CUNA Regulatory Comment Call

December 16, 2008

EXECUTIVE SUMMARY

• The Federal Reserve Board (Fed) has issued a proposal that will revise the Regulation Z disclosure requirements for mortgage loans. These are specific changes to implement provisions of the Mortgage Disclosure Improvement Act (MDIA), which was enacted this past July and amends certain provisions of the Truth in Lending Act (TILA). As previously planned, the Fed is in the process of reviewing Regulation Z in its entirety and will issue more changes to the mortgage disclosure provisions sometime next year.
• The MDIA requires creditors to mail or deliver good faith estimates of mortgage loan costs within three business days after receiving the application for the loan and before any fees are collected, other than a reasonable fee for obtaining a credit report. For these provisions, “business days” are defined as any day in which the lender’s office is open for business. These early disclosure provisions are consistent with the Fed’s recent final rule that amends the Home Ownership Equity Protection Act (HOEPA), which imposes this requirement for the consumer’s primary home, although the MDIA now broadens this requirement to include all dwellings, such as second homes. These requirements will apply to refinancings and home equity loans, but they will not apply to home equity lines of credit (HELOC), which are considered “open-end” loans and not subject to these provisions of TILA and Regulation Z.
• The proposed rule incorporates this extended coverage and also implements these additional requirements that were included in the MDIA:

  • Creditors must wait at least seven business days after they provide the early disclosures before closing the loan. Again, “business days” are defined as any day in which the lender’s office is open for business.
  • Creditors must provide corrected disclosures with a revised annual percentage rate (APR) if there are any changes that result in the APR being inaccurate beyond certain tolerances, which will generally be 1/8 of 1 percent. These disclosures must be received at least three days before the loan closing, and the consumer will have been considered to have received these disclosures three business days after they are mailed by the lender. For these corrected disclosure provisions, “business days” are defined as all days except Sundays and specific Federal public holidays, which differs from the definition that applies to the provisions described above for providing early disclosures.

• With regard to the seven-day and three-day timing requirements, as described above, the proposed rule will allow a consumer to modify or waive the timing requirements for the loan closing if due to a bona fide personal financial emergency that must be satisfied before the end of the waiting period. An example may include an impending foreclosure. However, accurate disclosures must be provided at or before the time these requirements are modified or waived. In these situations, the consumer must give the lender a dated, written statement describing the emergency. All consumers entitled to receive the disclosures must sign this statement and printed forms will not be permitted. Whether the emergency exists will be determined based on the facts surrounding the individual circumstances.
• Both the initial disclosures and corrected disclosures must include the following statement: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”
• The seven-day and three-day timing requirements for disclosures do not apply to mortgage transactions secured by timeshares.
• The requirements under the proposed rule, as well as the other requirements under the MDIA, will become effective as of July 30, 2009. This differs from the effective date of the recent final rules that amend HOEPA, which is October 1, 2009. Comments in response to the proposal are due by February 9, 2009.

Please submit your comments to CUNA by January 29, 2009. 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 or to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. If commenting directly to the Fed, you must refer to Docket No. R-1340. You may also contact us if you would like a copy of the proposal or you may access it here.

• This proposal will not apply to HELOCs. Do you have suggestions on what the timing requirements should be for HELOC disclosures? Should transaction-specific disclosures, such as the APR, an itemization of fees, and potential payment amounts, be required significantly earlier than the account opening, such as three days, which is currently not required? This may be helpful for consumers who need to immediately draw on the account for an imminent expense, such as a house purchase or college tuition. Would the potential costs to lenders outweigh the potential benefits to consumers?
  
  

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• Do you have suggestions as to how these disclosure requirements can further conform to the early disclosure requirements under RESPA?
  
  

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• For the corrected disclosure provisions, “business days” are defined as all days except Sundays and specific Federal public holidays, which differs from the definition that applies to the provisions for providing early disclosures. Should this definition also apply to the early disclosure provisions?
  
  

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• Do you have suggestions on changes to the provisions that allow consumers to modify or waive the timing requirements? Are there any specific procedures or adjustments that should be made to these provisions? Should the modification or waiver be permitted only if the emergency must be met before the required waiting period? What other examples would necessitate a modification or waiver, other than an impending foreclosure?
  
  

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• Both the initial disclosures and corrected disclosures must include the following statement: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”
  
  What are the benefits to consumers and burdens to lenders associated with this requirement? Do you have suggestions on other language that would make this easier for consumers to understand?
  
  

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• Other comments?
  
  

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