**DEPARTMENT OF THE TREASURY**

**Office of the Comptroller of the Currency**

**\[Docket No. 06-12\]**

**FEDERAL RESERVE SYSTEM**

**\[Docket No. OP-1267\]**

**FEDERAL DEPOSIT INSURANCE CORPORATION**

**DEPARTMENT OF THE TREASURY**

**Office of Thrift Supervision**

**\[No. 2006-36\]**

**NATIONAL CREDIT UNION ADMINISTRATION**

**Illustrations of Consumer Information for Nontraditional 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
Nontraditional Mortgage Products.

**SUMMARY:** The Agencies are publishing three documents that set forth
Illustrations of Consumer Information for Nontraditional Mortgage
Products. The illustrations are intended to assist institutions in
implementing the consumer protection portion of the Interagency Guidance
on Nontraditional Mortgage Product Risks (Interagency NTM Guidance)
adopted on October 4, 2006. 71 FR 58609 (Oct. 4, 2006). The
illustrations are not model forms and institutions may choose not to use
them in providing information to consumers on nontraditional mortgage
products as recommended in the Interagency NTM Guidance.

EFFECTIVE DATE: \[Insert date of publication in Federal Register\].

FOR FURTHER INFORMATION CONTACT:

OCC: Michael Bylsma, Director, Stephen Van Meter, Assistant Director, or
Kathryn Ray, Special Counsel, Community and Consumer Law Division, (202)
874-5750.

Board: 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} April Breslaw, Acting Associate Director, Compliance
Policy & Exam Support Branch, Division of Supervision and Consumer
Protection, (202) 898-6609; or Richard Foley, Counsel, Legal Division,
(202) 898-3784.

[OTS:]{.underline} Montrice G. Yakimov, Assistant Managing Director,
Compliance and Consumer Protection Division, (202) 906-6173; or Glenn
Gimble, Senior Project Manager, Compliance and Consumer Protection
Division, (202) 906-7158.

[NCUA]{.underline}: Cory Phariss, Program Officer, Examination and
Insurance, (703) 518-6618.

SUPPLEMENTARY INFORMATION:

I.  Background

On December 29, 2005, the Agencies published the Interagency NTM
Guidance for comment. 70 FR 77249 (Dec. 29, 2005). After carefully
reviewing and considering all comments received, the Agencies published
the Interagency NTM Guidance (applicable to all banks and their
subsidiaries, bank holding companies and their nonbank subsidiaries,
savings associations and their subsidiaries, savings and loan holding
companies and their subsidiaries, and credit unions) in final form on
October 4, 2006. 71 FR 58609 (Oct. 4, 2006).

The Interagency NTM Guidance sets forth recommended practices to ensure
that consumers have clear and balanced information about nontraditional
mortgages prior to making a mortgage product choice, such as when
lenders provide promotional materials about nontraditional mortgages or
during face-to-face meetings when consumers are shopping for a mortgage.
The guidance also recommends that any monthly statements given with
payment option adjustable rate mortgages (ARMs) provide information to
enable consumers to make informed payment choices.

Several commenters on the proposed guidance, including industry trade
associations, encouraged the Agencies to include model or sample
disclosures or other descriptive materials as part of the Interagency
NTM Guidance. In response, the Agencies determined that illustrations of
consumer information would be useful to institutions as they seek to
implement the consumer information recommendations. Therefore, on the
same day the Interagency NTM Guidance was published in the Federal
Register, the Agencies published for comment proposed Illustrations of
Consumer Information for Nontraditional Mortgage Products (Proposed
Illustrations). 71 FR 58673 (Oct. 4, 2006).

