WASHINGTON (7/24/09)--The Federal Reserve Board has proposed several major changes to Regulation Z (Truth in Lending) that would modify the disclosures required of lenders for closed-end mortgage loans and home equity lines of credit (HELOCs). The Fed’s proposal regarding closed-end home mortgages--which follows recent changes to open-end credit disclosures--is intended to increase consumer awareness of potentially risky features, such as adjustable rates and prepayment penalties. The changes would apply to disclosures for all closed-end credit transactions secured by real property. Among other things, the changes would:
* Revise the annual percentage rate (APR) to include most fees and settlement costs, many of which are currently excluded from the annual percentage rate (APR); * Require lenders to provide, at application, a list of key questions borrowers should ask about the home mortgage loan; * Require lenders to provide a comparison of how the consumer's APR compares to the average rate offered to borrowers with excellent credit; * Require lenders that take part in adjustable rate mortgages to show how a consumer’s monthly payments could increase, and * Require lenders to notify borrowers 60 days in advance of a change in their monthly payment.
Current rules require lenders to give their customers 25 days of advanced notice. Also, lenders would need to provide home mortgage loan applicants with a “final disclosure” at least three days prior to the loan closing, which would likely require notification of any changes in the term or rate of the loan since the initial application. Consistent with the recently proposed legislation creating a Consumer Financial Protection Agency, the Fed said it is working with the Department of Housing and Urban Development (HUD) to make the required TILA disclosures consistent with HUD’s required disclosures under the Real Estate Settlement Procedures Act, potentially resulting in single disclosure. Another proposed rule would change portions of HELOC-related disclosures. The proposed changes would apply to disclosures required from the application stage through the life of the credit plan. Under these changes, lenders would be required to provide applicants with disclosures detailing specific credit terms for which the consumer qualifies and information about certain costs and potentially risky mortgage features both three days after the transaction begins and at closing. Creditors would also be required to provide enhanced periodic statements throughout the life of the plan, and to notify a consumer 45 days prior to changes in the terms of the plan. The proposed rule would also include additional guidance on a creditor’s ability to reduce the consumer’s credit limit, as well as the creditor’s obligation to restore such accounts. The Fed will accept comments on each of the two proposed rules for 120 days following official publication in the Federal Register
. The Credit Union National Association's (CUNA) Consumer Protection Subcommittee will be reviewing the proposals in detail, and CUNA will post a regulatory comment call on each of the proposals shortly.