This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

63441

Vol. 62, No. 230

Monday, December 1, 1997

DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1412

RIN 0560–AF25

Amendment to the Production

Flexibility Contract Regulations;

Extension of Comment Period

AGENCY: Commodity Credit Corporation,

USDA.

ACTION: Interim rule with request for

comments; extension of the comment

period.

SUMMARY: In the interim rule published

in the Federal Register on October 23,

1997, (62 FR 55150), comments were

requested by November 24, 1997.

Interested parties have requested that

the comment period be extended to

provide additional time for comments.

DATE: This rule was effective on October

23, 1997. Comments on this rule must

be received on or before December 1,

1997, to be assured of consideration.

ADDRESSES: Please submit written

comments to Scotty M. Abbott, Farm

Service Agency, United States

Department of Agriculture, STOP 0517,

1400 Independence Avenue, SW,

Washington, DC 20250–0517.

FOR FURTHER INFORMATION CONTACT:

Scotty M. Abbott, Farm Service Agency,

United States Department of

Agriculture, STOP 0517, 1400

Independence Avenue, SW,

Washington, DC 20250–0517; telephone

202–720–5422; Internet address:

Sabbott@wdc.fsa.usda.gov.

Signed at Washington DC, on November

24, 1997.

Bruce R. Weber,

Executive Vice President, Commodity Credit

Corporation.

[FR Doc. 97–31382 Filed 11–28–97; 8:45 am]

BILLING CODE 3410–05–P

FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R–0960]

Truth in Lending

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Final rule.

SUMMARY: The Board is publishing

revisions to Regulation Z. The revisions

implement an amendment to the Truth

in Lending Act contained in the

Economic Growth and Regulatory

Paperwork Reduction Act of 1996

affecting the disclosure of a fifteen-year

historical example of rates and

payments. The amendment applies to

variable-rate loans with a term

exceeding one year and secured by the

consumer’s principal dwelling. The

amendment allows creditors to provide

a statement that the periodic payment

may substantially increase or decrease

together with a maximum interest rate

and payment based on a $10,000 loan

amount, in lieu of having to provide a

fifteen-year historical example of index

values.

DATES: Effective date: This rule is

effective November 21, 1997.

Compliance date: Compliance is

optional until October 1, 1998.

FOR FURTHER INFORMATION CONTACT:

Kyung H. Cho-Miller, Staff Attorney,

Division of Consumer and Community

Affairs, Board of Governors of the

Federal Reserve System, at (202) 452–

3667 or 452–2412; for users of

Telecommunications Device for the Deaf

(TDD) only, contact Diane Jenkins at

(202) 452–3544.

SUPPLEMENTARY INFORMATION:

I. Background

The purpose of the Truth in Lending

Act (TILA) (15 U.S.C. 1601 et seq.) is to

promote the informed use of consumer

credit by requiring disclosures about its

terms and cost. The act requires

creditors to disclose the cost of credit as

a dollar amount (the finance charge) and

as an annual percentage rate (the APR).

Uniformity in creditors’ disclosures is

intended to assist consumers in

comparison shopping. The TILA

requires additional disclosures for loans

secured by a consumer’s home and

permits consumers to rescind certain

transactions that involve their principal

dwelling. The act is implemented by the

Board’s Regulation Z (12 CFR part 226).

The credit transactions covered by

TILA and Regulation Z fall into two

categories—open- or closed-end credit

transactions. Open-end credit is defined

as a plan under which the creditor

reasonably contemplates repeated

transactions, which prescribes the terms

of such transactions, and which

provides for a finance charge that may

be computed from time to time on the

outstanding unpaid balance, for

example, credit extended by means of a

credit card (§ 226.2(a)(20)). Closed-end

credit is defined as any credit

arrangement that does not fall within

the definition of open-end credit

(§ 226.2(a)(10)). A mortgage loan with a

fixed maturity date is an example of

closed-end credit.

II. Regulatory Provisions

Under Regulation Z, the timing and

number of disclosures required for

variable-rate loans vary depending on

the term and security for the loan. For

all variable-rate loans, disclosures are

generally provided once—prior to

consummation. However, if the loan

exceeds a term of one year and is

secured by the consumer’s principal

dwelling, creditors are required to

provide disclosures at different times—

a loan program disclosure when an

application is received (or when a

nonrefundable fee is paid, whichever

occurs earlier), transaction-specific

Truth in Lending disclosures prior to

consummation, and disclosures

subsequent to consummation when

certain rate or payment changes occur.

(See Regulation Z, 12 CFR 226.17(b),

18(f), 19, and 20(c).)

Disclosures provided at application

for a variable-rate mortgage include the

Board-prescribed Consumer Handbook

on Adjustable Rate Mortgages (or a

comparable substitute) and a loan

program disclosure for each variablerate program in which the consumer has

expressed interest. The loan program

disclosure consists of twelve separate

items, including information such as the

identification of the index or formula to

be used for adjustments and a fifteenyear historical example of how changes

in the index values or formula used to

compute interest rates would have

affected the interest rates and payments

on a $10,000 loan.

