[Federal Register Volume 73, Number 238 (Wednesday, December 10, 2008)]
[Proposed Rules]
[Pages 74989-74999]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-29123]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 73, No. 238 / Wednesday, December 10, 2008 / 
Proposed Rules

[[Page 74989]]



FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1340]


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; request for public comment.

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SUMMARY: On July 30, 2008, the Board published a final rule amending 
Regulation Z, which implements the Truth in Lending Act (TILA) and the 
Home Ownership and Equity Protection Act (HOEPA). The July 2008 final 
rule requires creditors to give consumers transaction-specific cost 
disclosures shortly after application for closed-end loans secured by a 
consumer's principal dwelling. The disclosures must be provided before 
the consumer pays any fee, other than a fee for obtaining the 
consumer's credit history. Also on July 30, 2008, the Congress enacted 
the Housing and Economic Recovery Act of 2008, which included 
amendments to TILA, known as the Mortgage Disclosure Improvement Act of 
2008 (MDIA). On October 3, 2008, the Congress amended the MDIA in 
connection with its enactment of the Emergency Economic Stabilization 
Act of 2008 (``Stabilization Act''). The Board is now proposing 
revisions to Regulation Z to implement the provisions of the MDIA, as 
amended.
    The MDIA broadens and adds to the requirements of the Board's July 
2008 final rule. Among other things, the MDIA requires early, 
transaction-specific disclosures for mortgage loans secured by 
dwellings other than the consumer's principal dwelling and requires 
waiting periods between the time when disclosures are given and 
consummation of the transaction. Moreover, these requirements of the 
MDIA will become effective on July 30, 2009, about two months earlier 
than the Board's regulatory amendments adopted in the July 2008 final 
rule.
    Consistent with the MDIA, the proposed amendments to Regulation Z 
would require creditors to deliver good faith estimates of the required 
mortgage disclosures or place them in the mail no later than three 
business days after receiving a consumer's application for a dwelling-
secured closed-end loan. The delivery or mailing of these disclosures 
would have to occur at least seven business days before consummation. 
If the annual percentage rate provided in the good faith estimates 
changes beyond a stated tolerance, creditors must provide corrected 
disclosures, which the consumer must receive at least three business 
days before consummation of the transaction. The proposal would allow 
consumers to expedite consummation to meet a bona fide personal 
financial emergency. The MDIA, as amended by the Stabilization Act, 
specifies different requirements for providing early disclosures for 
mortgage transactions secured by a consumer's interest in a timeshare 
plan.

DATES: Comments must be received on or before January 23, 2009.

ADDRESSES: You may submit comments on the proposed amendments to 
regulation Z, identified by Docket No. R-1340, by any of the following 
methods:
     Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Jennifer J. Johnson, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue, NW., Washington, DC 20551.
    All public comments will be made available on the Board's web site 
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless 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, NW) between 
9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Jamie Z. Goodson or Nikita M. Pastor, 
Attorneys; Division of Consumer and Community Affairs, Board of 
Governors of the Federal Reserve System, Washington, DC 20551, at (202) 
452-2412 or (202) 452-3667. For users of Telecommunications Device for 
the Deaf (TDD) only, contact (202) 263-4869.

SUPPLEMENTARY INFORMATION:

I. Background

    One of the purposes 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 its terms and cost. The act requires 
creditors to disclose the cost of credit as a dollar amount (the 
finance charge) and as an annual percentage rate (APR). Uniformity in 
creditors' disclosures is intended to assist consumers in comparison 
shopping. TILA requires additional disclosures for loans secured by 
consumers' homes and permits consumers to rescind certain transactions 
that involve their principal dwelling.
    TILA mandates that the Board prescribe regulations to carry out the 
purposes of the act. 15 U.S.C. 1604(a). TILA is implemented by the 
Board's Regulation Z. 12 CFR part 226. An Official Staff Commentary 
interprets the requirements of the regulation and provides guidance to 
creditors in applying the rules to specific transactions. 12 CFR part 
226 (Supp. I).
    TILA Section 128, 15 U.S.C. 1638, requires creditors to make 
specified disclosures in connection with closed-end consumer credit 
transactions before the credit is extended. Before enactment of the 
MDIA, in connection with certain mortgage loans, creditors were 
required to make good faith estimates of such disclosures (``early 
disclosures'') before the credit is extended or within three business 
days after the consumer has submitted an application, whichever is 
earlier. 15 U.S.C. 1638(b)(2). In implementing TILA Section 128, 
Regulation Z requires creditors to give these early disclosures only 
for loans that finance the purchase or initial construction of a 
consumer's principal dwelling. On July 30, 2008, the Board published a 
final rule amending Regulation Z (the July 2008 final rule)

[[Page 74990]]

(73 FR 44522). The July 2008 final rule requires, among other things, 
that a creditor provide these early disclosures even when the loan is 
not for the purpose of financing the purchase or initial construction 
of the principal dwelling. Under the July 2008 final rule, the early 
disclosures also must be provided for non-purchase closed-end loans 
secured by the consumer's principal dwelling (such as a refinance 
loan). The July 2008 final rule also required these disclosures to be 
given before the consumer pays any fee, other than a bona fide and 
reasonable fee for reviewing credit history. As published, these 
provisions of the July 2008 final rule are scheduled to become 
effective on October 1, 2009 (73 FR at 55494).
    On the same day that the July 2008 final rule was published, 
Congress amended TILA by enacting the Mortgage Disclosure Improvement 
Act of 2008 (MDIA).\1\ The MDIA amends TILA and codifies some of the 
early disclosure requirements of the July 2008 final rule, but also 
expands upon the regulatory provisions.
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    \1\ The MDIA is contained in Sections 2501 through 2503 of the 
Housing and Economic Recovery Act of 2008 (HERA), Pub. L. 110-289, 
enacted on July 30, 2008. The MDIA was amended by the Emergency 
Economic Stabilization Act of 2008, Pub. L. 110-343, enacted on 
October 3, 2008.
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    Like the July 2008 final rule, the MDIA requires creditors to make 
the early disclosures even when the loan is not for the purpose of 
financing the purchase or initial construction of the consumer's 
principal dwelling and prohibits the collection of fees before the 
consumer receives the disclosures, other than a fee for obtaining a 
consumer's credit history. However, the MDIA applies these provisions 
to loans secured by a dwelling even when it is not the consumer's 
principal dwelling. Moreover, the MDIA imposes additional requirements 
not contained in the July 2008 final rule. Under the MDIA, for loans 
secured by a consumer's dwelling, creditors must deliver or mail the 
early disclosures at least seven business days before consummation. If 
the APR contained in the early disclosures becomes inaccurate (for 
example, due to a change in the loan terms), creditors must 
``redisclose'' and provide corrected disclosures that the consumer must 
receive at least three business days before consummation. The 
disclosures also must inform consumers that they are not obligated to 
complete the transaction simply because disclosures were provided or 
because the consumer has applied for the loan. The MDIA imposes 
different requirements for early disclosure in closed-end mortgage 
transactions that are secured by a consumer's interest in a timeshare 
plan.\2\ These provisions of the MDIA will become effective on July 30, 
2009, which is about two months earlier than the effective date of the 
July 2008 final rule.
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    \2\ The MDIA also increases the dollar amounts of civil 
liability for TILA violations.
---------------------------------------------------------------------------

    At this time, the Board is proposing only to conform Regulation Z, 
as amended on July 30, 2008, to the MDIA provisions that become 
effective on July 30, 2009. The MDIA also contains additional 
disclosure requirements for variable-rate transactions that are not 
addressed in this proposed rulemaking. Those provisions of the MDIA 
will not become effective until January 30, 2011, or any earlier 
compliance date ultimately established by the Board. This proposal does 
not address those disclosures. The Board anticipates issuing proposed 
amendments to Regulation Z to implement those provisions of the MDIA 
during 2009, in connection with the Board's comprehensive review of 
closed-end mortgage disclosures that is currently underway.
    As discussed above, the MDIA contains several provisions that 
mirror the July 2008 final rule. These provisions are not discussed 
below because they are explained in detail in the supplementary 
information portion of the July 2008 final rule. (See 73 FR 44522; July 
30, 2008). Final rules adopting this proposal would become effective 
July 30, 2009, pursuant to MDIA. In addition, to conform with the MDIA, 
certain regulatory changes that the Board adopted in July 2008 will 
also become effective on July 30, 2009 (and not on October 1, 2009 as 
originally provided in the July 2008 final rule). These regulatory 
changes are: The requirement that early disclosures be given for 
dwelling-secured mortgage transactions rather than only for 
``residential mortgage transactions'' to finance the purchase of 
initial construction of the dwelling (in Sec. Sec.  226.17(f) and 
226.19(a)(1)(i) and associated commentary) and that early disclosures 
be given before consumers pay any fee except a fee for obtaining the 
consumer's credit history (in Sec.  226.19(a)(1)(ii) and (iii) and 
associated commentary).
    Minor conforming and technical amendments to Regulation Z are also 
being proposed.

