CUNA Regulatory Comment Call

August 29, 2007

EXECUTIVE SUMMARY

• The Federal financial institution regulators have requested comments on proposed disclosures, or illustrations, that financial institutions can provide to borrowers who are considering subprime loans.

• These illustrations are intended to assist institutions in implementing the consumer protection provisions of the Statement on Subprime Mortgage Lending (Statement), which was recently issued. The Statement addresses risks and other issues relating to subprime mortgage lending practices, specifically for adjustable- rate mortgage (ARMs) loans. Click here for more information.
• Although the Statement outlines the type of information that should be provided to consumers, the use of these specific disclosures will not be required. They are only intended to serve as illustrations of the information described in the Statement.
• Comments on these proposed disclosures will be due by October 15, 2007. Please submit your comments to CUNA by October 3, 2007.

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com and to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6032, if you would like a copy of the proposal, or you may access it here.

BACKGROUND

The federal financial institution regulators, including NCUA, recently issued the Statement to provide guidance when assessing a borrower’s ability to repay a subprime mortgage loan. The Statement addresses the appropriate consumer protection issues and practices, including existing statutes, rules, and guidance that are intended to protect consumers from unfair, deceptive, and other predatory practices. The Statement also addresses other issues to ensure that this type of lending is conducted in a safe and sound manner, and it is intended to complement the nontraditional mortgage loan guidance that the regulators issued last year.

The Statement also includes provisions that outline the information that should be provided to consumers with regard to these types of loans. These proposed disclosures are now being issued to assist financial institutions in complying with these provisions.

BRIEF DESCRIPTION OF THE PROPOSED DISCLOSURES

The use of these proposed disclosures or illustrations is entirely voluntary and there is no expectation that institutions must use them in their communications with consumers. Institutions that follow the recommendations in the Guidance may choose to:

• Use or not use the illustrations
• Provide information based on the illustrations, but tailor the information as appropriate to reflect, for example:
• The institution’s product offerings, which may differ than those outlined in the illustrations.
• The consumer’s particular loan requirements or qualifications.
• Current market conditions that may reflect changes in loan amounts, interest rates, and payment amounts.
• Other information that relates to the loan, consistent with the Statement.

Regardless of whether these illustrations are used, the Statement indicates that the information provided to consumers should be clear and balanced with regard to the relevant benefits and risks of certain ARM products. This includes clear and detailed information about the costs, terms, features, and risks of these types of loans. Specifically, the information should clearly explain the risk of substantial increases in the monthly payments, prepayment penalties, balloon payments, and the lack of an escrow account for taxes and insurance, if necessary. Consumer should also be informed about any additional costs associated with a stated income or reduced documentation loan.

Click here and refer to the end of the proposal for the two types of disclosures that may be provided, one being a narrative form, which would need to be modified to reflect the terms of the loan being considered by the consumer, and the other being a chart with numerical examples.

• Will these illustrations help you to implement the consumer protection provisions of the Statement? Are there any changes that should be made?
  
  

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• Will these illustrations help consumers understand the risk and terms of the ARM products described in the Statement? Are there any changes that should be made that would help consumers understand the information?
  
  

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• Is the information in the illustrations set forth in a clear manner and format? Are there other illustrations relating to ARM products that would be useful for consumers and financial institutions that could be used instead of or in addition to the ones proposed?
  
  

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• Other comments?
  
  

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