**DEPARTMENT OF THE TREASURY**

**Office of the Comptroller of the Currency**

**\[Docket ID OCC-2008-0007\]**

**FEDERAL RESERVE SYSTEM**

**\[Docket No. OP-1292\]**

**FEDERAL DEPOSIT INSURANCE CORPORATION**

**DEPARTMENT OF THE TREASURY**

**Office of Thrift Supervision**

**\[Docket No. OTS-2008-0003\]**

**NATIONAL CREDIT UNION ADMINISTRATION**

**Illustrations of Consumer Information for Hybrid Adjustable Rate
Mortgage Products**

**AGENCIES:** Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve System (Board); Federal
Deposit Insurance Corporation (FDIC); Office of Thrift Supervision,
Treasury (OTS); and National Credit Union Administration (NCUA)
(collectively, the Agencies).

**ACTION:** Final Guidance -- Illustrations of Consumer Information for
Hybrid Adjustable Rate Mortgage Products

**SUMMARY:** The Agencies are publishing four documents that set forth
Illustrations of Consumer Information for Hybrid Adjustable Rate
Mortgage Products. The illustrations are intended to assist institutions
in implementing the consumer protection portion of the Interagency
Statement on Subprime Mortgage Lending adopted on July 10, 2007, and in
providing information to consumers on subprime adjustable rate mortgage
(ARM) products as recommended by that interagency statement. The
illustrations are not model forms and institutions may choose not to use
them.

**EFFECTIVE DATE:** \[Insert Date of Publication in Federal Register\]

**FOR FURTHER INFORMATION CONTACT:**

[OCC]{.underline}: Michael Bylsma, Director, Stephen Van Meter,
Assistant Director, Carolle Kim, Attorney, Community and Consumer Law
Division, (202) 874-5750; or Joseph A. Smith, Group Leader, Mortgage
Banking & Securitization, Retail Credit Risk, (202) 874-5170.

[Board]{.underline}: Kathleen C. Ryan, Counsel, or Jamie Z. Goodson,
Attorney, Division of Consumer and Community Affairs, (202) 452-3667.
For users of Telecommunication Device for Deaf only, call (202)
263-4869.

[FDIC]{.underline}: Luke H. Brown, Associate Director, Compliance Policy
Branch, (202) 898-3842, Samuel Frumkin, Senior Policy Analyst, Division
of Supervision and Consumer Protection, (202) 898-6602; or Richard
Foley, Counsel, Legal Division, (202) 898-3784.

[OTS]{.underline}: Glenn Gimble, Senior Project Manager, Compliance and
Consumer Protection Division, (202) 906-7158, or Suzanne McQueen,
Consumer Regulations Analyst, Compliance and Consumer Protection
Division, (202) 906-6459.

[NCUA]{.underline}: Matthew J. Biliouris, Program Officer, Examination
and Insurance, (703) 518-6360.

**SUPPLEMENTARY INFORMATION:**

I.  **Background**

On March 8, 2007, the Agencies published the Interagency Statement on
Subprime Mortgage Lending (Subprime Statement) for comment. 72 FR 10533
(March 8, 2007). After carefully reviewing and considering all comments
received, the Agencies published the Subprime Statement (applicable to
all banks and their subsidiaries, bank holding companies and their
nonbank subsidiaries, savings institutions and their subsidiaries,
savings and loan holding companies and their subsidiaries, and credit
unions) in final form on July 10, 2007. 72 FR 37569 (July 10, 2007).

The Subprime Statement sets forth recommended practices to ensure that
consumers have clear and balanced information about certain subprime
adjustable rate mortgage products during the product selection process,
not just upon submission of an application or at consummation of the
loan. This information should address the relative benefits and risks of
these products and describe their costs, terms, features, and risks to
the borrower.

Some industry group commenters on the proposed Subprime Statement asked
the Agencies to provide uniform disclosures for these products, or to
publish illustrations of the consumer information contemplated by the
Subprime Statement similar to those previously proposed by the Agencies
in connection with nontraditional mortgage products. (These
illustrations were subsequently revised and published in final
form.[^1]) The Agencies determined that illustrations of the consumer
information contemplated by the Subprime Statement may be useful to
institutions as they seek to ensure that consumers receive the
information they need about the material features of these loans. On
August 14, 2007, the Agencies published for comment two Proposed
Illustrations of Consumer Information for Subprime Mortgage Lending
(Proposed Illustrations). 72 FR 45495 (Aug. 14, 2007).