The three Proposed Illustrations consisted of (1) a narrative
explanation of nontraditional mortgage products, (2) a chart comparing
interest only (IO) loans and payment option ARMs to fixed rate and
traditional adjustable rate loans, and (3) a table that could be
included with any monthly statement for a payment option ARM providing
information on the impact of various payment options on the loan
balance. The Agencies noted that there would be no Agency requirement or
expectation that institutions use the illustrations in their
communications with consumers. Instead, the Agencies intended to
illustrate the type of information that the Interagency NTM Guidance
contemplates. Institutions would be able to determine whether or not to
use the illustrations and whether and how to tailor them to their own
circumstances.

The Agencies requested comment on all aspects of the Proposed
Illustrations. Specifically, they requested commenters to address
whether the illustrations, as proposed, would be useful to institutions,
including community banks, seeking to implement the ''Communications
with Consumers'' portion of the Interagency NTM Guidance, 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 nontraditional
mortgage products, as described in the Interagency NTM Guidance, or
whether changes should be made. Finally, the Agencies sought comment on
whether other illustrations relating to nontraditional mortgages, in
addition to those proposed, would be useful to institutions and
consumers.

After considering the comments received, the Agencies are now issuing
final illustrations of consumer information for nontraditional mortgage
products. The Interagency NTM Guidance recommends that promotional
materials and other product descriptions provide consumers with
information about the costs, terms, features, and risks of
nontraditional mortgage products that can assist consumers in their
product selection decisions. This includes information about potential
payment shock and negative amortization and, where applicable,
information about prepayment penalties and the costs of reduced
documentation loans.

Institutions seeking to follow the recommendations set forth in the
Interagency NTM Guidance 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;

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

    -   other information, consistent with the Interagency NTM Guidance,
        such as the payment and loan balance information for statements
        discussed in connection with Illustration No. 3 or information
        about when a prepayment penalty may be imposed; and

    -   the results of consumer testing of such forms; or

-   Provide the information described in the Interagency NTM Guidance,
    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. In
addition, in response to concerns that the interest rates used in
Illustration No. 2 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 Illustration No. 2 to
reflect more current interest rates (and corresponding payment amounts).
Illustration No. 2 itself reflects typical interest rates for prime
borrowers in today's environment, rounded to the nearest whole number to
enhance simplicity.[^1]

II. **Overview of the Comments**

Collectively, the Agencies received letters from over 30 commenters on
the proposal, including comments from two financial institutions, 12
consumer advocates and community organizations, 12 trade organizations,
two individuals, and three state regulatory organizations.

Most commenters generally approved of the illustrations and expressed
appreciation for the Agencies' efforts to demonstrate ways lenders could
advance the consumer communication goals outlined in the Interagency NTM
Guidance. Generally, commenters stated that the proposed illustrations
would be useful to financial institutions -- including community banks
-- seeking to develop their own disclosures to help consumers understand
the risks of nontraditional mortgage products. Commenters also suggested
that the illustrations provided helpful guidance on the Agencies'
expectations and would help reduce implementation costs.

Most financial institutions and trade organizations supported the
voluntary nature of the illustrations. These commenters stated that the
flexibility afforded them by the Agencies would allow them to convey
information to their customers in a format most suited to customers'
needs. Additionally, having the flexibility to develop their own
disclosures would allow financial institutions to tailor their
disclosures to take into account specific product offerings and market
conditions.

However, a smaller group of commenters that included 8 consumer groups
and one industry group disagreed, and suggested that consumer education
efforts should be mandatory. The trade group noted that providing for
voluntary use of the illustrations makes unclear the degree to which the
illustrations will be used, when they will be used, and how they will
assist consumers. This commenter suggested that the Agencies propose
model forms and provide lenders with a safe harbor when they use the
model forms.

Several financial institutions, trade organizations, and community
organizations suggested that the illustrations should be made part of
the Board's revisions to Regulation Z, which implements the Truth in
Lending Act. These commenters suggested that making the illustrations
part of Regulation Z would ensure more widespread industry use.
Additionally, some commenters expressed concern that issuing guidance on
consumer information materials applicable only to federally-supervised
institutions would put those institutions at a competitive disadvantage.
The Conference of State Bank Supervisors (CSBS), the American
Association of Residential Mortgage Regulators (AARMR), and the National
Association of Consumer Credit Administrators (NACCA) commented that
they believe the illustrations also could be used by state-licensed
entities subject to state-issued guidance that parallels the Interagency
NTM Guidance.

