81836 Federal Register / Vol. 75, No. 249 / Wednesday, December 29, 2010 / Rules and Regulations 

United States, in accordance with the 

following order of precedence: 

* * * * * 

■ 4. Revise § 707.5 to read as set forth 

below: 

§ 707.5 Incompetency. 

(a) Where any person who would 

otherwise be eligible to receive a 

payment is adjudged incompetent by a 

court of competent jurisdiction before 

the payment is received, payment may 

be released in accordance with this 

section so long as, and only if, a timely 

and binding program application has 

been filed by the person involved while 

capable or by someone legally 

authorized to file an application for the 

person involved. Timeliness is 

determined under the relevant program 

regulations. In all cases, the payment 

application must have been timely 

under the relevant program regulations 

and all program conditions for payment 

must have been met by or on behalf of 

the person involved. However, the 

payment will not be made unless, in 

addition, a separate release application 

is filed in accordance with § 707.7. If 

these conditions are met, payment may 

be released without regard to the claims 

of creditors other than the United States, 

to the guardian or committee legally 

appointed for the person involved. In 

case no guardian or committee had been 

appointed, payment, if for not more 

than $1,000, may be released without 

regard to claims of creditors other than 

the United States, to one of the 

following in the following order for the 

benefit of the person who was the 

subject of the adjudication: 

(1) The spouse. 

(2) An adult son, daughter, or 

grandchild. 

(3) The mother or father. 

(4) An adult brother or sister. 

(5) Such person as may be authorized 

under State law to receive payment for 

the person (see standard procedure 

prescribed for the respective region). 

(b) In case payment is more than 

$1,000, payment may be released only 

to such person as may be authorized 

under State law to receive payment for 

the incompetent, so long as all 

conditions for other payments specified 

in paragraph (a) of this section and 

elsewhere in the applicable regulations 

have been met. Those requirements 

include the filing of a proper and timely 

and legally authorized program 

application by or for the person 

adjudged incompetent. The release of 

funds under this paragraph will be 

made without regard to claims of 

creditors other than the United States 

unless the agency determines otherwise. 

§ 707.6 [Amended] 

■ 5. Amend § 707.6 by removing the 

words ‘‘apply for a payment’’ and 

adding, in their place, the words ‘‘apply 

for a release of a payment’’. 

■ 6. Amend § 707.7 as follows: 

■ a. Revise the heading to read as set 

forth below, and 

■ b. Remove the first sentence and add 

in its place the seven sentences set forth 

below. 

§ 707.7 Release application. 

No payment may be made under this 

part unless a proper program 

application was filed in accordance 

with the rules for the program that 

generated the payment. That application 

must have been timely and filed by 

someone legally authorized to act for the 

deceased, disappeared, or declaredincompetent person. The filer can be the 

party that earned the payment 

themselves—such as the case of a 

person who filed a program application 

before they died—or someone legally 

authorized to act for the party that 

earned the payment. All program 

conditions for payment must have been 

met before the death, disappearance, or 

incompetency except for the timely 

filing of the application for payment by 

the person legally authorized to act for 

the party earning the payment. But, 

further, for the payment to be released 

under the rules of this part, a second 

application must be filed. That second 

application is a release application filed 

under this section. In particular, as to 

the latter, where all other conditions 

have been met, persons desiring to 

claim payment for themselves or an 

estate in accordance with this part 707 

must do so by filing a release 

application on Form FSA–325, 

‘‘Application for Payment of Amounts 

Due Persons Who Have Died, 

Disappeared or Have Been Declared 

Incompetent.’’ * * * 

Signed in Washington, DC, on December 

22, 2010. 

Jonathan W. Coppess, 

Administrator, Farm Service Agency. 

[FR Doc. 2010–32760 Filed 12–28–10; 8:45 am] 

BILLING CODE 3410–05–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Regulation Z; Docket No. R–1366] 

Truth in Lending 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Interim rule; request for public 

comment. 

SUMMARY: The Board is publishing for 

comment an interim rule amending 

Regulation Z, which implements the 

Truth in Lending Act (TILA). This 

interim rule revises the Board’s interim 

rule published on September 24, 2010, 

which implemented certain 

requirements of the Mortgage Disclosure 

Improvement Act of 2008. The 

September 2010 interim rule requires 

creditors who extend consumer credit 

secured by real property or a dwelling 

to disclose summary information about 

interest rates and payment changes in a 

tabular format. The Board is issuing this 

interim rule to clarify certain provisions 

of the September 2010 interim rule. 

Specifically, this rule clarifies the 

requirements for adjustable-rate 

transactions that are ‘‘5/1 ARM’’ loans. It 

corrects the requirements for interestonly loans to clarify that the disclosures 

should reflect the date of the interest 

rate change rather than the date the first 

payment is due under the new rate. This 

interim rule also revises the definition 

of ‘‘negative amortization loans’’ to 

clarify which transactions are covered 

by the special disclosure requirements 

for such loans. 

DATES: This interim rule is effective 

January 30, 2011. Compliance with its 

provisions is optional, however, for 

transactions for which an application 

for credit is received by the creditor 

before October 1, 2011. This interim 

rule does not change the January 30, 

2011 mandatory compliance date of the 

September 2010 interim rule. Comments 

on this interim rule must be received on 

or before February 28, 2011. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1366, 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/ 


srobinson on DSKHWCL6B1PROD with RULES
Federal Register / Vol. 75, No. 249 / Wednesday, December 29, 2010 / Rules and Regulations 81837 

1The MDIA is contained in Sections 2501 

through 2503 of the Housing and Economic 

Recovery Act of 2008, Public Law 110–289, enacted 

on July 30, 2008. The MDIA was later amended by 

the Emergency Economic Stabilization Act of 2008, 

Public Law 110–343, enacted on October 3, 2008. 

2The MDIA codified some requirements adopted 

by the Board in a July 2008 final rule prior to the 

MDIA’s enactment. 73 FR 44522, July 30, 2008 

(2008 HOEPA Final Rule). To ease discussion, the 

description of the MDIA’s disclosure requirements 

includes the requirements of the 2008 HOEPA Final 

Rule. 

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, Attorney, or Paul 

Mondor, Senior Attorney, 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 

A. TILA and Regulation Z 

Congress enacted the Truth in 

Lending Act (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 purposes of TILA is to provide 

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’s disclosures differ depending 

on whether credit is an open-end 

(revolving) plan or a closed-end 

(installment) loan. TILA also contains 

procedural and substantive protections 

for consumers. TILA is implemented by 

the Board’s Regulation Z. An Official 

Staff Commentary interprets the 

requirements of Regulation Z. By 

statute, creditors that follow in good 

faith Board or official staff 

interpretations are insulated from civil 

liability, criminal penalties, and 

administrative sanction. 