The two Proposed Illustrations consisted of (1) a narrative explanation
of some of the key features of certain ARM loans that are identified in
the Subprime Statement, including payment shock, responsibility for
taxes and insurance, prepayment penalties,[^2] balloon payments, and
increased costs associated with stated income or reduced documentation
loans, and (2) a chart with numerical examples that is designed to show
the potential consequences of payment shock in a concrete, readily
understandable manner for a loan structured with a discounted interest
rate for the first two years.

The Agencies requested comment on all aspects of the Proposed
Illustrations. Specifically, commenters were asked to address whether
the illustrations, as proposed, would be useful to institutions,
including community banks, seeking to implement the "Consumer Protection
Principles" portion of the Subprime Statement, or whether changes should
be made. The Agencies also encouraged specific comment on whether the
illustrations, as proposed, would be useful in promoting consumer
understanding of the risks and material terms of certain ARM products,
as described in the Subprime Statement, or whether changes should be
made. Additionally, the Agencies sought comment on whether the
information in the Proposed Illustrations is set forth in a clear manner
and format; whether these illustrations or a modified form should be
adopted by the Agencies; and whether additional illustrations relating
to certain ARM products would be useful to consumers and institutions.
Finally, the Agencies requested information on any consumer testing that
commenters may have conducted in connection with comparable disclosures.

After considering the comments received, the Agencies are now issuing
final illustrations of consumer information for certain subprime ARMs.
The Subprime Statement recommends that communications with consumers,
including advertisements, oral statements, and promotional materials,
provide clear and balanced information about the relative benefits,
costs, terms, features, and risks of certain ARM products to the
borrower. This includes information about the risk of payment shock, the
ramifications of prepayment penalties, balloon payments, and a lack of
escrow for taxes and insurance, and any pricing premium associated with
a stated income or reduced documentation loan program.

Use of the illustrations is entirely voluntary. Accordingly, there is no
Agency requirement or expectation that institutions must use the
illustrations in their communications with consumers. Institutions
seeking to follow the recommendations set forth in the Subprime
Statement may, at their option, elect to:

-   Use the illustrations;

-   Provide information based on the illustrations, but expand,
    abbreviate, or otherwise tailor any information in the illustrations
    as appropriate to reflect, for example:

    -   the institution's product offerings, such as by deleting
        information about loan products and loan terms not offered by
        the institution and by revising the illustrations to reflect
        specific terms currently offered by the institution;

    -   the consumer's particular loan requirements or qualifications;

    -   current market conditions, such as by changing the loan amounts,
        interest rates, and corresponding payment amounts to reflect
        current local market circumstances;

    -   other material information relating to the loan consistent with
        the Subprime Statement; and

    -   the results of consumer testing of the illustrations or
        comparable disclosures; or

-   Provide the information described in the Subprime Statement, as
    appropriate, in an alternate format.

To assist institutions that wish to use the illustrations, the Agencies
will be posting each of the illustrations on their respective websites
in a form that can be downloaded and printed for easy reproduction. The
Agencies also will develop and post Spanish-language versions of the
illustrations on their respective websites. Additionally, in response to
concerns that the interest rates used in Illustrations Nos. 2A, 2B, and
2C may become outdated with changes in market interest rates -- and
consistent with the Agencies' intention, expressed above, that the
illustrations may be modified to reflect, among other things, current
market conditions -- the Agencies also will be posting on their
respective websites a template that can be used by institutions that
wish to modify the information presented in these illustrations to
reflect more current interest rates (and corresponding payment amounts).

**II. Overview of the Comments**

Collectively, the Agencies received approximately 25 comment letters on
the proposal, including comments from one federal regulatory agency, a
group of three associations of state banking and consumer protection
agencies, six financial institutions, ten trade organizations, two
community organizations, and five individuals.