II. Section-by-Section Analysis of Proposed Regulatory Provisions

A. Coverage of Sec.  226.19

    TILA Section 128(a) requires creditors to disclose certain 
information for closed-end consumer credit transactions, including, for 
example, the amount financed and the APR. TILA Section 128(b)(2) 
requires creditors to make good faith estimates of these disclosures 
within three business days of receiving the consumer's application, or 
before consummation if that occurs earlier. Until the recent enactment 
of the MDIA, TILA Section 128(b)(2) applied only to a ``residential 
mortgage transaction'' subject to the Real Estate Settlement Procedures 
Act (RESPA). See 15 U.S.C. 1602(w). A residential mortgage transaction 
is defined in TILA as a loan to finance the purchase or initial 
construction of a consumer's dwelling. Regulation Z limits the 
definition to transactions secured by the consumer's principal 
dwelling. See Sec.  226.2(a)(24).
    The MDIA extends the early disclosure requirement in TILA Section 
128(b)(2) to additional types of loans. Under the MDIA, early 
disclosures are required for ``any extension of credit secured by the 
dwelling of a consumer.'' Thus, as amended, the statute requires early 
disclosures for home refinance loans and home equity loans. This is 
consistent with revisions made by the Board's July 2008 final rule. 
This proposal would, however, amend Regulation Z to also apply the 
early disclosure requirements to loans secured by dwellings other than 
the consumer's principal dwelling. Accordingly, proposed Sec.  
226.19(a)(1)(i) would require creditors to give consumers early 
disclosures in connection with dwelling-secured credit (if also subject 
to RESPA), whether or not the loan is for the purpose of financing the 
purchase or initial construction of the consumer's principal dwelling. 
As is currently the case, Sec.  226.19(a)(1)(i) as proposed to be 
revised would not apply to home equity lines of credit (HELOCs), which 
are subject to the rules for open-end credit in Sec.  226.5b; the July 
2008 final rule also did not apply to HELOCs. As discussed in detail in 
part II.G of the SUPPLEMENTARY INFORMATION, however, the Board is 
requesting comment on the timing of HELOC disclosures, in connection 
with the review of content and format requirements for HELOC 
disclosures by Board staff that currently is under way.
    TILA Section 128(b)(2) (as amended by the MDIA) applies to 
dwelling-secured mortgage transactions if they also are subject to 
RESPA. The U.S. Department of Housing and Urban Development's (HUD) 
Regulation X implements RESPA. See 12 U.S.C. 2601 et seq.; 24 CFR 
3500.1 et seq. In March 2008, HUD published a proposal to

[[Page 74991]]

amend Regulation X. (See 73 FR 14030; Mar. 14, 2008). In November 2008, 
HUD published final rules amending Regulation X. (See 73 FR 68204; Nov. 
17, 2008). The Board believes that these proposed amendments to 
Regulation Z's timing requirements for early disclosures remain 
consistent with timing requirements for good faith estimates of 
settlement costs under Regulation X, as amended. Consistency between 
Regulation Z and Regulation X are discussed below in part IV of the 
Supplementary Information. The Board requests comment about ways to 
further conform Regulation Z's disclosure timing requirements for 
dwelling-secured credit to the disclosure timing requirements in HUD's 
Regulation X, as amended.

B. Timing of Delivery of Early Disclosures--Sec.  226.19(a)(1)(i)

    Currently under Regulation Z, creditors must provide the early 
disclosures within three business days after receiving the consumer's 
written application or before consummation, whichever is earlier. The 
MDIA amends TILA to require creditors to deliver or mail the early 
disclosures no later than three business days after receiving the 
consumer's application and at least seven business days before 
consummation. The Board is proposing to further amend Sec.  
226.19(a)(1)(i), as published in the July 2008 final rule, to reflect 
this change. Proposed comment 19(a)(1)(i)-6 would be added to clarify 
that consummation could occur any time on the seventh business day 
following delivery or mailing; the proposed comment provides examples 
to facilitate compliance.
    The MDIA provides that consumers must receive the early disclosures 
before paying any fee in connection with the mortgage application 
(other than for obtaining the consumer's credit history) and further 
provides that if the disclosures are mailed, the consumer is considered 
to have received them three business days after they are mailed. This 
provision of the MDIA merely codifies Sec.  226.19(a)(1)(ii) and (iii) 
of Regulation Z, as adopted in the Board's July 2008 final rule. 
Accordingly, no further revisions to Sec.  226.19(a)(1)(ii) or (iii) 
are being proposed at this time.
    Revisions would also be made to comment 19(a)(1)(i)-3 to conform a 
reference to HUD's Regulation X to the current language in that 
regulation.

C. Redisclosure Requirements--Sec.  226.19(a)(2)

    Currently, when a creditor provides early TILA disclosures and the 
APR subsequently changes beyond the specified tolerance, the creditor 
must redisclose the APR and other changed terms no later than 
consummation or settlement. The MDIA amends TILA Section 128(b)(2) to 
require that creditors make corrected disclosures that consumers must 
receive at least three business days before consummation in such 
circumstances. The MDIA removes the reference to ``settlement'' for 
purposes of this requirement. (For mortgage transactions secured by a 
consumer's interest in a timeshare plan, however, the MDIA requires 
creditors to disclose changed terms at the time of consummation or 
settlement, as discussed below.) The Board is proposing to amend Sec.  
226.19(a)(2) to reflect this change. Under the proposal, consummation 
can occur anytime on the third business day after the consumer receives 
the corrected disclosure.
    The MDIA also provides that if the corrected disclosures are 
mailed, the consumer is considered to receive the disclosures three 
business days after mailing. This is consistent with the presumption 
the Board adopted in the July 2008 final rule in Sec.  
226.19(a)(1)(ii), which applies when the early disclosures are mailed; 
those disclosures must be received by the consumer before fees are 
collected (other than a credit report fee). The Board is proposing to 
revise comment 19(a)(2)-1 to provide examples illustrating the effect 
of the three-business-day waiting period and when consummation may 
occur.
    Comment 19(a)(2)-3 would be revised to clarify that the three-
business-day waiting period before consummation begins when the 
disclosures are received by the consumer and not when they are mailed. 
This is consistent with the rules for certain high-cost loans and 
reverse mortgage transactions, which also require a creditor to make 
disclosures at least three business days before consummation. See Sec.  
226.31(c) and comment 31(c)-1.

D. Definition of ``Business Day''--Sec.  226.2(a)(6)

    The MDIA provides that if the early disclosures are mailed to the 
consumer, the consumer is considered to have received them three 
business days after they are mailed. This presumption is important to 
two provisions in the MDIA: (1) The prohibition on collecting fees 
before the consumer receives the early disclosures; and (2) the 
requirement, if the APR in the early disclosures becomes inaccurate, 
that creditors make corrected disclosures, which consumers must receive 
at least three business days before consummation.
    In the July 2008 final rule, the Board revised the definition of 
``business day'' to clarify how creditors should count weekends and 
federal legal public holidays in determining when mailed disclosures 
are presumed to be received and how long the restriction on fees 
applies under Sec.  226.19(a)(1)(ii). See 73 FR 44599. The Board is 
proposing to further revise the definition of ``business day'' to 
clarify that creditors should count ``business days'' the same way for 
purposes of the presumption in proposed Sec.  226.19(a)(2) that 
consumers receive corrected disclosures three business days after they 
are mailed.
    Currently, Sec.  226.2(a)(6) contains two definitions of ``business 
day.'' Under the general definition, a ``business day'' is a day on 
which the creditor's offices are open to the public for carrying on 
substantially all of its business functions. However, for some purposes 
a more precise definition applies; ``business day'' means all calendar 
days except Sundays and specified federal legal public holidays, for 
purposes of Sec. Sec.  226.15(e), 226.23(a), and 226.31(c)(1) and (2). 
The July 2008 final rule adopted the more precise definition for use in 
determining when mailed disclosures are presumed to be received under 
Sec.  226.19(a)(1)(ii), and this definition would also apply for 
purposes of proposed Sec.  226.19(a)(2).
    Under the MDIA, creditors must deliver the early disclosures, or 
place them in the mail, no later than three business days after 
receiving a consumer's application for dwelling-secured credit; the 
delivery or mailing also must occur at least seven business days before 
consummation. Under the Board's proposal, the general definition of 
business day would be used for purposes of satisfying these timing 
requirements, which are contained in proposed Sec.  226.19(a)(1)(i). 
This would ensure consistency with RESPA's requirement that creditors 
provide good faith estimates of settlement costs not later than three 
business days after the creditor receives the consumer's application 
for a federally related mortgage loan. See 24 CFR 3500.2(b) and 3500.7. 
In order to simplify the rule, the general definition of business day 
would also be used for determining when the 7-day waiting period has 
expired and consummation may occur. The Board requests comment, 
however, on whether the more precise definition of business day should 
be used to facilitate compliance with the seven business day waiting 
period requirement.

