[Federal Register Volume 61, Number 252 (Tuesday, December 31, 1996)]
[Proposed Rules]
[Pages 69055-69058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33299]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

12 CFR Part 226

[Regulation Z; Docket No. R-0954]

24 CFR Part 3500

[Regulation X; Docket No. FR-4184-P-01]
RIN 2502-AG86


Advance Notice of Proposed Rulemaking on Improvement of 
Disclosures Under the Real Estate Settlement Procedures Act and the 
Truth in Lending Act

AGENCIES: Office of the Assistant Secretary for Housing--Federal 
Housing Commissioner (HUD); Board of Governors of the Federal Reserve 
System (the Board) (collectively, the agencies).

ACTION: Advance notice of proposed rulemaking.

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[[Page 69056]]

SUMMARY: This notice is issued jointly by HUD and the Board to initiate 
fact finding that will assist the agencies in revising disclosures to 
consumers under the Real Estate Settlement Procedures Act (RESPA) and 
the Truth in Lending Act (TILA). The Economic Growth and Regulatory 
Paperwork Reduction Act of 1996 requires the agencies to simplify and 
improve these disclosures where possible, and to provide a single 
format satisfying the requirements of RESPA and TILA. To ensure that 
these disclosures meet the consumer protection goals of the statutes 
with minimal compliance burdens, HUD and the Board are soliciting 
comments from the public on what specific regulatory or legislative 
changes might achieve these goals. Following the consideration of the 
public comments and the agencies' own reviews, HUD and the Board plan 
to publish proposed amendments to their respective regulations, as 
appropriate, by March 1997.

DATES: Comments are due January 30, 1997.

ADDRESSES: Comments regarding this advance notice of proposed 
rulemaking may be sent to either agency.
    HUD: Comments to HUD should be addressed to the Rules Docket Clerk, 
Office of General Counsel, Room 10276, Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC 20410-0500. 
Communications should refer to the above docket number and title. 
Facsimile (FAX) comments are not acceptable. A copy of comments 
received will be available for public inspection and copying between 
7:30 a.m. and 5:30 p.m. weekdays at the above address.
    Board: Comments to the Board should refer to Docket No. R-0954, and 
may be mailed to William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
Washington, D.C. 20551. Comments also may be delivered to Room B-2222 
of the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to 
the guard station in the Eccles Building courtyard on 20th Street, N.W. 
(between Constitution Avenue and C Street) at any time. When possible, 
comment letters should use a standard Courier typeface with a type size 
of 10 or 12 characters per inch. This will enable the Board to convert 
the text into machine-readable form through electronic scanning, and 
will facilitate automated retrieval of comments for review. Also, if 
accompanied by an original document in paper form, comments may be 
submitted on 3\1/2\ inch or 5\1/4\ inch computer diskettes in any IBM-
compatible DOS-based format. Comments received will be available for 
inspection in Room MP-500 of the Martin Building between 9:00 a.m. and 
5:00 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's 
rules regarding availability of information.

FOR FURTHER INFORMATION CONTACT:

    HUD: David R. Williamson, Director, Office of Consumer and 
Regulatory Affairs, Room 9146, telephone (202) 708-4560; or for legal 
questions, Kenneth A. Markison, Assistant General Counsel for GSE/
RESPA, Grant E. Mitchell, Senior Attorney for RESPA, or Rodrigo J. 
Alba, Attorney, Office of General Counsel, Room 9262, telephone (202) 
708-1550. For hearing- and speech-impaired persons, these numbers may 
be accessed via TTY (text telephone) by calling the Federal Information 
Relay Service at 1-800-877-8339. The address for the above-listed 
persons is: Department of Housing and Urban Development, 451 Seventh 
Street, S.W., Washington, DC 20410.
    Board: Sheilah A. Goodman or Manley Williams, Staff Attorneys, 
Division of Consumer and Community Affairs, Board of Governors of the 
Federal Reserve System, at (202) 452-3667 or (202) 452-2412; for the 
hearing impaired only, Dorothea Thompson, Telecommunications Device for 
the Deaf, at (202) 452-3544. The telephone numbers for the agencies are 
not toll-free.

SUPPLEMENTARY INFORMATION:

I. Background

    On September 30, 1996, the President approved the Economic Growth 
and Regulatory Paperwork Reduction Act of 1996 (Title II of the Omnibus 
Consolidated Appropriations Act, 1997) (Pub. L. 104-208, 110 Stat. 
3009) (the 1996 Act). Section 2101 of the 1996 Act requires the Board 
and HUD to simplify and improve the disclosures given in a mortgage 
transaction subject to TILA and RESPA, and to create a single 
disclosure that will satisfy the requirements of both statutes. The 
1996 Act imposes a six-month deadline for the publication of any 
proposed regulations necessary to carry out the required changes within 
the context of the existing statutes. If legislation is necessary to 
accomplish the purpose of section 2101, the Board and HUD are required 
to submit legislative recommendations to the Congress.