On September 30, 1996, the Economic

Growth and Regulatory Paperwork
63442 Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations

Reduction Act of 1996 (Pub. L. 104–208,

110 Stat. 3009) (1996 amendment)

amended the TILA by providing

creditors the option to give a statement

that the periodic payments may increase

or decrease substantially together with

the maximum interest rate and payment

amount for a $10,000 loan amount in

lieu of having to give the fifteen-year

historical example.

The Board issued a proposal in

January 1997 (62 FR 5183, Feb. 4, 1997).

Sixty-nine comments were received.

Based on comments and further

analysis, the Board has adopted a final

rule that implements the statutory

changes. The final rule is discussed in

detail in the section-by-section analysis

below.

III. Section-by-Section Analysis

Subpart A—General

Section 226.19—Certain Residential

Mortgage Transactions

19(b) Certain variable-rate

transactions. Section 226.19(b) requires

the historical example disclosure for

loans exceeding a term of one year that

are secured by a consumer’s principal

dwelling and in which the APR may

increase after consummation (such as

when the rate is tied to an index). The

1996 amendment refers to ‘‘residential

mortgage transactions’’ to identify when

the alternative disclosure option is

available, but does not explicitly limit

application of the alternative disclosure

to loans that exceed a term of one year.

‘‘Residential mortgage transaction’’ is

defined in Regulation Z (§ 226.2(a)(24))

as credit secured by the consumer’s

principal dwelling to finance the

acquisition or initial construction of that

dwelling. Under this definition, the

alternative disclosure option would not

extend to refinance and secondmortgage transactions. The Board

believes that the amendment was

intended to apply to loans where the

fifteen-year historical example is

currently required, namely loans that

exceed one year and are secured by the

consumer’s principal dwelling.

Accordingly, the Board proposed to

apply the alternative disclosure option

to variable-rate loans with a term greater

than one year and secured by the

consumer’s principal dwelling.

The majority of commenters strongly

supported the Board’s proposal to apply

the amendment to loans where the

fifteen-year historical example is

currently required. Those commenters

stated that an interpretation to apply the

amendment only to ‘‘residential

mortgage transactions’’—primarily

purchase-money mortgages—would

result in increased regulatory burden on

creditors by requiring two sets of

disclosures.

The Board believes that the Congress

did not intend to limit the flexibility in

the 1996 amendment to purchasemoney transactions nor to apply the

provision to loans that do not currently

require the historical example. The

Board believes that the Congress

intended to provide this option to all

credit transactions secured by the

consumer’s principal dwelling, given

that the committee report to the 1996

amendment broadly states the

alternative disclosure option would be

available to lenders in consumer credit

transactions under closed-end plans.

Pursuant to its authority under section

105(a) of the TILA, the Board has

adopted a final rule that makes the

alternative disclosure option available

for any close-end credit transactions

where the term exceeds one year and is

secured by the consumer’s dwelling.

Section 105(a) provides that the Board’s

regulations ‘‘may contain such

classifications, differentiations, or other

provisions, and may provide for such

adjustments and exceptions for any

class of transactions, as in the judgment

of the Board are necessary or proper to

effectuate the purposes of [the TILA], to

prevent circumvention or evasion

thereof, or to facilitate compliance

therewith.’’

Paragraph 19(b)(2)(viii) currently sets

forth the required historical example

based on a $10,000 loan amount and

paragraph 19(b)(2)(x) the required

disclosure of the maximum interest rate

and payment for a $10,000 loan amount.

The proposal revised paragraph

19(b)(2)(viii) to set forth the historical

example requirements in paragraph

19(b)(2)(viii)(A); and incorporated the

substance of paragraph 19(b)(2)(x) on

the maximum interest rate and payment

disclosure in paragraph 19(b)(2)(viii)(B).

If the creditor chose to disclose the

maximum interest rate and payment in

lieu of a historical example, a statement

that the periodic payment may increase

or decrease substantially must

accompany the rate and payment

amount. The proposal provided that the

statement requirement may be satisfied

by providing the disclosure required by

paragraph 19(b)(2)(vi) that states, for

example, ‘‘your monthly payment can

increase or decrease substantially based

on annual changes in the interest rate.’’

A question was raised about whether

the proposed wording would allow

creditors to provide both the historical

example and the maximum interest rate

and payment. The Board believes that

the 1996 amendment allows creditors to

substitute the maximum interest rate

and payment for the historical example

or to provide both disclosures. The

commentary to paragraph 19(b)(2)(viii)

has been revised accordingly. The

commentary to paragraph

19(b)(2)(viii)(B) provides that the

statement that must accompany the

maximum rate and payment disclosure

is not separately required if a similar

disclosure is made pursuant to the

requirement in paragraph 19(b)(2)(vi).

Regulation Z currently requires

creditors to disclose a maximum interest

rate using the most recent interest rate

shown in the historical example.

Because creditors are not required to

provide the historical example under

the 1996 amendments, creditors instead

must use a ‘‘recent’’ interest rate as

determined by the Board. The Board

proposed to require creditors to

calculate the maximum rate and

payment based on an initial rate that

was in effect within one year of the

disclosure. A more frequent basis for

updating the index or formula would

place greater burden on creditors than

currently exists under the regulation,

whereas the Congress intended to

reduce burden with the alternative. The

Board solicited comment on whether

there are circumstances in which the

consumer benefit from updating the

initial interest rate more frequently than

annually would outweigh the

compliance burden of producing the

disclosures more frequently.