A number of commenters expressed concern that the illustrations were
difficult to follow and would be confusing to consumers, and should be
simplified. A few industry trade groups and a consumer group advised the
Agencies to engage in consumer testing or hire consultants to determine
how to improve the illustrations. A number of commenters provided very
specific suggestions aimed at making the illustrations easier to
understand. Several industry commenters requested that the Agencies add
language explaining how a consumer could benefit from nontraditional
mortgage products. Further, one trade organization stated that lenders
should be able to implement the consumer information recommendations of
the Interagency NTM Guidance by providing consumers with the interagency
publication titled, "Interest-Only Mortgage Payments and Payment-Option
ARMs--Are They for You?"[^2]

Finally, two commenters suggested that the Agencies include in these
illustrations information about two additional products -- 2/28 and 3/27
adjustable rate mortgages. These are "hybrid" ARMs that start with a
fixed interest rate for two or three years, respectively, and then reset
to a variable rate, which generally will be higher than the introductory
fixed rate. Because the Interagency NTM Guidance does not cover
fully-amortizing mortgage products such as hybrid ARMs, the Agencies are
not including information on these products in the NTM illustrations.
However, when the Agencies finalize the "Statement on Subprime Mortgage
Lending," which was proposed on March 8, 2007, and which provides
guidance concerning hybrid ARM products, we expect to issue for public
comment disclosure illustrations appropriate for that guidance.[^3]

III. **Final Illustrations**

After carefully considering all of the comments received, the Agencies
have decided to publish the proposed illustrations, with some
modifications. The Agencies have determined that illustrations of the
type of information contemplated in the Interagency NTM Guidance are
needed now. Additionally, the Agencies believe that issuing the
materials as nonmandatory illustrations will provide institutions with
the flexibility needed to tailor the materials to their own
circumstances and customer needs.

Some commenters asserted that use of the illustrations may place
entities subject to the Interagency NTM Guidance at a competitive
disadvantage. In this regard, we note that the Interagency NTM Guidance,
which includes the consumer disclosure recommendations, is already in
effect for these entities, and also has been adopted for state-regulated
mortgage brokers and companies by over 30 state agencies and the
District of Columbia.[^4] The illustrations will be helpful to those
institutions that prefer not to incur the costs and burdens of
developing their own consumer information documents to implement the
recommendations in the Interagency NTM Guidance. Additionally, as
previously noted, CSBS, AARMR, and NACCA stated their belief that the
illustrations also could be used by state-licensed entities subject to
state-issued guidance that parallels the Interagency NTM Guidance.

The Agencies agree with the commenters who urged simplification of the
Proposed Illustrations, particularly Proposed Illustration No. 2. The
specific changes made in response to these comments are detailed below.
The Agencies opted not to include additional text in the illustrations
that would discuss the benefits of nontraditional mortgage products, to
ensure that the materials focus on an objective description of material
terms, risks, and features of such products. Institutions are not
precluded, of course, from providing factual information concerning the
features of their products to consumers.

One commenter asked whether the consumer information brochure entitled
"Interest-Only Mortgage Payments and Payment-Option ARMs--Are They for
You?" could be used in place of the illustrations to provide information
to consumers. The information contemplated by the Interagency NTM
Guidance serve a different purpose than this brochure. This detailed,
multi-page publication includes valuable in-depth information, but it
does not represent the more concise and focused consumer information
contemplated by, and recommended in, the Interagency NTM Guidance.
Illustrations 1 and 2, by contrast, are designed to be concise and
focused so they can be quickly referenced by consumers during the
mortgage shopping process. While, as explained in detail above,
institutions are not required to use the illustrations, and may elect to
provide the information contemplated in the Interagency NTM Guidance in
a modified or alternate format, delivering this more detailed
publication to consumers would not serve this same purpose or provide
the information as recommended in the guidance.

