The Fed’s Formal Proposal Released

The Fed’s Formal Proposal Released

The mortgage world is likely to transform dramatically next year as a result of major Truth-in-Lending Act changes proposed by the Federal Reserve.

The Fed’s proposal was originally released July 23rd and the formal printing of the proposal in the Federal Register just occurred, triggering the clock on the comment period, which ends December 24, 2009.

The Fed’s proposed amendments to TILA apply to closed–end mortgage loans and HELOCS, and include new disclosures (including one called “Key Questions to Ask About Your Mortgage” and another called “Fixed vs. Adjustable Rate Mortgages.”)

The Fed also proposes including more loan closing costs in the calculation of the APR, and wants lenders to provide prospective borrowers with a chart showing how their projected APR compares with the APRs offered to borrowers with excellent credit. Of special interest to mortgage brokers, the proposal makes it difficult, if not impossible, to receive a yield spread premium (YSP), although there is some dispute within the industry as to the effect of the proposal on YSPs.

The 194-page, small-print proposed rule for closed-end mortgage loans is at: http://edocket.access.gpo.gov/2009/pdf/E9-18119.pdf (see pages 43232–43425).

The 186-page, small-print proposed rule for HELOCs is at: http://edocket.access.gpo.gov/2009/pdf/E9-18121.pdf (see pages 43428–43613)

You may “comment” on the proposed changes and submit them online or through the mail. As noted earlier, the deadline is December 24, 2009. Keep in mind that comments are posted for all to see. Public comments on the proposals and, if publicly available, related staff materials, are viewable both online and in Room MP-500 of the Board’s Martin Building (20th and C Streets, NW, Washington, D.C.) between 9:00 a.m. and 5:00 p.m. weekdays. All comments are reproduced without alteration except when necessary for technical reasons.

Some comments are already posted including five on HELOCs and about 35 on closed-end mortgages.

Howard Lax, a well-known mortgage compliance attorney, expects the Fed to spend January, February and March reading the comments and to issue a Final Rule April 1, 2010 with an implementation date six months later - October 1, 2010.