[[Page 74992]]

E. Consumer's Waiver of Waiting Period Before Consummation--Sec.  
226.19(a)(3)

    Under the MDIA, to expedite consummation of a mortgage transaction, 
a consumer may modify or waive the timing requirements for the early 
disclosures when the consumer determines that the credit extension is 
needed to meet a bona fide personal financial emergency. However, the 
consumer must receive the disclosures required by Sec.  226.18 at or 
before the time of the consumer's modification or waiver.
    To implement this provision, proposed Sec.  226.19(a)(3) would 
permit the consumer to shorten or waive the seven-business-day period 
required by Sec.  226.19(a)(1)(i) or the three-business-day waiting 
period required by Sec.  226.19(a)(2). As required by the MDIA, a 
consumer may shorten or waive the pre-consummation waiting period only 
if the consumer has received accurate TILA disclosures reflecting the 
final costs and terms. Accordingly, if the consumer waives the seven-
business-day waiting period based on the early disclosures, and a 
change occurs that makes the APR inaccurate (as determined under Sec.  
226.22), the consumer must receive corrected disclosures before 
consummation. In that circumstance, the three-business-day waiting 
period in Sec.  226.19(a)(2) would apply unless the consumer provides a 
waiver after receiving the corrected disclosures. Proposed comment 
19(a)(3)-2 provides examples that illustrate whether a consumer who 
receives corrected disclosures does or does not need to provide a new 
modification or waiver statement.
    Under proposed Sec.  226.19(a)(3), the consumer must give the 
creditor a dated written statement describing the emergency and 
specifically modifying or waiving the waiting period(s). All consumers 
entitled to receive the disclosures would have to sign the statement. 
Proposed Sec.  226.19(a)(3) would prohibit the use of printed forms. 
The proposed provisions concerning the modification or waiver of the 
waiting periods are substantially similar to the provisions for waiving 
the right to rescind and waiving the three-business-day waiting period 
before consummating certain high-cost mortgage loans. See Sec. Sec.  
226.15(e), 226.23(e), and 226.31(c)(1)(iii). The Board solicits comment 
on the proposed modification or waiver procedures, especially whether 
such procedures should be more or less flexible than existing 
procedures for modifying or waiving the rescission right or the waiting 
period before high-cost consummating mortgage transactions covered by 
Sec.  226.32(a). In particular, the Board asks commenters to discuss 
any specific procedural or other adjustments the Board should make to 
implement the MDIA provisions that permit such modification or waiver.
    Proposed comment 19(a)(3)-1 clarifies that a consumer may modify or 
waive the required waiting period(s) only if the consumer has a bona 
fide personal financial emergency that must be met before the end of 
the waiting period(s). This comment is consistent with commentary on 
waiving the rescission period and the pre-consummation waiting period 
required for certain high-cost mortgage transactions. See comments 
15(e)-1, 23(e)-1, and 31(c)(1)(iii)-1. The proposed comment explains 
that whether a bona fide personal financial emergency exists would be 
determined by the facts surrounding individual circumstances. The 
imminent sale of the consumer's home at foreclosure during the three-
business-day waiting period is provided as an example. This example is 
the same as the example in existing staff commentary on modifying or 
waiving the waiting period required with certain high-cost mortgage 
loans. See comment 31(c)(1)(iii)-1.
    The Board solicits comment on whether under proposed Sec.  
226.19(a)(3) modification or waiver should be permitted only if the 
consumer's bona fide personal financial emergency must be met before 
the end of the required waiting period. The Board also requests comment 
on whether there are circumstances, other than pending foreclosure, 
where the consumer may want to consummate the transaction before the 
end of: (1) The seven-business-day waiting period after early 
disclosures are made; (2) the three-business-day waiting period, if the 
creditor is required to make corrected disclosures; or (3) either 
period.

F. Notice--Sec.  226.19(a)(4)

    The MDIA requires that the early disclosures contain a clear and 
conspicuous notice containing the following statement: ``You are not 
required to complete this agreement merely because you have received 
these disclosures or signed a loan application.'' Under proposed Sec.  
226.19(a)(4), creditors would have to include that statement in the 
early disclosures, as well as in any corrected disclosures required by 
Sec.  226.19(a)(2). The Board expects that requiring the notice in 
corrected disclosures would impose minimal, if any, burden on 
creditors. The Board requests comment on proposed Sec.  226.19(a)(4), 
including any benefits to consumers or burdens to creditors that may 
result from the proposed requirement. The Board also solicits comment 
on whether the statement should be provided in substantially similar 
form using terms that are easier for consumers to understand.

G. Timeshare Plans--Sec.  226.19(a)(5)

    Proposed Sec.  226.19(a)(5) sets forth the requirements for 
extensions of credit secured by a consumer's interest in a ``timeshare 
plan'' (timeshare transactions), as defined in the bankruptcy laws (see 
11 U.S.C. Sec.  101(53D)). Pursuant to amendments made to the MDIA in 
the Stabilization Act, the disclosure requirements and the fee 
restriction added by the MDIA are not applicable to these transactions, 
which instead are subject to the same early disclosure requirements 
that applied to ``residential mortgage transactions'' under TILA 
Section 128(b)(2) before the MDIA was enacted. Accordingly, for 
timeshare transactions creditors must make good faith estimates of the 
disclosures required by Sec.  226.18 before credit is extended, or must 
deliver or place the early disclosures in the mail within three 
business days (days the creditor's offices are open to the public for 
substantially all business functions) after the creditor receives the 
consumer's application, whichever is earlier. The seven-business-day 
waiting period and three-business-day waiting period before 
consummation, contained in proposed Sec. Sec.  226.19(a)(1)(i) and 
226.19(a)(2) respectively, do not apply to timeshare transactions.
    If the APR stated in the early disclosures changes beyond the 
specified tolerance, proposed Sec.  226.19(a)(5)(iii) requires 
creditors to disclose all the changed terms no later than consummation 
or settlement of the transaction. This is consistent with the existing 
rules for residential mortgage transactions in Sec.  226.19(a)(2). The 
discussion in proposed comment 19(a)(5)(iii)-1 of disclosing changed 
terms no later than ``consummation'' or ``settlement'' for timeshare 
transactions is based on current comments 19(a)(2)-3 and 19(a)(2)-4. 
Currently, comment 19(a)(2)-3 states that ``consummation'' is defined 
in Sec.  226.2(a), whereas ``date of settlement'' is defined in HUD's 
Regulation X (24 CFR 3500.2(a)). Comment 19(a)(2)-4 currently explains 
that when a creditor delays redisclosure until settlement, which may be 
at a time later than consummation, disclosures may be based on the 
terms in effect at settlement, rather than the terms in effect at 
settlement. As discussed above,

[[Page 74993]]

for transactions other than timeshare transactions, the MDIA amends 
TILA to remove reference to ``settlement'' from TILA's provisions 
requiring creditors to make corrected disclosures. Under the MDIA, 
consumers must receive any corrected disclosures at least three 
business days before consummation.
    The Board solicits comment on the costs and benefits of basing the 
timing requirements for corrected disclosures solely on the time of 
consummation, for purposes of non-timeshare transactions, but on the 
time of consummation or settlement, for purposes of timeshare 
transactions. If Regulation Z's timing requirements for corrected 
disclosures should be consistent for timeshare transactions and non-
timeshare transactions, should Regulation Z require creditors to make 
corrected disclosures at the time of consummation (rather than the time 
of consummation or settlement), for purposes of timeshare transactions? 
Or should Regulation Z require creditors to make corrected disclosures 
three business days before the later of consummation or settlement, for 
purposes of covered transactions other than timeshare transactions?

