Attempts at Relief and Reform

New From Federal Reserve

Posted on Monday, October 4, 2010


Federal Reserve Board Publishes Proposed Rule under TILA to Enhance Consumer Disclosures
On September 24, 2010, the Federal Reserve Board (the Fed) published a proposed rule under the Truth in Lending Act (TILA) designed to enhance consumer protections and disclosures. The deadline for comments is December 23, 2010.

The changes would improve consumer disclosures for reverse mortgages, establish rules for reverse mortgage advertising, and prohibit specified unfair practices in the sale of financial products with reverse mortgages.

For all mortgages, the rule would improve disclosures related to a consumer's right to rescind certain mortgages transactions and clarify the creditor's responsibilities if the consumer rescinds. It would also ensure that consumers receive new disclosures when the parties agree to modify key terms of an existing mortgage. In addition, consumers would have time to review loan cost disclosures before they are obligated for fees, by requiring lenders to refund fees if a consumer decides to withdraw the application within 3 days of receiving disclosures. The proposed rule would make a number of additional changes.

Federal Reserve Board Publishes Proposed Rule on Escrow Requirements for Higher-Priced Jumbo Loans
On September 24, 2010, the Federal Reserve Board (the Fed) published a proposed rule to revise the escrow account requirements for higher-priced, first-lien "jumbo" mortgage loans. The rule implements a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act that increases the annual percentage rate (APR) threshold used to determine whether a lender must establish an escrow account for property taxes and insurance for first-lien jumbo mortgages. Jumbo loans are those with a principal amount that exceeds the limit for purchase by Freddie Mac ($417,000 or up to $729,750 for high cost areas). Dodd-Frank applies the escrow requirement only if the loan's APR is 2.5 percentage points or more above the prime offer rate. The current trigger is 1.5 percentage points. The deadline for comments is October 25, 2010.

Fed Press Release >
Final Rule >

Federal Reserve Board Requires Notice to Homeowners When Mortgages Are Sold
On September 24, 2010, the Federal Reserve Board (the Fed) published a final rule in the Federal Register to confirm a change to the Truth in Lending Act (TILA) that requires that consumers be notified within 30 days after the date their mortgage loans are sold or transferred. There are several exceptions. This notice requirement has been in effect since May 20, 2009, and this final rule and an earlier interim rule provide additional clarity. The Real Estate Settlement Procedures Act (RESPA) has a parallel requirement for notice to a consumer when the servicer of the mortgage has changed.

Fed Press Release >
Final Rule >

Federal Reserve Board Issues Final Rule to Limit Loan Originator Compensation
On September 24, 2010, the Federal Reserve Board (the Fed) published a final rule in the Federal Register to protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices. The rule prohibits mortgage brokers and loan officers (loan originators) from being paid more if the borrower accepts an interest rate higher than the lender requires (commonly referred to as a "yield spread premium"). Loan originators may continue to receive compensation based on a percentage of the loan amount. Loan originators that receive compensation directly from a consumer may not also receive compensation from another party. The rule also prohibits loan originators from steering a consumer to accept a loan that is not in the consumer's interest to increase the originator's compensation. The final rule takes effect April 1, 2011.

Fed Press Release >
Final Rule >

Federal Reserve Board Issues Interim Rule Requiring Disclosures of How Mortgage Payments May Change
On September 24, 2010, the Federal Reserve Board (the Fed) published an interim rule in the Federal Register to implement provisions of the Mortgage Disclosure Improvement Act (MDIA) that require lenders to disclose how borrowers' mortgage payments can change over time. So consumers will understand risks of payment increases before they decide on a mortgage, the rule requires lenders to include a summary in the form of a table with (1) the initial interest rate and monthly payment, (2) for adjustable rate loans, the maximum rate and payment during the first 5 years and a "worst case" example over the life of the loan, and (3) the fact that consumers may not be able to refinance their loans to avoid higher payments. The rule requires disclosure of other risky features, such as balloon payments and negative amortization loans. The final rule applies to applications received by the lender on or after January 30, 2011.

Fed Press Release >
Final Rule >



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