[Federal Register Volume 63, Number 5 (Thursday, January 8, 1998)]
[Rules and Regulations]
[Pages 1051-1054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-443]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
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Federal Register / Vol. 63, No. 5 / Thursday, January 8, 1998 / Rules
and Regulations
[[Page 1051]]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 560
[No. 97-130]
RIN 1550-AB12
Disclosures for Adjustable-rate Mortgage Loans, Adjustment
Notices, and Interest-rate Caps
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Interim final rule with request for comments.
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SUMMARY: The Office of Thrift Supervision (OTS) is issuing this interim
final rule revising the initial disclosure requirements for adjustable-
rate mortgage loans (ARMs) by savings associations. These changes
conform the OTS rule to the parallel provisions in Regulation Z, as
recently amended by the Federal Reserve Board (FRB). The revised rule
permits a savings association to provide a borrower either a fifteen-
year historical example of interest rates and payments or a statement
that the periodic payment may substantially increase or decrease
(together with the maximum interest rate and payment based on a $10,000
loan).
DATES: Effective date: January 8, 1998.
Compliance date: Compliance is optional until October 1, 1998.
Comment date: Comments must be received by March 9, 1998.
ADDRESSES: Send comments to Manager, Dissemination Branch, Records
Management and Information Policy, Office of Thrift Supervision, 1700 G
Street, NW., Washington, D.C. 20552. Attention Docket No. 97-130. These
submissions may be hand-delivered to 1700 G Street, NW., from 9:00 A.M.
to 5:00 P.M. on business days; they may be sent by facsimile
transmission to FAX Number (202) 906-7755; or by e-mail:
public.info@ots.treas.gov. Those commenting by e-mail should include
their name and phone number. Comments will be available for inspection
at 1700 G Street, NW., from 9:00 A.M. until 4:00 P.M. on business days.
FOR FURTHER INFORMATION CONTACT: Timothy R. Burniston, Director, (202)
906-5629, Compliance Policy; Susan Miles, Attorney, (202) 906-6798, or
Karen Osterloh, Assistant Chief Counsel, (202) 906-6639, Regulations
and Legislation Division, Chief Counsel's Office, Office of Thrift
Supervision, 1700 G Street, NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
To assist borrowers in making informed decisions on the cost of
credit, both the OTS and the FRB have issued regulations (12 CFR
560.210 and 12 CFR 226.19, respectively) imposing disclosure
requirements on creditors issuing ARMs. The FRB disclosure rules at 12
CFR Part 226 implement the Truth in Lending Act (TILA) 1 and
are commonly referred to as Regulation Z. Regulation Z applies to all
lenders subject to the TILA, including savings associations. Regulation
Z, however, specifically states that information provided in accordance
with variable rate regulations of other federal agencies, such as the
OTS, may be substituted for the disclosures required by Regulation
Z.2 To this extent, Regulation Z incorporates 12 CFR
560.210, and the OTS rule serves as an implementing regulation of the
TILA.
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\1\ 15 U.S.C. 1601 et seq.
\2\ 12 CFR 226.19(b) n. 45a and 226.20(c) n. 45c.
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Section 560.210, which applies to ARMs of more than one year that
are secured by property occupied by or to be occupied by the borrower,
derives from a regulation OTS's predecessor agency, the Federal Home
Loan Bank Board (FHLBB), issued under its authority under the Home
Owners' Loan Act (HOLA) 3 to ensure that savings
associations operate in a safe and sound manner. The FHLBB believed
such a regulation was necessary because ``Safe and sound lending using
ARMs requires that the borrower have a full understanding of the type
of obligation being incurred in order to make a reasonable and
meaningful decision concerning ability to repay.'' 4
Although originally the FHLBB regulation was more complex than
Regulation Z, since 1988 the disclosures required under Sec. 560.210
and its predecessors have been identical to those required under
Regulation Z.