Most commenters encouraged the Agencies to adopt the illustrations.
These commenters stated that the illustrations would be useful to
financial institutions, including community banks, seeking to implement
the consumer protection principles of the Subprime Statement. At least
one commenter also noted that the illustrations would help reduce
implementation costs and compliance burden.

Several trade organizations supported making use of the illustrations
voluntary. These commenters also urged the Agencies to notify their
examiners that use of the illustrations is not required to show
compliance with the Subprime Statement. One of these commenters stated
that in developing the illustrations the Agencies have appropriately
balanced the need for institutions to provide meaningful disclosures and
the need to avoid unnecessary burdens. On the other hand, one community
organization advocated that use of the illustrations should be made
mandatory to prevent consumer confusion due to lack of uniform
disclosures from lender to lender.

Many commenters suggested that the Proposed Illustrations could confuse
consumers about whether the illustrations are describing features of
subprime ARMs generally or, instead, describing the mortgage they are
actually considering or being offered. These commenters suggested
modifying the illustrations by revising statements that appear specific
to a particular borrower and loan product. Other commenters, however,
suggested modifying the illustrations so that they would be based on the
actual loan product or product choices lenders will offer to the
particular applicant, and include more loan-specific details.

Commenters also suggested changes to make the illustrations more
accurately reflect the actual terms of products prevalent in the market.
For example, it was noted that the illustrations focused on subprime ARM
products structured with a discounted interest rate for the first two
years. Due to recent market developments, such products have become
uncommon, and have been replaced, to some extent, by products with
somewhat longer discounted initial interest rate periods.

Finally, commenters made a number of suggestions to change the wording,
format, or content of the illustrations in order to improve the
accuracy, clarity, or usefulness of the illustrations for consumers.

**III. Final Illustrations**

After carefully considering all of the comments received, the Agencies
have decided to publish the proposed illustrations in final form, with
some modifications.[^3] Additionally, the Agencies believe that issuing
these materials as nonmandatory illustrations will provide institutions
with the flexibility needed to tailor the materials to their own
circumstances and consumer needs.

In response to commenter concerns, the Agencies have made three sets of
changes to the proposed illustrations, as described more fully below.
The first change relates to the language and format of Illustration
No. 1. The Agencies have modified this illustration so it clearly will
be a general description of the features of the products covered by the
Subprime Statement, rather than a loan-specific disclosure. Second, the
Agencies have included additional versions of Illustration No. 2 to
provide institutions with illustrations reflecting products that may be
more prevalent in the market, and to show how institutions might provide
this information when they offer multiple products subject to the
Subprime Statement. Finally, the Agencies have adopted a number of
wording and format changes to improve the readability and usefulness of
the illustrations for consumers, and to make it easier for consumers to
understand the key risks of the products covered by the Subprime
Statement.

A.  **Proposed Illustration No. 1**

As noted above, several commenters suggested that Illustration No. 1
should generally describe features found in the subprime ARM products
covered by the Subprime Statement. Given that the Subprime Statement
calls for early delivery -- during the product selection process -- of
the consumer information contemplated in the Statement, the Agencies
agree that it could be inappropriate and confusing for Illustration No.
1 to appear to set forth specific loan terms. At this stage, consumers
have not yet selected a specific loan, and institutions likely will not
have performed the credit underwriting necessary to determine all of the
terms that may be offered to the consumer. In view of these
uncertainties, and in light of the fact that subprime ARMs may include
various combinations of the risks and features highlighted in the
Subprime Statement, it would not be possible for this narrative
description to convey loan-specific information in a way that would be
accurate or relevant for all consumers. For these reasons, attempting to
include loan-specific information would frustrate one of the Agencies'
primary goals in issuing these illustrations: namely, to create a set of
documents that institutions can use to satisfy the expectations outlined
in the Subprime Statement.[^4]

Accordingly, in order to make clear that this illustration is simply a
generic description of key risks and features that may be found in the
products covered by the Subprime Statement, and to improve readability
and usefulness, the Agencies have made substantial changes to proposed
Illustration No. 1, and have adopted, to a large extent, the format used
in the Agencies' nontraditional mortgage product illustrations.[^5] Most
significantly, the document has been revised and reformatted to
emphasize the risk of payment shock present in all products covered by
the Subprime Statement, as opposed to other features (such as prepayment
penalties) that may (or may not) be found in any particular loan.[^6]
These other features are now described under a general heading,
"Additional Information." The Agencies also believe that distinguishing
between the inherent and potential risks of these products, and
formatting the document accordingly, helps to make the document easier
to use and understand. The Agencies also have revised the language in
the subject matter headings of the "Additional Information" portion of
the document. These changes are designed to conform to the approach used
in the nontraditional mortgage product illustrations and to clarify that
the features described therein are not necessarily included in the loan
to be offered to the consumer.