B. MDIA Amendments to TILA and 

Regulation Z 

On July 30, 2008, Congress enacted 

the Mortgage Disclosure Improvement 

Act of 2008 (the MDIA).1 The MDIA 

amended TILA and requires transactionspecific TILA disclosures to be provided 

within three business days after an 

application for a closed-end mortgage 

loan is received and before the 

consumer has paid any fee (other than 

a fee for obtaining the consumer’s credit 

history).2 Creditors also must mail or 

deliver these early TILA disclosures at 

least seven business days before 

consummation and provide corrected 

disclosures if the disclosed APR 

changes in excess of a specified 

tolerance. The consumer must receive 

the corrected disclosures no later than 

three business days before 

consummation. The MDIA also 

expanded coverage of Regulation Z’s 

early disclosure requirement to include 

loans secured by a dwelling even when 

it is not the consumer’s principal 

dwelling. The Board implemented these 

MDIA requirements in final rules 

published May 19, 2009, which became 

effective July 30, 2009 as required by the 

statute. See 74 FR 23289; May 19, 2009 

(MDIA Final Rule). 

The MDIA also requires disclosure of 

payment examples if the loan’s interest 

rate or payments can change, along with 

a statement that there is no guarantee 

the consumer will be able to refinance 

the transaction in the future. Under the 

statute, these provisions of the MDIA 

will become effective on January 30, 

2011. On September 24, 2010, the Board 

published an interim rule to implement 

these requirements. See 75 FR 58470; 

Sept. 24, 2010 (September 2010 Interim 

Rule). The Board is issuing this interim 

rule to make certain clarifying changes 

to provisions in the September 2010 

Interim Rule. 

II. Summary of the Interim Rule 

The MDIA amended TILA to require 

creditors to disclose examples of rates 

and payments, including the maximum 

rate and payment, for loans with 

variable rates or payments. The act also 

requires creditors to disclose a 

statement that consumers should not 

assume they can refinance their loans. 

On July 23, 2009, the Board published 

a proposed rule to revise the disclosure 

rules for closed-end credit secured by 

real property or a consumer’s dwelling. 

See 74 FR 43232; Aug. 26, 2009 (2009 

Closed-End Proposal). Among other 

things, the 2009 Closed-End Proposal 

included provisions to implement 

MDIA’s new interest rate and payment 

disclosure requirements. Because the 

2009 Closed-End Proposal is not 

expected to be finalized before the 

January 30, 2011 effective date of the 

MDIA disclosure requirements, the 

Board issued the September 2010 

Interim Rule to provide creditors with 

the guidance necessary to comply by the 

statutory deadline. The September 2010 

Interim Rule is substantially similar to 

the provisions of the 2009 Closed-End 

Proposal that implemented the interest 

rate and payment disclosure 

requirements of the MDIA. 

Under the September 2010 Interim 

Rule, creditors will be required to 

disclose in a tabular format the contract 

interest rate together with the 

corresponding monthly payment, 

including an estimated amount for any 

escrows for taxes and property and/or 

mortgage insurance. Special disclosure 

requirements are imposed for 

adjustable-rate or step-rate loans to 

show the interest rate and payment at 

consummation, the maximum interest 

rate and payment at any time during the 

first five years after consummation, and 

the maximum interest rate and payment 

possible during the life of the loan. 

Additional special disclosures are 

required for loans with negativelyamortizing payment options, 

introductory interest rates, interest-only 

payments, and balloon payments. 

Finally, consistent with the statute, the 

September 2010 Interim Rule requires 

the disclosure of a statement that there 

is no guarantee the consumer will be 

able to refinance the loan with a new 

transaction in the future. 

This interim rule clarifies the 

requirement in the September 2010 

Interim Rule that, for adjustable-rate and 

step-rate loans, creditors disclose the 

maximum interest rate and payment 

during the first five years. As modified 

by this rule, creditors must base their 

disclosures on the first five years after 

the first regular periodic payment due 

date, rather than the first five years after 

consummation. The clarification is 

intended to ensure the disclosures are 

consistent with the manner in which 

payments are typically structured for 

adjustable-rate transactions that are ‘‘5/ 

1 ARM’’ loans. 

In addition, this interim rule clarifies 

the requirements for disclosing the 

payments on an ‘‘interest-only loan.’’ 

Under the September 2010 Interim Rule, 

for each interest rate disclosed, the 

creditor must disclose the earliest date 

that rate may apply and the 

corresponding periodic payment. For an 

interest-only loan, if the corresponding 

payment will be applied to both accrued 

interest and principal, the September 

2010 Interim Rule further requires the 

creditor to disclose the earliest date that 

such payments will be required. This 

interim rule would eliminate the 

potential conflict from disclosing two 


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81838 Federal Register / Vol. 75, No. 249 / Wednesday, December 29, 2010 / Rules and Regulations 

different dates in the same column, by 

clarifying that creditors should disclose 

the earliest date that the interest rate 

becomes effective rather than the date 

that the first payment is due under the 

new rate. 

Also under this interim rule, the 

definition of ‘‘negative amortization 

loan’’ is being revised to clarify which 

transactions are covered by the special 

disclosure requirements for such loans. 

Those disclosures were designed to 

show consumers how their periodic 

payments could increase over time and 

to enable comparisons between the 

consequences for consumers of making 

‘‘minimum’’ and ‘‘full’’ payments. The 

revision would clarify that these 

disclosures apply only to loans where 

consumers are allowed to make 

minimum payments that result in 

negative amortization. Thus, the revised 

definition of ‘‘negative amortization 

loan’’ excludes loan products that do not 

have a minimum required payment that 

results in negative amortization. For 

example, some loans that are designed 

for borrowers with seasonal 

employment require level, amortizing 

payments, but do not require payments 

in certain months; during months when 

no payment is made the accrued interest 

increases the loan balance. As clarified, 

the special disclosure requirements for 

negative amortization loans do not 

apply to the excluded loans, even 

though some negative amortization can 

occur because of the capitalization of 

accrued interest from time to time. Such 

loans will be disclosed under the rules 

for amortizing loans. 

Finally, this interim rule clarifies how 

the provisions in the September 2010 

Interim Rule apply to home 

construction loans. A new staff 

comment accompanying Appendix D 

clarifies that, when a construction loan 

secured by real property or a dwelling 

that may be permanently financed by 

the same creditor is disclosed as more 

than one transaction, the construction 

financing must be disclosed under the 

new rules for interest rate and payment 

summary tables. On the other hand, if 

the creditor discloses the construction 

and permanent financing as a single 

transaction, the summary table should 

reflect only the permanent financing, 

while the construction financing should 

be disclosed only with a statement 

outside the table that interest payments 

must be made and the timing of such 

payments. 

