[Federal Register Volume 72, Number 156 (Tuesday, August 14, 2007)]
[Notices]
[Pages 45495-45500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-3945]



[[Page 45495]]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket ID OCC-2007-0013]

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

[Docket No. OP-1292]

FEDERAL DEPOSIT INSURANCE CORPORATION

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

[Docket ID OTS-2007-0016]

NATIONAL CREDIT UNION ADMINISTRATION


Proposed Illustrations of Consumer Information for Subprime 
Mortgage Lending

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).

ACTION: Notice of proposed illustrations of consumer information with 
request for comment.

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SUMMARY: The OCC, Board, FDIC, OTS, and NCUA (the Agencies), request 
comment on these Proposed Illustrations of Consumer Information for 
Subprime Mortgage Lending. The illustrations are intended to assist 
institutions in providing consumer information as discussed in the 
consumer protection portion of the Agencies' Statement on Subprime 
Mortgage Lending (Subprime Statement). The illustrations are not 
intended as model forms, and institutions will not be required to use 
them. Rather, they are provided to respond to the requests of 
commenters that the Agencies provide uniform disclosures for, or 
illustrations of, the type of consumer information contemplated by the 
Subprime Statement.

DATES: Comments must be submitted on or before October 15, 2007.

ADDRESSES: The Agencies will jointly review all of the comments 
submitted. Therefore, interested parties may send comments to any of 
the Agencies and need not send comments (or copies) to all of the 
Agencies. Please consider submitting your comments by e-mail or fax, 
since paper mail in the Washington area and at the Agencies is subject 
to delay. Interested parties are invited to submit comments to:
    OCC: You may submit comments by any of the following methods:
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#e193848692cf828e8c8c848f9592a18e8282cf9593848092cf868e97"><span class="__cf_email__" data-cfemail="bbc9dedcc895d8d4d6d6ded5cfc8fbd4d8d895cfc9dedac895dcd4cd">[email protected]</span></a>.
    <bullet> Fax: (202) 874-4448.
    <bullet> Mail: Office of the Comptroller of the Currency, 250 E 
Street, SW., Mail Stop 1-5, Washington, DC 20219.
    <bullet> Hand Delivery/Courier: 250 E Street, SW., Attn: Public 
Information Room, Mail Stop 1-5, Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2007-0013'' in your comment. In general, OCC will enter 
all comments received into the docket without change, including any 
business or personal information that you provide such as name and 
address information, e-mail addresses, or phone numbers. Comments, 
including attachments and other supporting materials, received are part 
of the public record and subject to public disclosure. Do not enclose 
any information in your comment or supporting materials that you 
consider confidential or inappropriate for public disclosure.
    You may review comments and other related materials by any of the 
following methods:
    <bullet> Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC's Public Information Room, 250 E 
Street, SW., Washington, DC. For security reasons, the OCC requires 
that visitors make an appointment to inspect comments. You may do so by 
calling (202) 874-5043. Upon arrival, visitors will be required to 
present valid government-issued photo identification and submit to 
security screening in order to inspect and photocopy comments.
    Docket: You may also view or request available background documents 
and project summaries using the methods described above.
    Board: You may submit comments, identified by Docket No. OP-1292, 
by any of the following methods:
    <bullet> Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#8ffdeae8fca1ece0e2e2eae1fbfccfe9eaebeafdeee3fdeafceafdf9eaa1e8e0f9"><span class="__cf_email__" data-cfemail="54263133277a373b3939313a20271432313031263538263127312622317a333b22">[email protected]</span></a>. Include the 
docket number in the subject line of the message.
    <bullet> Fax: 202/452-3819 or 202/452-3102.
    <bullet> Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551. All public comments are available from the 
Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. 
Accordingly, your comments will not be edited to remove any identifying 
or contact information. Public comments may also be viewed in 
electronic or paper form 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.
    FDIC: You may submit comments by any of the following methods:
    <bullet> Agency Web Site: http://www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency Web 
Site.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#4d0e2220202823393e0d0b09040e632a223b"><span class="__cf_email__" data-cfemail="2b684446464e455f586b6d6f6268054c445d">[email protected]</span></a>. Include ``Proposed 
Illustrations'' in the subject line of the message.
    <bullet> Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
    <bullet> Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (EST).
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    Public Inspection: All comments received will be posted without 
change to http://www.fdic.gov/regulations/laws/federal including any 
personal information provided. Comments may be inspected and 
photocopied in the FDIC Public Information Center, 3501 North Fairfax 
Drive, Room E-1002, Arlington, VA 22226, between 9 a.m. and 5 p.m. 
(EST) on business days. Paper copies of public comments may be ordered 
from the Public Information Center by telephone at (877) 275-3342 or 
(703) 562-2200.
    OTS: You may submit comments, identified by ID OTS-2007-0016, by 
any of the following methods:
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#b8cadddfcb96dbd7d5d5ddd6cccbf8d7cccb96cccaddd9cb96dfd7ce"><span class="__cf_email__" data-cfemail="47352220346924282a2a222933340728333469333522263469202831">[email protected]</span></a>. Please include ID 
OTS-2007-0016 in the subject line of the message and include your name 
and telephone number in the message.
    <bullet> Fax: (202) 906-6518.
    <bullet> Mail: Regulation Comments, Chief Counsel's Office, Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, 
Attention: ID OTS-2007-0016.
    <bullet> Hand Delivery/Courier: Guard's Desk, East Lobby Entrance, 
1700 G