The Agencies also adopted several suggestions from commenters to place
more emphasis on the nature of the risks associated with obtaining a
subprime ARM product of the type covered by the Subprime Statement, and
to focus consumers' attention on those risks. For example, the Agencies
have added language directing consumers not to assume that they will be
able to refinance their ARM to a lower rate in the future. The final
illustration also states that consumers "need to know" whether the
monthly payment includes taxes and insurance, whether their loan would
have a prepayment penalty or balloon payment, and whether obtaining a
"full documentation" loan would be more cost-effective.

Other recommendations were adopted by the Agencies to improve the
clarity or usefulness of the document for consumers. For example,
Illustration No. 1 was modified to reflect interest rate indexes more
likely to be used by lenders in the current market.

The Agencies decided not to adopt a number of specific suggestions made
by commenters. Some of these suggestions were largely duplicative of
information already contained in the document, or otherwise would have
made the document too lengthy and less consumer-friendly. Other comments
would have provided substantive advice to consumers about particular
features and terms, and were inconsistent with the purpose of the
illustration to provide important information in an objective, balanced
manner. One commenter representing the credit union industry suggested
deleting the reference to prepayment penalties in Illustration No. 1 on
the grounds that federal credit unions are not permitted to charge such
penalties. The Agencies did not adopt this suggestion, however, because
the illustrations are designed for the use of all institutions
supervised by any of the Agencies. As noted above, institutions may
tailor the information in the illustrations as appropriate to reflect,
for example, their own product offerings. Other suggested changes that
were not adopted would not, in the Agencies' view, have enhanced the
clarity or usefulness of the illustration for consumers.

B.  **Proposed Illustration No. 2**

After reviewing and considering the comments, the Agencies have retained
Proposed Illustration No. 2 -- a chart comparing payment obligations on
a fixed rate loan and an ARM with a discounted interest rate for the
first two years -- but have re-designated the illustration as
Illustration No. 2A.  In response to the comments and market changes,
the Agencies also have included two additional versions of Proposed
Illustration No. 2 for institutions to consider using. Comments on
Illustration No. 2, as well as external data reviewed, indicate that
subprime ARM products structured with a discounted interest rate for the
first five years may have become more prevalent in the current market
than similar products structured with a discounted interest rate for the
first two years.  Accordingly, the Agencies have added a similar chart,
designated as Illustration No. 2B, that compares payment obligations on
a fixed rate loan and an ARM with a discounted interest rate for the
first five years.  Institutions may believe that Illustration No. 2B is
more helpful than Illustration No. 2A to consumers considering loans
whose initial rate remains in effect for a longer period of time.  In
addition, the Agencies have added a third chart, designated as
Illustration No. 2C, that compares payment obligations on three
products: a fixed rate loan; an ARM with a discounted interest rate for
the first two years; and an ARM with a discounted rate for five years.
 Institutions that would like to present information about multiple
products they offer on a single page, rather than providing a separate
illustration for each product, may find this third chart to be
useful.[^7] The Agencies also adopted a number of minor wording changes,
including changes in the left column of the illustration to clarify that
the interest rate conditions specified therein are specifically
referring to movement in index interest rates, and not the interest rate
increases required by the terms of the subprime ARM loan. The Agencies
also changed the assumed interest rate increase in the final row of the
left column to be more consistent with the illustration's assumptions
about product structure, and thereby less likely to produce consumer
confusion. The Agencies did not adopt some suggestions made by
commenters because they would require the provision of loan-specific
information that could not feasibly or accurately be presented in the
early product selection process. However, as noted above, institutions
that wish to modify the information presented in these illustrations
will be able to access relevant templates on the respective websites of
the Agencies and insert more loan-specific information. Some
recommendations also were not adopted because, on balance, they would
unreasonably increase or duplicate the information already included or
would not otherwise appear to improve the clarity or usefulness of the
information presented for consumers.

