The Federal Reserve has issued final rules amending Regulation Z, which implements the Truth in Lending Act, that place new restrictions on certain loan originator compensation practices and require notices to consumers when their mortgage loans have been sold or transferred. The final rules announced on August 16 prohibit a loan originator that receives compensation directly from the consumer from also receiving compensation from the lender or another party. The new compensation rule applies to mortgage brokers and the companies that employ them, as well as mortgage loan officers employed by depository institutions and other lenders. The final rule also prohibits loan originators from directing or “steering” a consumer to accept a mortgage loan that is not in the consumer's interest in order to increase the originator's compensation. The final compensation and anti-steering rules apply to closed-end home mortgage loans where the creditor receives a loan application on or after April 1, 2011. The Federal Reserve announced another final rule on August 16 to implement an amendment to the Truth in Lending Act that requires notice to consumers when their mortgage loans have been sold or transferred. An interim rule that provided compliance guidance on the new statutory requirements became effective in November 2009. Covered parties may continue to follow the November 2009 interim rules until the mandatory compliance date for the final rule, which is January 1, 2011.
Nutter Notes: The Federal Reserve separately released an interim rule on August 16 that revises the disclosure requirements for closed-end mortgage loans under Regulation Z. The interim rule requires that lenders' cost disclosures include a payment summary table stating the initial interest rate and corresponding monthly payment, the maximum interest rate and payment that can occur during the first five years of an adjustable-rate loan, a “worst case” example showing the maximum rate and payment possible over the life of an adjustable-rate loan, and the fact that a consumer might not be able to avoid increased payments by refinancing the loan. The interim rule also requires lenders to disclose certain features, such as balloon payments, and any option to make only minimum payments, that will cause loan amounts to increase. Lenders must comply with the interim rule in connection with applications they receive on or after January 30, 2011. The Federal Reserve is soliciting comments on the interim rule for 60 days after publication in the Federal Register, which is expected shortly. The Federal Reserve is also soliciting comments on proposed rules that would revise the escrow account requirements for higher-priced, first-lien "jumbo" mortgage loans, enhance consumer protections and disclosures for reverse mortgage transactions and require lenders to refund certain fees if a consumer decides to withdraw an application for any type of mortgage loan within 3 days after receiving applicable disclosures.