H. Solicitation of Comments on Timing of Disclosures for Home Equity 
Lines of Credit

    The MDIA applies only to closed-end loans secured by a consumer's 
dwelling and does not affect the disclosure requirements for open-end 
credit plans secured by a dwelling (home equity lines of credit, or 
HELOCs). In connection with the Board's comprehensive review of 
mortgage transactions, the Board's staff is currently reviewing the 
content and format of HELOC disclosures and subjecting them to consumer 
testing. A proposal to improve the disclosures is anticipated next 
year. To aid in this review, the Board seeks comment on whether it is 
necessary or appropriate to change the timing of HELOC disclosures and, 
if so, what changes should be made.
    Under current rules, consumers typically receive non-transaction 
specific disclosures describing the creditor's HELOC plan at the time 
they receive an application. See 12 CFR 226.5b. Creditors must provide 
more detailed disclosures at account opening, before the first 
transaction. See 12 CFR 226.6. The Board seeks comment on whether 
transaction-specific disclosures (such as the APR, an itemization of 
fees, and potential payment amounts) should be required after 
application but significantly earlier than account opening, at least in 
some circumstances. For example, many consumers take a major draw on 
the account as soon as they open it. These consumers may use the funds 
to finance a home purchase (usually, but not necessarily, with a 
simultaneous closed-end loan) or an immediate expense (such as a 
college tuition bill). Would a requirement to disclose final HELOC 
terms, including the APR and fees, three days before account opening 
substantially benefit consumers who plan to draw immediately? Comment 
is also solicited on the potential costs and whether they would 
outweigh potential benefits.

III. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the 
proposed rule under the authority delegated to the Board by the Office 
of Management and Budget (OMB). The collection of information that is 
required by this proposed rule is found in 12 CFR part 226. The Federal 
Reserve may not conduct or sponsor, and an organization is not required 
to respond to, this information collection unless the information 
collection displays a currently valid OMB control number. The OMB 
control number is 7100-0199.
    This information collection is required to provide benefits for 
consumers and is mandatory (15 U.S.C. 1601 et seq.). Since the Federal 
Reserve does not collect any information, no issue of confidentiality 
arises. The respondents/recordkeepers are creditors and other entities 
subject to Regulation Z, including for-profit financial institutions 
and small businesses.
    TILA and Regulation Z are intended to ensure effective disclosure 
of the costs and terms of credit to consumers. For open-end credit, 
creditors are required to, among other things, disclose information 
about the initial costs and terms and to provide periodic statements of 
account activity, notice of changes in terms, and statements of rights 
concerning billing error procedures. Regulation Z requires specific 
types of disclosures for credit and charge card accounts and home 
equity plans. For closed-end loans, such as mortgage and installment 
loans, cost disclosures are required to be provided prior to 
consummation. Special disclosures are required in connection with 
certain products, such as reverse mortgages, certain variable-rate 
loans, and certain mortgages with rates and fees above specified 
thresholds. TILA and Regulation Z also contain rules concerning credit 
advertising. Creditors are required to retain evidence of compliance 
for twenty-four months (Sec.  226.25), but Regulation Z does not 
specify the types of records that must be retained.
    Under the PRA, the Federal Reserve accounts for the paperwork 
burden associated with Regulation Z for the state member banks and 
other creditors supervised by the Federal Reserve that engage in 
lending covered by Regulation Z and, therefore, are respondents under 
the PRA. Appendix I of Regulation Z defines the Federal Reserve-
regulated institutions as: State member banks, branches and agencies of 
foreign banks (other than federal branches, federal agencies, and 
insured state branches of foreign banks), commercial lending companies 
owned or controlled by foreign banks, and organizations operating under 
section 25 or 25A of the Federal Reserve Act. Other federal agencies 
account for the paperwork burden imposed on the entities for which they 
have administrative enforcement authority. The current total annual 
burden to comply with the provisions of Regulation Z is estimated to be 
578,847 hours for the 1,138 Federal Reserve-regulated institutions that 
are deemed to be respondents for the purposes of the PRA. To ease the 
burden and cost of complying with Regulation Z (particularly for small 
entities), the Federal Reserve provides model forms, which are appended 
to the regulation.
    The proposed rule would impose a one-time increase in the total 
annual burden under Regulation Z for all respondents regulated by the 
Federal Reserve by 9,104 hours, from 578,847 to 587,951 hours.
    The total estimated burden increase, as well as the estimates of 
the burden increase associated with each major section of the proposed 
rule as set forth below, represents averages for all respondents 
regulated by the Federal Reserve. The Federal Reserve expects that the 
amount of time required to implement each of the proposed changes for a 
given institution may vary based on the size and complexity of the 
respondent. Furthermore, the burden estimate for this rulemaking does 
not include the burden addressing changes to format, timing, and 
content requirements for the credit disclosures governed by Regulation 
Z as announced in a separate proposed rulemaking (Docket No. R-1286).
    The Federal Reserve estimates that 1,138 respondents regulated by 
the Federal Reserve would take, on average, 8 hours (one business day) 
to update their systems to comply with the proposed disclosure 
requirements in Sec. Sec.  226.17 and 226.19. This one-time revision 
would increase the burden by 9,104 hours.

[[Page 74994]]

    The other federal agencies are responsible for estimating and 
reporting to OMB the total paperwork burden for the institutions for 
which they have administrative enforcement authority. They may, but are 
not required to, use the Federal Reserve's burden estimation 
methodology. Using the Federal Reserve's method, the total current 
estimated annual burden for all financial institutions subject to 
Regulation Z, including Federal Reserve-supervised institutions, would 
be approximately 11,671,017 hours. The proposed rule would increase the 
estimated annual burden for all institutions subject to Regulation Z by 
137,600 hours to 11,808,617 hours. The above estimates represent an 
average across all respondents and reflect variations between 
institutions based on their size, complexity, and practices. All 
covered institutions, of which there are approximately 17,200, are 
potentially affected by this collection of information, and thus are 
respondents for purposes of the PRA.
    Comments are invited on: (1) Whether the proposed collection of 
information is necessary for the proper performance of the Federal 
Reserve's functions; including whether the information has practical 
utility; (2) the accuracy of the Federal Reserve's estimate of the 
burden of the proposed information collection, including the cost of 
compliance; (3) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (4) ways to minimize the burden of 
information collection on respondents, including through the use of 
automated collection techniques or other forms of information 
technology. Comments on the collection of information should be sent to 
Michelle Shore, Federal Reserve Board Clearance Officer, Division of 
Research and Statistics, Mail Stop 151-A, Board of Governors of the 
Federal Reserve System, Washington, DC 20551, with copies of such 
comments sent to the Office of Management and Budget, Paperwork 
Reduction Project (7100-0199), Washington, DC 20503.

IV. Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612, generally 
requires an agency to perform an assessment of the impact a rule is 
expected to have on small entities.\3\ However, under Section 605(b) of 
the RFA, 5 U.S.C. 605(b), the regulatory flexibility analysis otherwise 
required under section 604 of the RFA is not required if an agency 
certifies, along with a statement providing the factual basis for such 
certification, that the rule will not have a significant economic 
impact on a substantial number of small entities. The Board believes 
that this proposed rule will not have a significant economic impact on 
a substantial number of small entities. The proposed amendments to 
Regulation Z are narrowly designed to implement the revisions to the 
Truth in Lending Act (TILA) made by the MDIA. Creditors must comply 
with the MDIA's requirements when they become effective on July 30, 
2009, whether or not the Board amends Regulation Z as proposed. The 
Board's proposal is intended to facilitate compliance by eliminating 
inconsistencies between Regulation Z's existing requirements and the 
statutory requirements imposed by the MDIA starting July 30, 2009. A 
final regulatory flexibility analysis will be conducted after 
consideration of comments received during the public comment period. 
The Board requests public comment in the areas discussed below.
---------------------------------------------------------------------------

    \3\ Under standards the U.S. Small Business Administration sets 
(SBA), an entity is considered ``small'' if it has $175 million or 
less in assets for banks and other depository institutions; and $6.5 
million or less in revenues for non-bank mortgage lenders, mortgage 
brokers, and loan servicers. U.S. Small Business Administration, 
Table of Small Business Size Standards Matched to North American 
Industry Classification System Codes, available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
---------------------------------------------------------------------------

A. Reasons for the Proposed Rule

    Congress enacted the TILA based on findings that economic stability 
would be enhanced and competition among consumer credit providers would 
be strengthened by the informed use of credit resulting from consumers' 
awareness of the cost of credit. One of the stated purposes of TILA is 
to provide a meaningful disclosure of credit terms to enable consumers 
to compare credit terms available in the marketplace more readily and 
avoid the uninformed use of credit. TILA also contains procedural and 
substantive protections for consumers. TILA directs the Board to 
prescribe regulations to carry out the purposes of the statute. The 
Board's Regulation Z implements TILA.
    Congress enacted the Mortgage Disclosure Improvement Act of 2008 
(MDIA) in 2008 as an amendment to TILA. The MDIA amends TILA's special 
disclosure requirements for closed-end mortgage transactions that are 
secured by a consumer's dwelling and subject to the Real Estate 
Settlement Procedures Act (RESPA). In July 2008, the Board revised 
Regulation Z to expand the number of transactions in which creditors 
must give a good faith estimate of the required disclosures (``early 
disclosures''). Previously, early disclosures were required only for 
loans made to finance the purchase or initial construction of a 
consumer's principal dwelling. Under the July 2008 final rule, 
creditors must provide early disclosures for any transaction secured by 
the consumer's principal dwelling, such as a home refinance loan or 
home equity loan. The MDIA amends TILA to require early disclosures for 
consumer loans secured by any dwelling, even if it is not the 
consumer's principal dwelling. As explained in parts I and II of the 
SUPPLEMENTARY INFORMATION, the proposal would require creditors to 
delay consummating a loan for seven business days after the creditor 
makes early disclosures, and three business days after the consumer 
receives any required corrected disclosures.

