The Federal Reserve Board in July proposed significant changes to two components of Regulation Z (Truth in Lending) designed to improve disclosures consumers receive for closed-end mortgages and home-equity lines of credit (HELOCs).
To shop for and understand the cost of credit, consumers must be able to identify and understand the key terms of the mortgage. The Board used consumer testing to ensure that providers give the most essential information at a suitable time, using content and formats that are clear and conspicuous. Therefore, under the proposed changes, disclosures would need to highlight potentially risky features, such as adjustable rates, prepayment penalties and negative amortization.
The public comment period for both proposals ends Nov. 27, 2009. For details, see the Board's press release. To comment on either component, go to the Board's Proposals for Comment page and scroll down to use the comment links under the titles Regulation Z — Truth in Lending — Home-Equity Lines of Credit (HELOC) [R-1367] and Regulation Z — Truth in Lending — Closed-end Mortgages [R-1366].
This final rule affects all financial institutions and other entities that report information to credit bureaus and other consumer reporting agencies, which is widely used to determine consumers' eligibility for credit, employment, insurance and rental housing.
The rules and guidelines take effect July 1, 2010. Under the rules, entities that furnish information about consumers to consumer reporting agencies generally must include a consumer's credit limit in the information provided. The federal agencies also published an Advance Notice of Proposed Rulemaking (ANPR) to identify possible additions to the information that furnishers must provide to consumer reporting agencies, such as the account opening date.
Also, under the rules, if a consumer believes his or her credit report includes inaccurate information, the consumer may submit a dispute directly to the entity that provided the information to the consumer reporting agency, and that entity must investigate the dispute. The rules do not change a consumer's ability to submit a dispute to a consumer reporting agency or a furnisher's duty to investigate a dispute referred by a reporting agency. Read the final rules.
The federal bank and thrift regulatory agencies issued an interim final rule that provides that mortgage loans modified under the U.S. Department of the Treasury's Making Home Affordable Program (MHAP) will retain the risk weight applicable before modification.
Earlier this year, the Treasury announced guidelines under the MHAP to promote sustainable loan modifications for homeowners at risk of losing their homes to foreclosure. The interim final rule would provide a common interagency capital treatment for mortgage loans modified under MHAP. For example, mortgage loans risk weighted at 50 percent prior to modification would continue to be risk weighted at 50 percent after modification provided they continue to meet other applicable criteria. Interim Rule took effect July 30.