> The final illustrations appear below.

[Illustration 1]{.underline}

Important Facts About Adjustable Rate Mortgages

with a Reduced Initial Interest Rate

Whether you are buying a house or refinancing your mortgage, this
information can help you decide if an adjustable rate mortgage (ARM) is
right for you. ARMs can be complicated, and it is important for you to
understand the features and risks of these loans. **If you do not
understand how ARMs work, you should not sign any ARM loan contracts,
and you might want to consider other loans, including fixed rate
loans.**

**With an ARM, the interest rate and monthly payment on the loan is not
fixed and may increase.**

-   The interest rate changes over time according to a formula --
    typically, a base interest rate (index rate) plus a certain percent
    (margin).

-   For example, the rate could equal the one year U.S. Treasury rate
    plus 4 percent or the rate of the 6 month "LIBOR" index plus 3
    percent.

-   If the base interest rate increases, your interest rate and monthly
    payment will also increase.

**If an ARM has a reduced interest rate for an initial period -- for
example, the first 2 years or first 5 years of the loan -- the rate and
the monthly payment may increase significantly. When that initial period
is over:**

-   The interest rate and monthly payment may increase significantly
    even if the index rate stays the same.

-   The interest rate and monthly payment will increase even more if the
    index rate increases.

**Do not assume that you will be able to refinance an ARM to a lower
rate in the future.**

**Additional Information**

► **Payments for taxes and insurance.** In some mortgages, your monthly
payment includes both principal and interest and an "escrow" amount to
cover real estate taxes and insurance. Your lender then pays your taxes
and insurance out of these escrow funds. In other mortgages, your
monthly payment covers only principal and interest, and you are
responsible for budgeting for and paying real estate taxes and insurance
premiums when the bills arrive. These costs can be substantial. When you
are comparing mortgages, or deciding whether you can afford one, you
need to know whether or not the monthly payment includes an amount to
cover taxes and insurance.

► **Prepayment penalties.** Some mortgages require you to pay a large
prepayment penalty if you sell your home or refinance during the first
few years of the loan -- which you may need to do if your interest rate,
and therefore your payment, is about to increase significantly, or if
your circumstances change and you must sell your home before the
prepayment period expires. The amount of the penalty will be added to
your loan payoff amount. A prepayment penalty can make it difficult, or
very expensive, to sell your home or refinance. You need to know whether
your loan has a prepayment penalty, how much it is, and how long it will
apply.

► **Balloon payments.** Most mortgages are set up so that you pay off
the loan gradually by the monthly payments that you make over the loan
term (for example, 30 years). Some mortgages, however, are set up with
"balloon payments" -- you make the same monthly payments that you would
for a 30-year loan, but after a shorter period of time (for example, 10
years), you will owe one large final payment of the entire remaining
balance of the loan. If you are unable to make the balloon payment when
it is due, you would need to refinance your loan -- or sell your home.
You need to know whether your loan has a balloon payment.

► **No Doc/Low Doc Loans.** "Reduced documentation" or "stated income"
loans usually have higher interest rates or other costs compared to
"full documentation" loans that are available if you document your
income, assets, and liabilities. These higher costs can be substantial.
You need to know whether you would save money with a "full
documentation" loan.