III. Legal Authority 

A. Rulemaking Authority 

TILA Section 105(a) directs the Board 

to prescribe regulations to carry out the 

Act’s purposes. 15 U.S.C. 1604(a). TILA 

also authorizes the Board to issue 

regulations that contain such 

classifications, differentiations, or other 

provisions, or that provide for such 

adjustments and exceptions for any 

class of transactions, that in the Board’s 

judgment are necessary or proper to 

effectuate the purposes of TILA, 

facilitate compliance with the act, or 

prevent circumvention or evasion. 

B. Authority To Issue Interim Rule 

The Administrative Procedures Act 

(APA), 5 U.S.C. 551 et seq., generally 

requires public notice before 

promulgation of regulations. See 5 

U.S.C. 553(b). The 2009 Closed-End 

Proposal provided the public with 

notice and an opportunity to comment 

on the Board’s proposed disclosure 

changes, including the proposed interest 

rate and payment summary tables that 

would implement the MDIA. The 

September 2010 Interim Rule adopted 

only those provisions of the 2009 

Closed-End Proposal that implement the 

MDIA requirements that will become 

effective on January 30, 2011. 

Accordingly, the Board believed that the 

September 2010 Interim Rule complied 

with the APA’s public notice and 

opportunity to comment requirement. 

The Board adopted the provisions 

concerning interest rates and payments 

as an interim rule, rather than as a final 

rule, because the Board intended to 

conduct additional testing of these and 

other disclosure requirements, 

including quantitative testing, and may 

revise the interim provisions further in 

light of further testing results. The 

Board sought to permit further public 

comment while also giving the 

provisions effect so that creditors would 

have the guidance they need and the 

time to implement it by January 30, 

2011, as discussed above. 

For the same reasons, the Board is 

now implementing these clarifications 

by interim rule to ensure timely 

publication and effectiveness of the 

additional guidance it provides before 

the statutory requirements become 

effective. The additional guidance is 

needed to prevent compliance burdens 

that otherwise would result from certain 

conflicts and uncertainties in the 

existing provisions as implemented by 

the September 2010 Interim Rule. 

Comments on the September 2010 

Interim Rule raised additional issues 

that are not being addressed at this time. 

The Board believes that issuing a 

permanent final rule imposing further 

changes in creditors’ disclosure so soon 

before the mandatory January 30, 2011 

compliance date would impose undue 

burden on creditors. Accordingly, this 

interim rule is being published only to 

clarify certain issues that created 

uncertainty for creditors on how to 

comply with the September 2010 

Interim Rule before the statutory 

effective date. Other comments received 

on the September 2010 Interim Rule, as 

well as this interim rule, can be taken 

into consideration before publication of 

a permanent final rule. 

IV. Overview of Comments Received on 

the Interest Rate and Payment 

Summary Tables 

The September 2010 Interim Rule 

provided an overview of comments on 

the 2009 Closed-End Proposal. See 75 

FR 58470, 58472; Sept. 24, 2010. In 

response to the September 2010 Interim 

Rule, the Board received 36 comments. 

Most of those were from creditors and 

their trade associations and formsoftware vendors that provide creditors 

with systems to generate disclosures. 

They raised various practical concerns 

with the new requirements. The 

concerns addressed in this interim rule 

are described below. 

Several commenters expressed 

concern about the requirement that the 

summary table for adjustable-rate and 

step-rate loans include the maximum 

rate applicable during the first five years 

after consummation. They noted that ‘‘5/ 

1 ARM’’ loans typically provide for 60 

regular periodic payments at the initial 

rate and that the rate typically does not 

adjust until at least the 61st full month 

after consummation. As a result, the 

payment summary table as prescribed in 

the September 2010 Interim Rule would 

not show the rate increase at the first 

adjustment of a typical ‘‘5/1 ARM’’ loan 

if the table is based on interest rate 

changes occurring during the first five 

years after consummation. 

For interest-only loans, some 

commenters questioned the requirement 

that creditors disclose the earliest date 

on which the new interest rate can 

apply as well as the earliest date on 

which the corresponding payment 

would be due at the new rate. Because 

interest is paid in arrears on most 

mortgage transactions, those two dates 

are generally one month apart. 

Commenters noted that the structure of 

the table allows for only one date in 

each column. 

Commenters also asked the Board to 

clarify whether certain types of loan 

products should be disclosed as 

‘‘negative amortization loans.’’ They 

noted that some loan products have 

features that may result in the principal 

balance increasing even though the 

consumer does not have the right on 

each due date to choose between 

making a minimum payment that causes 


srobinson on DSKHWCL6B1PROD with RULES
Federal Register / Vol. 75, No. 249 / Wednesday, December 29, 2010 / Rules and Regulations 81839 

negative amortization and making a 

larger payment. For example, some 

loans provide for regular, amortizing 

payments, but have irregular payment 

schedules and periods when no 

payment is due, during which accrued 

interest is added to the principal 

balance. Commenters also noted that 

some loans have rates that adjust 

without a corresponding adjustment in 

the periodic payment in order to 

maintain the consumer’s payment at a 

level amount; if the interest rate 

increases during the loan term, the 

principal balance may increase. These 

commenters stated that such products 

cannot be disclosed as negative 

amortization loans under the September 

2010 Interim Rule, which calls for 

parallel disclosures of the consumer’s 

minimum payment and full payment 

options. 

Many of the commenters asked how 

the requirements for the new rate and 

payment summary table in § 226.18(s) 

affect the guidance in Appendix D for 

disclosing multiple-advance 

construction loans. Most home 

construction loans are covered by 

§ 226.18(s) because they are secured by 

real property or a dwelling. Specifically, 

commenters sought clarification on 

whether the guidance in Appendix D for 

disclosing the ‘‘repayment schedule’’ for 

a construction loan remains applicable 

or, alternatively, whether the 

requirements of § 226.18(s) override the 

existing guidance in Appendix D. 

The Board is adopting this interim 

rule to address the foregoing four issues. 

The Board is also adopting minor, 

technical revisions to address other 

uncertainties raised by the commenters, 

as discussed below. 

V. Section-by-Section Analysis 

Section 226.18 Content of Disclosures 

18(h) Total of Payments 

The Board is revising staff comment 

18(h)–2 to clarify how to calculate the 

total of payments under § 226.18(h) for 

transactions secured by real property or 

a dwelling. Existing comment 18(h)–2 

states that the total of payments is the 

sum of the payments disclosed under 

§ 226.18(g). For transactions subject to 

§ 226.18(s), however, no payment 

schedule will be disclosed under 

§ 226.18(g). Accordingly, the Board is 

revising comment 18(h)–2 to provide 

that creditors should continue to follow 

the rules in § 226.18(g) and associated 

commentary, and comments 17(c)(1)–8 

and –10 for adjustable-rate transactions, 

to calculate the total of payments for 

transactions secured by real property or 

a dwelling. 