The majority of the commenters

supported the proposal to base the

maximum rate and payment on an

interest rate in effect within one year of

the disclosure. They believed that this

was consistent with the current

requirement regarding revisions to the

historical example. Several commenters

observed, however, that the proposed

language would require creditors to

update the maximum rate and payment

twice a year and suggested adopting one

of the timing rules already applicable to

variable-rate transactions under

§ 226.19(b)(2). For example, the timing

rules for revising the loan program

disclosure in comment 19(b)(2)–5

permit creditors to update once a year,

as soon as reasonably possible after the

new index value becomes available.

Similarly, comments 19(b)(2)(viii)–3

and –4 allow disclosures to use a margin

or discount or premium used during the

six months preceding preparation of the

disclosures. Based on these comments

and further analysis, the staff has

revised the draft rule for determining

the initial interest rate that will be used

for the maximum rate and payment

disclosure; it defines the initial interest

rate as one in effect as of an identified

month and year for the particular loan

program. The final rule eliminates any
Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations 63443

requirement for creditors to update the

maximum rate and payment disclosure

more frequently than the loan program

disclosure.

Commenters asked for clarification on

whether the amount of a recent discount

or premium is reflected in the

alternative disclosure. Several

commenters requested general

clarification on how the initial rate was

derived. Several commenters also

suggested that all references to ‘‘the

most recent rate’’ be deleted since it

implies that creditors must continually

update the information. Several

commenters questioned whether an

explanation of how the consumer may

calculate the payments for the loan

amount to be borrowed would be

required absent the historical example.

Based on comments and further

analysis, the Board believes that the

initial and maximum interest rates and

payments should reflect any offered

discount or premium in order to reduce

consumer confusion. References to ‘‘the

most recent rate’’ have been deleted and

replaced by ‘‘initial interest rate.’’ A

definition of the ‘‘initial interest rate’’ is

provided and clarifies that it is based on

the index plus margin, adjusted by the

amount of any discount or premium.

Since the maximum rate and payment

is based on a $10,000 loan amount, the

Board believes that an explanation on

how to calculate the payments for

another loan amount would allow

consumers to better understand the

relationship of the maximum rate and

payment disclosure to their particular

transaction without placing undue

burden on the creditors. Section

226.19(b)(2)(ix) has been revised to

require the explanation under either

alternative.

Appendix H to Part 226—Closed-end

Model Forms and Clauses

The sample clauses and model forms

to appendix H–4 and H–14 have been

revised in response to comments.

Supplement I—Official Staff

Interpretation

Revisions have been made to the

Official Staff Commentary to conform

with the amendments to Regulation Z.

IV. Regulatory Flexibility Analysis

In accordance with section 3(a) of the

Regulatory Flexibility Act (5 U.S.C.

603), the Board’s Office of the Secretary

has reviewed the amendments to

Regulation Z. Overall, the amendments

are not expected to have any significant

impact on small entities. The regulatory

revisions required to implement the

1996 amendment reduce the number of

disclosures required for variable-rate

mortgages and ease compliance by

providing creditors with the option of

disclosing either a fifteen-year historical

example or a maximum payment

example.

V. Paperwork Reduction Act

In accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3501

et seq.), the Board has reviewed the final

rule under the authority delegated to the

Board by the Office of Management and

Budget. 5 CFR part 1320, Appendix A.1.

The respondents are individuals or

businesses that regularly offer or extend

consumer credit. The purpose of the

TILA and Regulation Z is to promote the

informed use of consumer credit by

requiring creditors to disclose its terms

and cost. Records must be retained by

creditors for 24 months. The disclosure

requirements revised by this final rule

are found in 12 CFR 226.19 and part

226, appendix H.

The Board’s Regulation Z applies to

all types of creditors, not just state

member banks. For purposes of the

Paperwork Reduction Act, however, the

Federal Reserve accounts for the

paperwork burden associated with

Regulation Z disclosures only for state

member banks. The estimates of

paperwork burden for institutions other

than state member banks are provided

by the federal agency or agencies that

supervise those lenders.

The final rule is expected to decrease

the ongoing annual burden of

Regulation Z. There are 1,014 state

member banks, making an estimated

5,750 closed-end credit disclosures each

year on average, at 6.5 minutes per

disclosure. The proportion of such loans

that are mortgages with an adjustable

rate is estimated to be small. It is

estimated that the combined annual

burden for state member banks under

Regulation Z will decrease by

approximately 10,000 burden hours to

an average 6.4 minutes per disclosure.

The Federal Reserve estimates an

associated start-up cost of $160 per

respondent to replace the fifteen-year

historical example with the maximum

rate and payment example. No

comments specifically addressing the

burden estimate were received.

The disclosures made by creditors to

consumers under Regulation Z are

mandatory. Since the Federal Reserve

does not collect any information, no

issue of confidentiality arises.

Disclosures relating to specific

transactions or accounts are not publicly

available.

The Federal Reserve may not conduct

or sponsor, and an organization is not

required to respond to, an information

collection unless it displays a currently

valid OMB control number. The OMB

control number for Regulation Z is

7100–0199.

