • For adjustable-rate or step-rate loans, the maximum interest rate and payment that can occur during the first five years and a "worst case" example showing the maximum rate and payment possible over the life of the loan; and
  • The fact that consumers might not be able to avoid increased payments by refinancing their loans.

To view more information, follow this link to the Press Releases page of the Federal Reserve Board website. All of the above notices were released on August 16, 2010.