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Street, NW., from 9 a.m. to 4 p.m. on business days. Address envelope 
as follows: Attention: Regulation Comments, Chief Counsel's Office, 
Attention: ID OTS-2007-0016.
    Instructions: All submissions received must include the agency name 
and docket number for this proposed Guidance. All comments received 
will be posted without change to the OTS Internet Site at http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1, including any 
personal information provided.
    Docket: For access to the docket to read background documents or 
comments received, go to http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1.
    In addition, you may inspect comments at the Public Reading Room, 
1700 G Street, NW., by appointment. To make an appointment for access, 
call (202) 906-5922, send an e-mail to <a href="/cdn-cgi/l/email-protection#e9d588c9819b8c8fd4" http: public.info">public.info</a>@ots.treas.gov">public.info@ots.treas.gov</a>, or 
send a facsimile transmission to (202) 906-7755. (Prior notice 
identifying the materials you will be requesting will assist us in 
serving you.) We schedule appointments on business days between 10 a.m. 
and 4 p.m. In most cases, appointments will be available the next 
business day following the date we receive a request.
    NCUA: You may submit comments by any of the following methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> NCUA Web Site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the 
instructions for submitting comments.
    <bullet> E-mail: Address to <a href="/cdn-cgi/l/email-protection#71031416121e1c1c141f0502311f1204105f161e07"><span class="__cf_email__" data-cfemail="e89a8d8f8b8785858d869c9ba8868b9d89c68f879e">[email protected]</span></a>. Include ``[Your 
name] Comments on'' in the e-mail subject line.
    <bullet> Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
    <bullet> Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
    <bullet> Hand Delivery/Courier: Same as mail address.

FOR FURTHER INFORMATION CONTACT:
    OCC: Michael S. Bylsma, Director, Stephen Van Meter, Assistant 
Director, or Kathryn D. 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; or Kara 
Handzlik, Attorney, Legal Division, (202) 452-3852. For users of 
Telecommunications Device for the Deaf (``TDD'') only, contact (202) 
263-4869.
    FDIC: Victoria M. Pawelski, Policy Analyst, (202) 898-3571, or Mira 
N. Marshall, Acting Chief, CRA/Fair Lending Section, (202) 898-3912, 
Compliance Policy & Exam Support Branch, Division of Supervision and 
Consumer Protection; or Richard B. Foley, Counsel, Legal Division, 
(202) 898-3784.
    OTS: Montrice G. Yakimov, Assistant Managing Director, (202) 906-
6173 or Glenn Gimble, Senior Project Manager, (202) 906-7158, 
Compliance and Consumer Protection Division.
    NCUA: Cory W. Phariss, Program Officer, Examination and Insurance, 
(703) 518-6618.

