Mortgage Reform
Recent Activity
Dodd-Frank Ability to Repay Proposal
The Federal Reserve Board (FRB) has published proposed regulations to implement Section 1411 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Dodd-Frank amends the Truth-in-Lending Act by expanding the scope of loan types that will be subject to a prohibition that currently applies only to higher-priced mortgage loans. That is the prohibition against making a loan without regard to the consumer's ability to repay.
The proposed regulation would apply to any consumer credit secured by a dwelling, except for home equity lines of credit, timeshare plans, reverse mortgages, and temporary or “bridge” loans.
The regulation allows for four ways in which the creditor can comply with the ability-to-pay requirement. The regulation also establishes some restrictions on prepayment penalties.
ComplianceHeadquarters Article: Dodd-Frank Ability to Repay Proposal
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FRB Announces Hold on Three Pending Rulemakings
The Federal Reserve Board (FRB) announced that it does not intent to finalize three pending rulemakings under Regulation Z prior to the transfer of authority for such rulemakings to the Consumer Financial Protection Bureau. The proposed rules were published in 2009 and 2010 as part of the Board’ comprehensive review of its mortgage lending regulations under TILA and would have reformed the consumer disclosures for closed-end mortgages and home equity lines of credit.
General rulemaking authority will transfer to the Bureau on July 21, 2011. The Dodd-Frank Wall Street Reform and Consumer Protection Act also requires the Bureau to issue a proposal within 18 months of the transfer date to combine into a single form the TILA and RESPA disclosure requirements. The Board has determined that proceeding with its pending rulemaking would not be in the public interest. The public would be better served by waiting for the Bureau’s rulemaking authority to begin.
For further information, follow this link to the FRB’s press release.
FRB Issues Second Interim Rule on Mortgage Payment Disclosures
In September 2010, The Federal Reserve Board (FRB) published an interim rule (“September Interim Rule”) amending Regulation Z. The FRB has now issued this second interim rule (“December Interim Rule”) to clarify certain aspects of the September Interim Rule. The September Interim Rule implements provisions of the Mortgage Disclosure Improvement Act (MDIA) that amends the Truth-in-Lending Act. The purpose of these amendments is to require mortgage lenders to alert mortgage borrowers to the risks of payment increases.
The December Interim Rule clarifies a number of aspects of the September Interim Rule, including the requirements for adjustable-rate transactions that are “5/1 ARM” loans, construction-to-permanent loans, and clarifications regarding when Model Form H-4(G) (Mortgage with Negative Amortization) is to be used.
The December Interim Rule is effective January 30, 2011. Compliance with its provisions is optional for transactions for which an application for credit is received by the creditor before October 1, 2011. The Board is accepting comments on the December Interim Rule until February 23, 2011.
ComplianceHeadquarters Article: December Reg Z Interim Rule
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FRB Issues Interim Rule on Mortgage Payment Disclosures
The Federal Reserve Board (FRB) announced it has issued an interim rule that revises the disclosure requirements for closed-end mortgage loans under Regulation Z (Truth in Lending). The interim rule implements provisions of the Mortgage Disclosure Improvement Act (MDIA) that require lenders to disclose how borrowers' regular mortgage payments can change over time. This interim rule affects loans that are secured by real property or a dwelling.
The MDIA, which amended the Truth in Lending Act, seeks to ensure that mortgage borrowers are alerted to the risks of payment increases before they take out mortgage loans with variable rates or payments. Accordingly, under the interim rule, 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.
This interim rule is effective on October 25, 2010, with compliance optional until January 30, 2011. The FRB is accepting comments on the interim rule until November 23, 2010 before considering the adoption of a permanent rule.
