Attempts at Relief and Reform

Federal Reserve Steps Back on New Mortgage Disclosure Rules

Posted on Monday, February 7, 2011

The Federal Reserve said this week that it “does not expect” to finalize three pending rule changes under Regulation Z of the Truth in Lending Act (TILA) that would have mandated new consumer disclosure requirements for closed-end mortgage loans, home equity lines of credit (HELOCs), and reverse mortgages.
The Fed began crafting the new regulations surrounding mortgage disclosures more than a year ago, in response to claims that borrowers did not understand the terms of the loans they were signing on to, which fueled the unchecked lending practices that put so many homeowners into unsustainable mortgages during the boom years and resulted in unprecedented delinquency numbers in the aftermath.
General rulemaking authority for TILA and federal jurisdiction over consumer protections, however, is scheduled to transfer to the newly created Consumer Financial Protection Bureau (CFPB) in July. Fed officials cited this mandate as the reason for their decision to hold off on finalizing their proposed rule changes.
The Mortgage Bankers Association (MBA) issued a statement voicing its approval of the Federal Reserve’s decision.
“It is wholly appropriate for the Fed to halt these rulemakings,” said John A. Courson, MBA’s president and CEO. “We agree with the board’s analysis that completing these rulemakings, then having the CFPB do its own rulemaking shortly thereafter, would not be in the public’s
best interest. A series of unnecessarily duplicative rulemakings would have increased confusion, regulatory burden, and costs to the very consumers these rules should protect.”
The proposed rules were published as part of the Board’s comprehensive review of its mortgage lending regulations under TILA. The first phase of the review consisted of
The Fed had initially proposed two rule changes in August 2009, which would have reformed the consumer disclosures under TILA for closed-end mortgage loans and home equity lines of credit (Docket Nos. R-1366 and R-1367).
The third proposal was issued in September 2010 (Docket No. R-1390) and included changes to the disclosures consumers receive to explain their right to rescind certain loans and would have clarified the responsibilities of the creditor if a consumer exercises this rescission right.
The September 2010 proposal also included changes to the disclosures for reverse mortgages, proposed new disclosures for loan modifications, restrictions on certain advertising practices and sales practices for reverse mortgages, and changes to the disclosure obligations of loan servicers.
All of these pending regulation changes fell under the TILA umbrella and the Fed’s authority. Lenders must also comply with a second set of mortgage disclosure documents under the Real Estate Settlement Procedures Act (RESPA), which is overseen and enforced by HUD.
Authority over RESPA, however, will also transfer to the CFPB in July. The Dodd-Frank Reform Act requires that the CFPB issue a proposal within 18 months after the transfer date to combine, in a single form, the mortgage disclosures required by both TILA and RESPA.
“[A]ny new disclosures adopted by the [Fed] board would be subject to the CFPB’s further revision in carrying out its mandate to combine the TILA and RESPA disclosures,” the Federal Reserve acknowledged in its statement this week. “In addition, a combined TILA-RESPA disclosure rule could well be proposed by the CFPB before any new disclosure requirements issued by the board could be fully implemented.”
By: Carrie Bay, DS NEWS

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