The Federal Reserve has a continuing

interest in the public’s opinion

regarding collections of information.

Members of the public may submit

comments, at any time, regarding the

burden estimate or any other aspect of

this collection of information, including

suggestions for reducing the burden.

Comments may be sent to: Secretary,

Board of Governors of the Federal

Reserve System, 20th and C Streets,

N.W., Washington, DC 20551; and to the

Office of Management and Budget,

Paperwork Reduction Project (7100–

0199), Washington, DC 20503.

List of Subjects in 12 CFR Part 226

Advertising, Federal Reserve System,

Mortgages, Reporting and recordkeeping

requirements, Truth in lending.

For the reasons set forth in the

preamble, the Board amends 12 CFR

part 226 as follows:

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

and 1637(c)(5).

2. Section 226.19 is amended by:

a. Republishing the introductory text

of paragraph (b)(2);

b. Revising paragraph (b)(2)(viii);

c. Revising paragraph (b)(2)(ix);

d. Removing paragraph (b)(2)(x); and

e. Paragraphs (b)(2)(xi), (b)(2)(xii), and

(b)(2)(xiii) are redesignated as

paragraphs (b)(2)(x), (b)(2)(xi) and

(b)(2)(xii) respectively.

The revisions read as follows:

§ 226.19 Certain residential mortgage and

variable-rate transactions.

* * * * *

(b) Certain variable-rate transactions.

* * *

* * * * *

(2) A loan program disclosure for each

variable-rate program in which the

consumer expresses an interest. The

following disclosures, as applicable,

shall be provided:

* * * * *

(viii) At the option of the creditor,

either of the following:

(A) A historical example, based on a

$10,000 loan amount, illustrating how

payments and the loan balance would

have been affected by interest rate

changes implemented according to the

terms of the loan program disclosure.

The example shall reflect the most

recent 15 years of index values. The

example shall reflect all significant loan
63444 Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations

program terms, such as negative

amortization, interest rate carryover,

interest rate discounts, and interest rate

and payment limitations, that would

have been affected by the index

movement during the period.

(B) The maximum interest rate and

payment for a $10,000 loan originated at

the initial interest rate (index value plus

margin, adjusted by the amount of any

discount or premium) in effect as of an

identified month and year for the loan

program disclosure assuming the

maximum periodic increases in rates

and payments under the program; and

the initial interest rate and payment for

that loan and a statement that the

periodic payment may increase or

decrease substantially depending on

changes in the rate.

(ix) An explanation of how the

consumer may calculate the payments

for the loan amount to be borrowed

based on either:

(A) The most recent payment shown

in the historical example in paragraph

(b)(2)(viii)(A) of this section; or

(B) The initial interest rate used to

calculate the maximum interest rate and

payment in paragraph (b)(2)(viii)(B) of

this section.

* * * * *

3. In part 226, Appendix H is

amended by revising the appendix

heading, H–4(C) Variable-Rate Model

Clauses, and H–14 Variable-Rate

Mortgage Sample to read as follows:

Appendix H to Part 226—Closed-end

Model Forms and Clauses

* * * * *

H–4(C)—Variable-Rate Model Clauses

This disclosure describes the features of

the adjustable-rate mortgage (ARM) program

you are considering. Information on other

ARM programs is available upon request.

How Your Interest Rate and Payment Are

Determined

• Your interest rate will be based on [an

index plus a margin] [a formula].

• Your payment will be based on the

interest rate, loan balance, and loan term.

—[The interest rate will be based on

(identification of index) plus our margin.

Ask for our current interest rate and

margin.]

—[The interest rate will be based on

(identification of formula). Ask us for our

current interest rate.]

—Information about the index [formula for

rate adjustments] is published [can be

found] llllllll.

—[The initial interest rate is not based on the

(index) (formula) used to make later

adjustments. Ask us for the amount of

current interest rate discounts.]

How Your Interest Rate Can Change

• Your interest rate can change

(frequency).

• [Your interest rate cannot increase or

decrease more than lll percentage points

at each adjustment.]

• Your interest rate cannot increase [or

decrease] more than lll percentage points

over the term of the loan.

How Your Payment Can Change

• Your payment can change (frequency)

based on changes in the interest rate.

• [Your payment cannot increase more

than (amount or percentage) at each

adjustment.]

• You will be notified in writing llll

days before the due date of a payment at a

new level. This notice will contain

information about your interest rates,

payment amount, and loan balance.

• [You will be notified once each year

during which interest rate adjustments, but

no payment adjustments, have been made to

your loan. This notice will contain

information about your interest rates,

payment amount, and loan balance.]

• [For example, on a $10,000 [term] loan

with an initial interest rate of llll [(the

rate shown in the interest rate column below

for the year 19 llll)] [(in effect (month)

(year)], the maximum amount that the

interest rate can rise under this program is

llll percentage points, to llll%,

and the monthly payment can rise from a

first-year payment of $llll to a

maximum of $llll in the lllll

year. To see what your payments would be,

divide your mortgage amount by $10,000;

then multiply the monthly payment by that

amount. (For example, the monthly payment

for a mortgage amount of $60,000 would be:

$60,000 ÷ $10,000 = 6; 6 × llll =

$llll per month.)]