List of new WKFS Truth in Lending documents:
| VMP703 | Truth in Lending Disclosure Fixed Rate |
| VMP703A | Truth in Lending Disclosure Fixed Rate with Signatures |
| VMP703T | Truth in Lending Disclosure Fixed Rate with Sales Price |
| VMP703TA | Truth in Lending Disclosure Fixed Rate with Sales Price and Signatures |
| VMP704 | Truth in Lending Disclosure Adjustable Rate |
| VMP704A | Truth in Lending Disclosure Adjustable Rate with Signatures |
| VMP704B | Truth in Lending Disclosure Adjustable Rate with Max in 1st 5 Years |
| VMP704BA | Truth in Lending Disclosure Adjustable Rate with Max in 1st 5 Years and Signatures |
| VMP704T | Truth in Lending Disclosure Adjustable Rate with Sales Price |
| VMP704TA | Truth in Lending Disclosure Adjustable Rate with Sales Price and Signatures |
| VMP704TB | Truth in Lending Disclosure Adjustable Rate with Max in 1st 5 Years and Sales Price |
| VMP704TBA | Truth in Lending Disclosure Adjustable Rate with Max in 1st 5 Years, Sales Price and Signatures |
| VMP705 | Truth in Lending Disclosure Interest-Only ARM |
| VMP705A | Truth in Lending Disclosure Interest-Only ARM with Signatures |
| VMP705B | Truth in Lending Disclosure Interest-Only ARM with Max in 1st 5 Years |
| VMP705BA | Truth in Lending Disclosure Interest-Only ARM with Max in 1st 5 Years and Signatures |
| VMP705D | Truth in Lending Disclosure Interest-Only ARM with 1st Adjustment |
| VMP705DA | Truth in Lending Disclosure Interest-Only ARM with 1st Adjustment and Signatures |
| VMP706 | Truth in Lending Disclosure Negative Amortization |
| VMP706A | Truth in Lending Disclosure Negative Amortization with Signatures |
| VMP706T | Truth in Lending Disclosure Negative Amortization with Sales Price |
| VMP706TA | Truth in Lending Disclosure Negative Amortization with Sales Price and Signatures |
For further information, follow this link to ComplianceHeadquarters:
ComplianceHeadquarters Article: New Disclosure Requirements Under Regulation Z
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Webinar: Regulation Z Changes: Just Around the Corner
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FRB Proposes Additional Regulation Z Amendments Under its Comprehensive Mortgage Review
UPDATE: The FRB has announced that it will not proceed with this pending rulemaking.
The Federal Reserve Board (FRB) has published proposed amendments to Regulation Z as part of its comprehensive review of Regulation Z’s rules for loans secured by real property or a dwelling. This publication represents the second proposal of the Board’s comprehensive review of mortgage disclosures; the first proposal was published in August 2009. This latest proposal would do the following:
- Improve disclosures for reverse mortgages, as well as affect reverse mortgage advertising and practices.
- Improve disclosures that explain the consumer’s right to rescind certain mortgages.
- Ensure that consumers receive new disclosures when parties agree to modify key terms of an existing closed-end mortgage.
The FRB is accepting comments on the proposed rule until December 23, 2010.
The August 2009 proposal would affect the Truth in Lending “Fed Box” disclosures, as well as the Adjustable Rate Mortgage (ARM) program disclosures and the Home Equity Line of Credit (HELOC) program disclosures, among other things.
Final regulations could be published as early as the end of 2010. When the final rule is published, it will be thoroughly analyzed to determine its affect on the WKFS product line.
For further information, follow this link to ComplianceHeadquarters:
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Webinar: Regulation Z Changes: Just Around the Corner
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Regulation Z Final Rule – Loan Originator Compensation
The Federal Reserve Board has published a final rule amending Regulation Z which is designed to protect consumers in the mortgage market from unfair or abusive lending practices that can arise from certain loan originator compensation practices. The final rule 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. The final rule also 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. The Board is also finalizing the rule that 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.
The final rules apply to closed-end transactions secured by a dwelling where the creditor receives a loan application on or after April 1, 2011.
For further information, follow this link to ComplianceHeadquarters:
ComplianceHeadquarters Article: FRB Limits Certain Mortgage Compensation Practices
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Webinar: Regulation Z Changes: Just Around the Corner
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Regulation Z Final Rule – Notice of Sale or Transfer of Mortgage
The Federal Reserve Board has published a final rule amending Regulation Z. This final rule implements a statutory amendment to the Truth in Lending Act requiring that consumers receive a notice when their mortgage loans have been assigned or transferred. The new disclosure requirement was originally effective in May 2009, when the Helping Families Save Their Homes Act was enacted. Under the act, a purchaser or assignee that acquires a mortgage loan must provide the required disclosures within 30 days. The Federal Reserve Board is now providing additional guidance for this disclosure requirement.
