OCC Bulletin 2009-7 Page 1 of 2 OCC 2009-7 RESCINDEDOCC BULLETIN Comptroller of the Currency Administrator of National Banks Final Rule for Home Ownership and Equity Subject: Truth in Lending Act Description: Protection Act Amendments Date: February 19, 2009 TO: Chief Executive Officers and Compliance Officers of All National Banks and National Bank Operating Subsidiaries, Department and Division Heads, and All Examining Personnel The Board of Governors of the Federal Reserve System published in the July 30, 2008, Federal Register, amendments to Regulation Z under the Home Ownership and Equity Protection Act (HOEPA). The final rule is intended to protect consumers from unfair, deceptive, or abusive acts and practices in mortgage lending and to restrict certain mortgage practices. Higher-Priced Mortgage Loans1 The four key protections of the newly defined category of “higher-priced mortgage loans” for loans secured by a consumer’s principal dwelling will Prohibit a lender from making a loan without regard to the borrower’s ability to repay the loan from income and assets other than the home’s value; Require creditors to verify the income and assets they rely upon to determine repayment ability; Ban any prepayment penalties if the payment can change in the initial four years and, for other higher-priced mortgages, restrict the prepayment penalty period to no more than two years; and Require creditors to establish escrow accounts for property taxes and homeowner’s insurance for first-lien higher-priced mortgage loans. All Loans Secured by a Consumer’s Principal Dwelling In addition, the rules adopt the following protections for all loans secured by a consumer’s principal dwelling though it may not be classified as a higher-priced mortgage: OCC Bulletin 2009-7 Page 2 of 2 Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home’s value. Servicers are prohibited from certain practices, such as pyramiding late fees. They must credit loan payments as of the date of receipt and provide a payoff statement within a reasonable time from receipt of a request. Creditors must provide a good faith estimate of loan costs and a schedule of payments within three days from receipt of a consumer’s application for any mortgage loan secured by a consumer’s principal dwelling. The consumer cannot be charged any fee until after he or she has received the early disclosures, except for a reasonable fee for the credit report. Advertising Advertising rules for both open-end and closed-end mortgage transactions now require additional information about rates, monthly payments, and other loan features. The final rule also bans seven deceptive or misleading advertising practices for closed-end mortgage loans. This includes the practice of making a false statement that a rate or payment is fixed when, in reality, it can change. The final rule becomes effective October 1, 2009, with the exception of the escrow requirement, which will be phased in during 2010. Interagency examination procedures will be issued at a later date. Questions regarding this change may be directed to your supervisory office or the Compliance Policy Department at (202) 874-4428. /signed/ Ann F. Jaedicke Deputy Comptroller for Compliance Policy Attachment: Final Rule [http://www.occ.treas.gov/RESCINDEDfr/fedregister/73fr44522.pdf] 1Mortgage loans are defined as higher-priced if the annual percentage rate is 1.5 percentage points or more above the average prime offer rate reported by Freddie Mac or a comparable Federal Reserve survey for a first lien; or 3.5 percentage points above the index if it is a subordinate-lien mortgage. There are exclusions for reverse mortgages, construction-only loans, bridge loans, and home equity lines of credit. Wednesday, July 30, 2008 Part III Federal Reserve System 12 CFR Part 226 Truth in Lending; Final Rule 44522 Federal Register / Vol. 73, No. 147 / Wednesday, July 30, 2008 / Rules and Regulations FEDERAL RESERVE SYSTEM FOR FURTHER INFORMATION CONTACT: C. Servicing Abuses—§ 226.36(c) Kathleen C. Ryan or Dan S. Sokolov, D. Coverage—§ 226.36(d) 12 CFR Part 226 Counsels; Paul Mondor, Senior XI. Advertising Attorney; Jamie Z. Goodson, Brent A. Advertising Rules for Open-End Home- [Regulation Z; Docket No. R–1305] Equity Plans—§ 226.16 Lattin, Jelena McWilliams, Dana E. B. Advertising Rules for Closed-End Truth in Lending Miller, or Nikita M. Pastor, Attorneys; Credit)—§ 226.24 Division of Consumer and Community XII. Mortgage Loan Disclosures AGENCY: Board of Governors of the Affairs, Board of Governors of the A. Early Mortgage Loan Disclosures— Federal Reserve System. Federal Reserve System, Washington, § 226.19 ACTION: Final rule; official staff DC 20551, at (202) 452–2412 or (202) B. Plans To Improve Disclosure commentary. 