|Today, the Federal Reserve Board approved an interim rule amending Regulation Z, which implements the Truth in Lending Act (TILA). The Board is issuing this interim rule to clarify certain aspects of a September 24, 2010 interim rule, in response to public comments.
The September interim rule implements provisions of the Mortgage Disclosure Improvement Act (MDIA) which amended TILA to require mortgage lenders to disclose examples of how a loan's interest rate or monthly payments can change.
Those statutory amendments are effective on January 30, 2011.Please visit out archive for relevant posts, such as our compliance update of October 14, 2010. (Archive)The MDIA seeks to alert borrowers to the risks of payment increases before they take out mortgage loans with variable rates or payments. Under the Board's September interim rule, lenders' cost disclosures must include a payment summary in the form of a table stating the initial rate and corresponding periodic payment and, for adjustable rate loans, the maximum rate and payment that can occur during the first five years as well as a "worst case" example showing the maximum rate and payment possible over the life of the loan.
- This interim rule clarifies that creditors' disclosure should reflect the first rate adjustment for a "5/1 ARM" loan because the new rate typically becomes effective within 5 years after the first regular payment due date.
- Today's interim rule also corrects the requirements for interest-only loans to clarify that creditors' disclosures should show the earliest date the consumer's interest rate can change rather than the due date for making the first payment under the new rate.
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.Comment Period Deadline: 60 days after imminent publication in the Federal Register. Contact Information in Federal Register.Go to Library
- The rule also clarifies which mortgage transactions are covered by the special disclosure requirements for loans that allow minimum payments that cause the loan balance to increase.
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FRB: TILA Interim Rule - request for public comment. Clarifying 9/24/10 Interim Rule.
December 22, 2010