18(s) Interest Rate and Payment 

Summary for Mortgage Transactions 

The Board is adopting new 

commentary language to clarify that 

references to ‘‘monthly’’ payments in the 

disclosures may be modified to reflect 

other periods when applicable, such as 

when payments are due quarterly 

instead of monthly. Section 

226.18(s)(2)(i)(B)(1) provides that the 

interest rate at consummation must be 

disclosed and labeled ‘‘introductory rate 

and monthly payment.’’ Under 

§§ 226.18(s)(3)(i)(D) and 

226.18(s)(3)(ii)(D), for each interest rate 

disclosed under § 226.18(s)(2), the 

creditor must also disclose the sum of 

the corresponding periodic payment 

and any estimated escrow payment, 

which must be labeled ‘‘total estimated 

monthly payment.’’ The Board has also 

published model clauses that use the 

word ‘‘monthly’’ in describing the 

disclosed payments. 

Existing comment 18(s)(3)(i)(D)–1 

provides that, if periodic payments are 

not due monthly, the creditor should 

use the appropriate term such as 

‘‘quarterly’’ or ‘‘annually.’’ There is no 

similar guidance, however under the 

other provisions. The Board is revising 

comment 18(s)–1 to clarify that the same 

guidance applies to 

§§ 226.18(s)(2)(i)(B)(1) and 

226.18(s)(3)(ii)(D), as well as the model 

clauses. 

18(s)(2) Interest Rates 

18(s)(2)(i) Amortizing Loans 

Maximum interest rate during first 

five years. The Board is revising 

§ 226.18(s)(2)(i)(B)(2) to clarify the rule’s 

application to adjustable-rate 

transactions that are ‘‘5/1 ARM’’ loans. 

As adopted in the September 2010 

Interim Rule, § 226.18(s)(2)(i)(B)(2) 

requires disclosure of the maximum 

possible rate at any time during the first 

five years after consummation and the 

earliest date that rate may apply. As 

noted above, some commenters 

questioned whether the Board intended 

creditors to disclose the first adjustment 

for ‘‘5/1 ARMs’’ under this provision. 

Commenters stated the intent of the rule 

is unclear because the first rate 

adjustment generally occurs more than 

five years after consummation. For 

example, assuming a ‘‘5/1 ARM’’ loan is 

consummated on August 16, 2011, the 

first payment due date typically is 

October 1, 2011. The first rate 

adjustment then occurs on the due date 

of the 60th regular payment, September 

1, 2016, which is more than five years 

after consummation. The Board 

intended that creditors disclose the first 

rate adjustment for a ‘‘5/1 ARM.’’ To 

ensure that the first rate adjustment will 

be disclosed for ‘‘5/1 ARMs,’’ the Board 

is revising § 226.18(s)(2)(i)(B)(2) to 

clarify that creditors should disclosure 

the maximum possible rate that will 

apply at any time during the first five 

years after the date on which the first 

regular periodic payment will be due, 

rather than after consummation. 

Payment increases without regard to 

an interest rate adjustment. The Board 

is revising comment 18(s)(2)(i)(C)–1 to 

clarify that, for interest-only loans, 

creditors must disclose the change in 

the periodic payment when the 

consumer begins making payments that 

include principal as well as interest. 

Under § 226.18(s)(2)(i)(C), if an 

amortizing loan provides for a payment 

increase without regard to an interest 

rate adjustment (as described in 

§ 226.18(s)(3)(i)(B)), the creditor must 

disclose an additional column showing 

the rate in effect at the time of such a 

payment increase and the date on which 

the payment increase will occur. Some 

commenters suggested that this 

additional column would not be 

required for an interest-only loan to 

show the change in the periodic 

payment when the consumer begins 

making payments that include 

principal. These commenters believe 

that, under the September 2010 Interim 

Rule, § 226.18(s)(3)(i)(B) does not apply 

to interest-only loans. In fact, the 

disclosure requirement of 

§ 226.18(s)(2)(i)(C) applies to all 

amortizing loans, including interestonly loans, if the consumer’s payment 

can increase in the manner described in 

§ 226.18(s)(3)(i)(B), even if it is not the 

type of loan covered by § 226.18(s)(3)(i). 

In such a case, if the transaction is an 

interest-only loan, the creditor also must 

disclose the corresponding periodic 

payment pursuant to § 226.18(s)(3)(ii). 

The Board is revising comment 

18(s)(2)(i)(C)–1 to clarify this point. The 

Board is also revising this comment to 

clarify that payment increases without 

regard to an interest rate increase do not 

include minor payment variations 

resulting solely from the fact that 

months have different numbers of days. 

18(s)(3) Payments for Amortizing Loans 

18(s)(3)(i) Principal and Interest 

Payments 

Escrows. The Board is revising 

§ 226.18(s)(3)(i)(C) to clarify when 

creditors must disclose estimated 

payments for taxes and insurance. 

Under § 226.18(s)(3)(i)(C) and 

accompanying comment 18(s)(3)(i)(C)–1, 

an estimated payment amount for taxes 

and insurance must be disclosed if the 

creditor will establish an escrow 


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81840 Federal Register / Vol. 75, No. 249 / Wednesday, December 29, 2010 / Rules and Regulations 

account for such amounts, even if the 

escrow account is not required by the 

creditor. The regulation also states that 

the creditor must disclose that the 

escrow account is required if that is the 

case. Under the 2009 Closed-End 

Proposal, the statement that an escrow 

account is required would have been 

implemented in a separate part of the 

revised disclosure, outside of the 

interest rate and payment summary 

table. The inclusion of this requirement 

in the September 2010 Interim Rule, 

which implemented only the summary 

table, was an error. This requirement is 

being removed. Some commenters 

stated that the text of the regulation as 

implemented by the September 2010 

Interim Rule could be read to suggest 

that the amounts for taxes and insurance 

should be disclosed only if the escrow 

account was required by the creditor. 

The Board’s intent under the September 

2010 Interim Rule, however, was to 

require disclosure of the estimated 

escrow payment if an escrow account 

will be established, whether the escrow 

account is required or not, as comment 

18(s)(3)(i)(C)–1 indicates. Accordingly, 

the Board is revising the text of 

§ 226.18(s)(3)(i)(C) to clarify the scope of 

the disclosure requirement. 

The Board also is revising comment 

18(s)(3)(i)(C)–1 to clarify how creditors 

should estimate the amounts for future 

taxes and insurance when such amounts 

must be disclosed in connection with 

changes in the periodic payment after 

consummation. Some commenters 

noted that estimating future taxes and 

insurance would be highly speculative. 

The September 2010 Interim Rule 

generally does not require creditors to 

make projections about future tax rates 

and insurance premiums. Creditors 

might be aware, however, of changes in 

mortgage insurance premiums that are 

based on the outstanding loan balance. 

Accordingly, the Board is revising 

comment 18(s)(3)(i)(C)–1 to clarify that, 

when escrow payments must be 

disclosed in multiple columns of the 

table, each column should use the same 

estimate for taxes and insurance except 

that the estimate should reflect changes 

in the periodic mortgage insurance 

premiums that are known to the creditor 

at the time the disclosure is made. The 

comment further explains that the 

estimated mortgage insurance premiums 

should be based on the declining 

principal balance that will occur as a 

result of changes to the interest rate that 

are assumed for purposes of disclosing 

those rates under § 226.18(s)(2) and 

accompanying commentary. 