Example

The example below shows how your

payments would have changed under this

ARM program based on actual changes in the

index from 1982 to 1996. This does not

necessarily indicate how your index will

change in the future.

The example is based on the following

assumptions:

Amount .......................................... $10,000

Term .............................................. lllll

Change date ................................... lllll

Payment adjustment ..................... (frequency)

Interest adjustment ....................... (frequency)

[Margin] * ...................................... lllll

Caps llll [periodic interest rate cap]

llll [lifetime interest rate cap

llll [payment cap]

[Interest rate carryover]

[Negative amortization]

[Interest rate discount] **

Index.......(identification of index or formula)

*This is a margin we have used recently, your

margin may be different.

**This is the amount of a discount we have provided recently; your loan may be discounted by a

different amount.]

Year Index

(%)

Margin

(Percentage

points)

Interest

Rate

(%)

Monthly

Payment

($)

Remaining

Balance

($)

1982 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1983 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1984 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1985 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1986 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1987 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1988 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1989 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1990 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1991 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1992 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1993 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1994 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1995 ................................................................................................ ...................... ...................... ...................... ...................... ......................

1996 ................................................................................................ ...................... ...................... ...................... ...................... ......................

Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly

payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount of $60,000 taken out in 1982 would be:

$60,000÷$10,000=6; 6×llll=$llll per month.)
Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations 63445

* * * * *

H–14—Variable-Rate Mortgage Sample

This disclosure describes the features of

the adjustable-rate mortgage (ARM) program

you are considering. Information on other

ARM programs is available upon request.

How Your Interest Rate and Payment Are

Determined

• Your interest rate will be based on an

index rate plus a margin.

• Your payment will be based on the

interest rate, loan balance, and loan term.

—The interest rate will be based on the

weekly average yield on United States

Treasury securities adjusted to a constant

maturity of 1 year (your index), plus our

margin. Ask us for our current interest rate

and margin.

—Information about the index rate is

published weekly in the Wall Street

Journal.

• Your interest rate will equal the index

rate plus our margin unless your interest rate

‘‘caps’’ limit the amount of change in the

interest rate.

How Your Interest Rate Can Change

• Your interest rate can change yearly.

• Your interest rate cannot increase or

decrease more than 2 percentage points per

year.

• Your interest rate cannot increase or

decrease more than 5 percentage points over

the term of the loan.

How Your Monthly Payment Can Change

• Your monthly payment can increase or

decrease substantially based on annual

changes in the interest rate.

• [For example, on a $10,000, 30-year loan

with an initial interest rate of 12.41 percent

in effect in July 1996, the maximum amount

that the interest rate can rise under this

program is 5 percentage points, to 17.41

percent, and the monthly payment can rise

from a first-year payment of $106.03 to a

maximum of $145.34 in the fourth year. To

see what your payment is, divide your

mortgage amount by $10,000; then multiply

the monthly payment by that amount. (For

example, the monthly payment for a

mortgage amount of $60,000 would be:

$60,000÷$10,000=6; 6×106.03=$636.18 per

month.)

• You will be notified in writing 25 days

before the annual payment adjustment may

be made. This notice will contain

information about your interest rates,

payment amount and loan balance.]

[Example

The example below shows how your

payments would have changed under this

ARM program based on actual changes in the

index from 1982 to 1996. This does not

necessarily indicate how your index will

change in the future. The example is based

on the following assumptions:

Amount .......................................... $10,000

Term .............................................. 30 years

Payment adjustment ..................... 1 year

Interest adjustment ....................... 1 year

Margin ........................................... 3 percentage

points

Capsllll 2 percentage points annual interest

rate

llll 5 percentage points lifetime interest

rate

Indexllll Weekly average yield on U.S.

Treasury securities adjusted to a constant maturity of one year.

Year

(as of 1st week ending in July)

Index

(%)

Margin*

(percentage

points)

Interest

Rate

(%)

Monthly

Payment

($)

Remaining

Balance

($)

1982 ................................................................................................ 14.41 3 17.41 145.90 9,989.37

1983 ................................................................................................ 9.78 3 **15.41 129.81 9,969.66

1984 ................................................................................................ 12.17 3 15.17 127.91 9,945.51

1985 ................................................................................................ 7.66 3 **13.17 112.43 9,903.70

1986 ................................................................................................ 6.36 3 ***12.41 106.73 9,848.94

1987 ................................................................................................ 6.71 3 ***12.41 106.73 9,786.98

1988 ................................................................................................ 7.52 3 ***12.41 106.73 9,716.88

1989 ................................................................................................ 7.97 3 **12.41 106.73 9,637.56

1990 ................................................................................................ 8.06 3 ***12.41 106.73 9,547.83

1991 ................................................................................................ 6.40 3 ***12.41 106.73 9,446.29

1992 ................................................................................................ 3.96 3 ***12.41 106.73 9,331.56

1993 ................................................................................................ 3.42 3 ***12.41 106.73 9,201.61

1994 ................................................................................................ 5.47 3 ***12.41 106.73 9,054.72

1995 ................................................................................................ 5.53 3 ***12.41 106.73 8,888.52

1996 ................................................................................................ 5.82 3 ***12.41 106.73 8,700.37

*This is a margin we have used recently; your margin may be different.