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\3\ 12 U.S.C. 1463(a) and 1464(a).
\4\ 50 FR 32005 (Aug. 8, 1985).
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Under Regulation Z, if a variable rate transaction exceeds a term
of one year and is secured by the consumer's principal dwelling, the
creditor must provide various initial disclosures for each variable
rate program in which the consumer is interested.5 Until
amended recently,6 these loan disclosure provisions required
both: (1) A fifteen-year historical example, based on a $10,000 loan
amount, illustrating how payments and the loan balance would have been
affected by interest rate changes implemented according to the terms of
the loan program; and (2) the maximum interest rate and payment for a
$10,000 loan originated at the most recent interest rate shown in the
historical example assuming the maximum periodic increases in rates and
payments under the loan, and the initial interest rate and payment for
that loan. OTS's parallel regulation, Sec. 560.210, has contained
identical disclosure requirements.7
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\5\ 12 CFR 226.19(b)(2) (1997).
\6\ 62 FR 63441 (Dec. 1, 1997).
\7\ Compare 12 CFR 226.19(b)(2) (viii) and (x) (1997) with 12
CFR 560.210(b)(2) (viii) and (x) (1997).
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Section 2105 of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (EGRPRA) 8 amended section 128(a) of
the TILA to permit a creditor the option of providing a statement that
periodic rates may substantially increase or decrease (together with
the maximum interest rate and payment amount based on a $10,000 loan
amount), in lieu of the historical example. On December 1, 1997, the
FRB published final revisions to Regulation Z implementing section 2105
of EGRPRA.
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\8\ Pub. L. 104-208, 110 Stat. 3009 (September 30, 1996).
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II. Description of Interim Final Rule
To ensure that the initial disclosure requirements under OTS rules
continue to be consistent with those in Regulation Z, the OTS is making
the same revisions to its ARM disclosure
[[Page 1052]]
requirements at 12 CFR 560.210(b) as the FRB's recently adopted
amendments to Regulation Z.
Existing Sec. 560.210(b) requires a savings association offering an
ARM to provide a number of initial disclosures for each adjustable-rate
home loan program in which a consumer expresses an interest. Existing
Sec. 560.210(b)(2)(viii) requires a savings association to provide a
fifteen-year historical example. Existing Sec. 560.210(b)(2)(x)
requires a savings association to provide the maximum interest rate and
payment for a $10,000 loan.
The OTS interim final rule revises these disclosure requirements. A
savings association may now provide either the historical example or
the maximum interest rate and payment. If the savings association
chooses the maximum interest rate and payment option, the savings
association must provide the initial rate and payment amount and a
statement that the periodic payment may increase or decrease
substantially.
Consistent with the FRB final rule, the OTS interim final rule also
modifies how the maximum interest rate is calculated under the maximum
interest rate and payment option. Under the existing rule, the maximum
interest rate is calculated using ``the most recent interest rate shown
in the historical example.'' Since the savings association is not
required to provide the historical example when it elects the maximum
interest rate and payment option, the interim final rule uses ``the
initial interest rate (index value plus margin, adjusted by the amount
of any discount or premium) in effect as of an identified month and
year for the particular loan program disclosure'' to calculate the
maximum interest rate and payment. Additionally, the interim final rule
defines the initial interest rate as the rate in effect as of an
identified month and year for a particular loan program. This change
eliminates any requirement that a savings association must update the
maximum rate and payment disclosure more frequently than the loan
program disclosure.
Under existing Sec. 560.210(b)(2)(ix), a savings association must
explain how a customer may calculate the payments for the loan amount,
based on the most recent payment shown in the historical example. To
allow customers to understand the relationship between their
transactions and the disclosures made under the maximum interest rate
and payment option, the revised rule requires a savings association to
provide a similar explanation when it elects this option. See new
Sec. 560.210(b)(2)(ix). The FRB made a similar change to Regulation Z.
