On July 30, 2008, the Board of Governors of the Federal Reserve System (“Board”) published in the Federal Register (pages 44522 – 44614) its final rule (the “final rule”) amending Regulation Z and its Official Staff Interpretations. This memorandum will address only that section of the final rule that adds new Section 226.36 to provide new protections for all closed-end loans secured by a consumer’s principal dwelling. Section 226.36 is effective on October 1, 2009. In the near future, we will issue an additional memorandum to address the following sections of Regulation Z amended by the final rule: (i) HOEPA Loans (Sections 226.32 and 226.34), and (ii) Higher-priced Mortgage Loans (new Section 226.35). Please note that previously we issued the following two memorandums addressing changes to Regulation Z made by the final rule: (i) on January 16, 2009, we issued a memorandum addressing the final rule’s amendments to the advertising requirements of Section 226.16 and 226.24, and (ii) on January 9, 2009, we issued a memorandum addressing the final rule’s amendments to the early disclosure requirements of Section 226.19(a)(1). Text of the Final Rule Amendments: The full text of the final rule can be printed from the Federal Register website by clicking on: http://edocket.access.gpo.gov/2008/pdf/E8-16500.pdf. Section 226.36 and its Official Staff Interpretations are on page 44604 and page 44614, respectively, of the above issue of the Federal Register. Overview of the Final Rule Primary Dwelling Loan Amendments: The final rule includes three new protections for all closed-end loans secured by a consumer’s principal dwelling: (1) Creditors and mortgage brokers are prohibited from coercing, influencing, or encouraging a real estate appraiser to misstate or misrepresent the dwelling’s value. (2) Mortgage loan servicers are prohibited from engaging in certain practices, such as pyramiding late fees. In addition, servicers are required to credit consumers’ loan payments as of the date of receipt and provide a payoff statement within a reasonable time of request. (3) Creditors must provide good faith estimates of transaction-specific disclosures no later than three business days after application (currently, early disclosures are only required for a residential mortgage transaction). In addition, consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumer’s credit history. (See our January 9, 2009 memorandum on this topic.)