B. Statement of Objectives and Legal Basis

    Parts I and II of the SUPPLEMENTARY INFORMATION contain a detailed 
discussion of the objectives and legal basis for this proposed 
rulemaking. In summary, the proposed amendments to Regulation Z are 
designed to implement changes that the MDIA makes to TILA. The legal 
basis for the proposed rule is in Section 105(a) of TILA.

C. Description of Small Entities to Which the Proposed Rule Would Apply

    The proposed regulations would apply to all institutions and 
entities that engage in closed-end dwelling-secured lending for 
consumer purposes that is subject to RESPA. TILA and Regulation Z have 
broad applicability to individuals and businesses that originate even 
small numbers of home-secured loans. See Sec.  226.1(c)(1). The Board 
is not aware of a reliable source for the total number or asset sizes 
of small entities likely to be affected by the proposal. However, 
through data from Reports of Condition and Income (``Call Reports'') of 
depository institutions and certain subsidiaries of banks and bank 
companies, as well as data reported under the Home Mortgage Disclosure 
Act (HMDA),\4\ the Board can estimate

[[Page 74995]]

the approximate number of small depository institutions that would be 
subject to the proposed rules. For the majority of HMDA respondents 
that are not depository institutions, exact asset size information is 
not available, although the Board has somewhat reliable estimates based 
on self-reporting from approximately five percent of the non-depository 
respondents.
---------------------------------------------------------------------------

    \4\ HMDA requires lenders to report information annually to 
their federal supervisory agencies for each application and loan 
acted on during the calendar year. See 12 U.S.C. 2801 et seq. The 
loans reported are estimated to represent about 80 percent of all 
home lending nationwide and therefore are likely to be broadly 
representative of home lending in the United States. Robert B. 
Avery, and Kenneth P. Brevoort, and Glenn B. Canner, The 2007 HMDA 
Data, 84 Federal Reserve Bulletin (forthcoming 2008) (2007 HMDA 
Data) at 2, http://www.federalreserve.gov/pubs/bulletin/2008/pdf/hmda07draft.pdf.
---------------------------------------------------------------------------

    Based on the best information available, the Board makes the 
following estimate of small entities that would be affected by this 
proposed rule: According to June 2008 Call Report data, approximately 
9,670 small depository institutions would be subject to the proposed 
rule. Approximately 16,966 depository institutions in the United States 
filed Call Report data, approximately 12,392 of which had total 
domestic assets of $175 million or less and thus were considered small 
entities for purposes of the RFA. Of 4,387 banks, 588 thrifts and 7,278 
credit unions that filed Call Report data and were considered small 
entities, 4,236 banks, 553 thrifts, and 4,881 credit unions, totaling 
9,670 institutions, extended mortgage credit. For purposes of this Call 
Report analysis, thrifts include savings banks, savings and loan 
entities, co-operative banks and industrial banks. Further, HMDA data 
reported in 2008 (for 2007 lending activities) indicate that 1,752 non-
depository institutions (independent mortgage companies, subsidiaries 
of a depository institution, or affiliates of a bank holding company) 
filed HMDA reports in 2008 for 2007 lending activities.\5\ Based on the 
small volume of lending activity reported by these institutions, most 
are likely to be small entities. In connection with its proposed 
amendments to Regulation Z to implement the MDIA, the Board invites 
comment and information on the number and type of small entities that 
originate loans secured by a consumer's dwelling and subject to RESPA.
---------------------------------------------------------------------------

    \5\ 2007 HMDA Data at 5-6 and tbl. 2.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    The compliance requirements of the proposed rules are described in 
parts I and II of the SUPPLEMENTARY INFORMATION. The effect of the 
proposed revisions to Regulation Z on small entities is unknown. To 
comply with the revised rules, many small entities would be required to 
modify their procedures for making credit disclosures for dwelling-
secured mortgage transactions. The precise costs to small entities of 
updating their systems and disclosures are difficult to predict. These 
costs will depend on a number of unknown factors, including, among 
other things, the specifications of the current systems used by such 
entities to prepare and provide disclosures. The Board believes that 
these costs will not have a significant economic effect on small 
entities. The Board seeks information and comment on any costs, 
compliance requirements, or changes in operating procedures arising 
from the application of the proposed rule to small institutions.

E. Identification of Duplicative, Overlapping, or Conflicting Federal 
Rules

    The Board has not identified any federal rules that conflict with 
the proposed revisions to Regulation Z. As discussed in part II of the 
SUPPLEMENTARY INFORMATION, TILA and the Board's proposed revisions to 
Regulation Z overlap with RESPA and HUD's Regulation X, which 
implements RESPA. TILA's purpose is to inform consumers about loan 
terms, and RESPA's is to inform consumers about settlement costs. These 
laws overlap with one another because settlement costs may include loan 
origination fees, and consumers may finance their settlement costs. 
Moreover, the Board's proposed revisions overlap with Regulation X, as 
revised by HUD in November 2008, in at least three ways. First, the 
proposed revisions apply to an extension of credit that is both secured 
by a consumer's dwelling and subject to RESPA. Second, the proposed 
revisions continue to cross-reference the definition of ``application'' 
under Regulation X. Third, the time period following application, 
within which creditors would have to make early disclosures under the 
Board's proposed rule, is the same as the time period within which 
creditors must make good faith estimates of settlement costs under 
RESPA--within three business days following application. Moreover, the 
proposed early disclosure requirements use a definition of ``business 
day'' that is consistent with the ``business day'' definition under 
Regulation X.
    The MDIA amends TILA to base timing requirements for corrected 
disclosures on the date of ``consummation''--rather than on the later 
of ``consummation'' and ``settlement''--for purposes of timing rules 
for most, but not all, mortgage transactions secured by a consumer's 
dwelling. Therefore, for most dwelling-secured mortgage transactions, 
the Board's proposed revisions to Regulation Z would remove references 
to ``settlement,'' a term defined in Regulation X. These revisions to 
Regulation Z and associated commentary thus would reduce overlap with 
Regulation X. However, the MDIA's timing requirements for corrected 
disclosures for transactions secured by a consumer's interest in a 
timeshare plan refer both to ``consummation'' and ``settlement.'' The 
Board is requesting comment the costs and benefits of basing the timing 
requirements for corrected disclosures solely on the time of 
consummation, for purposes of non-timeshare transactions, but on the 
time of consummation or settlement, for purposes of timeshare 
transactions.

F. Identification of Duplicative, Overlapping, or Conflicting State 
Laws

    Certain sections of the proposed rules may result in inconsistency 
with certain state laws. The closed-end credit disclosure requirements 
in TILA that the proposed rules would implement do not annul, alter, or 
affect the laws of any State relating to the disclosure of information 
in connection with credit transactions, except to the extent those laws 
are inconsistent with TILA, and then only to the extent of the 
inconsistency. See 15 U.S.C. 1610(a); 12 CFR 226.28(a)(1). Interested 
parties may request that the Board determine whether any such 
inconsistency exists, in accordance with procedures prescribed in the 
Board's regulations. The Board seeks comment regarding any state or 
local statutes or regulations that would duplicate, overlap, or 
conflict with the proposed rule.

G. Discussion of Significant Alternatives

    The Board does not believe that reasonable alternatives to the 
proposed rule as a whole exist for implementing the MDIA's disclosure 
requirements for closed-end mortgage transactions secured by a 
consumer's dwelling and subject to RESPA. The Board is proposing 
regulations for the narrow purpose of carrying out its statutory 
mandate to implement the Truth in Lending Act, as amended by the MDIA. 
The Board nevertheless welcomes comments on any significant 
alternatives, consistent with the MDIA's requirements, that would 
minimize the impact of the proposed rule on small entities.

