CUNA Regulatory Comment Call

July 30, 2008

• The Federal Reserve Board (Fed) is proposing to amend Regulation C, the Home Mortgage Disclosure Act, by revising the rules for reporting price information on higher-priced loans. These revisions will be identical to the definition of “higher- priced mortgage loan” that was approved by the Fed in the recent final rule that amends the Regulation Z requirements with regard to residential mortgage loans.
• Regulation C currently requires lenders to report the spread between the annual percentage rate (APR) on a loan and the yield on comparable Treasury securities if the spread is at least three percentage points for first-lien loans or five percentage points for subordinate-lien loans.
• Under this proposal, a lender would report the spread if the loan APR exceeds an average of comparable prime mortgage rates by at least 1.5 percentage points for first-lien loans or 3.5 percentage points for subordinate lien loans. For now, the Fed will rely on the Primary Mortgage Market Survey (PMMS) conducted by Freddie Mac for purposes of determining the “average prime mortgage rate” and plans to post these rates on the Internet on a weekly basis. The Fed may at any time consider other alternatives for calculating this average rate, including conducting its own survey. Lenders will be required to use the most recent average rate as of the date in which the lender locks in the interest rate for the final time before the loan is consummated.
• The proposal is intended to maintain consistency between Regulation C and Regulation Z for purposes of defining higher cost mortgage loans. Under both rules, the intent is to require reporting of all subprime loans, as well as a portion of the “alt-A” market, which is in between the prime and subprime market. Currently, this will also cover a significant share of prime jumbo loans. Although this is not intended by the Fed, it is believed that this may only be temporary due to the unusually large spread between prime and conforming mortgage loans.
• If finalized, these changes would take effect for data collection beginning January 1, 2009. If the loan is consummated on or after January 1, 2009, then the determination would be made based on these new thresholds. If consummated before January 1, 2009, the lender would use the threshold that now applies. However, there will be loans that are consummated after January 1st in which the rate is locked before that date. In these situations, the Fed will publish the average prime mortgage rates dating from the beginning of October 2008 that lenders may use for loans locked in on or after October 1, 2008 but originated in 2009. For loans in which the rate is locked in prior to October 1, 2008, but originated in 2009, lenders will use the threshold that now applies.
• Comments are due by August 29, 2008. Please submit your comments to CUNA by August 21, 2008.

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.coop and to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff 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. 6732, if you would like a copy of the proposal. You may also access it here.

• Do you agree with the proposed threshold changes and that they should be based on average prime mortgage rates, as opposed to comparable Treasury securities?
  
  

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• Do you agree with the Fed’s plan to use the Freddie Mac PMMS to estimate the average prime mortgage rates? Are there more appropriates sources that should be used?
  
  

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• Do you agree with the 1.5 and 3.5 percentage thresholds? Should lenders be required to use the most recent average mortgage interest rate as of the date in which the lender locks in the interest rate for the final time before the loan is consummated, which will be updated on a weekly basis?
  
  

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• Do you agree with the provisions regarding the effective date of these changes?
  
  

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• Do you have comments regarding the costs and benefits of this proposal?
  
  

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