**This interest rate reflects a 2 percentage point annual interest rate cap.

***This interest rate reflects a 5 percentage point lifetime interest rate cap.

Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly

payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount of $60,000 taken out in 1982 would be:

$60,000÷$10,000=6; 6×$106.73=$640.38.)

• You will be notified in writing 25

days before the annual payment

adjustment may be made. This notice

will contain information about your

interest rates, payment amount and loan

balance.]

* * * * *

4. In Supplement I to Part 226, under

Section 226.19—Certain Residential

Mortgage and Variable-Rate

Transactions, under paragraph 19(b)

Certain variable-rate transactions, the

following amendments are made:

a. Paragraph 2, under the heading

‘‘Paragraph 19(b)(2)’’, is revised.

b. Paragraph 1, under the heading

‘‘Paragraph 19(b)(2)(v)’’, is revised.

c. The heading ‘‘Paragraph

19(b)(2)(viii)’’ is revised to read

‘‘Paragraph 19(b)(2)(viii)(A)’’.

d. A new heading ‘‘Paragraph

19(b)(2)(viii)’’ and a new paragraph 1 is

added below the new heading, and both

are transferred immediately preceding

‘‘Paragraph 19(b)(2)(viii)(A).’’

e. The heading ‘‘Paragraph

19(b)(2)(x)’’ is revised to read

‘‘Paragraph 19(b)(2)(viii)(B)’’ and the

paragraph heading and text are

transferred immediately preceding the

heading ‘‘Paragraph 19(b)(2)(ix).’’

f. Paragraphs 1 and 2, under the

heading ‘‘Paragraph 19(b)(2)(viii)(B)’’

are revised and a new paragraph 5 is

added.

g. Paragraph 1, under the heading

‘‘Paragraph 19(b)(2)(ix)’’ is revised.

h. The heading ‘‘Paragraph

19(b)(2)(xi)’’ is revised to read

‘‘Paragraph 19(b)(2)(x).’’

i. The heading ‘‘Paragraph

19(b)(2)(xii)’’ is revised to read

‘‘Paragraph 19(b)(2)(xi).’’

j. The heading ‘‘Paragraph

19(b)(2)(xiii)’’ is revised to read

‘‘Paragraph 19(b)(2)(xii).’’

The revisions and additions read as

follows:
63446 Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations

Supplement 1 to Part 226—Official

Staff Interpretations

* * * * *

Section 226.19—Certain Residential

Mortgage Transactions.

* * * * *

19(b) Certain variable-rate transactions.

* * * * *

Paragraph 19(b)(2).

* * * * *

2. Variable-rate loan program defined. i.

Generally, if the identification, the presence

or absence, or the exact value of a loan

feature must be disclosed under this section,

variable-rate loans that differ as to such

features constitute separate loan programs.

For example, separate loan programs would

exist based on differences in any of the

following loan features:

A. The index or other formula used to

calculate interest rate adjustments.

B. The rules relating to changes in the

index value, interest rate, payments, and loan

balance.

C. The presence or absence of, and the

amount of, rate or payment caps.

D. The presence of a demand feature.

E. The possibility of negative amortization.

F. The possibility of interest rate carryover.

G. The frequency of interest rate and

payment adjustments.

H. The presence of a discount feature.

I. In addition, if a loan feature must be

taken into account in preparing the

disclosures required by § 226.19(b)(2)(viii),

variable-rate loans that differ as to that

feature constitute separate programs under

§ 226.19(b)(2).

ii. If, however, a representative value may

be given for a loan feature or the feature need

not be disclosed under § 226.19(b)(2),

variable-rate loans that differ as to such

features do not constitute separate loan

programs. For example, separate programs

would not exist based on differences in the

following loan features:

A. The amount of a discount.

B. The amount of a margin.

* * * * *

Paragraph 19(b)(2)(v).

1. Discounted and premium interest rate.

In some variable-rate transactions, creditors

may set an initial interest rate that is not

determined by the index or formula used to

make later interest rate adjustments.

Typically, this initial rate charged to

consumers is lower than the rate would be

if it were calculated using the index or

formula. However, in some cases the initial

rate may be higher. If the initial interest rate

will be a discount or a premium rate,

creditors must alert the consumer to this fact.

For example, if a creditor discounted a

consumer’s initial rate, the disclosure might

state, ‘‘Your initial interest rate is not based

on the index used to make later

adjustments.’’ (See the commentary to

§ 226.17(c)(1) for a further discussion of

discounted and premium variable-rate

transactions.) In addition, the disclosure

must suggest that consumers inquire about

the amount that the program is currently

discounted. For example, the disclosure

might state, ‘‘Ask us for the amount our

adjustable rate mortgages are currently

discounted.’’ In a transaction with a

consumer buydown or with a third-party

buydown that will be incorporated in the

legal obligation, the creditor should disclose

the program as a discounted variable-rate

transaction, but need not disclose additional

information regarding the buydown in its

program disclosures. (See the commentary to

§ 226.19(b)(2)(viii) for a discussion of how to

reflect the discount or premium in the

historical example or the maximum rate and

payment disclosure).

* * * * *

Paragraph 19(b)(2)(viii).