List of Subjects in 12 CFR Part 226

    Advertising, Consumer protection, Federal Reserve System, 
Mortgages, Reporting and recordkeeping requirements, Truth in lending.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
revisions.

[[Page 74996]]

New language, compared to the Regulation Z amendments the Board adopted 
in the July 2008 final rule (73 FR 44522; July 30, 2008), is shown 
inside bold arrows, and language that would be deleted is set off with 
bold brackets.

Authority and Issuance

    For the reasons set forth in the preamble, the Board proposes to 
amend Regulation Z, 12 CFR part 226, as set forth below:

PART 226--TRUTH IN LENDING (REGULATION Z)

    1. The authority citation for part 226 continues to read as 
follows:

    Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), and 
1639(l).

Subpart A--General

    2. Section 226.2 is amended by revising paragraph (a)(6) to read as 
follows:


Sec.  226.2  Definitions and rules of construction.

    (a) * * *
    (6) Business Day means a day on which the creditor's offices are 
open to the public for carrying on substantially all of its business 
functions. However, for purposes of rescission under Sec. Sec.  226.15 
and 226.23, and for purposes of Sec.  226.19(a)(1)(ii) [rtrif], Sec.  
226.19(a)(2),[ltrif] and Sec.  226.31, the term means all calendar days 
except Sundays and the legal public holidays specified in 5 U.S.C. 
6103(a), such as New Year's Day, the Birthday of Martin Luther King, 
Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, 
Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
* * * * *

Subpart C--Closed-End Credit

    3. Section 226.17 is amended by revising paragraph (f) to read as 
follows:


Sec.  226.17  General disclosure requirements.

* * * * *
    (f) Early disclosures. If disclosures required by this subpart are 
given before the date of consummation of a transaction and a subsequent 
event makes them inaccurate, the creditor shall disclose before 
consummation [lsqbb](except that, for certain mortgage transactions, 
Sec.  226.19 permits redisclosure no later than consummation or 
settlement, whichever is later).[rsqbb][rtrif](subject to the 
provisions of Sec.  226.19(a)(2) and Sec.  226.19(a)(5)(iii)):[ltrif] 
\39\
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    \39\ [Reserved.]
---------------------------------------------------------------------------

* * * * *
    4. Section 226.19 is amended by revising paragraphs (a)(1)(i) and 
(a)(2), and adding new paragraphs (a)(3), (a)(4), and (a)(5), to read 
as follows:


Sec.  226.19  Certain mortgage and variable-rate transactions.

    (a) Mortgage transactions subject to RESPA--(1)(i) Time of 
disclosures. In a mortgage transaction subject to the Real Estate 
Settlement Procedures Act (12 U.S.C. 2601 et seq.) that is secured by 
the consumer's [lsqbb]principal[rsqbb] dwelling, other than a home 
equity line of credit subject to Sec.  226.5b [rtrif]or mortgage 
transaction subject to paragraph (a)(5) of this section[ltrif], the 
creditor shall make good faith estimates of the disclosures required by 
Sec.  226.18 [lsqbb]before consummation, or shall 
deliver[rsqbb][rtrif]. The creditor shall deliver[rsqbb] these good 
faith estimates[ltrif] or place them in the mail not later than three 
business days after the creditor receives the consumer's written 
application, [lsqbb]whichever is earlier.[rsqbb][rtrif]and at least 
seven business days before consummation of the transaction.[ltrif]
* * * * *
    (2) Redisclosure required. [lsqbb]If the annual percentage rate at 
the time of consummation varies from the annual percentage rate 
disclosed earlier by more than \1/8\ of 1 percentage point in a regular 
transaction or more than \1/4\ of 1 percentage point in an irregular 
transaction, as defined in Sec.  226.22, the creditor shall disclose 
all the changed terms no later than consummation or 
settlement.[rsqbb][rtrif]If the annual percentage rate disclosed in the 
good faith estimates required by paragraph (a)(1) of this section 
becomes inaccurate under Sec.  226.22, the creditor shall make 
corrected disclosures to the consumer under Sec.  226.18 with an 
accurate annual percentage rate, as determined under Sec.  226.22, and 
all changed terms. The consumer must receive the corrected disclosures 
no later than three business days before consummation. If the 
disclosures required under this paragraph are mailed to the consumer, 
the consumer is deemed to have received the disclosures three business 
days after they are mailed.
    (3) Consumer's waiver of waiting period before consummation. If the 
consumer determines that the extension of credit is needed to meet a 
bona fide personal financial emergency, the consumer may modify or 
waive the seven-business-day waiting period required by paragraph 
(a)(1)(i) of this section or the three-business-day waiting period 
required by paragraph (a)(2) of this section, after receiving the 
disclosures required by Sec.  226.18. To modify or waive a waiting 
period, the consumer shall give the creditor a dated written statement 
that describes the emergency, specifically modifies or waives the 
waiting period, and bears the signature of all the consumers entitled 
to receive the disclosures. Printed forms for this purpose are 
prohibited.
    (4) Notice. Disclosures made pursuant to paragraph (a)(1) or 
paragraph (a)(2) of this section shall contain the following statement: 
``You are not required to complete this agreement merely because you 
have received these disclosures or signed a loan application.''
    (5) Timeshare plans. In a mortgage transaction subject to the Real 
Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.) that is 
secured by a consumer's interest in a timeshare plan described in 11 
U.S.C. 101(53D)):
    (i) The requirements of paragraph (a)(1) through (a)(4) of this 
section do not apply;
    (ii) The creditor shall make good faith estimates of the 
disclosures required by Sec.  226.18 before consummation, or shall 
deliver or place them in the mail not later than three business days 
after the creditor receives the consumer's written application, 
whichever is earlier; and
    (iii) If the annual percentage rate at the time of consummation 
varies from the annual percentage rate disclosed under paragraph 
(a)(5)(ii) of this section by more than \1/8\ of 1 percentage point in 
a regular transaction or more than \1/4\ of 1 percentage point in an 
irregular transaction, as defined in Sec.  226.22, the creditor shall 
disclose all the changed terms no later than consummation or 
settlement.[ltrif]
* * * * *
    5. In Supplement I to Part 226, under Section 226.2--Definitions 
and Rules of Construction, 2(a) Definitions, 2(a)(6) Business day, 
paragraph 2(a)(6)-2 is revised to read as follows:

Supplement I to Part 226--Official Staff Interpretations

* * * * *

Subpart A--General

* * * * *

Section 226.2--Definitions and Rules of Construction

    2(a) Definitions.
* * * * *
    2(a)(6) Business day.
* * * * *
    2. [lsqbb]Rescission rule[rsqbb][rtrif]Rule for rescission and 
disclosures for certain mortgage

[[Page 74997]]

transactions[ltrif]. A more precise rule for what is a business day 
(all calendar days except Sundays and the federal legal holidays 
specified in 5 U.S.C. 6103(a)) applies when the right of rescission 
or the receipt of disclosures for certain [rtrif]dwelling-
secured[ltrif] mortgage transactions under Sec. Sec.  
226.19(a)(1)(ii), [rtrif]226.19(a)(2),[ltrif] or [lsqbb]mortgages 
subject to Sec.  226.32 are[rsqbb] 226.31(c) [rtrif]is[ltrif] 
involved. [lsqbb](See also comment 31(c)(1)-1.)[rsqbb] Four federal 
legal holidays are identified in 5 U.S.C. 6103(a) by a specific 
date: New Year's Day, January 1; Independence Day, July 4; Veterans 
Day, November 11; and Christmas Day, December 25. When one of these 
holidays (July 4, for example) falls on a Saturday, federal offices 
and other entities might observe the holiday on the preceding Friday 
(July 3). [lsqbb]The[rsqbb][rtrif]In cases where the more precise 
rule applies, the[ltrif] observed holiday (in the example, July 3) 
is a business day [lsqbb]for purposes of rescission or the delivery 
of disclosures for certain high-cost mortgages covered by Sec.  
226.32[rsqbb].
* * * * *

