View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.


the Fed

& Events


& Regulation




& Communities

Board of Governors of the Federal Reserve System
The Federal Reserve, the central bank of the United States, provides the nation with a
safe, flexible, and stable monetary and financial system.

Home > News & Events > Press Releases

Press Release
December 18, 2007

Request for comment on changes to Regulation
Z to protect consumers from unfair or deceptive
home mortgage lending and advertising
For immediate release

The Federal Reserve Board on Tuesday proposed and asked for public
comment on changes to Regulation Z (Truth in Lending) to protect
consumers from unfair or deceptive home mortgage lending and
advertising practices. The rule, which would be adopted under the Home
Ownership and Equity Protection Act (HOEPA), would restrict certain
practices and would also require certain mortgage disclosures to be
provided earlier in the transaction.
The Home Ownership and Equity Protection Act amended the Truth in
Lending Act (TILA). Under HOEPA, the Board has the responsibility to
prohibit acts and practices in connection with mortgage loans that it finds
to be unfair or deceptive.
"Our goal is to promote responsible mortgage lending, for the benefit of
individual consumers and the economy," said Federal Reserve
Chairman Ben S. Bernanke. "We want consumers to make decisions
about home mortgage options confidently, with assurance that
unscrupulous home mortgage practices will not be tolerated."
The proposal includes four key protections for "higher-priced mortgage
loans" secured by a consumer's principal dwelling:

Creditors would be prohibited from engaging in a pattern or
practice of extending credit without considering borrowers' ability
to repay the loan.
Creditors would be required to verify the income and assets they
rely upon in making a loan.
Prepayment penalties would only be permitted if certain
conditions are met, including the condition that no penalty will
apply for at least sixty days before any possible payment
Creditors would have to establish escrow accounts for taxes and
The rule would define "higher-priced mortgage loan" to capture loans in
the subprime market but generally exclude loans in the prime market. A
loan would be covered if it is a first-lien mortgage and has an annual
percentage rate (APR) that is three percentage points or more above the
yield on comparable Treasury notes, or if it is a subordinate-lien
mortgage with an APR exceeding the comparable Treasury rate by five
points or more.
"Unfair and deceptive practices have harmed consumers and the
integrity of the home mortgage market," said Federal Reserve Board
Governor Randall S. Kroszner. "We have listened closely and developed
a response to abuses that we believe will facilitate responsible lending."
The following protections would apply to all loans secured by a
consumer's principal dwelling, regardless of the loan's APR:
Lenders would be prohibited from compensating mortgage
brokers by making payments known as "yield-spread premiums"
unless the broker previously entered into a written agreement with
the consumer disclosing the broker's total compensation and
other facts. A yield spread premium is the fee paid by a lender to
a broker for higher-rate loans. The consumer's written agreement
with the broker must occur before the consumer applies for the
loan or pays any fees.
Creditors and mortgage brokers would be prohibited from
coercing a real estate appraiser to misstate a home's value.
Companies that service mortgage loans would be prohibited from
engaging in certain practices. For example, servicers would be
required to credit consumers' loan payments as of the date of
receipt and would have to provide a schedule of fees to a
consumer upon request.
The proposed revisions to TILA's advertising rules require additional
information about rates, monthly payments, and other loan features. The
amendments also would ban seven deceptive or misleading advertising
practices, including representing that a rate or payment is "fixed" when it
can change.
Under the proposal, creditors would have to provide a good faith
estimate of the loan costs, including a schedule of payments, within
three days after a consumer applies for any mortgage loan secured by a
consumer's principal dwelling, such as a home improvement loan or a

loan to refinance an existing loan. Currently, early cost estimates are
only required for home-purchase loans. In addition, consumers could not
be charged any fee until after they receive the early disclosures, except
a reasonable fee for obtaining the consumer's credit history.
The Federal Reserve has engaged in extensive outreach efforts with
consumer groups, the financial services industry, lawmakers, and others
to ensure that the proposed rules are likely to achieve the goal of
protecting consumers from unfair practices without shutting off access to
responsible credit. The proposal takes into consideration testimony
given at four public hearings the Board held in the summer of 2006, and
a hearing held in June 2007, as well as public comment letters received
in connection with those hearings. The Board also consulted with other
federal and state agencies and its own Consumer Advisory Council.
The Federal Register notice is attached. The comment period ends
ninety days after publication of the proposal in the Federal Register,
which is expected shortly.
Highlights of Proposed Rule to Amend Home Mortgage Provisions of
Regulation Z
Statement by Chairman Ben S. Bernanke
Statement by Governor Randall S. Kroszner
Federal Register Notice 425 KB PDF | TEXT
Board meeting materials
View comments

Last Update: December 18, 2007

of the FEDERAL
About the Fed
News & Events
Monetary Policy
Supervision & Regulation
Payment Systems
Economic Research
Consumers & Communities
Financial Stability

Freedom of Information (FOIA)
Office of Inspector General
Budget & Performance | Audit
Website Policies | Privacy


20th Street and Constitution Avenue N.W., Washington, DC 20551