Illustration 2A

+------------------+--------------------+------------------------------+
| SAMPLE MORTGAGE  |                    |                              |
| COMPARISON       |                    |                              |
|                  |                    |                              |
| *(Not actual     |                    |                              |
| loans            |                    |                              |
| available)*      |                    |                              |
+------------------+--------------------+------------------------------+
| Sample Loan      |                    |                              |
| Amount \$200,000 |                    |                              |
| -- 30-Year Term  |                    |                              |
| -- Interest      |                    |                              |
| Rates For        |                    |                              |
| Example Purposes |                    |                              |
| Only             |                    |                              |
+------------------+--------------------+------------------------------+
|                  | Fixed Rate         | Reduced Initial Rate "2/28"  |
|                  | Mortgage           | ARM                          |
|                  |                    |                              |
|                  | 7.5%               | 7% for two years, then       |
|                  |                    | adjusting to variable rate   |
|                  |                    |                              |
|                  |                    | based on index interest      |
|                  |                    | rate, subject to annual rate |
|                  |                    | caps;                        |
|                  |                    |                              |
|                  |                    | 10% rate in Year 3;          |
|                  |                    |                              |
|                  |                    | 11.5% rate in Year 4;        |
|                  |                    |                              |
|                  |                    | 13% maximum ARM rate in      |
|                  |                    | Years 5-30                   |
+------------------+--------------------+------------------------------+
|                  | REQUIRED MONTHLY   |                              |
|                  | PAYMENTS           |                              |
|                  |                    |                              |
|                  | (includes \$200    |                              |
|                  | per month for real |                              |
|                  | estate tax and     |                              |
|                  | insurance escrow)  |                              |
+------------------+--------------------+------------------------------+
| Years 1-2        | \$1,598            | \$1,531                      |
+------------------+--------------------+------------------------------+
| Year 3 -- even   | \$1,598            | \$1,939                      |
| if index         |                    |                              |
| interest rate    |                    |                              |
|                  |                    |                              |
| does not change  |                    |                              |
+------------------+--------------------+------------------------------+
| Year 4 -- even   | \$1,598            | \$2,152                      |
| if index         |                    |                              |
| interest rate    |                    |                              |
|                  |                    |                              |
| does not change  |                    |                              |
+------------------+--------------------+------------------------------+
| Year 5 -- if     | \$1,598            | \$2,370                      |
| index            |                    |                              |
|                  |                    |                              |
| interest rate    |                    |                              |
| rises 1.5%       |                    |                              |
|                  |                    |                              |
| (maximum ARM     |                    |                              |
| rate)            |                    |                              |
+------------------+--------------------+------------------------------+

[Illustration 2B]{.underline}

+-----------------+--------------------+------------------------------+
| SAMPLE MORTGAGE |                    |                              |
| COMPARISON      |                    |                              |
|                 |                    |                              |
| *(Not actual    |                    |                              |
| loans           |                    |                              |
| available)*     |                    |                              |
+-----------------+--------------------+------------------------------+
| Sample Loan     |                    |                              |
| Amount          |                    |                              |
| \$200,000 --    |                    |                              |
| 30-Year Term -- |                    |                              |
| Interest Rates  |                    |                              |
| For Example     |                    |                              |
| Purposes Only   |                    |                              |
+-----------------+--------------------+------------------------------+
|                 | Fixed Rate         | Reduced Initial Rate "5/25"  |
|                 | Mortgage           | ARM                          |
|                 |                    |                              |
|                 | 7.5%               | 7% for five years, then      |
|                 |                    | adjusting to variable rate   |
|                 |                    |                              |
|                 |                    | based on index interest      |
|                 |                    | rate, subject to annual rate |
|                 |                    | caps;                        |
|                 |                    |                              |
|                 |                    | 10% rate in Year 6;          |
|                 |                    |                              |
|                 |                    | 11.5% rate in Year 7;        |
|                 |                    |                              |
|                 |                    | 13% maximum ARM rate in      |
|                 |                    | Years 8-30                   |
+-----------------+--------------------+------------------------------+
|                 | REQUIRED MONTHLY   |                              |
|                 | PAYMENTS           |                              |
|                 |                    |                              |
|                 | (includes \$200    |                              |
|                 | per month for real |                              |
|                 | estate tax and     |                              |
|                 | insurance escrow)  |                              |
+-----------------+--------------------+------------------------------+
| Years 1-5       | \$1,598            | \$1,531                      |
+-----------------+--------------------+------------------------------+
| Year 6 -- even  | \$1,598            | \$1,910                      |
| if index        |                    |                              |
| interest rate   |                    |                              |
|                 |                    |                              |
| does not change |                    |                              |
+-----------------+--------------------+------------------------------+
| Year 7 -- even  | \$1,598            | \$2,109                      |
| if index        |                    |                              |
| interest rate   |                    |                              |
|                 |                    |                              |
| does not change |                    |                              |
+-----------------+--------------------+------------------------------+
| Year 8 -- if    | \$1,598            | \$2,311                      |
| index           |                    |                              |
|                 |                    |                              |
| interest rate   |                    |                              |
| rises 1.5%      |                    |                              |
| (maximum ARM    |                    |                              |
| rate)           |                    |                              |
+-----------------+--------------------+------------------------------+

