WASHINGTON (8/17/10)--The Federal Reserve Board on Monday released a series of announcements involving mortgage lending rules, changes and proposed changes affecting Truth in Lending Act, Mortgage Disclosure Improvement Act (MDIA), and Dodd-Frank Wall Street Reform and Consumer Protection (Dodd-Frank) financial regulatory reform rules. In one of its actions, the Fed finalized interim final rules requiring consumers receive notice when their mortgage is sold. The board also approved a new interim final rule, issued under MDIA authority and effective Jan. 30, 2011, which requires lenders to disclose how borrowers' regular mortgage payments can change over time. Lenders' cost disclosures must include a payment summary in the form of a table, and the rule specifies what must be revealed in the disclosure. Credit unions and other interested parties have 60 days to comment. The Fed governors also approved a final rule to prohibit “steering.” Under this rule a loan originator may not receive compensation based on a loan’s interest rate or other loan terms. The rule is intended to prevent loan originators from increasing their own compensation by raising the consumers' loan costs, such as by increasing the interest rate or points. Under the rule, effective April 1, 2011, loan originators can continue a common practice and receive compensation based on a percentage of the loan amount. Issued for a 90-day comment period, the Fed board also proposed enhanced consumer protections and disclosures for home mortgage transactions under Regulation Z (Truth in Lending rules). The proposal represents the second phase of the Fed’s comprehensive review and update of Reg Z mortgage lending rules, and reflect extensive consumer testing executed by the agency. Under the plan, the Fed intends to:
* 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; and * Ensure that consumers receive new disclosures when the parties agree to modify the key terms of an existing closed-end mortgage loan.
The agencies that comprise the Federal Financial Institutions Examinations Council (FFIEC), including the National Credit Union Administration (NCUA), issued reverse mortgage guidance Monday in connection with the Fed rule. This guidance finalizes the proposed guidance that was issued by NCUA and the other agencies late last year. Although the Fed proposal and FFIEC guidance have not yet been reviewed in detail, the Credit Union National Association (CUNA) generally supports enhanced consumer protections for reverse mortgages, recognizing the complexity of these loans and the fraud and abuse that have been associated with these types of products, according to Jeff Bloch, CUNA senior assistant general counsel. Reverse mortages allow retirees and others to use their home equity to supplement income and, without additional protections, the current fraud and abuse would only grow as the population ages, added Bloch. Under a separate proposal with a 30-day comment period, the Fed would revise the escrow account requirements for higher-priced, first-lien "jumbo" mortgage loans. The proposed rule, which implements a provision of the Dodd-Frank Act, would increase 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. Jumbo loans are loans exceeding the conforming loan-size limit for purchase by Freddie Mac or Fannie Mae, as specified by the legislation. Although some may have thought there would have been a lull in consumer protection rulemaking until the new Consumer Financial Protection Bureau (CFPB) created under the Dodd-Frank Act got up and running, this is clearly not going to be the case, according to Bloch. He added that it looks like the Fed will proceed with its hectic rulemaking schedule in this area and will continue to do so until the CFBP is ready to take the handoff. Use the resource links for more information on each of the Fed’s actions.