The Agencies' changes to each Proposed Illustration are discussed below.

**A. Proposed Illustration No. 1**

Although most commenters stated that Illustration No. 1 would be useful
in helping consumers understand the risks of nontraditional mortgage
products, several suggested that the Agencies make the illustration more
user-friendly by using simpler language and larger fonts. Most trade
organization and financial institution commenters generally agreed that
Illustration No. 1 would be helpful. Consumer groups, on the other hand,
expressed their desire that the illustrations strongly communicate the
risks of nontraditional mortgage products and add language clarifying
that making the minimum payments on a payment option mortgage could lead
to a reduction in a borrower's equity. Several consumer groups
recommended that the illustration not suggest that consumers should
request information orally from a lender, because consumers should be
encouraged to review written information rather than rely on oral
representations.

To address the commenters' concerns, the Agencies have simplified
Illustration No. 1, deleted text where possible to shorten the length of
the illustration, and made formatting changes to improve readability.
Additionally, the Agencies have included language clarifying that making
the minimum payments on a payment option mortgage could lead to a
reduction in a borrower's equity. The Agencies have also added language
advising consumers that if they do not understand the terms of a
particular loan, they should not sign any loan contracts, and may want
to consider other types of loans.

**B. Proposed Illustration No. 2**

Many commenters found proposed Illustration No. 2 confusing.
Specifically, several commenters said the footnotes and the explanation
of the minimum monthly payment row for years one through five of a
payment option ARM would confuse consumers. A few commenters suggested
that Illustration No. 2 would be most helpful to consumers if a loan
officer or credit counselor reviewed it with them. Additionally, one
financial institution suggested that Illustration No. 2 should emphasize
the risks of payment shock and negative amortization.

One industry trade group stated that assuming borrowers make minimum
payments is unrealistic. This commenter added that the interest rates in
the examples should represent a typical interest rate environment in
which a fixed rate loan would have a higher rate than an adjustable rate
loan. However, one financial institution suggested that the illustration
should use the same interest rates for all the products to make
comparison easier. One trade group stated that the rates for
interest-only and payment option ARM loans should be higher to reflect
the terms offered to non-prime borrowers. Two commenters stated that the
illustration should use a \$100,000 loan amount that would be easier for
consumers to compare to their loan amounts than the \$180,000 amount
used in the proposed illustration.

A few commenters warned against using any assumptions that could become
dated. Instead, one industry group suggested that payment amounts and
interest rate information in Illustration No. 2 should be left blank so
that loan officers and consumers could fill out the numbers themselves
as they discuss and consider loan options. Another commenter suggested
that the Agencies create a Web site where consumers could input their
own specific information into different mortgage structures and get
accurate and easy-to-understand cost alternatives.

To address commenter concerns, and to maintain consistency with the
Interagency NTM Guidance, the Agencies have simplified Illustration No.
2 by reducing the number of products for which information is provided.
The simplified illustration eliminates the need for footnotes or similar
explanations. Additionally, the Agencies made formatting changes to draw
consumers' attention to the important points the chart seeks to
illustrate.

The Agencies agreed with commenters that a sample loan amount of
\$180,000 could make it more difficult for consumers to estimate their
own payment amounts. The Agencies, therefore, have adopted a
representative loan amount of \$200,000, which is closer to the national
median price for a single family home than the \$100,000 loan amount
suggested by some commenters.

**C. Proposed Illustration No. 3**

The Agencies received the fewest specific comments on Illustration No.
3. Moreover, commenters did not express concern that consumers would
have difficulty understanding Illustration No. 3. Several commenters,
however, asked the Agencies to make clear that lenders will have
flexibility with regard to how and when to provide the information
contemplated by the third illustration. One trade group stated that the
third illustration could be burdensome for lenders that do not provide
monthly statements. Similarly, another trade group asked the Agencies to
state that lenders could provide the third illustration less frequently
than monthly, or through an explanation on the lender's Web site. In
contrast, another trade group stated that the Agencies should encourage
lenders to provide monthly statements.