18(s)(3)(ii) Interest-Only Payments 

Payment date. The Board is revising 

§ 226.18(s)(3)(ii)(B) to remove the 

requirement to disclose the earliest date 

on which the payment disclosed under 

that section will be required. Under the 

September 2010 Interim Rule, for each 

interest rate disclosed, the creditor must 

disclose the earliest date that rate may 

apply and the corresponding periodic 

payment. For an interest-only loan, if 

the corresponding payment will be 

applied to both accrued interest and 

principal, § 226.18(s)(3)(ii)(B) further 

requires the creditor to disclose the 

earliest date that such payments will be 

required. Commenters questioned the 

requirement for disclosing two different 

dates in the same column and the 

potential for confusion. Because interest 

is paid in arrears on most mortgage 

transactions, those two dates are 

generally one month apart; commenters 

also noted that the structure of the table 

allows for only one date in each 

column. 

The date in each column is intended 

to be the earliest date the interest rate 

may apply, not the date that the 

corresponding payment will take effect. 

Accordingly, the Board is revising 

§ 226.18(s)(3)(ii)(B) by removing the 

language that requires creditors to 

disclose ‘‘the earliest date that such 

payments will be required.’’ As revised, 

this interim rule clarifies that creditors 

should disclose the earliest date that the 

interest rate becomes effective rather 

than the date that the first payment is 

due under the new rate. Revised 

§ 226.18(s)(3)(ii)(B) also clarifies that the 

itemized amounts disclosed as being 

applied to interest and principal when 

a consumer begins making principal and 

interest payments for an interest-only 

loan are those amounts for the first such 

payment. 

18(s)(7) Definitions 

‘‘Negative amortization loans.’’ The 

Board is revising § 226.18(s)(7)(v) to 

clarify what types of loans are subject to 

the special disclosure requirements for 

‘‘negative amortization loans.’’ As 

adopted by the September 2010 Interim 

Rule, § 226.18(s)(7)(v) defines ‘‘negative 

amortization’’ as the ‘‘payment of 

periodic payments that will result in an 

increase in the principal balance under 

the terms of the legal obligation.’’ The 

rule also defines a ‘‘negative 

amortization loan’’ as ‘‘a loan that 

permits payments resulting in negative 

amortization, other than a reverse 

mortgage subject to § 226.33.’’ Thus, 

some transactions that do not provide 

for multiple payment options, but that 

have repayment terms that may result in 

negative amortization, can be construed 

as negative amortization loans for 

purposes of the interest rate and 

payment summary table required by 

§ 226.18(s). The special disclosure 

requirements for negative amortization 

loans and the model clause for such 

loans are intended to show consumers 

the effects of making minimum 

payments that result in negative 

amortization in comparison to the 

effects of making fully amortizing 

payments; the Board did not intend to 

apply those requirements to loans that 

do not provide for such minimum 

payments. 

Accordingly, the Board is revising the 

definition of ‘‘negative amortization 

loan’’ in § 226.18(s)(7) to clarify which 

transactions are subject to the disclosure 

requirements for such loans in 

§ 226.18(s)(2)(ii). Specifically, under the 

revised definition the special 

disclosures for ‘‘negative amortization 

loans’’ would apply only to loan 

products that have minimum required 

payments that result in negative 

amortization. For example, certain loans 

that are designed for borrowers with 

seasonal income require periodic 

amortizing payments but do not require 

the borrower to make payments in 

certain months; during months when no 

payment is made the accrued interest 

increases the principal balance. Also, 

some adjustable-rate loans provide for 

fixed periodic payments that do not 

adjust when the interest rate adjusts; in 

cases where the interest rate increases 

during the loan term, the additional 

accrued interest increases the principal 

balance. As clarified, the special 

disclosure requirements for negative 

amortization loans will not apply to 

such loans, even though the principal 

balance might increase during the loan 

term when accrued interest is 

capitalized. New comment 18(s)(7)–1 

has been added to note that such loans 

will be disclosed under the rules for 

amortizing loans. 

The revised definition will limit the 

meaning of ‘‘negative amortization loan’’ 

to loan products that can be disclosed 

meaningfully under the special rules for 

negative amortization loans. If a loan 

provides for a minimum periodic 

payment that causes negative 

amortization, creditors must disclose 

the corresponding fully amortizing 

payment in a parallel row of the table, 

as contemplated by §§ 226.18(s)(2)(ii) 

and 226.18(s)(4) and Model Clause H– 

4(G). 

Appendix D—Multiple-Advance 

Construction Loans 

The Board is adopting a new 

comment under Appendix D to clarify 


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Federal Register / Vol. 75, No. 249 / Wednesday, December 29, 2010 / Rules and Regulations 81841 

the impact of § 226.18(s) on the 

appendix’s guidance for disclosing the 

‘‘repayment schedule’’ when 

construction financing is secured by real 

property or a dwelling. A creditor that 

also might permanently finance the 

construction phase has the option of 

disclosing the construction and 

permanent phases as separate 

transactions or as a single transaction. 

See § 226.17(c)(6)(ii). Part I of Appendix 

D provides guidance for disclosing the 

construction financing as a separate 

transaction, while Part II provides 

guidance on disclosing the construction 

and permanent financing as one 

transaction. 

For loans secured by real property or 

a dwelling, if a creditor elects to 

disclose the construction and 

permanent phases as separate 

transactions, the construction phase 

must be disclosed in accordance with 

§ 226.18(s), as adopted by the September 

2010 Interim Rule and modified by this 

interim rule. Under § 226.18(s), the 

creditor must disclose the applicable 

interest rates and corresponding 

periodic payments during the 

construction phase in an interest rate 

and payment summary table. The 

provision in Appendix D, Part I.A.3, 

which allows the creditor to omit the 

number and amounts of any interest 

payments ‘‘in disclosing the payment 

schedule under § 226.18(g)’’ does not 

apply because the transaction is 

governed by § 226.18(s) rather than 

§ 226.18(g). Also, because the 

construction phase is being disclosed as 

a separate transaction and its terms do 

not repay all principal, the creditor 

must disclose a balloon payment, 

pursuant to § 226.18(s)(5). This 

guidance is being added to the 

commentary as new comment App. D– 

6. 

On the other hand, if the creditor 

elects to disclose the construction and 

permanent phases as a single 

transaction, the construction phase must 

be disclosed pursuant to Appendix D, 

Part II.C, which provides that the 

creditor shall disclose the repayment 

schedule without reflecting the number 

or amounts of payments of interest only 

that are made during the construction 

phase. Appendix D also provides, 

however, that creditors must disclose 

(outside of the table) the fact that 

interest payments must be made and the 

timing of such payments. The rate and 

payment summary table disclosed under 

§ 226.18(s) must reflect only the 

permanent phase of the transaction. 