The mandatory compliance date for the additional guidance found in this final rule is January 1, 2011. Covered persons may immediately comply with this amendment or continue to comply with the previous guidance (found at 12 CFR 226.39) until the mandatory compliance date.
The VMP555R, Notice of Sold or Transferred Mortgage Loan, has been updated. The revision scheduled for the October E-Forms release. Please contact your Sales Representative or Customer Support Department at 800-521-7291 for ordering information.
For further information, follow this link to ComplianceHeadquarters:
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Webinar: Regulation Z Changes: Just Around the Corner
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Historical Activity
Proposed Changes to the Mortgage Provisions of Regulation Z
UPDATE: The FRB has announced that it will not proceed with this pending rulemaking.
What: The Federal Reserve Board has proposed changes to the Regulation Z disclosure requirements for transactions secured by real property or a dwelling.
Highlights of the proposed changes. The chart below compares the current Regulation Z mortgage disclosure requirements with the requirements under the proposed rule.
| Timing | Current Requirement | New Requirement |
| At application | No corresponding requirement | New document: Key Questions to Ask About Your Mortgage |
| At application | No corresponding requirement | New document: Fixed vs. Adjustable Rate Mortgages |
| At application | ARM program disclosure | Major revisions to ARM program disclosure. |
| At application | CHARM booklet | The Fed feels that this information is still useful to the borrower, but it will no longer be required. |
| Within three business days of applications | Early Truth in Lending disclosure | Major changes to early Truth in Lending disclosures. The “fed box” disclosures are replaced with substantially different requirements. |
| Redisclosure of early Truth in Lending Disclosures | Redisclosure required if the APR becomes inaccurate | Redisclosure required if the APR becomes inaccurate |
| Three business days before closing | No corresponding requirement | Mandatory redisclosure of the Truth in Lending requirements – the “final” disclosures. The “fed box” disclosures are replaced with substantially different requirements. |
| Post-Closing | ARM adjustment notice, given at least 25 days before payment due at new level | Revised ARM adjustment notice, given at least 60 days before payment due at new level |
| Post-Closing | No corresponding requirement | Special monthly notice for loans with a negative amortization feature due to a payment option feature |
| Post-Closing | No corresponding requirement | Creditor-placed insurance notice must be delivered to the borrower before the creditor may assess the borrower for the charge. |
Proposed Changes to the Finance Charge and Annual Percentage Rate (APR). The Fed is proposing to redefine what fees should be included in the finance charge and the APR. Some in the industry are calling this the “all in” approach – almost all fees would become a part of the finance charge for closed end transactions secured by real property or a dwelling. The following fees, for example, would be included in the finance charge: closing agent charges, title exam fees, abstract or title fee, title insurance premiums, survey fees, doc prep fees, notary fees, credit report fees, appraisal fees, inspection fees, etc.
These items would continue to be excluded from the finance charge: late charges, seller’s points, premiums for liability or property insurance, and charges payable in a cash transaction.
Loan Originator Compensation. The Fed is also proposing new limits on originator compensation. This is meant to protect consumers by preventing loan originators from steering consumers to more expensive loans. The proposal would:
- Prohibit certain payments to a mortgage broker or a loan officer that are based on the loan’s terms and conditions
- Prohibit steering consumers to transactions that are not in their interest in order to increase the mortgage broker’s or loan officer’s compensation.
Lenders would be required to maintain records concerning loan originator compensation for two years.
Effective date: Not yet determined. A proposed regulation was published July 26, 2009. The comment period ended on December 24, 2009. Representatives from the Federal Reserve Board have indicated that a final regulation will be published in 2011. There has been no decision communicated yet on the mandatory effective date.
Solutions:
Compliance Headquarters article: Proposed Changes to the Mortgage Provisions of Regulation Z