One financial institution recommended that the illustration include the
resulting loan balance with each payment choice so that the consumer can
see how their choice affects the loan on a monthly basis. However, one
financial institution and one trade group commenter stated that
providing specific payment information would be burdensome and that
lenders would require implementation time to make system changes.

After reviewing and considering the comments, the Agencies decided not
to make substantial changes to Illustration No. 3. The Interagency NTM
Guidance recommends that *if* institutions provide monthly statements to
consumers on payment option mortgages, those monthly statements should
provide information that enables consumers to make informed payment
choices, including an explanation of each payment option available and
the impact of that choice on loan balances. Illustration No. 3 shows one
way in which this information could be presented. Financial institutions
retain the flexibility to provide the information in a format best
suited to their customer's needs. Moreover, it is important to note this
illustration is not intended to set forth all of the information lenders
could provide that may be useful, such as the current loan balance, an
itemization of the payment amount devoted to interest and to principal,
and whether the loan balance has increased.

The final illustrations appear below.

[Illustration 1]{.underline}

Important Facts About Interest-Only and Payment Option Mortgages

Whether you are buying a house or refinancing your mortgage, this
information can help you decide if an interest-only mortgage or a
payment option mortgage is right for you. These mortgages can be
complicated. If you do not understand how they work, you should not sign
any loan contracts, and you might want to consider other types of loans.

**Interest-Only Mortgages** allow you to pay only the interest on the
money you borrowed for the first few years of the mortgage (the
"interest-only period").

**If you pay only the amount due, then at the end of the interest-only
period:**

-   You will still owe the original amount you borrowed.

-   Your monthly payment will increase because you must pay back the
    principal as well as interest. Your payment could increase even more
    if you have an adjustable rate mortgage ("ARM") and interest rates
    increase.

**Payment Option Mortgages** allow you to choose among several payment
options each month during the first few years of the loan (the "option
period"). The option period will end earlier than scheduled if the
amount you owe grows beyond a set limit---for example, 110% or 125% of
your original mortgage amount.

**During the option period, the payment options usually include:**

-   A payment of principal and interest*,* which reduces the amount you
    owe over time.

-   An interest-only payment, which does not reduce the amount you owe.

-   A minimum payment, which may be less than the interest due that
    month. *If you choose this option, any unpaid interest will increase
    the amount you owe*.

> **At the end of the option period, depending on what payment options
> you chose:**

-   You could owe substantially more than the original amount you
    borrowed.

-   Your monthly payment could increase significantly because:

    -   You may have to start paying back principal, as well as
        interest.

    -   Unpaid interest may have increased the amount you owe.

    -   Interest rates may have increased (if you have an ARM).

##### Additional Information

►**Home Equity**---If you make interest-only payments, your payments are
not building home equity. And, if you make only the minimum payment on a
payment option mortgage, you may be losing home equity. This may make it
harder to refinance your mortgage or to obtain funds from selling or
refinancing your home.

►**Prepayment Penalties**---Some mortgages require you to pay a lump-sum
prepayment penalty if you sell your home or refinance during the first
few years of the loan. You should find out if your mortgage has a
prepayment penalty, how it works, and how much it could be.

►**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 require you to verify your income and
assets.