Therefore, in determining the rates and 

payments that must be disclosed in the 

columns of the table, creditors should 

apply the requirements of § 226.18(s) to 

the permanent phase only. For example, 

under § 226.18(s)(2)(i)(A) or 

§ 226.18(s)(2)(i)(B)(1), as applicable, the 

creditor should disclose the interest rate 

corresponding to the first installment 

due under the permanent phase and not 

any rate applicable during the 

construction phase. This guidance is 

also reflected in new comment App. D– 

6. 

Appendices G and H—Open-End and 

Closed-End Model Forms and Clauses 

This interim rule amends comment 

App. G and H–1 to provide that 

creditors may revise the column 

heading in Model Clause H–4(H) to 

reflect the column heading required by 

§ 226.18(s)(2)(i)(C) of the regulation. 

Commenters noted a discrepancy 

between § 226.18(s)(2)(i)(C) and Model 

Clause H–4(H). Section 226.18(s)(2)(i)(C) 

states that the column heading must be 

labeled as ‘‘first adjustment’’ if the loan 

is an adjustable-rate mortgage or, 

otherwise, labeled as ‘‘first increase.’’ 

Due to a technical error, the heading in 

Model Clause H–4(H) is incorrectly 

labeled ‘‘maximum ever.’’ TILA Section 

105(b) provides creditors with a safe 

harbor if they use any model form or 

clause published by the Board. Thus, 

use of Model Clause H–4(H) as 

published in the September 2010 

Interim Rule is deemed to be in 

compliance with § 226.18(s)(2)(i)(C). 

Comment App. G and H–1 is being 

amended, however, to clarify that the 

same safe harbor is available to creditors 

that use the model clause but alter the 

column heading to read ‘‘first 

adjustment’’ or ‘‘first increase,’’ as 

applicable, in compliance with the 

literal requirement of 

§ 226.18(s)(2)(i)(C). 

VI. 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 this interim rule 

under the authority delegated to the 

Board by the Office of Management and 

Budget (OMB). The Board also 

conducted such a review for the 

September 2010 Interim Rule. See 75 FR 

58470, 58479–80; Sept. 24, 2010. The 

Board believes that the technical 

revisions made by this interim rule do 

not alter the findings in the Board’s 

previous PRA review. The revisions do 

not add to the disclosure requirements 

adopted in the September 2010 Interim 

Rule but, rather, only resolve 

uncertainties and clarify under certain 

circumstances which of those disclosure 

requirements apply to which types of 

mortgage loan products and how. 

Accordingly, for purposes of this 

interim rule, the Board refers to the 

findings of the PRA review set forth in 

the September 2010 Interim Rule. 

The Board has a continuing interest in 

the public’s opinion of the collection of 

information. Comments on the 

collection of information should be sent 

to Cynthia Ayouch, Acting Federal 

Reserve Board Clearance Officer, 

Division of Research and Statistics, Mail 

Stop 95–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. 

VII. Regulatory Flexibility Analysis 

In accordance with Section 4 of the 

Regulatory Flexibility Act (RFA), 5 

U.S.C. 604, the Board published a final 

regulatory flexibility analysis for the 

amendments to Regulation Z in the 

September 2010 Interim Rule. See 75 FR 

58470, 58480–82; Sept. 24, 2010. For the 

reasons discussed above regarding the 

PRA, the Board believes that this 

interim rule does not affect the Board’s 

prior regulatory flexibility analysis and 

that it therefore continues to apply for 

purposes of this interim rule. The Board 

notes, in fact, that the revisions this 

interim rule makes to the provisions of 

Regulation Z adopted in the September 

2010 Interim Rule are for the purpose of 

resolving conflicts and uncertainties, 

thus facilitating compliance for 

creditors. Consequently, to the extent 

this interim rule has any effect on the 

Board’s prior regulatory flexibility 

analysis, it is to reduce the overall 

impact of the September 2010 Interim 

Rule on all entities, including small 

entities. 

List of Subjects in 12 CFR Part 226 

Advertising, Consumer protection, 

Federal Reserve System, Mortgages, 

Reporting and recordkeeping 

requirements, Truth in lending. 

Authority and Issuance 

■ For the reasons set forth in the 

preamble, the Board amends 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); Pub. L. 111–24 § 2, 

123 Stat. 1734. 

Subpart C—Closed-End Credit 

■ 2. Section 226.18 is amended by 

revising paragraphs (s)(2)(i)(B)(2), 


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81842 Federal Register / Vol. 75, No. 249 / Wednesday, December 29, 2010 / Rules and Regulations 

(s)(3)(i)(C), (s)(3)(ii)(B), and (s)(7)(v) to 

read as follows: 

§ 226.18 Content of disclosures. 

* * * * * 

(s) * * * 

(2) * * * 

(i) * * * 

(B) * * * 

(2) The maximum interest rate that 

may apply during the first five years 

after the date on which the first regular 

periodic payment will be due and the 

earliest date on which that rate may 

apply, labeled as ‘‘maximum during first 

five years’’; and 

* * * * * 

(3) * * * 

(i) * * * 

(C) If an escrow account will be 

established, an estimate of the amount 

of taxes and insurance, including any 

mortgage insurance, payable with each 

periodic payment; and 

* * * * * 

(ii) * * * 

(B) If the payment will be applied to 

accrued interest and principal, an 

itemization of the amount of the first 

such payment applied to accrued 

interest and to principal, labeled as 

‘‘interest payment’’ and ‘‘principal 

payment,’’ respectively; 

* * * * * 

(7) * * * 

(v) The term ‘‘amortizing loan’’ means 

a loan in which payment of the periodic 

payments does not result in an increase 

in the principal balance under the terms 

of the legal obligation; the term 

‘‘negative amortization’’ means payment 

of periodic payments that will result in 

an increase in the principal balance 

under the terms of the legal obligation; 

the term ‘‘negative amortization loan’’ 

means a loan, other than a reverse 

mortgage subject to § 226.33, that 

provides for a minimum periodic 

payment that covers only a portion of 

the accrued interest, resulting in 

negative amortization. 

* * * * * 

■ 3. In Supplement I to Part 226: 

■ A. Under Section 226.18—Content of 

Disclosures, 18(h) Total of payments, 

Paragraph 2 is revised. 

■ B. Under Section 226.18—Content of 

Disclosures, 18(s) Interest rate and 

payment summary for mortgage 

transactions, Paragraph 1 is revised. 

■ C. Under Section 226.18—Content of 

Disclosures, 18(s) Interest rate and 

payment summary for mortgage 

transactions, 18(s)(2) Interest rates, 

18(s)(2)(i) Amortizing loans, Paragraph 

18(s)(2)(i)(C), paragraph 1 is revised. 