1. Historical example and initial and

maximum interest rates and payments. A

creditor may disclose both the historical

example and the initial and maximum

interest rates and payments.

Paragraph 19(b)(2)(viii)(A).

* * * * *

Paragraph 19(b)(2)(viii)(B).

1. Initial and maximum interest rates and

payments. The disclosure form must state the

initial and maximum interest rates and

payments for a $10,000 loan originated at an

initial interest rate (index value plus margin

adjusted by the amount of any discount or

premium) in effect as of an identified month

and year for the loan program disclosure.

(See comment 19(b)(2)–5 on revisions to the

loan program disclosure.) In calculating the

maximum payment under this paragraph, a

creditor should assume that the interest rate

increases as rapidly as possible under the

loan program, and the maximum payment

disclosed should reflect the amortization of

the loan during this period. Thus, in a loan

with 2 percentage point annual (and 5

percentage point overall) interest rate

limitations or ‘‘caps,’’ the maximum interest

rate would be 5 percentage points higher

than the initial interest rate disclosed.

Moreover, the loan would not reach the

maximum interest rate until the fourth year

because of the 2 percentage point annual rate

limitations, and the maximum payment

disclosed would reflect the amortization of

the loan during this period. If the loan

program includes a discounted or premium

initial interest rate, the initial interest rate

should be adjusted by the amount of the

discount or premium.

2. Term of the loan. In calculating the

initial and maximum payments, the creditor

need not base the disclosures on each term

to maturity or payment amortization offered

under the program. Instead, the creditor may

follow the rules set out in comment

19(b)(2)(viii)(A)–5.

If a historical example is provided

under § 226.19(b)(2)(viii)(A), the terms

to maturity or payment amortization

used in the historical example must be

used in calculating the initial and

maximum payment. In addition,

creditors must state the term or payment

amortization used in making the

disclosures under this section.

* * * * *

5. Periodic payment statement. The

statement that the periodic payment

may increase or decrease substantially

may be satisfied by the disclosure in

paragraph 19(b)(2)(vi) if it states for

example, ‘‘your monthly payment can

increase or decrease substantially based

on annual changes in the interest rate.’’

Paragraph 19(b)(2)(ix).

1. Calculation of payments. A creditor

is required to include a statement on the

disclosure form that explains how a

consumer may calculate his or her

actual monthly payments for a loan

amount other than $10,000. The

example should be based upon the most

recent payment shown in the historical

example or upon the initial interest rate

reflected in the maximum rate and

payment disclosure. In transactions in

which the latest payment shown in the

historical example is not for the latest

year of index values shown (such as in

a five-year loan), a creditor may provide

additional examples based on the initial

and maximum payments disclosed

under § 226.19(b)(2)(viii)(B). The

creditor, however, is not required to

calculate the consumer’s payments. (See

the model clauses in appendix H–4(C).)

Paragraph 19(b)(2)(x).

* * * * *

Paragraph 19(b)(2)(xi).

* * * * *

Paragraph 19(b)(2)(xii).

* * * * *

5. In Supplement I to Part 226, under

paragraph heading Paragraph

19(b)(2)(viii)(A), all references in

paragraphs 3 and 4 to

‘‘§ 226.19(b)(2)(viii)’’ are revised to read

‘‘§ 226.19(b)(2)(viii)(A)’’.

6. In Supplement I to Part 226, under

paragraph heading Paragraph

19(b)(2)(viii)(A), in paragraphs 6 and 7

the words ‘‘comment 19(b)(2)(x)’’ are

revised to read ‘‘comment

19(b)(2)(viii)(B)’’ each place they

appear.

7. In Supplement I to Part 226, under

paragraph heading Paragraph

19(b)(2)(viii)(B), in paragraphs 2, 3, and

4 the words ‘‘comment 19(b)(2)(viii)’’

are revised to read ‘‘comment

19(b)(2)(viii)(A)’’ each place they

appear.

8. In Supplement I to Part 226,

Appendix H—Closed-End Model Forms

and Clauses, Paragraphs 6 and 18, are

revised to read as follows:

* * * * *

Appendix H—Closed-End Model Forms and

Clauses

* * * * *
Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations 63447

6. Model H–4(C). This model clause

illustrates the early disclosures required

generally under § 226.19(b). It includes

information on how the consumer’s interest

rate is determined and how it can change

over the term of the loan, and explains

changes that may occur in the borrower’s

monthly payment. It contains an example of

how to disclose historical changes in the

index or formula values used to compute

interest rates for the preceding 15 years. The

model clause also illustrates the disclosure of

the initial and maximum interest rates and

payments based on an initial interest rate

(index value plus margin, adjusted by the

amount of any discount or premium) in effect

as of an identified month and year for the

loan program disclosure and illustrates how

to provide consumers with a method for

calculating the monthly payment for the loan

amount to be borrowed.

