On August 16th, the Federal Reserve Board released a series of proposed, interim, and new final rules regarding home mortgage origination and refinancing. The Federal Reserve Board:
- Announced final rules to protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices. Under the new rule, a loan originator may not receive compensation that is based on the interest rate or other loan terms. The final rule also prohibits a loan originator that receives compensation directly from the consumer from also receiving compensation from the lender or another party. Additionally, the final rule 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 new rules are effective April 1, 2011. Loan Origination Compensation Practices Press Release.
- Announced final rules implementing an amendment to the Truth in Lending Act requiring that consumers receive notice when their mortgage loan has been sold or transferred. Covered parties may continue to follow the November 2009 interim rules until the mandatory compliance date for the final rules, which is January 1, 2011. Mortgage Loan Sale or Transfer Press Release.
- 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 that require lenders to disclose how borrowers' regular mortgage payments can change over time and to disclose certain features, such as balloon payments, or options to make only minimum payments that will cause loan amounts to increase. Although lenders must comply with the interim rule for applications they receive on or after January 30, 2011, they may do so earlier. Comments on the interim rule must be submitted within 60 days after publication in the Federal Register. Closed-End Mortgage Loans Press Release.
- Proposed a rule to revise the escrow account requirements for higher-priced, first-lien "jumbo" mortgage loans. The proposed rule would increase the annual percentage rate threshold used to determine whether a mortgage lender is required to establish an escrow account for property taxes and insurance for first-lien jumbo mortgage loans. Comments should be submitted within 30 days after publication in the Federal Register. Jumbo Mortgage Loans Press Release.
- Proposed enhanced consumer protections and disclosures for home mortgage transactions. The proposed amendments include significant changes to Regulation Z (Truth in Lending) and represent the second phase of the Board's comprehensive review and update of the mortgage lending rules in the regulation. The amendments would improve the disclosures consumers receive for reverse mortgages and impose rules for reverse mortgage advertising to ensure advertisements contain accurate and balanced information; prohibit certain unfair practices in the sale of financial products with reverse mortgages; improve the disclosures that explain a consumer's right to rescind certain mortgage transactions and clarify the responsibilities of the creditor if a consumer exercises the right; and ensure that consumers receive new disclosures when the parties agree to modify the key terms of an existing closed-end mortgage loan. Comments should be submitted within 90 days after publication n the Federal Register. Regulation Z Amendments Press Release (with links to related documents).