III. Public Comment
A. Revisions to Conform Sec. 560.210 to New Sec. 226.19
The OTS has determined that advance notice and comment ordinarily
mandated by the Administrative Procedure Act (APA), 5 U.S.C. 553(b),
are not required in this interim final rulemaking. The APA authorizes
agencies to waive notice and comment procedures when the agency ``for
good cause finds * * * that notice and public procedure thereon are
impracticable, unnecessary, or contrary to the public interest.''
9
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\9\ 5 U.S.C. 553(b)(B).
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The OTS, for good cause, finds that notice and comment procedures
for this interim rule are impracticable, unnecessary, and contrary to
the public interest. The changes in the interim rule will reduce
regulatory confusion by conforming the OTS disclosure rules (which, as
discussed above, serve as an implementing regulation of the TILA), more
closely to those of the FRB under TILA. The changes will not have an
adverse impact on savings associations because the revisions reduce
regulatory burden. Moreover, savings associations subject to
Sec. 560.210 have the option of complying with the revised disclosure
requirements through October 1, 1998, the date on which compliance
under new Sec. 226.19 becomes mandatory. The OTS has also determined
that the revised regulation will not have an adverse impact on
consumers obtaining ARMs from savings associations, because while
disclosure requirements have changed under the interim rule, the new
disclosures conform to the disclosures authorized by section 2105 of
EGRPRA and provided under the revised FRB rule. To the extent that the
interim rule raises consumer issues, these issues have already been
subject to public notice and comment in the related FRB rulemaking, a
proceeding affecting a much wider spectrum of lenders and borrowers.
Only one consumer organization commented on the FRB proposal and the
FRB considered that comment in preparing its final rule. It is unlikely
that public comment on the disclosure changes will raise new issues
specific to savings associations. Nevertheless, the OTS seeks the
benefit of public comment on these revisions.
B. Should the OTS Retain Sec. 560.210?
The OTS also solicits public comment on both the scope and
continued usefulness of Sec. 560.210. Specifically, some commenters on
OTS's 1996 Lending and Investment rulemaking argued that Sec. 560.210
should be deleted because it unnecessarily duplicates the FRB
disclosure requirements in Regulation Z.10 This would
conform OTS's regulations with those of the Office of the Comptroller
of the Currency and the Federal Deposit Insurance Corporation, which do
not contain provisions on ARMs disclosures and rely on Regulation Z. It
would also be consistent with section 303 of the Community Development
and Regulatory Improvement Act of 1994 (CDRIA), which instructs each
Federal banking agency to review its regulations and remove duplicative
requirements.
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\10\ See 61 FR 50951, 50963 (Sept. 30, 1996).
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There are several arguments for retaining Sec. 560.210, however.
First, although the disclosure requirements are identical, unlike
Regulation Z, Sec. 560.210 applies both to liens on the consumer's
principal dwelling and to the financing of second homes, including
vacation homes. Removing this regulation might lessen the disclosures
savings associations provide to borrowers financing second homes.
Additionally, by retaining its own regulation that is grounded in
the HOLA rather than the TILA, the OTS may have greater flexibility in
fashioning appropriate relief for violations of ARMs disclosure
requirements. Section 165 of the TILA authorizes agencies to seek
restitution only in certain instances where the creditor inaccurately
discloses the annual percentage rate or finance charge or where section
165 itself requires a refund or credit.11 Certain inaccurate
disclosures (such as non-disclosure of an interest rate floor or
disclosure of a non-existent interest rate floor) or actions by an
association (such as using an incorrect index after issuing the initial
disclosure statement or failing to adjust interest rates and loan
payments on the date required by the loan contract) would not
themselves constitute inaccurate disclosures of the annual percentage
rate or finance charge. Any of these disclosures or actions might,
however, result in the customer paying an overcharge on its ARM. The
FRB's Commentary on Regulation Z indicates that section 165 requires
refunds and/or credits only when a borrower's account balance exceeds
the entire outstanding loan balance and ``does not apply where the
consumer has simply paid an amount in excess of the payment due for a
given
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period.'' 12 Thus, section 165 would not apply to
overcharges on loans that have substantial remaining principal
balances, although it would appear to impose an affirmative obligation
on mortgage lenders to refund or credit any excess payments collected
over the life of a loan when the loan is either prepaid or fully
amortized.