Subpart C--Closed-End Credit

    6. In Supplement I to Part 226, under Section 226.19--Certain 
Mortgage and Variable-Rate Transactions, 19(a)(1)(i) Time of 
disclosure, paragraphs 19(a)(1)(i)-1 through 19(a)(1)(i)-5 are revised 
and new paragraph 19(a)(1)(i)-6 is added, heading Paragraph 19(a)(2) 
Redisclosure required and paragraphs 19(a)(2)-1 through 19(a)(2)-3 are 
revised and paragraph 19(a)(2)-4 is removed, new heading 19(a)(3) 
Consumer's waiver of waiting period before consummation and new 
paragraphs 19(a)(3)-1 and 19(a)(3)-2 are added, new heading 
19(a)(5)(ii) Time of disclosures for timeshare plans and new paragraph 
19(a)(5)(ii)-1 are added, and new heading 19(a)(5)(iii) Redisclosure 
for timeshare plans and new paragraph 19(a)(5)(iii)-1 are added, to 
read as follows:

Section 226.19--Certain Mortgage and Variable-Rate Transactions

    19(a)(1)(i) Time of disclosure.
    1. Coverage. This section requires early disclosure of credit 
terms in mortgage transactions that are secured by a consumer's 
[lsqbb]principal[rsqbb] dwelling [rtrif](other than home equity 
lines of credit subject to Sec.  226.5b or mortgage transactions 
secured by an interest in a timeshare plan)[ltrif] and also subject 
to the Real Estate Settlement Procedures Act (RESPA) and its 
implementing Regulation X, administered by the Department of Housing 
and Urban Development (HUD). To be covered by Sec.  226.19, a 
transaction must be a federally related mortgage loan under RESPA. 
``Federally related mortgage loan'' is defined under RESPA (12 
U.S.C. 2602) and Regulation X (24 CFR 3500.2), and is subject to any 
interpretations by HUD. [lsqbb]RESPA coverage includes such 
transactions as loans to purchase dwellings, refinancings of loans 
secured by dwellings, and subordinate-lien home-equity loans, among 
others. Although RESPA coverage relates to any dwelling, Sec.  
226.19(a) applies to such transactions if they are secured by a 
consumer's principal dwelling. Also, home equity lines of credit 
subject to Sec.  226.5b are not covered by Sec.  226.19(a). For 
guidance on the applicability of the Board's revisions to Sec.  
226.19(a) published on July 30, 2008, see comment 1(d)(5)-1.[rsqbb]
    2. Timing and use of estimates. [lsqbb]Truth in Lending 
disclosures must be given[rsqbb][rtrif]The disclosures required by 
Sec.  226.19(a)(1)(i) must be delivered or mailed[ltrif] [lsqbb](a) 
before consummation or (b) within[rsqbb][rtrif]not later than[ltrif] 
three business days after the creditor receives the consumer's 
written application[lsqbb], whichever is earlier.[rsqbb] [rtrif]and 
at least seven business days before consummation. The general 
definition of ``business day'' in Sec.  226.2(a)(6)--a day on which 
the creditor's offices are open to the public for substantially all 
of its business functions--is used for purposes of Sec.  
226.19(a)(1)(i). See comment 2(a)(6)-1. This general definition is 
consistent with the definition of ``business day'' in HUD's 
Regulation X--a day on which the creditor's offices are open to the 
public for carrying on substantially all of its business functions. 
See 24 CFR 6500.2. Accordingly, the[ltrif][lsqbb]The[rsqbb] 
three[rtrif]-business-[ltrif]day period in Sec.  226.19(a)(1)(i) for 
making early disclosures coincides with the time period within which 
creditors subject to RESPA must provide good faith estimates of 
settlement costs. If the creditor does not know the precise credit 
terms, the creditor must base the disclosures on the best 
information reasonably available and indicate that the disclosures 
are estimates under Sec.  226.17(c)(2). If many of the disclosures 
are estimates, the creditor may include a statement to that effect 
(such as ``all numerical disclosures except the late-payment 
disclosure are estimates'') instead of separately labelling each 
estimate. In the alternative, the creditor may label as an estimate 
only the items primarily affected by unknown information. (See the 
commentary to Sec.  226.17(c)(2).) The creditor may provide 
explanatory material concerning the estimates and the contingencies 
that may affect the actual terms, in accordance with the commentary 
to Sec.  226.17(a)(1).)
    3. Written application. Creditors may rely on RESPA and 
Regulation X (including any interpretations issued by HUD) in 
deciding whether a ``written application'' has been received. In 
general, Regulation X [lsqbb]requires disclosures ``to every person 
from whom the Lender receives or for whom it prepares a written 
application on an application form or forms normally used by the 
Lender for a Federally Related Mortgage Loan'' (See 24 CFR 
3500.6(a)).[rsqbb][rtrif]defines ``application'' to mean the 
submission of a borrower's financial information in anticipation of 
a credit decision relating to a federally related mortgage loan. See 
24 CFR 3500.2(b).[ltrif] An application is received when it reaches 
the creditor in any of the ways applications are normally 
transmitted--by mail, hand delivery, or through an intermediary 
agent or broker. (See comment 19(b)-3 for guidance in determining 
whether or not the transaction involves an intermediary agent or 
broker.) If an application reaches the creditor through an 
intermediary agent or broker, the application is received when it 
reaches the creditor, rather than when it reaches the agent or 
broker.
    4. Exceptions. The creditor may determine within the three-
[rtrif]business-[ltrif]day period that the application will not or 
cannot be approved on the terms requested, as, for example, when a 
consumer applies for a type or amount of credit that the creditor 
does not offer, or the consumer's application cannot be approved for 
some other reason. In that case, the creditor need not make the 
disclosures under this section. If the creditor fails to provide 
early disclosures and the transaction is later consummated on the 
original terms, the creditor will be in violation of this provision. 
If, however, the consumer amends the application because of the 
creditor's unwillingness to approve it on its original terms, no 
violation occurs for not providing disclosures based on the original 
terms. But the amended application is a new application subject to 
Sec.  226.19(a)(1)(i).
    5. Itemization of amount financed. In many mortgage 
transactions, the itemization of the amount financed required by 
Sec.  226.18(c) will contain items, such as origination fees or 
points, that also must be disclosed as part of the good faith 
estimates of settlement costs required under RESPA. Creditors 
furnishing the RESPA good faith estimates need not give consumers 
any itemization of the amount financed, either with the disclosures 
provided within three [rtrif]business[ltrif] days after application 
or with the disclosures [rtrif]required by Sec.  226.19(a)(2) 
and[ltrif] given [lsqbb]at[rsqbb][rtrif]three business days 
before[ltrif] consummation [lsqbb]or settlement[rsqbb].
    [rtrif]6. Consummation. The following examples illustrate when 
consummation may occur under Sec.  226.19(a)(1)(i) in different 
circumstances:
    i. A creditor that is open for business only Monday through 
Friday delivers the early disclosures to the consumer in person or 
places them in the mail on Monday, June 1. Consummation may occur on 
or after Wednesday, June 10, the seventh business day following 
delivery or mailing of the early disclosures.
    ii. A creditor that is open for business seven days per week 
delivers the early disclosures to the consumer in person or places 
them in the mail on Monday, June 1. Consummation may occur on or 
after Monday, June 8, the seventh business day following delivery or 
mailing of the early disclosures.[ltrif]
* * * * *
    [lsqbb]Paragraph[rsqbb] 19(a)(2) Redisclosure required.
    1. Conditions for redisclosure. [lsqbb]Creditors must make new 
disclosures if the annual percentage rate at consummation differs 
from the estimate originally disclosed by more than \1/8\ of 1 
percentage point in regular transactions or \1/4\ of 1 percentage 
point in irregular transactions, as defined in footnote 46 of Sec.  
226.22(a)(3). The creditor must also redisclose if a variable rate 
feature is added to the credit terms after the original disclosures 
have been made. The creditor has the option of redisclosing 
information under other circumstances, if it wishes to do