■ D. Under Section 226.18—Content of 

Disclosures, 18(s) Interest rate and 

payment summary for mortgage 

transactions, 18(s)(3) Payments for 

amortizing loans, Paragraph 

18(s)(3)(i)(C), paragraph 1 is revised. 

■ E. Under Section 226.18—Content of 

Disclosures, 18(s) Interest rate and 

payment summary for mortgage 

transactions, new 18(s)(7) Definitions 

and paragraph 1 are added. 

■ F. Under Appendix D—Multiple 

Advance Construction Loans, new 

paragraph 6 is added. 

■ G. Under Appendices G and H— 

Open-End and Closed-End Model Forms 

and Clauses, paragraph 1 is revised. 

The additions and revisions read as 

follows: 

Supplement I to Part 226—Official Staff 

Interpretations 

* * * * * 

Subpart C—Closed-End Credit 

* * * * * 

Section 226.18—Content of Disclosures 

18(h) Total of payments. 

* * * * * 

2. Calculation of total of payments. The 

total of payments is the sum of the payments 

disclosed under § 226.18(g). For example, if 

the creditor disclosed a deferred portion of 

the downpayment as part of the payment 

schedule, that payment must be reflected in 

the total disclosed under this paragraph. To 

calculate the total of payments amount for 

transactions subject to § 226.18(s), creditors 

should use the rules in § 226.18(g) and 

associated commentary and, for adjustablerate transactions, comments 17(c)(1)–8 and 

–10. 

* * * * * 

18(s) Interest rate and payment summary 

for mortgage transactions. 

1. In general. Section 226.18(s) prescribes 

format and content for disclosure of interest 

rates and monthly (or other periodic) 

payments for mortgage loans. The 

information in § 226.18(s)(2)–(4) is required 

to be in the form of a table, except as 

otherwise provided, with headings and 

format substantially similar to Model Clause 

H–4(E), H–4(F), H–4(G), or H–4(H) in 

Appendix H to this part. A disclosure that 

does not include the shading shown in a 

model clause but otherwise follows the 

model clause’s headings and format is 

substantially similar to that model clause. 

Where § 226.18(s)(2)–(4) or the applicable 

model clause requires that a column or row 

of the table be labeled using the word 

‘‘monthly’’ but the periodic payments are not 

due monthly, the creditor should use the 

appropriate term, such as ‘‘bi-weekly’’ or 

‘‘quarterly.’’ In all cases, the table should have 

no more than five vertical columns 

corresponding to applicable interest rates at 

various times during the loan’s term; 

corresponding payments would be shown in 

horizontal rows. Certain loan types and terms 

are defined for purposes of § 226.18(s) in 

§ 226.18(s)(7). 

* * * * * 

Paragraph 18(s)(2)(i)(C) 

1. Payment increases. For some loans, the 

payment may increase following 

consummation for reasons unrelated to an 

interest rate adjustment. For example, an 

adjustable-rate mortgage may have an 

introductory fixed-rate for the first five years 

following consummation and permit the 

borrower to make interest-only payments for 

the first three years. The disclosure 

requirement of § 226.18(s)(2)(i)(C) applies to 

all amortizing loans, including interest-only 

loans, if the consumer’s payment can 

increase in the manner described in 

§ 226.18(s)(3)(i)(B), even if it is not the type 

of loan covered by § 226.18(s)(3)(i). Thus, 

§ 226.18(s)(2)(i)(C) requires that the creditor 

disclose the interest rate that corresponds to 

the first payment that includes principal as 

well as interest, even though the interest rate 

will not adjust at that time. In such cases, if 

the loan is an interest-only loan, the creditor 

also must disclose the corresponding 

periodic payment pursuant to 

§ 226.18(s)(3)(ii). The table would show, from 

left to right: The interest rate and payment at 

consummation with the payment itemized to 

show that the payment is being applied to 

interest only; the interest rate and payment 

when the interest-only option ends; the 

maximum interest rate and payment during 

the first five years; and the maximum 

possible interest rate and payment. The 

disclosure requirements of § 226.18(s)(2)(i)(C) 

do not apply to minor payment variations 

resulting solely from the fact that months 

have different numbers of days. 

* * * * * 

Paragraph 18(s)(3)(i)(C). 

1. Taxes and insurance. An estimated 

payment amount for taxes and insurance 

must be disclosed if the creditor will 

establish an escrow account for such 

amounts. If the escrow account will include 

amounts for items other than taxes and 

insurance, such as homeowners association 

dues, the creditor may but is not required to 

include such items in the estimate. When 

such estimated escrow payments must be 

disclosed in multiple columns of the table, 

such as for adjustable- and step-rate 

transactions, each column should use the 

same estimate for taxes and insurance except 

that the estimate should reflect changes in 

periodic mortgage insurance premiums that 

are known to the creditor at the time the 

disclosure is made. The estimated amounts of 

mortgage insurance premiums should be 

based on the declining principal balance that 

will occur as a result of changes to the 

interest rate that are assumed for purposes of 

disclosing those rates under § 226.18(s)(2) 

and accompanying commentary. The 

payment amount must include estimated 

amounts for property taxes and premiums for 

mortgage-related insurance required by the 

creditor, such as insurance against loss of or 

damage to property, or against liability 

arising out of the ownership or use of the 

property, or insurance protecting the creditor 

against the consumer’s default or other credit 

loss. Premiums for credit insurance, debt 

suspension and debt cancellation 

agreements, however, should not be 

included. Except for periodic mortgage 

insurance premiums included in the escrow 

payment under § 226.18(s)(3)(i)(C), amounts 


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Federal Register / Vol. 75, No. 249 / Wednesday, December 29, 2010 / Rules and Regulations 81843 

included in the escrow payment disclosure 

such as property taxes and homeowner’s 

insurance generally are not finance charges 

under § 226.4 and, therefore, do not affect 

other disclosures, including the finance 

charge and annual percentage rate. 

* * * * * 

18(s)(7) Definitions. 

1. Negative amortization loans. Under 

§ 226.18(s)(7)(v), a negative amortization loan 

is one that requires only a minimum periodic 

payment that covers only a portion of the 

accrued interest, resulting in negative 

amortization. For such a loan, 

§ 226.18(s)(4)(iii) requires creditors to 

disclose the fully amortizing periodic 

payment for each interest rate disclosed 

under § 226.18(s)(2)(ii), in addition to the 

minimum periodic payment, regardless of 

whether the legal obligation explicitly recites 

that the consumer may make the fully 

amortizing payment. Some loan types that 

result in negative amortization do not meet 

the definition of negative amortization loan 

for purposes of § 226.18(s). These include, for 

example, loans requiring level, amortizing 

payments but having a payment schedule 

containing gaps during which interest 

accrues and is added to the principal balance 

before regular, amortizing payments begin (or 

resume). For example, ‘‘seasonal income’’ 

loans may provide for amortizing payments 

during nine months of the year and no 

payments for the other three months; the 

required minimum payments (when made) 

are amortizing payments, thus such loans are 

not negative amortization loans under 

§ 226.18(s)(7)(v). An adjustable-rate loan that 

has fixed periodic payments that do not 

adjust when the interest rate adjusts also 

would not be disclosed as a negative 

amortization loan under § 226.18(s). For 

example, assume the initial rate is 4%, for 

which the fully amortizing payment is $1500. 

