12 CFR Part 226 Regulation Z; Docket No. R- Truth in Lending

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12 CFR Part 226 Regulation Z; Docket No. R-_____ Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System. ACTION: Proposed rule; request for public comment.

SUMMARY: The Board proposes to amend Regulation Z, which implements the Truth in Lending Act and Home Ownership and Equity Protection Act. The goals of the amendments are to protect consumers in the mortgage market from unfair, abusive, or deceptive lending and servicing practices while preserving responsible lending and sustainable homeownership; ensure that advertisements for mortgage loans provide accurate and balanced information and do not contain misleading or deceptive representations; and provide consumers transaction-specific disclosures early enough to use while shopping for a mortgage. The proposed revisions would apply four protections to a newly-defined category of higher-priced mortgage loans secured by a consumer's principal dwelling, including a prohibition on a pattern or practice of lending based on the collateral without regard to consumers' ability to repay their obligations from income, or from other sources besides the collateral. The proposed revisions would apply three new protections to mortgage loans secured by a consumer's principal dwelling regardless of loan price, including a prohibition on a creditor paying a mortgage broker more than the consumer had agreed the broker would receive. The Board also proposes to require

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that advertisements provide accurate and balanced information, in a clear and

conspicuous manner, about rates, monthly payments, and other loan features; and to ban

several deceptive or misleading advertising practices, including representations that a rate

or payment is "fixed" when it can change. Finally, the proposal would require creditors

to provide consumers with transaction-specific mortgage loan disclosures before they pay

any fee except a reasonable fee for reviewing credit history.

DATES: Comments must be received on or before [insert date that is 90 days after the

date of publication in the Federal Register].

ADDRESSES: You may submit comments, identified by Docket No. R-____, by any

of the following methods:

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Agency Web Site: . Follow the instructions for

submitting comments at

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Federal eRulemaking Portal: . Follow the instructions

for submitting comments.

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E-mail: ments@. Include the docket number in the

subject line of the message.

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Fax: (202) 452-3819 or (202) 452-3102.

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Mail: Address to Jennifer J. Johnson, Secretary, Board of Governors of the

Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington,

DC 20551.

All public comments will be made available on the Board's web site at

as submitted, unless

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modified for technical reasons. Accordingly, comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room MP-500 of the Board's Martin Building (20th and C Streets, N.W.) between 9:00 a.m. and 5:00 p.m. on weekdays. FOR FURTHER INFORMATION CONTACT: Kathleen C. Ryan, Dan S. Sokolov, or David Stein, Counsels; Jamie Z. Goodson, Brent Lattin, Jelena McWilliams, or Paul Mondor, Attorneys; Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, DC 20551, at (202) 452-2412 or (202) 4523667. For users of Telecommunications Device for the Deaf (TDD) only, contact (202) 263-4869. SUPPLEMENTARY INFORMATION: I. SUMMARY OF PROPOSAL

A. Proposals to Prevent Unfairness, Deception, and Abuse B. Proposals to Improve Mortgage Advertising C. Proposals to Give Consumers Disclosures Early II. CONSUMER PROTECTION CONCERNS IN THE SUBPRIME MARKET A. Recent Problems in the Mortgage Market B. The Loosening of Underwriting Standards C. Market Imperfections That Can Facilitate Abusive and Unaffordable Loans III. THE BOARD'S HOEPA HEARINGS A. Home Ownership and Equity Protection Act (HOEPA) B. Summary of 2006 Hearings C. Summary of June 2007 Hearing

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D. Congressional Hearings IV. INTER-AGENCY SUPERVISORY GUIDANCE V. LEGAL AUTHORITY

A. The Board's Authority Under TILA Section 129(l)(2) B. The Board's Authority Under TILA Section 105(a) VI. PROPOSED DEFINITION OF "HIGHER-PRICED MORTGAGE LOAN" A. Overview B. Public Comment on the Scope of New HOEPA Rules C. General Principles Governing the Board's Determination of Coverage D. Types of Loans Proposed To Be Covered Under ? 226.35 E. Proposed APR Trigger for ? 226.35 F. Mechanics of the Proposed APR Trigger VII. PROPOSED RULES FOR HIGHER-PRICED MORTGAGE LOANS--? 226.35 A. Overview B. Disregard of Consumers' Ability to Repay--?? 226.34(a)(4) and 226.35(b)(1) C. Verification of Income and Assets Relied On--? 226.35(b)(2) D. Prepayment Penalties--? 226.32(d)(6) and (7); ? 226.35(b)(3) E. Requirement to Escrow--? 226.35(b)(4) F. Evasion Through Spurious Open-end Credit--? 226.35(b)(5) VIII. PROPOSED RULES FOR MORTGAGE LOANS--? 226.36 A. Creditor Payments to Mortgage Brokers--? 226.36(a) B. Coercion of Appraisers--? 226.36(b) C. Servicing Abuses--? 226.36(c)

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D. Coverage--? 226.36(d) IX. OTHER POTENTIAL CONCERNS

A. Other HOEPA Prohibitions B. Steering X. ADVERTISING A. Advertising Rules for Open-end Home-equity Plans--? 226.16 B. Advertising Rules for Closed-end Credit--? 226.24 XI. MORTGAGE LOAN DISCLOSURES A. Early Mortgage Loan Disclosures--? 226.19 B. Future Plans to Improve Disclosure XII. CIVIL LIABILITY AND REMEDIES; ADMINISTRATIVE ENFORCEMENT XIII. EFFECTIVE DATE XIV. PAPERWORK REDUCTION ACT XV. INITIAL REGULATORY FLEXIBILITY ANALYSIS I. SUMMARY OF PROPOSAL

The Board is proposing to establish new regulatory protections for consumers in the residential mortgage market through amendments to Regulation Z, which implements the Truth in Lending Act (TILA) and the Home Ownership and Equity Protection Act (HOEPA). The goals of the amendments are to protect consumers in the mortgage market from unfair, abusive, or deceptive lending and servicing practices while preserving responsible lending and sustainable homeownership; ensure that advertisements for mortgage loans provide accurate and balanced information and do not

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