* * * * *

18. Sample H–14. This sample disclosure

form illustrates the disclosures under

§ 226.19(b) for a variable-rate transaction

secured by the consumer’s principal dwelling

with a term greater than one year. The

sample form shows a creditor how to adapt

the model clauses in Appendix H–4(C) to the

creditor’s own particular variable-rate

program. The sample disclosure form

describes the features of a specific variablerate mortgage program and alerts the

consumer to the fact that information on the

creditor’s other closed-end variable-rate

programs is available upon request. It

includes information on how the interest rate

is determined and how it can change over

time. Section 226.19(b)(2)(viii) permits

creditors the option to provide either a

historical example or an initial and

maximum interest rates and payments

disclosure; both are illustrated in the sample

disclosure. The historical example explains

how the monthly payment can change based

on a $10,000 loan amount, payable in 360

monthly installments, based on historical

changes in the values for the weekly average

yield on U.S. Treasury Securities adjusted to

a constant maturity of one year. Index values

are measured for 15 years, as of the first week

ending in July. This reflects the requirement

that the index history be based on values for

the same date or period each year in the

example. The sample disclosure also

illustrates the alternative disclosure under

§ 226.19(b)(2)(viii)(B) that the initial and the

maximum interest rates and payments be

shown for a $10,000 loan originated at an

initial interest rate of 12.41 percent (which

was in effect July 1996) and to have 2

percentage point annual (and 5 percentage

point overall) interest rate limitations or

caps. Thus, the maximum amount that the

interest rate could rise under this program is

5 percentage points higher than the 12.41

percent initial rate to 17.41 percent, and the

monthly payment could rise from $106.03 to

a maximum of $145.34. The loan would not

reach the maximum interest rate until its

fourth year because of the 2 percentage point

annual rate limitations, and the maximum

payment disclosed reflects the amortization

of the loan during that period. The sample

form also illustrates how to provide

consumers with a method for calculating

their actual monthly payment for a loan

amount other than $10,000.

* * * * *

By order of the Board of Governors of the

Federal Reserve System, November 21, 1997.

William W. Wiles,

Secretary of the Board.

[FR Doc. 97–31087 Filed 11–28–97; 8:45 am]

BILLING CODE 6210–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 97

[Docket No. 29063; Amdt. No. 1835]

RIN 2120–AA65

Standard Instrument Approach

Procedures; Miscellaneous

Amendments

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Final rule.

SUMMARY: This amendment establishes,

amends, suspends, or revokes Standard

Instrument Approach Procedures

(SIAPs) for operations at certain

airports. These regulatory actions are

needed because of the adoption of new

or revised criteria, or because of changes

occurring in the National Airspace

System, such as the commissioning of

new navigational facilities, addition of

new obstacles, or changes in air traffic

requirements. These changes are

designed to provide safe and efficient

use of the navigable airspace and to

promote safe flight operations under

instrument flight rules at the affected

airports.

DATES: An effective date for each SIAP

is specified in the amendatory

provisions.

Incorporation by reference approved

by the Director of the Federal Register

on December 31, 1980, and reapproved

as of January 1, 1982.

ADDRESSES: Availability of matters

incorporated by reference in the

amendment is as follows:

For Examination

1. FAA Rules Docket, FAA

Headquarters Building, 800

Independence Avenue, SW.,

Washington, DC 20591;

2. The FAA Regional Office of the

region in which the affected airport is

located; or

3. The Flight Inspection Area Office

which originated the SIAP.

For Purchase

Individual SIAP copies may be

obtained from:

1. FAA Public Inquiry Center (APA–

200), FAA Headquarters Building, 800

Independence Avenue, SW.,

Washington, DC 20591; or

2. The FAA Regional Office of the

region in which the affected airport is

located.

By Subscription

Copies of all SIAPs, mailed once

every 2 weeks, are for sale by the

Superintendent of Documents, U.S.

Government Printing Office,

Washington, DC 20402.

FOR FURTHER INFORMATION CONTACT: Paul

J. Best, Flight Procedures Standards

Branch (AFS–420), Technical Programs

Division, Flight Standards Service,

Federal Aviation Administration, 800

Independence Avenue, SW.,

Washington, DC 20591; telephone (202)

267–8277.

SUPPLEMENTARY INFORMATION: This

amendment to part 97 of the Federal

Aviation Regulations (14 CFR part 97)

establishes, amends, suspends, or

revokes Standard Instrument Approach

Procedures (SIAPs). The complete

regulatory description of each SIAP is

contained in official FAA form

documents which are incorporated by

reference in this amendment under 5

U.S.C. 552(a), 1 CFR part 51, and § 97.20

of the Federal Aviation Regulations

(FAR). The applicable FAA Forms are

identified as FAA Forms 8260–3, 8260–

4, and 8260–5. Materials incorporated

by reference are available for

examination or purchase as stated

above.

The large number of SIAPs, their

complex nature, and the need for a

special format make their verbatim

publication in the Federal Register

expensive and impractical. Further,

airmen do not use the regulatory text of

the SIAPs, but refer to their graphic

depiction on charts printed by

publishers of aeronautical materials.

Thus, the advantages of incorporation

by reference are realized and

publication of the complete description

of each SIAP contained in FAA form

documents is unnecessary. The

provisions of this amendment state the

affected CFR (and FAR) sections, with

the types and effective dates of the

SIAPs. This amendment also identifies

the airport, its location, the procedure

identification and the amendment

number.

The Rule

This amendment to part 97 is effective

upon publication of each separate SIAP

as contained in the transmittal. Some

SIAP amendments may have been

previously issued by the FAA in a