A. The Real Estate Settlement Procedures Act

    The Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2601 
et seq.) was enacted in large measure to ensure that the home-buying 
public is afforded timely and effective information about costs of 
settlement in mortgage transactions. To achieve this goal, RESPA 
mandates disclosures at various points in the home financing process 
for transactions involving ``federally related mortgage loans,'' which 
include most financial transactions creating a lien on owner-occupied 
residential structures. RESPA is implemented by HUD's Regulation X (24 
CFR part 3500).
    Section 5 of RESPA (12 U.S.C. 2604) and Secs. 3500.6 and 3500.7 of 
Regulation X, require that no later than three days after loan 
application, potential borrowers be provided with a Special Information 
Booklet and a good faith estimate of charges that they are likely to 
incur in connection with the settlement. If the lender requires the use 
of a particular settlement service provider and imposes any part of the 
cost on the borrower, the lender must provide an additional disclosure 
informing the borrower of the required use and identifying the 
designated provider and its relationship to the lender, along with an 
estimate of the charges imposed by the provider.
    Section 6 of RESPA (12 U.S.C. 2605) requires that borrowers be 
provided with disclosures regarding the possibility of mortgage 
servicing transfers. These disclosure requirements are subject to the 
same delivery requirements as the good faith estimate.
    Section 4 of RESPA (12 U.S.C. 2603) and Sec. 3500.8 of Regulation X 
provide that, at or before closing, the borrower must receive a HUD-
prescribed settlement statement, the HUD-1 form, or in transactions 
where there is no seller (refinancings, home equity loans and lines of 
credit), either the HUD-1 or the HUD-1A form. Under section 4, the 
forms must itemize all costs imposed on the borrower and the seller in 
connection with the settlement. Under Sec. 3500.10 of Regulation X, the 
person conducting the settlement must, if requested, provide the 
borrower with a preliminary settlement statement one day prior to 
settlement.
    Section 8 of RESPA (12 U.S.C. 2607) and Sec. 3500.15 of Regulation 
X set forth additional disclosure requirements for referrals among 
related business entities. Specifically, RESPA creates an exemption 
providing that referrals to affiliates do not violate section 8 so long 
as certain conditions are satisfied. This provision's disclosure 
component provides that the business arrangement must be disclosed and 
a written estimate of the charges or range of charges generally made by 
the provider

[[Page 69057]]

must be supplied to the person being referred.
    For purposes of this fact finding effort, the agencies are focusing 
on those disclosures for which consolidation between RESPA and TILA is 
possible. RESPA and Regulation X impose other disclosure requirements 
in the mortgage finance process, including initial and annual escrow 
account statements (12 U.S.C. 2609(c); 24 CFR 3500.17(g)-(i)) and 
notice of transfer of servicing (12 U.S.C. 2605(b); 24 CFR 3500.21(d)). 
Since these two areas of RESPA do not seem amenable to consolidation, 
however, the agencies do not contemplate any joint action regarding 
them at this time.

B. The Truth in Lending Act

    The purpose of the Truth in Lending Act (TILA) (15 U.S.C. 1601 et 
seq.) is to promote the informed use of consumer credit by requiring 
disclosures about credit terms and costs. The TILA requires creditors 
to disclose the cost of credit as a dollar amount (the finance charge) 
and as an annual percentage rate (the APR). Uniformity in creditors' 
disclosures is intended to assist consumers in comparison shopping. The 
TILA requires additional disclosures for a loan secured by a consumer's 
home and permits consumers to rescind certain transactions that involve 
their principal dwelling. The act is implemented by the Board's 
Regulation Z (12 CFR part 226). An official staff commentary interprets 
the regulation.
    The disclosure rules that creditors must follow depend upon the 
type of credit the creditor is offering. For example, Subpart B of 
Regulation Z (Secs. 226.5 through 226.16) concerns open-end credit, 
such as home equity lines of credit. Subpart C (Secs. 226.17 through 
226.24), sets forth the provisions for closed-end credit, including 
purchase-money and refinance mortgage transactions.
    Section 226.5a sets forth general disclosure requirements for home 
equity lines of credit, including format and timing rules. Section 
226.17 contains the general disclosure requirements for closed-end 
credit, including format and timing rules. Section 226.18 provides the 
specific disclosures that must be given in all closed-end credit 
transactions, such as the APR, finance charge, and payment schedule. 
Section 226.19 provides that in purchase-money mortgage transactions 
subject to RESPA, good faith estimates of the disclosures required 
under Sec. 226.18 must be provided within three days of application. 
That section also describes the special disclosures required for 
variable-rate transactions secured by the consumer's principal 
dwelling.
    Disclosure requirements for assumptions, refinancings, and 
variable-rate adjustments are set forth in Sec. 226.20. The 
requirements for transactions subject to the right of rescission appear 
in Sec. 226.23. The agencies are focusing only on those disclosures 
where consolidation seems possible. Since the disclosures related to 
variable-rate adjustments and the right of rescission do not seem to be 
ones which could be consolidated, the Board does not contemplate any 
changes to these disclosures at this time.
    Subpart E (Secs. 226.31 through 226.33) contains the disclosure 
requirements for particular types of home mortgage transactions. 
Section 226.31 sets forth general disclosure requirements for these 
transactions, including format and timing rules. Section 226.32 
contains the disclosure requirements for certain closed-end home 
mortgages with an annual percentage rate or points and fees above a 
certain level. Section 226.33 sets out the disclosure requirements for 
reverse mortgages.

