The Federal Reserve Board is proposing the most significant change to Regulation Z of the Truth In Lending Act that we have seen since the law was introduced. The change severely limits compensation that banks, mortgage lenders, and mortgage brokers can earn in connection with a closed-end mortgage and home equity line of credit (HELOC). The proposal essentially bans yield spread premiums (YSPs), service release premiums (SRPs), origination percentage fee, and gives the FED control over all loan compensation issues.

Mike Anderson (President of Essential Mortgage, Louisiana Mortgage Lenders Association Past President, and the National Association of Mortgage Brokers Co-Chair of Government Affairs) testified before the Federal Reserve Board today on this issue. To see Mike Anderson’s testimony today please click here.

The Federal Reserve Board highlights:
“Closed-end mortgage disclosures would be revised to highlight potentially risky features such as adjustable rates, prepayment penalties, and negative amortization. The Board’s proposal would:

•Improve the disclosure of the annual percentage rate (APR) so it captures most fees and settlement costs paid by consumers;
•Require lenders to show how the consumer’s APR compares to the average rate offered to borrowers with excellent credit;
•Require lenders to provide final Truth in Lending Act (TILA) disclosures so that consumers receive them at least three business days before loan closing; and
•Require lenders to show consumers how much their monthly payments might increase, for adjustable-rate mortgages.

The Board will also work with the Department of Housing and Urban Development to make the disclosures mandated by TILA, and HUD’s disclosures, required by the Real Estate Settlement Procedures Act, complementary; potentially developing a single disclosure form that creditors could use to satisfy both laws.

In developing the proposed amendments, the Board recognized that disclosures alone may not always be sufficient to protect consumers from unfair practices. To prevent mortgage loan originators from “steering” consumers to more expensive loans, the Board’s proposal would:

•Prohibit payments to a mortgage broker or a loan officer that are based on the loan’s interest rate or other terms; and
•Prohibit a mortgage broker or loan officer from “steering” consumers to transactions that are not in their interest in order to increase the mortgage broker’s or loan officer’s compensation. “

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