[Illustration 2]{.underline}

+--------------+--------------+------------------+-----+--------------+---+
| SAMPLE       |              |                  |     |              |   |
| MORTGAGE     |              |                  |     |              |   |
| COMPARISON   |              |                  |     |              |   |
|              |              |                  |     |              |   |
| *(Not actual |              |                  |     |              |   |
| loans        |              |                  |     |              |   |
| available)*  |              |                  |     |              |   |
+--------------+--------------+------------------+-----+--------------+---+
| Sample Loan  |              |                  |     |              |   |
| Amount       |              |                  |     |              |   |
| \$200,000 -- |              |                  |     |              |   |
| 30-Year Term |              |                  |     |              |   |
| -- Interest  |              |                  |     |              |   |
| Rates For    |              |                  |     |              |   |
| Example      |              |                  |     |              |   |
| Purposes     |              |                  |     |              |   |
| Only         |              |                  |     |              |   |
+--------------+--------------+------------------+-----+--------------+---+
|              | Traditional  | 5-Year           | P   |              |   |
|              | Fixed Rate   | Interest-Only    | aym |              |   |
|              | Mortgage     | ARM              | ent |              |   |
|              |              |                  | Opt |              |   |
|              | (7%)         | (initial rate    | ion |              |   |
|              |              | 7%;              | ARM |              |   |
|              |              |                  |     |              |   |
|              |              | maximum rate     | (r  |              |   |
|              |              | 12%)             | ate |              |   |
|              |              |                  | in  |              |   |
|              |              |                  | 1^  |              |   |
|              |              |                  | st^ |              |   |
|              |              |                  | mo  |              |   |
|              |              |                  | nth |              |   |
|              |              |                  | 2%; |              |   |
|              |              |                  | va  |              |   |
|              |              |                  | ria |              |   |
|              |              |                  | ble |              |   |
|              |              |                  | r   |              |   |
|              |              |                  | ate |              |   |
|              |              |                  | af  |              |   |
|              |              |                  | ter |              |   |
|              |              |                  | 1^  |              |   |
|              |              |                  | st^ |              |   |
|              |              |                  | mo  |              |   |
|              |              |                  | nth |              |   |
|              |              |                  | (st |              |   |
|              |              |                  | art |              |   |
|              |              |                  | ing |              |   |
|              |              |                  | at  |              |   |
|              |              |                  | 7   |              |   |
|              |              |                  | %); |              |   |
|              |              |                  | m   |              |   |
|              |              |                  | axi |              |   |
|              |              |                  | mum |              |   |
|              |              |                  | r   |              |   |
|              |              |                  | ate |              |   |
|              |              |                  | 1   |              |   |
|              |              |                  | 2%) |              |   |
+--------------+--------------+------------------+-----+--------------+---+
| REQUIRED     |              |                  |     |              |   |
| MONTHLY      |              |                  |     |              |   |
| PAYMENTS     |              |                  |     |              |   |
+--------------+--------------+------------------+-----+--------------+---+
| Years 1-5    | \$1,331      | \$1,167          | \$7 |              |   |
|              |              |                  | 39- |              |   |
|              |              |                  | -\$ |              |   |
|              |              |                  | 987 |              |   |
|              |              |                  |     |              |   |
|              |              |                  | (i  |              |   |
|              |              |                  | ncr |              |   |
|              |              |                  | eas |              |   |
|              |              |                  | ing |              |   |
|              |              |                  | ann |              |   |
|              |              |                  | ual |              |   |
|              |              |                  | ly) |              |   |
+--------------+--------------+------------------+-----+--------------+---+
| Year 6 -- if | \$1,331      | \$1,414          | \   |              |   |
| rates        |              |                  | $1, |              |   |
|              |              |                  | 565 |              |   |
| don't change |              |                  |     |              |   |
+--------------+--------------+------------------+-----+--------------+---+
| Year 6 -- if | \$1,331      | \$1,678          | \   |              |   |
| rates        |              |                  | $1, |              |   |
|              |              |                  | 859 |              |   |
| rise 2%      |              |                  |     |              |   |
+--------------+--------------+------------------+-----+--------------+---+
| Year 8 -- if | \$1,331      | \$2,094          | \   |              |   |
| rates        |              |                  | $2, |              |   |
|              |              |                  | 319 |              |   |
| rise 5%      |              |                  |     |              |   |
+--------------+--------------+------------------+-----+--------------+---+
| EFFECT ON    |              |                  |     |              |   |
| LOAN BALANCE |              |                  |     |              |   |
| AND HOME     |              |                  |     |              |   |
| EQUITY       |              |                  |     |              |   |
+--------------+--------------+------------------+-----+--------------+---+
| After 5      | \$188,263    | \$200,000        | \$2 |              |   |
| Years, How   |              |                  | 21, |              |   |
| Much Will    |              |                  | 486 |              |   |
| You Owe?     |              |                  |     |              |   |
+--------------+--------------+------------------+-----+--------------+---+
| After 5      | \$11,737     | \$0              | *   |              |   |
| Years, How   |              |                  | NEG |              |   |
| Much Home    |              |                  | ATI |              |   |
| Equity Have  |              |                  | VE* |              |   |
| Your Loan    |              |                  | \$  |              |   |
| Payments     |              |                  | 21, |              |   |
| Built?       |              |                  | 486 |              |   |
+--------------+--------------+------------------+-----+--------------+---+