452–3667. For users of XIII. Mandatory Compliance Dates Telecommunications Device for the Deaf XIV. Paperwork Reduction Act SUMMARY: The Board is publishing final (TDD) only, contact (202) 263–4869. XV. Regulatory Flexibility Analysis rules amending Regulation Z, which SUPPLEMENTARY INFORMATION: I. Summary of Final Rules implements the Truth in Lending Act I. Summary of Final Rules and Home Ownership and Equity On January 9, 2008, the Board A. Rules To Prevent Unfairness, Deception, published proposed rules that would Protection Act. The goals of the and Abuse amendments are to protect consumers in B. Revisions To Improve Mortgage amend Regulation Z, which implements the mortgage market from unfair, Advertising the Truth in Lending Act (TILA) and the abusive, or deceptive lending and C. Requirement To Give Consumers Home Ownership and Equity Protection servicing practices while preserving Disclosures Early Act (HOEPA). 73 FR 1672. The Board is responsible lending and sustainable II. Consumer Protection Concerns in the publishing final amendments to Subprime Market homeownership; ensure that Regulation Z to establish new regulatory A. Recent Problems in the Mortgage Market protections for consumers in the advertisements for mortgage loans B. Market Imperfections That Can provide accurate and balanced residential mortgage market. The goals Facilitate Abusive and Unaffordable of the amendments are to protect information and do not contain Loans misleading or deceptive representations; III. The Board’s HOEPA Hearings consumers in the mortgage market from and provide consumers transaction- A. Home Ownership and Equity Protection unfair, abusive, or deceptive lending specific disclosures early enough to use Act (HOEPA) and servicing practices while preserving while shopping for a mortgage. The final B. Summary of 2006 Hearings responsible lending and sustainable rule applies four protections to a newly- C. Summary of June 2007 Hearing homeownership; ensure that D. Congressional Hearings defined category of higher-priced advertisements for mortgage loans IV. Interagency Supervisory Guidance provide accurate and balanced mortgage loans secured by a consumer’s V. Legal Authority principal dwelling, including a information and do not contain A. The Board’s Authority Under TILA misleading or deceptive representations; prohibition on lending based on the Section 129(l)(2) collateral without regard to consumers’ B. The Board’s Authority Under TILA and provide consumers transaction- ability to repay their obligations from Section 105(a) specific disclosures early enough to use income, or from other sources besides VI. The Board’s Proposal while shopping for mortgage loans. the collateral. The revisions apply two A. Proposals To Prevent Unfairness, A. Rules To Prevent Unfairness, new protections to mortgage loans Deception, and Abuse B. Proposals To Improve Mortgage Deception, and Abuse secured by a consumer’s principal Advertising The Board is publishing seven new dwelling regardless of loan price, C. Proposal To Give Consumers restrictions or requirements for including a prohibition on abusive Disclosures Early mortgage lending and servicing servicing practices. The Board is also VII. Overview of Comments Received intended to protect consumers against finalizing rules requiring that VIII. Definition of ‘‘Higher-Priced Mortgage unfairness, deception, and abuse while advertisements provide accurate and Loan’’—§ 226.35(a) preserving responsible lending and balanced information, in a clear and A. Overview sustainable homeownership. The conspicuous manner, about rates, B. Public Comment on the Proposal restrictions are adopted under TILA monthly payments, and other loan C. General Approach D. Index for Higher-Priced Mortgage Loans Section 129(l)(2), which authorizes the features. The advertising rules ban E. Threshold for Higher-Priced Mortgage Board to prohibit unfair or deceptive several deceptive or misleading Loans practices in connection with mortgage advertising practices, including F. The Timing of Setting the Threshold loans, as well as to prohibit abusive representations that a rate or payment is G. Proposal To Conform Regulation C practices or practices not in the interest ‘‘fixed’’ when it can change. Finally, the (HMDA) of the borrower in connection with revisions require creditors to provide H. Types of Loans Covered Under § 226.35 refinancings. 15 U.S.C. 1639(l)(2). Some consumers with transaction-specific IX. Final Rules for Higher-Priced Mortgage of the restrictions apply only to higher- mortgage loan disclosures within three Loans and HOEPA Loans priced mortgage loans, while others business days after application and A. Overview B. Disregard of Consumer’s Ability To apply to all mortgage loans secured by before they pay any fee except a Repay—§§ 226.34(a)(4) and 226.35(b)(1) a consumer’s principal dwelling. reasonable fee for reviewing credit C. Prepayment Penalties—§ 226.32(d)(6) history. and (7); § 226.35(b)(2) Protections Covering Higher-Priced DATES: This final rule is effective on D. Escrows for Taxes and Insurance— Mortgage Loans October 1, 2009, except for § 226.35(b)(3) The Board is finalizing four E. Evasion Through Spurious Open-End § 226.35(b)(3)) which is effective on Credit—§ 226.35(b)(4) protections for consumers receiving April 1, 2010. See part XIII, below, X. Final Rules for Mortgage Loans—§ 226.36 higher-priced mortgage loans.