[Illustration 2C]{.underline}

+-----------------+--------------+-----------------+------------------+---+
| SAMPLE MORTGAGE |              |                 |                  |   |
| COMPARISON      |              |                 |                  |   |
|                 |              |                 |                  |   |
| *(Not actual    |              |                 |                  |   |
| loans           |              |                 |                  |   |
| available)*     |              |                 |                  |   |
+-----------------+--------------+-----------------+------------------+---+
| Sample Loan     |              |                 |                  |   |
| Amount          |              |                 |                  |   |
| \$200,000 --    |              |                 |                  |   |
| 30-Year Term -- |              |                 |                  |   |
| Interest Rates  |              |                 |                  |   |
| For Example     |              |                 |                  |   |
| Purposes Only   |              |                 |                  |   |
+-----------------+--------------+-----------------+------------------+---+
|                 | Fixed Rate   | Reduced Initial | Reduced Initial  |   |
|                 | Mortgage     | Rate "5/25" ARM | Rate "2/28" ARM  |   |
|                 |              |                 |                  |   |
|                 | 7.5%         | 7% for five     | 7% for two       |   |
|                 |              | years, then     | years, then      |   |
|                 |              | adjusting to    | adjusting to     |   |
|                 |              | variable rate   | variable rate    |   |
|                 |              |                 |                  |   |
|                 |              | based on index  | based on index   |   |
|                 |              | interest rate,  | interest rate,   |   |
|                 |              | subject to      |                  |   |
|                 |              | annual rate     | subject to       |   |
|                 |              | caps;           | annual rate      |   |
|                 |              |                 | caps;            |   |
|                 |              | 10% rate in     |                  |   |
|                 |              | Year 6;         | 10% rate in Year |   |
|                 |              |                 | 3;               |   |
|                 |              | 11.5% rate in   |                  |   |
|                 |              | Year 7;         | 11.5% rate in    |   |
|                 |              |                 | Years 4-7;       |   |
|                 |              | 13% maximum ARM |                  |   |
|                 |              | rate            | 13% maximum ARM  |   |
|                 |              |                 | rate             |   |
|                 |              | could apply in  |                  |   |
|                 |              | Years 8-30      | could apply in   |   |
|                 |              |                 | Years 5-30       |   |
+-----------------+--------------+-----------------+------------------+---+
|                 | REQUIRED     |                 |                  |   |
|                 | MONTHLY      |                 |                  |   |
|                 | PAYMENTS     |                 |                  |   |
|                 |              |                 |                  |   |
|                 | If Index     |                 |                  |   |
|                 | Interest     |                 |                  |   |
|                 | Rate Stays   |                 |                  |   |
|                 | the Same     |                 |                  |   |
|                 |              |                 |                  |   |
|                 | (includes    |                 |                  |   |
|                 | \$200 per    |                 |                  |   |
|                 | month for    |                 |                  |   |
|                 | real estate  |                 |                  |   |
|                 | tax and      |                 |                  |   |
|                 | insurance    |                 |                  |   |
|                 | escrow)      |                 |                  |   |
+-----------------+--------------+-----------------+------------------+---+
| Years 1-2       | \$1,598      | \$1,531         | \$1,531          |   |
+-----------------+--------------+-----------------+------------------+---+
| Year 3          | \$1,598      | \$1,531         | \$1,939          |   |
+-----------------+--------------+-----------------+------------------+---+
| Year 4          | \$1,598      | \$1,531         | \$2,152          |   |
+-----------------+--------------+-----------------+------------------+---+
| Year 5          | \$1,598      | \$1,531         | \$2,152          |   |
+-----------------+--------------+-----------------+------------------+---+
| Year 6          | \$1,598      | \$1,910         | \$2,152          |   |
+-----------------+--------------+-----------------+------------------+---+
| Year 7          | \$1,598      | \$2,109         | \$2,152          |   |
+-----------------+--------------+-----------------+------------------+---+
|                 |              |                 |                  |   |
+-----------------+--------------+-----------------+------------------+---+
| Year 8 -- if    | \$1,598      | \$2,311         | \$2,359          |   |
| index interest  |              |                 |                  |   |
| rate rises 1.5% |              |                 |                  |   |
|                 |              |                 |                  |   |
| (maximum ARM    |              |                 |                  |   |
| rate)           |              |                 |                  |   |
+-----------------+--------------+-----------------+------------------+---+

