BOARD ISSUES INTERIM RULE CLARIFYING REGULATION Z MORTGAGE DISCLOSURE RULES
The Federal Reserve Board has issued an interim rule amending Regulation Z, which implements the Truth in Lending Act (TILA), to clarify parts of a previous interim rule implementing the Mortgage Disclosure Improvement Act of 2008 (MDIA).
The MDIA amended TILA to require provision of transaction-specific TILA disclosures in accordance with certain timing requirements (e.g., within three business days after an application for a closed-end mortgage loan is received and at least seven business days before consummation). The Board implemented these MDIA requirements in final rules published May 19, 2009, which became effective July 30, 2009. See Alert dated May 15, 2009.
The MDIA also requires disclosure of payment examples if the loan’s interest rate or payments can change, along with a statement that there is no guarantee the consumer will be able to refinance the transaction in the future. These provisions of the MDIA will become effective on January 30, 2011. The Board published an interim rule to implement these requirements on September 24, 2010.
This latest interim rule amends the September 2010 interim rule in response to public comments. Specifically, this latest rule, among other things:
- Clarifies that the disclosures for adjustable-rate transactions that are “5/1 ARM” loans must include the first rate adjustment;
- Clarifies that disclosure of estimated escrow payments applies when an escrow account is established, whether or not required, and should reflect changes in mortgage insurance premiums known at the time of disclosure;
- Changes the requirements for interest-only loans to provide that the disclosures should reflect the earliest date each interest rate will apply rather than the date the first payment is due under each rate;
- Revises the definition of “negative amortization loans” to clarify that the special disclosure requirements for such loans apply only to loans providing for a minimum periodic payment that causes negative amortization; and
- Clarifies that appropriate use of the summary tables for home construction loans secured by real property or a dwelling that may be permanently financed by the same creditor will depend upon whether the creditor discloses the financing as one or two transactions.
The interim rule is effective January 30, 2011. Creditors have the option of complying with either the Board’s September 2010 interim rule as originally published or as revised by this interim rule until October 1, 2011, at which time compliance with this interim rule will become mandatory.
The Board invites comments on the rule by February 28, 2011.
- Judy Scheiderer