[Illustration 3]{.underline}

+-------------------------+---------+---------------------------------+
| **Your Payment Options  | **A     | **Impact**                      |
| This Month**            | mount** |                                 |
+-------------------------+---------+---------------------------------+
| **Principal and         | \$\_    | -   You will pay some of the    |
| Interest Payment**      | \_\_\_\ |     principal on your loan.     |
|                         | _\_\_\_ |                                 |
|                         |         | -   You will reduce your loan   |
|                         |         |     balance.                    |
+-------------------------+---------+---------------------------------+
| **Interest-Only         | \$\_\_  | -   You will not pay any        |
| Payment**               | \_\_\_\ |     principal on your loan.     |
|                         | _\_\_\_ |                                 |
|                         |         | -   You will **not** reduce     |
|                         |         |     your loan balance.          |
+-------------------------+---------+---------------------------------+
| **Minimum Payment**     | \$\_\_  | -   You \[will\] \[will         |
|                         | \_\_\_\ |     **not**\] cover the         |
|                         | _\_\_\_ |     interest on your loan.      |
|                         |         |                                 |
|                         |         | -   You \[will not\] \[will\]   |
|                         |         |     **increase** your loan      |
|                         |         |     balance.                    |
+-------------------------+---------+---------------------------------+

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

Dated:

John C. Dugan,

Comptroller of the Currency

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

By order of the Board of Governors of the Federal Reserve System,
\[DATE\]

Jennifer J. Johnson

Secretary of the Board

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

Dated at Washington, D.C., the \_\_\_ day of \_\_\_\_\_\_\_\_\_\_\_\_,
2007

By order of the Federal Deposit Insurance Corporation

Robert E. Feldman,

Executive Secretary

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

Dated: \[\_\_\_\_\_\_\_\_\_\]

By the Office of Thrift Supervision

John Reich,

Director

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

Dated: \[\_\_\_\_\_\_\_\_\_\]

By the National Credit Union Administration

JoAnn M. Johnson,

Chairman

[^1]: Illustration No. 2 also embodies assumptions about other product
    features that are typical in the current market: for example, the
    illustration assumes that the payment option ARM provides for a cap
    on increases in the minimum monthly payment equal to 7.5 percent per
    year for the first 5 years of the loan. Thus, the illustration shows
    the minimum monthly payment increasing over this time period from
    \$739 (in Year 1) to \$987 (in Year 5).

[^2]: "Interest-Only Mortgage Payments and Payment-Option ARMs--Are They
    for You?" *available at:*
    http://www.federalreserve.gov/pubs/mortgage_interestonly/mortgage_interestonly.pdf.

[^3]: 72 FR 10533 (March 8, 2007).

[^4]: *See* [www.csbs.org/Content/NavigationMenu/RegulatoryAffairs/
    FederalAgencyGuidanceDatabase/
    State_Implementation.htm.]{.underline}