\[THIS SIGNATURE PAGE RELATES TO THE FINAL GUIDANCE TITLED
"ILLUSTRATIONS OF CONSUMER INFORMATION FOR HYBRID ADJUSTABLE RATE
MORTGAGE PRODUCTS"\]

Dated: April \_\_, 2008

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

John C. Dugan,

Comptroller of the Currency

\[THIS SIGNATURE PAGE RELATES TO THE FINAL GUIDANCE TITLED
"ILLUSTRATIONS OF CONSUMER INFORMATION FOR HYBRID ADJUSTABLE RATE
MORTGAGE PRODUCTS"\]

By order of the Board of Governors of the Federal Reserve System, April
\_\_, 2008.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Jennifer J. Johnson

Secretary of the Board

\[THIS SIGNATURE PAGE RELATES TO THE FINAL GUIDANCE TITLED
"ILLUSTRATIONS OF CONSUMER INFORMATION FOR HYBRID ADJUSTABLE RATE
MORTGAGE PRODUCTS"\]

Dated at Washington, D.C., the \_\_ day of April, 2008.

By order of the Federal Deposit Insurance Corporation

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Robert E. Feldman,

Executive Secretary

\[THIS SIGNATURE PAGE RELATES TO THE FINAL GUIDANCE TITLED
"ILLUSTRATIONS OF CONSUMER INFORMATION FOR HYBRID ADJUSTABLE RATE
MORTGAGE PRODUCTS"\]

Dated: April \_\_, 2008

By the Office of Thrift Supervision

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

John Reich,

Director

\[THIS SIGNATURE PAGE RELATES TO THE FINAL GUIDANCE TITLED
"ILLUSTRATIONS OF CONSUMER INFORMATION FOR HYBRID ADJUSTABLE RATE
MORTGAGE PRODUCTS"\]

By the National Credit Union Administration on April 25, 2008.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

JoAnn M. Johnson,

Chairman

[^1]: Illustrations of Consumer Information for Nontraditional Mortgage
    Products, 72 FR 31825 (June 8, 2007).

[^2]: Federal credit unions are prohibited from charging prepayment
    penalties. 12 CFR 701.21.

[^3]: The Agencies are using a different title for this final guidance
    than for the proposed guidance to reflect more closely the types of
    mortgage products covered by the Subprime Statement.

[^4]: In this regard, the Agencies note that institutions will continue
    to have obligations under the Truth in Lending Act, Real Estate
    Settlement Procedures Act, and other laws to provide consumers with
    timely, loan-specific information.

[^5]: Illustrations of Consumer Information for Nontraditional Mortgage
    Products, 72 FR 31825 (June 8, 2007).

[^6]: The title of this illustration also has been revised, in response
    to commenter suggestions, to stress that the document includes
    important facts about any adjustable rate mortgage with a reduced
    initial interest rate.

[^7]: Illustrations Nos. 2A, 2B, and 2C reflect typical interest rates
    for these products at the time the Agencies issued the Subprime
    Statement, and embody other assumptions about typical features of
    these products. For example, they reflect assumptions that: the
    fully-indexed rate is 4.5 percentage points higher than the initial
    rate (based on an initial index rate of 5.5 percent and a margin of
    6 percent); the first interest rate adjustment cannot exceed

    3 percentage points; subsequent interest rate adjustments may not
    exceed 1.5 percentage points; and the applicable interest rate may
    never be more than 6 percentage points higher than the initial rate.