II. The Simplification Process

    HUD and the Board have begun a review of Regulations X and Z to 
simplify, improve, and unify the disclosure requirements under RESPA 
and TILA as those statutes currently exist. The following table 
illustrates certain disclosures that may be relevant to this 
simplification process--most of which are mandated by the statutes.

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               Timing                           TILA 12 CFR 226                       RESPA 24 CFR 3500         
----------------------------------------------------------------------------------------------------------------
At or before referral..............  .....................................  Affiliated business arrangement     
                                                                             disclosure (3500.15).              
At or before application...........  Home equity line of credit booklet                                         
                                      and disclosure (226.5a).                                                  
                                     Adjustable rate booklet and                                                
                                      disclosure (226.19b).                                                     
Within three days of application...  TILA disclosure (including APR and     Special information booklet         
                                      finance charge) (226.19a).             (3500.6).                          
                                                                            Good faith estimate (3500.7).       
                                                                            Required providers (3500.7).        
                                                                            Initial transfer of servicing       
                                                                             disclosure (3500.21).              
Three days before closing/           Section 32 disclosures (226.32)......                                      
 consummation.                                                                                                  
                                     Reverse mortgage disclosures (226.33)                                      
One day before closing/consummation  .....................................  Right to inspect HUD-1 or HUD-1A    
                                                                             (3500.10).                         
At closing/consummation............  TILA disclosure (226.18).............  HUD-1 or HUD-1A (3500.8).           
                                     Rescission notice (226.23)...........  Initial escrow account statement    
                                                                             (within 45 days of closing)        
                                                                             (3500.17).                         
----------------------------------------------------------------------------------------------------------------

A. Past Efforts

    During the past several years, the agencies have been actively 
working together to try to ensure that TILA and RESPA regulations are 
as consistent as possible. Much of this was addressed in 1994 by HUD 
when it amended Regulation X to cover subordinate lien loans, and 
subsequently by the Board in updates to the Regulation Z commentary. 
For example, the regulations now use similar definitions for the terms 
``assumption,'' ``refinance,'' ``business day,'' and ``business 
purpose.''
    Where possible, the agencies also have worked to streamline 
disclosure requirements. For example, Regulation Z permits creditors to 
substitute both the good faith estimate and the settlement statement 
required under RESPA for the itemization of the ``amount financed'' 
under TILA. Similarly, Regulation X permits Regulation Z's disclosure 
for home equity lines of credit to substitute for RESPA disclosures.
    Where the requirements of the statutes do not overlap but are 
related, the agencies have provided guidance on

[[Page 69058]]

compliance issues. For example, the Regulation Z commentary has been 
revised to avoid conflict between the RESPA escrow accounting rules and 
TILA's rules on calculating prepaid finance charges, such as private 
mortgage insurance.
    HUD and the Board recognize that this revision process requires a 
careful balancing of competing interests. Consumers need timely and 
accurate information in order to make decisions, but too much 
information may confuse or intimidate the consumer, and thus may be 
counterproductive. Creditors need clear and workable rules that do not 
unnecessarily drive up compliance costs, which could lead to higher 
settlement costs for consumers. Therefore, the benefits of improvements 
to the regulations will be weighed against the cost of implementing and 
complying with those changes.

B. Issues for Comment

    HUD and the Board request public comment on specific ways to 
simplify and improve the present disclosure scheme. To the extent 
possible, comments should be clearly separated into two parts: (1) 
Those that entail regulatory changes within the existing statutory 
framework, and (2) Those that require legislative change. The agencies 
request:
    1. Specific recommendations on how disclosures presently required 
under RESPA and TILA can be made more consistent (including how the 
disclosures can be combined, simplified, or improved); and how the 
timing and format of such disclosures can be made more compatible.
    2. Recommendations about ways to enhance the educational value for 
consumers of any of the present disclosures, including suggestions as 
to alternative methods of disclosure.
    3. Any reports, documents, articles or other material that will 
assist the agencies in the present task.
    After consideration of the public comments on this advance notice 
of proposed rulemaking and the agencies' own review, HUD and the Board 
will coordinate the publication of proposed amendments to their 
regulations to simplify and improve the present disclosure scheme, to 
the extent that the current statutory framework permits. Subsequently, 
the agencies also may submit recommendations to the Congress for 
legislative changes necessary to improve disclosure requirements.

    By order of the Board of Governors of the Federal Reserve 
System, December 26, 1996.
William W. Wiles,
Secretary of the Board.
    Dated: December 23, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 96-33299 Filed 12-30-96; 8:45 am]
BILLING CODE 4210-27-P