SUPPLEMENTARY INFORMATION: 

I. Background

    On March 8, 2007, the Agencies published for comment a proposed 
Statement on Subprime Mortgage Lending, 72 FR 10533 (Mar. 8, 2007) 
(proposed statement). The consumer protection portion of the proposed 
statement set forth recommended practices to ensure that consumers have 
clear and balanced information about the relative benefits and risks of 
certain adjustable rate mortgage (ARM) products. The proposed statement 
specifically indicated that consumers should be informed about issues 
relating to potential payment shock--i.e., significant increases in 
monthly payments that may occur when the interest rate adjusts to a 
fully-indexed rate--as well as other features that may be present in 
these loans, including prepayment penalties, balloon payments, pricing 
premiums for reduced documentation loans, and the borrower's 
responsibility for real estate taxes and insurance if not escrowed.
    The Agencies revised the proposed statement based on the comments 
received, and recently published the final Statement on Subprime 
Mortgage Lending in the Federal Register (Subprime Statement). 72 FR 
37569 (July 10, 2007). Like the Interagency Guidance on Nontraditional 
Mortgage Product Risks, 71 FR 58609 (Oct. 4, 2006), the Subprime 
Statement is 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.
    The Subprime Statement, including the consumer protection portion, 
provides recommended practices to assist institutions in addressing 
particular risks and consumer protection concerns raised by certain ARM 
products typically offered to subprime borrowers. Some industry group 
commenters on the proposal asked the Agencies to provide uniform 
disclosures for these products, or to publish illustrations of the 
consumer information contemplated by the Subprime Statement similar to 
those previously proposed by the Agencies in connection with 
nontraditional mortgage products. 71 FR 58609 (Oct. 4, 2006). The 
Agencies recently published final Illustrations of Consumer Information 
for Nontraditional Mortgage Products. 72 FR 31825 (June 8, 2007). As 
was done with those illustrations, the Agencies believe that it would 
be desirable to seek public comment before issuing these illustrations 
in order to determine the types of illustrations that would be most 
useful to consumers and institutions.

II. Proposed Illustrations

    The Agencies believe that illustrations of consumer information may 
be useful to institutions as they implement the consumer information 
recommendations of the Subprime Statement. The Agencies appreciate that 
some institutions, including community banks, may prefer not to incur 
the costs and other burdens of developing their own consumer 
information documents to address the issues raised in the Subprime 
Statement, and could benefit from illustrations like those below.
    Use of the proposed illustrations is entirely voluntary. 
Accordingly, there is no Agency requirement or expectation that 
institutions must use the illustrations in their communications with 
consumers.
    Institutions seeking to follow the recommendations set forth in the 
Subprime Statement could, at their option, elect to:
    <bullet> Use the illustrations;
    <bullet> Provide information based on the illustrations, but 
expand, abbreviate, or otherwise tailor any information in the 
illustrations as appropriate to reflect, for example:
    [cir] 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;
    [cir] the consumer's particular loan requirements or 
qualifications;
    [cir] current market conditions, such as by changing the loan 
amounts, interest rates, and corresponding payment

[[Page 45497]]