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\11\ 15 U.S.C. 1607(e)(5).
\12\ 12 CFR part 226, Supp. I, Official Staff Interpretations,
Sec. 226.21, Comment 2.
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In contrast, in enforcing Sec. 560.210, as with any other HOLA-
based OTS regulations, the agency has available to it the full panoply
of enforcement actions available under section 8 of the Federal Deposit
Insurance Act.13 This includes seeking restitution when a
savings association has been unjustly enriched or acted with reckless
disregard.14 This remedy may therefore be available for ARMs
overcharges during the life of the loan, in contrast to section 165 of
the TILA and Regulation Z.
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\13\ 12 U.S.C. 1818.
\14\ 12 U.S.C. 1818(b)(6).
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IV. Effective Date
The OTS has determined that the 30-day delay of effectiveness
provisions of the APA may be waived in this rulemaking. The APA at 12
U.S.C. 553(d) permits waiver of the 30-day delayed effective date
requirement for, inter alia, good cause or where a rule relieves a
restriction. The OTS finds that good cause exists for the same reason
as discussed in Section III above. The OTS further finds that the 30-
day delayed effective date requirement may be waived because this
interim final rule relieves regulatory restrictions by reducing the
number of disclosures required for certain ARMs.
Section 302 of the CDRIA requires that new regulations and
amendments to regulations that impose additional reporting, disclosure,
or other new requirements take effect on the first date of the calendar
quarter following publication of the rule unless, among other things,
the agency determines, for good cause, that the regulations should
become effective before that date. OTS believes that an immediate
effective date is appropriate since the interim rule relieves
regulatory burden on savings associations. An immediate effective date
will permit savings associations to reduce the number of disclosures
they must provide and will reduce regulatory confusion by conforming
OTS regulations more closely to those of the FRB. OTS does not
anticipate that the immediate application of the rules will present a
hardship to institutions. Indeed, OTS believes that CDRIA does not
apply to this interim rule because it imposes no new burdens or
requirements on thrifts. For these reasons, OTS has determined that the
interim final rule should be effective upon publication in the Federal
Register. Like the FRB rule, however, compliance with the OTS rule is
optional until October 1, 1998.
V. Paperwork Reduction Act of 1995
The OTS invites comments on:
(1) Whether the proposed collection of information contained in
this interim final rulemaking is necessary for the proper performance
of the agency's functions, including whether the information has
practical utility;
(2) The accuracy of the agency's estimate of the burden of the
proposed information collection;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(4) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(5) Estimates of capital and start-up costs of operation,
maintenance and purchases of services to provide information.
Under the Paperwork Reduction Act of 1995, as codified at 44 U.S.C.
3507, no persons are required to respond to a collection of information
unless it displays a currently valid OMB control number. The valid OMB
control number assigned to the collection of information in this
interim final rule will be displayed in the table at 12 CFR 506.1(b).
The OTS has received emergency approval for the recordkeeping
requirements contained in this interim final rule from the Office of
Management and Budget. Comments on all aspects of this information
collection should be sent to the Office of Management and Budget,
Paperwork Reduction Project (1550), Washington, D.C. 20503, with copies
to the OTS, 1700 G Street, N.W., Washington, D.C. 20552.
The reporting/recordkeeping requirements contained in this interim
final rule are found at 12 CFR 560.210. The likely respondents/
recordkeepers are OTS-regulated savings associations. The OTS needs the
disclosures made by savings associations in order to ensure that
associations comply with a statutory TILA requirement and to otherwise
supervise savings associations.
