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Regulatory Roundup

Wednesday, July 1, 2009

New Final Truth in Lending Rules Issued

The Federal Reserve Board issued on May 12 the final rules for Regulation Z (Truth in Lending) that revise disclosure requirements for mortgage loans. The final rules implement the Mortgage Disclosure Improvement Act (MDIA), which was enacted in July 2008 as an amendment to the Truth in Lending Act.

The new final rules are similar to the Reg Z rules finalized in July 2008, except the MDIA is broader and includes more. The new rules are designed to ensure that consumers receive cost disclosures earlier in the mortgage process. Under the MDIA, creditors must comply with the new provisions starting on July 30, 2009. The regulations apply to dwelling-secured consumer loans for which a creditor receives an application on or after July 30, 2009.

Among the requirements, creditors must:

  • give good faith estimates of mortgage loan costs ("early disclosures") within three business days after receiving a consumer's application for a mortgage loan and before any fees are collected from the consumer, other than a reasonable fee for obtaining the consumer's credit history;
  • give early disclosures for loans secured by dwellings other than the consumer's principal dwelling, such as a second home;
  • wait seven business days after providing the early disclosures before closing the loan; and
  • provide new disclosures with a revised annual percentage rate (APR) and wait an additional three business days before closing the loan, if a change occurs that makes the APR in the early disclosures inaccurate beyond a specified tolerance.

The rules would permit a consumer to expedite the closing to address a personal financial emergency, such as a foreclosure.

Changes Made to Tier 1 Capital Rules

Bank holding companies can now include in their Tier 1 capital, without restriction, senior perpetual preferred stock issued to the U.S. Treasury Department under the Troubled Asset Relief Program (TARP). The Federal Reserve Board issued the final rule on May 22, after adopting the interim final rule in October 2008.

In addition, the Board announced the adoption of an interim final rule that will let bank holding companies that are S-Corps or that are organized in mutual form to:

  • include in Tier 1 capital all subordinated debt issued to Treasury under TARP, provided that the subordinated debt has to count toward the limit on the amount of other restricted core capital elements includable in Tier 1 capital; and
  • exclude subordinated debt issued to Treasury under TARP from treatment as "debt" for purposes of the debt-to-equity standard under the Board's Small Bank Holding Company Policy Statement.

Reminder: New Limits on Trust Preferred Securities Delayed until 2011

The Federal Reserve Board decided in March to delay full implementation of final rules that place new limits on the inclusion of trust preferred securities and other restricted core capital elements in tier 1 capital of bank holding companies. The Board did this because of stress on the financial markets and efforts of bank holding companies to increase their capital levels. Because of the delay, all bank holding companies may include cumulative perpetual preferred stock and trust preferred securities in tier 1 capital up to 25 percent of total core capital elements. Read the final rules.