amounts to reflect current local market circumstances; and
    [cir] other material information relating to the loan consistent 
with the Subprime Statement; or
    <bullet> Provide the information described in the Subprime 
Statement, as appropriate, in an alternate format.
    Whether or not an institution chooses to use the proposed 
illustrations, the Subprime Statement provides that communications with 
consumers, including advertisements, oral statements, and promotional 
materials, should provide clear and balanced information about the 
relative benefits and risks of certain ARM products. Further, product 
descriptions and advertisements are to provide clear, detailed 
information about the costs, terms, features, and risks of the loan to 
the borrower. In particular, the Subprime Statement indicates that 
``[i]nformation provided to consumers should clearly explain the risk 
of payment shock and the ramifications of prepayment penalties, balloon 
payments, and the lack of escrow for taxes and insurance, as 
necessary.'' \1\ Consumers also should be informed about any pricing 
premium associated with a stated income or reduced documentation loan 
program.
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    \1\ 72 FR at 37574.
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    This recommended information could be presented as shown in the two 
illustrations set forth below. Illustration 1 is a narrative 
explanation of some of the key features of certain ARM loans that are 
identified in the Subprime Statement, including payment shock, 
responsibility for taxes and insurance, prepayment penalties, balloon 
payments, and increased costs associated with stated income or reduced 
documentation loans. The Subprime Statement indicates that information 
provided to consumers should clearly explain these features and their 
ramifications in a timely manner. Illustration 1 seeks to provide both 
the general and loan-specific information contemplated in the Subprime 
Statement in a format that could be used by creditors seeking to 
implement the consumer protection recommendations in the guidance. 
Creditors that use Illustration 1 should, of course, delete or modify 
the prepayment penalty or other language in the illustration in order 
to reflect the actual terms being offered. Illustration 1 is also 
intended to enable creditors to implement the Subprime Statement with 
minimal burden.
    Illustration 2 is a chart with numerical examples that is designed 
to show the potential consequences of payment shock in a concrete, 
readily understandable manner for a loan structured with a discounted 
interest rate for the first two years. Illustration 2 provides 
information on payments for an ARM loan, assuming caps on annual and 
aggregate interest rate increases based on typical terms in the 
market,\2\ and information for a comparable fixed rate mortgage.
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    \2\ The ARM loan in Illustration 2 assumes a start rate of 7 
percent, an initial index of 5.5 percent and a margin of 6 percent. 
It assumes annual payment adjustments after the initial discount 
period, a 3 percent cap on the interest rate increase at the end of 
year 2, and a 2 percent annual payment adjustment cap on interest 
rate increases thereafter, with a lifetime payment adjustment cap of 
6 percent (or a maximum rate of 13 percent). It also assumes no 
change in the index through year 4.
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    Creditors could satisfy the consumer information recommendations by 
simply photocopying the illustrations (after making any necessary 
deletions or modifications) and distributing them to consumers in a 
timely manner. In addition, once the Agencies adopt illustrations as 
final, to assist institutions that wish to use them, the Agencies will 
post them on their respective Web sites in a form that can be 
downloaded, modified as appropriate, and printed for easy reproduction.

III. Request for Comment

    The Agencies request comment on all aspects of the proposed 
illustrations. We encourage specific comment on whether the 
illustrations, as proposed, would be useful to institutions, including 
community banks, seeking to implement the ``Consumer Protection 
Principles'' portion of the Subprime Statement, or whether changes 
should be made to them. We also encourage specific comment on the 
following: whether the illustrations, as proposed, would be useful in 
promoting consumer understanding of the risks and material terms of 
certain ARM products, as described in the Subprime Statement, or 
whether changes should be made to them. We also seek comment on whether 
the information in the proposed illustrations is set forth in a clear 
manner and format; whether these illustrations or a modified form 
should be adopted by the Agencies; and whether there are additional 
illustrations relating to certain ARM products that would be useful to 
consumers and institutions.
    The Agencies are aware that individual institutions and industry 
associations have developed and are likely to continue developing 
documents that can be effective in conveying critical information 
discussed in the ``Consumer Protection Principles'' portion of the 
Subprime Statement. These illustrations are not intended to dissuade 
institutions and associations from developing their own means of 
delivering important information about these products to consumers. In 
this regard, the Agencies note that they have not conducted any 
consumer testing to assess the effectiveness of any existing documents 
currently used by institutions, or of the proposed illustrations set 
forth below. Commenters are specifically invited to provide information 
on any consumer testing they have conducted in connection with 
comparable disclosures.

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    Dated: August 2, 2007.
John C. Dugan,
Comptroller of the Currency.


    By order of the Board of Governors of the Federal Reserve 
System, August 2, 2007.
Jennifer J. Johnson,
Secretary of the Board.


    Dated at Washington, DC the 31st day of July, 2007.

    By order of the Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.


    Dated: August 7, 2007.

    By the Office of Thrift Supervision.
John M. Reich,
Director.


    Dated: August 3, 2007.

    By the National Credit Union Administration.

JoAnn M. Johnson,
Chairman.

[OCC-4810-33-P 20%]
[FRB-6210-01-P 20%]
[FDIC-6714-01-P 20%]
[OTS-6720-01-P 20%]
[NCUA-7535-01-P 20%]
[FR Doc. 07-3945 Filed 8-13-07; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P, 7535-01-P


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