Estimated number of respondents: 1,238.
Estimated average annual burden hours per respondent: 53.
Estimated number of total annual burden hours: 65,639.
Start-up costs to respondents: $160.
Records are to be maintained for the period of time respondent/
recordkeeper owns the loan plus three years.
VI. Executive Order 12866
The Director of the OTS has determined that this interim final rule
does not constitute a ``significant regulatory action'' for the
purposes of Executive Order 12866.
VII. Regulatory Flexibility Act Analysis
Because no notice of proposed rulemaking is required for this rule,
the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.)
do not apply. The interim final rule does not impose any additional
burdens or requirements upon small entities. Rather, the rule reduces
the number of disclosures required for ARMs and eases the compliance
burden on all savings associations, including small savings
associations. Accordingly, a regulatory flexibility analysis is not
required.
VIII. Unfunded Mandates Act of 1995
The OTS has determined that the requirements of this interim final
rule will not result in expenditures by State, local, and tribal
governments, or by the private sector, of more than $100 million in any
one year. Accordingly, a budgetary impact statement is not required
under section 202 of the Unfunded Mandates Act of 1995, as codified at
2 U.S.C. 1571(a).
List of Subjects in 12 CFR Part 560
Consumer protection, Investments, Manufactured homes, Mortgages,
Reporting and recordkeeping requirements, Savings associations.
Accordingly, the Office of Thrift Supervision hereby amends title
12, chapter V, of the Code of Federal Regulations as set forth below:
PART 560--LENDING AND INVESTMENT
1. The authority citation for part 560 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1701j-3,
1828, 3803, 3806; 42 U.S.C. 4106.
2. Section 560.210 is amended by:
a. Revising the introductory text of paragraph (b)(2) including
footnote 2;
b. Revising paragraph (b)(2)(viii);
c. Revising paragraph (b)(2)(ix);
d. Removing paragraph (b)(2)(x); and
e. Redesignating paragraphs (b)(2)(xi), (b)(2)(xii), and
(b)(2)(xiii) as paragraphs
[[Page 1054]]
(b)(2)(x), (b)(2)(xi), and (b)(2)(xii), respectively.
The revisions read as follows:
Sec. 560.210 Disclosures for adjustable-rate mortgage loans,
adjustment notices, and interest-rate caps.
* * * * *
(b) * * *
(2) A loan program disclosure for each adjustable-rate home loan
program in which the consumer expresses an interest. The following
disclosures, as applicable, shall be provided: 2
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\2\ A sample disclosure form may be found in 12 CFR part 226,
Appendix H-14.
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* * * * *
(viii) At the option of the savings association, either of the
following:
(A) An historical example, based on a $10,000 loan amount,
illustrating how payments and the loan balance would have been affected
by interest rate changes implemented according to the terms of the loan
program disclosure. The example shall reflect the most recent 15 years
of index values. The example shall reflect all significant loan program
terms, such as negative amortization, interest rate carryover, interest
rate discounts, and interest rate and payment limitations, that would
have been affected by the index movement during the period; or
(B) The maximum interest rate and payment for a $10,000 loan
originated at the initial interest rate (index value plus margin,
adjusted by the amount of any discount or premium) in effect as of an
identified month and year for the loan program disclosure assuming the
maximum periodic increases in rates and payments under the program; and
the initial interest rate and payment for that loan and a statement
that the periodic payment may increase or decrease substantially
depending on changes in the rate.
(ix) An explanation of how the consumer may calculate the payments
for the loan amount to be borrowed based on either:
(A) The most recent payment shown in the historical example in
paragraph (b)(2)(viii)(A) of this section; or
(B) The initial interest rate used to calculate the maximum
interest rate and payment in paragraph (b)(2)(viii)(B) of this section.
* * * * *
Dated: December 30, 1997.
By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 98-443 Filed 1-7-98; 8:45 am]
BILLING CODE 6720-01-P