Under the terms of the legal obligation, the 

consumer will make $1500 monthly 

payments even if the interest rate increases, 

and the additional interest is capitalized. The 

possibility (but not certainty) of negative 

amortization occurring after consummation 

does not make this transaction a negative 

amortization loan for purposes of § 226.18(s). 

Loans that do not meet the definition of 

negative amortization loan, even if they may 

have negative amortization, are amortizing 

loans and are disclosed under 

§§ 226.18(s)(2)(i) and 226.18(s)(3). 

* * * * * 

Appendix D—Multiple Advance 

Construction Loans 

* * * * * 

6. Relation to § 226.18(s). A creditor must 

disclose an interest rate and payment 

summary table for transactions secured by 

real property or a dwelling, pursuant to 

§ 226.18(s), instead of the general payment 

schedule required by § 226.18(g). 

Accordingly, home construction loans that 

are secured by real property or a dwelling are 

subject to § 226.18(s) and not § 226.18(g). 

Under § 226.176(c)(6)(ii), when a multipleadvance construction loan may be 

permanently financed by the same creditor, 

the construction phase and the permanent 

phase may be treated as either one 

transaction or more than one transaction. 

i. If a creditor uses Appendix D and elects 

pursuant to § 226.17(c)(6)(ii) to disclose the 

construction and permanent phases as 

separate transactions, the construction phase 

must be disclosed according to the rules in 

§ 226.18(s). Under § 226.18(s), the creditor 

must disclose the applicable interest rates 

and corresponding periodic payments during 

the construction phase in an interest rate and 

payment summary table. The provision in 

Appendix D, Part I.A.3, which allows the 

creditor to omit the number and amounts of 

any interest payments ‘‘in disclosing the 

payment schedule under § 226.18(g)’’ does 

not apply because the transaction is governed 

by § 226.18(s) rather than § 226.18(g). Also, 

because the construction phase is being 

disclosed as a separate transaction and its 

terms do not repay all principal, the creditor 

must disclose a balloon payment, pursuant to 

§ 226.18(s)(5). 

ii. On the other hand, if the creditor elects 

to disclose the construction and permanent 

phases as a single transaction, the 

construction phase must be disclosed 

pursuant to Appendix D, Part II.C, which 

provides that the creditor shall disclose the 

repayment schedule without reflecting the 

number or amounts of payments of interest 

only that are made during the construction 

phase. Appendix D also provides, however, 

that creditors must disclose (outside of the 

table) the fact that interest payments must be 

made and the timing of such payments. The 

rate and payment summary table disclosed 

under § 226.18(s) must reflect only the 

permanent phase of the transaction. 

Therefore, in determining the rates and 

payments that must be disclosed in the 

columns of the table, creditors should apply 

the requirements of § 226.18(s) to the 

permanent phase only. For example, under 

§ 226.18(s)(2)(i)(A) or § 226.18(s)(2)(i)(B)(1), 

as applicable, the creditor should disclose 

the interest rate corresponding to the first 

installment due under the permanent phase 

and not any rate applicable during the 

construction phase. 

* * * * * 

Appendices G and H—Open-End and 

Closed-End Model Forms and Clauses 

1. Permissible changes. Although use of the 

model forms and clauses is not required, 

creditors using them properly will be deemed 

to be in compliance with the regulation with 

regard to those disclosures. Creditors may 

make certain changes in the format or content 

of the forms and clauses and may delete any 

disclosures that are inapplicable to a 

transaction or a plan without losing the act’s 

protection from liability, except formatting 

changes may not be made to model forms and 

samples in H–18, H–19, H–20, H–21, H–22, 

H–23, G–2(A), G–3(A), G–4(A), G–10(A)–(E), 

G–17(A)–(D), G–18(A) (except as permitted 

pursuant to § 226.7(b)(2)), G–18(B)–(C), G–19, 

G–20, and G–21, or to the model clauses in 

H–4(E), H–4(F), H–4(G), and H–4(H). 

Creditors may modify the heading of the 

second column shown in Model Clause H– 

4(H) to read ‘‘first adjustment’’ or ‘‘first 

increase,’’ as applicable, pursuant to 

§ 226.18(s)(2)(i)(C). The rearrangement of the 

model forms and clauses may not be so 

extensive as to affect the substance, clarity, 

or meaningful sequence of the forms and 

clauses. Creditors making revisions with that 

effect will lose their protection from civil 

liability. Except as otherwise specifically 

required, acceptable changes include, for 

example: 

i. Using the first person, instead of the 

second person, in referring to the borrower. 

ii. Using ‘‘borrower’’ and ‘‘creditor’’ instead 

of pronouns. 

iii. Rearranging the sequences of the 

disclosures. 

iv. Not using bold type for headings. 

v. Incorporating certain state ‘‘plain 

English’’ requirements. 

vi. Deleting inapplicable disclosures by 

whiting out, blocking out, filling in ‘‘N/A’’ 

(not applicable) or ‘‘0,’’ crossing out, leaving 

blanks, checking a box for applicable items, 

or circling applicable items. (This should 

permit use of multipurpose standard forms.) 

vii. Using a vertical, rather than a 

horizontal, format for the boxes in the closedend disclosures. 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, December 21, 2010. 

Certain amendments to the Official Staff 

Commentary were approved by the Director 

of the Division of Consumer and Community 

Affairs, acting under authority delegated by 

the Board. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. 2010–32534 Filed 12–28–10; 8:45 am] 

BILLING CODE 6210–01–P 

SOCIAL SECURITY ADMINISTRATION 

20 CFR Part 418 

[Docket No. SSA–2010–0033] 

RIN 0960–AH24 

Amendments to Regulations 

Regarding Eligibility for a Medicare 

Prescription Drug Subsidy 

AGENCY: Social Security Administration. 

ACTION: Interim final rule with request 

for comments. 

SUMMARY: We are revising our 

regulations to incorporate changes to the 

Medicare prescription drug coverage 

low-income subsidy (Extra Help) 

program made by the Affordable Care 

Act which was enacted on March 23, 

2010. Under our interpretation of 

section 3304 of the Affordable Care Act 

and this interim final rule, if the death 

of a beneficiary’s spouse would decrease 

or eliminate the subsidy provided by the 

Extra Help program, we will, based on 

a determination, or redetermination, 

extend the effective period of eligibility 

for the most recent determination or 

redetermination until 1 year after the 


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