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FEDERAL RESERVE PROPOSES ADDITIONAL REVISIONS TO REGULATION Z MORTGAGE LOAN RULES

The Board of Governors of the Federal Reserve System has issued a proposed rule and request for public comment on additional changes to Regulation Z mortgage loan provisions. This proposal follows a July 2008 final rule under Regulation Z that generally requires creditors to give consumers transaction-specific cost disclosures shortly after application for closed-end loans secured by a consumer’s principal dwelling and before consumers pay any fee, other than a fee for obtaining a credit history. This latest proposal is intended to implement amendments to the Truth in Lending Act in the Mortgage Disclosure Improvement Act (MDIA) (part of the Housing and Economic Recovery Act), which was enacted in July 2008 and amended by the Emergency Economic Stabilization Act in October 2008. The MDIA broadens and adds to the requirements of the July 2008 final rule.

The proposed amendments to Regulation Z would require creditors to mail or deliver good faith estimates of the required mortgage disclosures no later than three business days after receiving an application for a dwelling-secured closed-end loan and at least seven business days before consummation. If a change occurs that makes the APR in the early disclosures inaccurate beyond a specified tolerance, creditors would be required to provide new disclosures with a revised APR and wait an additional three days before closing the loan. Consumers could expedite consummation to meet a bona fide personal financial emergency, such as a foreclosure.

The proposed rules would become effective on July 30, 2009. At this time, the Board is proposing only to conform Regulation Z, as amended on July 30, 2008, to the MDIA provisions that become effective on July 30, 2009. The MDIA also contains additional disclosure requirements for variable-rate transactions effective on January 30, 2011 that are not addressed in the proposed rulemaking. Instead, the Board anticipates issuing proposed amendments to Regulation Z to implement those provisions of the MDIA during 2009, in connection with the Board’s comprehensive review of closed-end mortgage disclosures that is currently underway.

The Board solicits comment on all aspects of the proposal, including, but not limited to:

  1. Whether the more precise of two definitions of business day should be used to facilitate compliance with the seven-business-day waiting period requirement;
  2. Whether modification or waiver of timing requirements for early disclosures should be permitted only if the consumer’s bona fide personal financial emergency must be met before the end of the required waiting period;
  3. Whether there are circumstances, other than pending foreclosure, where the consumer may want to consummate the transaction before the end of (i) the seven-business-day waiting period after early disclosures are made, (ii) the three-business-day waiting period, if the creditor is required to make corrected disclosures, or (iii) either period;
  4. The requirement that the early disclosures contain a clear and conspicuous notice containing the following statement: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application,” including any benefits to consumers or burdens to creditors that may result from the proposed requirement, and whether the statement should be provided in substantially similar form using terms that are easier for consumers to understand; and
  5. Whether transaction-specific disclosures (such as the APR, an itemization of fees and potential payment amounts) should be required after application, but significantly earlier than account opening, at least in some circumstances, and whether potential costs would outweigh potential benefits.

Comments must be received by January 23, 2009.

Judy Scheiderer