[[Page 74998]]

so.[rsqbb][rtrif]If, at the time of consummation, the APR disclosed 
as required by Sec.  226.19(a)(1)(i) is accurate under Sec.  226.22, 
the creditor has complied with Sec.  226.19(a)(2). If, on the other 
hand, the APR disclosed as required by Sec.  226.19(a)(1)(i) is not 
accurate under Sec.  226.22, the creditor must make corrected 
disclosures of all changed terms (including the APR) so that the 
consumer receives them at least three business days before 
consummation. For example, assume consummation is scheduled for 
Thursday, June 11 and the early disclosures for a regular mortgage 
transaction disclose an APR of 7.00%:
    i. On Thursday, June 11, the APR will be 7.10%. The creditor is 
not required to make corrected disclosures under Sec.  226.19(a)(2).
    ii. On Thursday, June 11, the APR will be 7.15%. The creditor 
must make corrected disclosures to the consumer on or before Monday, 
June 8.[ltrif]
    2. Content of new disclosures. If redisclosure is required, the 
creditor may provide a complete set of new disclosures, or may 
redisclose only the [rtrif]changed[ltrif] terms [lsqbb]that vary 
from those originally disclosed[rsqbb]. If the creditor chooses to 
provide a complete set of new disclosures, the creditor may but need 
not highlight the new terms, provided that the disclosures comply 
with the format requirements of Sec.  226.17(a). If the creditor 
chooses to disclose only the new terms, all the new terms must be 
disclosed. For example, a different annual percentage rate will 
almost always produce a different finance charge, and often a new 
schedule of payments; all of these changes would have to be 
disclosed. If, in addition, unrelated terms such as the amount 
financed or prepayment penalty vary from those originally disclosed, 
the accurate terms must be disclosed. However, no new disclosures 
are required if the only inaccuracies involve estimates other than 
the annual percentage rate, and no variable rate feature has been 
added.
    3. Timing. Redisclosures, when necessary [rtrif]because the 
annual percentage rate has become inaccurate[ltrif], must be 
[lsqbb]given[rsqbb][rtrif]received by the consumer[ltrif] no later 
than [lsqbb]``consummation or settlement.'' ``Consummation'' is 
defined in Sec.  226.2(a). ``Date of settlement'' is defined in 
Regulation X (24 CFR 3500.2(a)) and is subject to any 
interpretations issued under RESPA and Regulation 
X.[rsqbb][rtrif]three business days before consummation. (For 
redisclosures triggered by other events, the creditor must provide 
corrected disclosures before consummation. See Sec.  226.17(f).) For 
purposes of Sec.  226.19(a)(2), ``business day'' means all calendar 
days except Sundays and the legal public holidays referred to in 
Sec.  226.2(a)(6). See comment 2(a)(6)-2. If the creditor delivers 
the corrected disclosures to the consumer in person, consummation 
may occur any time on the third business day following delivery. If 
the creditor places the disclosures in the mail, the consumer is 
considered to have received them three business days after they are 
mailed. For example, if the creditor places the disclosures in the 
mail on Thursday, June 4, the disclosures are considered received on 
Monday, June 8 and consummation may occur any time on or after 
Thursday, June 11.[ltrif]
    [lsqbb]4. Basis of disclosures. In some cases, a creditor may 
delay redisclosure until settlement, which may be at a time later 
than consummation. If a creditor chooses to redisclose at 
settlement, disclosures may be based on the terms in effect at 
settlement, rather than at consummation. For example, in a variable-
rate transaction, a creditor may choose to base disclosures on the 
terms in effect at settlement despite the general rule in the 
commentary to Sec.  18(f) that variable-rate disclosures should be 
based on the terms in effect at consummation.[rsqbb]
    [rtrif]19(a)(3) Consumer's waiver of waiting period before 
consummation.
    1. Modification or waiver. A consumer may modify or waive the 
right to the waiting period required by Sec.  226.19(a)(1)(i) or 
Sec.  226.19(a)(2) only after the creditor makes the disclosures 
required by Sec.  226.18. The consumer must have a bona fide 
personal financial emergency that necessitates consummating the 
credit transaction before the end of the waiting period. Whether a 
bona fide personal financial emergency must be met before the end of 
the waiting period is determined by the facts surrounding individual 
situations. The imminent sale of the consumer's home at foreclosure 
during the waiting period is one example of a bona fide personal 
financial emergency. Each consumer entitled to receive the required 
disclosures must sign the written statement for the waiver to be 
effective.
    2. Examples. Assume the early disclosures are delivered to the 
consumer in person on Monday, June 1, and at that time the consumer 
executes a waiver of the seven-business-day waiting period (which 
would end on Tuesday, June 9) so that the loan can be consummated on 
Friday, June 5:
    i. If the APR on the early disclosures is inaccurate under Sec.  
226.22, the creditor must provide a corrected disclosure to the 
consumer before consummation, which triggers the three-business-day 
waiting period in Sec.  226.19(a)(2). After the consumer receives 
the corrected disclosure, the consumer must execute a waiver of the 
three-business-day waiting period in order to consummate the 
transaction on June 5.
    ii. If a change occurs that does not render the APR on the early 
disclosures inaccurate under Sec.  226.22, the creditor must 
disclose the changed terms before consummation, consistent with 
Sec.  226.17(f). Disclosure of the changed terms does not trigger an 
additional waiting period, and the transaction may be consummated on 
June 5 without obtaining an additional modification or waiver from 
the consumer.
    19(a)(5)(ii) Time of disclosures for timeshare plans.
    1. Timing and use of estimates. A mortgage transaction secured 
by a consumer's interest in a ``timeshare plan,'' as defined in 11 
U.S.C. 101(53D), that is also a federally related mortgage loan 
under RESPA is subject to the requirements of Sec.  226.19(a)(5) 
instead of the requirements of Sec.  226.19(a)(1) through Sec.  
226.19(a)(4). See comment 19(a)(1)(i)-1. Early disclosures for 
transactions subject to Sec.  226.19(a)(5) must be given (a) before 
consummation or (b) within three business days after the creditor 
receives the consumer's written application, whichever is earlier. 
The general definition of ``business day'' in Sec.  226.2(a)(6)--a 
day on which the creditor's offices are open to the public for 
substantially all functions--applies for purposes of Sec.  
226.19(a)(5)(ii). See comment 2(a)(6)-1. These timing requirements 
are different than the timing requirements under Sec.  
226.19(a)(1)(i). Although timeshare transactions covered by Sec.  
226.19(a)(5) are not subject to the seven-business-day waiting 
period in Sec.  226.19(a)(1)(i), in all other respects, the early 
disclosure requirements under Sec.  226.19(a)(5)(ii) apply in the 
same manner as the requirements under Sec.  226.19(a)(1)(i). For 
example, the commentary to Sec.  226.19(a)(1)(i) concerning the 
permissible use of estimates and the definition of ``written 
application'' under Sec.  226.19(a)(1)(i) also apply to Sec.  
226.19(a)(5)(ii). See comments 19(a)(1)(i)-2 and 19(a)(1)(i)-3.
    19(a)(5)(iii) Redisclosure for timeshare plans.
    1. Consummation or settlement. For extensions of credit secured 
by a consumer's timeshare plan, when corrected disclosures are 
required, they must be given no later than ``consummation or 
settlement.'' ``Consummation'' is defined in Sec.  226.2(a). 
``Settlement'' is defined in Regulation X (24 CFR 3500.2(b)) and is 
subject to any interpretations issued under RESPA and Regulation X. 
In some cases, a creditor may delay redisclosure until settlement, 
which may be at a time later than consummation. If a creditor 
chooses to redisclose at settlement, disclosures may be based on the 
terms in effect at settlement, rather than at consummation. For 
example, in a variable-rate transaction, a creditor may choose to 
base disclosures on the terms in effect at settlement, despite the 
general rule in the commentary to section 18(f) that variable-rate 
disclosures should be based on the terms in effect at consummation. 
Although the three-business-day waiting period in Sec.  226.19(a)(2) 
does not apply to timeshare transactions, in all other respects the 
requirements for corrected disclosures under Sec.  226.19(a)(5)(iii) 
apply in the same manner as the requirements under Sec.  
226.19(a)(2). For example, to make corrected disclosures, the 
creditor may provide a complete set of new disclosures or may 
redisclose only those terms that vary from those originally 
disclosed. See comment 19(a)(2)-2.[ltrif]

Supplement I to Part 226 [Amended]

    7. In Supplement I to Part 226, under Section 226.31--General 
Rules, heading Paragraph 31(c)(2) Disclosures for reverse mortgages and 
paragraph 31(c)(2)-1 are revised, to read as follows:

Subpart E--Special Rules for Certain Home Mortgage Transactions

* * * * *

Section 226.31--General Rules

* * * * *
    [lsqbb]Paragraph[rsqbb] 31(c)(2) Disclosures for reverse 
mortgages.
    1. Business days. For purposes of providing reverse mortgage 
disclosures,

[[Page 74999]]

``business day'' has the same meaning as in comment 31(c)(1)-
[lsqbb]2[rsqbb][rtrif]1[ltrif]--all calendar days except Sundays and 
the federal legal holidays listed in 5 U.S.C. 6103(a). This means if 
disclosures are provided on a Friday, consummation could occur any 
time on Tuesday, the third business day following receipt of the 
disclosures.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, December 4, 2008.
Jennifer J. Johnson,
Secretary of the Board.
 [FR Doc. E8-29123 Filed 12-9-08; 8:45 am]
BILLING CODE 6210-01-P