TopMortgage Compliance Update (1)
October 14, 2010
FRB: Issues Final, Interim,
and Proposed TILA Rules

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Recently, the Federal Reserve Board (FRB) has issued both Final, Interim, and Proposed revisions to the Truth in Lending Act (TILA).

We have notified you of some of these revisions in previous compliance updates.

Some of the final, interim, and proposed rules are a direct response to the Dodd-Frank Act (Act). Others predate the Act.

The implementation of requirements under the Act are taking place in a dynamically unfolding time frame, with very specific dates by which the mandated regulatory compliance must be activated correctly, fully, and seamlessly. As new final and proposed revisions are promulgated and set forth by federal agencies, including the new Bureau of Consumer Financial Protection, it is incumbent on affected financial institutions to provide written policies and procedures as well as corrective actions throughout their mortgage origination platforms.

The importance of monitoring and implementation is critical to timely and comprehensive compliance. Failure to comply with the required changes, in many instances, exposes a financial institution to, among other things, substantial, civil monetary penalties.

In this Mortgage Compliance Update, we will provide a brief synopsis of the following recent Final, Interim, and Proposed revisions to TILA:

- Proposed: Second phase of the FRB's comprehensive review and update of the mortgage lending rules in the regulation.

- Interim: Implements provisions of the Mortgage Disclosure Improvement Act (MDIA) to disclose how regular mortgage payments can change over time.

- Proposed: Escrow account requirements for higher-priced, first-lien "jumbo" mortgage loans.

- Final: Loan Originator Compensation

- Final: Notification of Sale or Transfer of Loan



Second Phase of Comprehensive Review
Issuance: September 24, 2010
Comments Deadline: December 23, 2010

General Review

The first phase of the FRB's regulatory review of mortgage lending rules commenced with the publication of two proposals in August 2009 that were meant to improve the disclosures for closed-end home mortgage loans and open-end home equity lines of credit. After considering the comments to the proposals, the FRB plans to issue final rules that combine the 2009 and 2010 proposals.

According to the FRB, the latest proposal 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.
  • Ensure that consumers receive new disclosures when the parties agree to modify the key terms of an existing closed-end mortgage loan

Reverse Mortgages

The FRB's proposed rules for reverse mortgages would:

  • Prohibit creditors from conditioning a reverse mortgage on the consumer's purchase of another financial or insurance product.
  • Require that a consumer receive counseling about reverse mortgages before a creditor can impose nonrefundable fees for a reverse mortgage or close the loan.

All Mortgages

The FRB proposing amendments pertaining to all types of mortgages that would:

  • Ensure that consumers have time to review their loan cost disclosures before they become obligated for fees, by requiring lenders to refund the fees if the consumer decides to withdraw the application within three days after they receive the disclosures.
  • Clarify that when a consumer requests information from their loan servicer about the owner of the loan, the servicer must provide the information within a reasonable time, which generally would be 10 business days.
Forms and Disclosures

The following forms and disclosures, and implementation criteria and discussion, are the subjects of this proposal:

Reverse Mortgages
  • Summary of Findings: Design and Testing of Truth in Lending Disclosures for Reverse Mortgages
  • Key Questions to Ask about Your Reverse Mortgage
    • Open-End Reverse Mortgage Early Disclosure Model Form
    • Open-End Reverse Mortgage Account-Opening Disclosure Model Form
    • Closed-End Reverse Mortgage Model Form
    • Open-End Reverse Mortgage Early Disclosure Sample
    • Open-End Reverse Mortgage Account-Opening Disclosure Sample
    • Closed-End Reverse Mortgage Sample
    • Shared Appreciation Model Clause
  • Summary of Findings: Design and Testing of Truth in Lending Disclosures for Rescission Notices
  • Rescission Model Form
  • Rescission Sample (When Opening an Account)
  • Rescission Sample (When Increasing the Credit Limit)
Closed-end Mortgages
  • Rescission Model Form (General)
  • Rescission Sample (General)
  • Rescission Model Form (New Advance of Money with the Same Creditor)
Credit Protection
  • Summary of Findings: Design and Testing of Periodic Statements for Home Equity Lines of Credit, Disclosure about Changes to Home Equity Line Credit Limits, and Disclosures about Credit Protection Products
  • Credit Insurance, Debt Cancellation Coverage, or Debt Suspension Coverage Model Form
  • Credit Life Insurance Sample
  • Disability Debt Cancellation Coverage Sample
  • Unemployment Debt Suspension Coverage Sample
Closed-end Mortgages
  • Credit Insurance, Debt Cancellation Coverage, or Debt Suspension Coverage Model Form
  • Credit Life Insurance Sample
  • Disability Debt Cancellation Coverage Sample
  • Unemployment Debt Suspension Coverage Sample
Mortgage Disclosure Improvement Act (MDIA) Revisions
Issuance: September 24, 2010
Effective: October 25, 2010
Compliance: January 30, 2011
Comments Deadline: November 23, 2010
  • 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.
  • Requires lenders to disclose certain features, such as balloon payments, or options to make only minimum payments that will cause loan amounts to increase.

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Escrow Account for Higher-Priced, First-Lien Jumbo's
Issuance: September 24, 2010
Comments Deadline: October 25, 2010
Implements the Act's provisions regarding an increase in 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 (i.e., loans exceeding the conforming loan-size limit for purchase by Freddie Mac).

In July 2008, the FRB issued final rules to establish escrow accounts for first-lien loans if a loan's APR is 1.5% or more above the applicable prime offer rate.

Under the Act - which amended TILA - the escrow requirement will apply for jumbo loans only if the loan's APR is 2.5% or more above the applicable prime offer rate. The APR threshold for non-jumbo loans remains unchanged.
Loan Originator Compensation
Issuance: September 24, 2010
Compliance: April 1, 2011
  • Prohibits payments to loan originators, which includes mortgage brokers and loan officers, based on the terms or conditions of the transaction other than the amount of credit extended.
  • Prohibits any person other than the consumer from paying compensation to a loan originator in a transaction where the consumer pays the loan originator directly.
  • Prohibits loan originators from steering consumers to consummate a loan not in their interest based on the fact that the loan originator will receive greater compensation for such loan.

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Notification of Sale or Transfer of Loan
Issuance: September 24, 2010
Effective: January 1, 2011
  • New requirement for notifying consumers of the sale or transfer of their mortgage loans.Requires a purchaser or assignee that acquires a loan to provide the disclosures in writing no later than 30 days after the date on which the loan was sold, transferred or assigned.
  • Certain exceptions may apply if the covered person transfers or assigns the loan to another party on or before the 30th day.

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Federal Reserve Board

Regulation Z: Truth in Lending

September 24, 2010

Second Phase Mortgage Review, Proposed, FR - Vol. 75, No. 185 (58539-58788)

Mortgage Disclosure Improvement Act of 2008, Interim, FR - Vol. 75, No. 185 (58470-58489)

Escrow - HPML Jumbos, Proposed, FR - Vol. 75, No. 185 (58505-58508)

Loan Officer Compensation, Final, FR - Vol. 75, No. 185 (58509-58538)

Notification of Sale or Transfer of Loan, Final, FR - Vol. 75, No. 185 (58489-58504)

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