15624 Federal Register / Vol. 62, No. 63 / Wednesday, April 2, 1997 / Proposed Rules

(2) Such supplemental loan shall:

(i) Be requested by the processor

during the following October;

(ii) Be recourse or nonrecourse

depending on which type of loan is in

effect according to § 1435.102;

(iii) Be made at the loan rate in effect

at the time the supplemental loan is

made; and

(iv) Mature in 9 months minus the

number of whole months that the initial

loan was in effect.

(3) No loans will be made after June

30, 2003.

Signed in Washington, DC, on March 26,

1997.

Bruce R. Weber,

Acting Executive Vice President, Commodity

Credit Corporation.

[FR Doc. 97–8413 Filed 4–1–97; 8:45 am]

BILLING CODE 3410–05–P

FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R–0954]

Truth in Lending

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Request for comments.

SUMMARY: The Economic Growth and

Regulatory Paperwork Reduction Act of

1996 directs the Board and the

Department of Housing and Urban

Development (HUD), where possible, to

simplify and improve consumer

disclosures required under the Truth in

Lending Act (TILA) and the Real Estate

Settlement Procedures Act (RESPA) and

to provide a single format satisfying the

requirements of those laws. If legislation

is necessary to accomplish these goals,

the agencies are to submit legislative

recommendations to the Congress. In

December 1996, the agencies published

for comment an advance notice of

proposed rulemaking. After

consideration of the comments and

further review, the Board has

determined that regulatory changes

alone would be inadequate to achieve

the goals of the Congress and that

legislative changes are necessary to

harmonize TILA and RESPA. Later this

year, the Board and HUD will prepare

a report to the Congress concerning

potential legislative changes. The Board

is publishing this notice to invite

additional public comment on possible

legislative action.

DATES: Comments are due June 30, 1997.

ADDRESSES: Comments should refer to

Docket No. R–0954, and may be mailed

to William W. Wiles, Secretary, Board of

Governors of the Federal Reserve

System, 20th Street and Constitution

Avenue, N.W., Washington, D.C. 20551.

Comments also may be delivered to the

Board’s mail room between 8:45 a.m.

and 5:15 p.m. weekdays, or to the

security control room at all other times.

The mail room and the security control

room are accessible from the courtyard

entrance on 20th Street (between

Constitution Avenue and C Street, NW).

If accompanied by an original document

in paper form, comments may be

submitted on 31⁄2 inch or 51⁄4 inch

computer diskettes in any IBMcompatible DOS-based format.

Comments received will be available for

inspection and copying in Room MP–

500 of the Martin Building between 9:00

a.m. and 5:00 p.m. weekdays, except as

provided in 12 CFR 261.8 of the Board’s

Rules Regarding Availability of

Information.

FOR FURTHER INFORMATION CONTACT:

Sheilah A. Goodman or Manley

Williams, Staff Attorneys, Division of

Consumer and Community Affairs,

Board of Governors of the Federal

Reserve System, at (202) 452–3667; for

the hearing impaired only, Diane

Jenkins, Telecommunications Device for

the Deaf (TDD), at (202) 452–3544.

SUPPLEMENTARY INFORMATION: On

September 30, 1996, the President

signed into law the Economic Growth

and Regulatory Paperwork Reduction

Act of 1996 (Pub. L. 104–208, 110 Stat.

3009). Section 2101 of that act directs

the Board and HUD to simplify and

improve the disclosures given in a home

mortgage transaction subject to TILA

and RESPA, and to create a single

disclosure that will satisfy the

requirements of both statutes, if

possible. If legislation is necessary to

develop a single simplified disclosure,

the Board and HUD are directed to

submit legislative recommendations to

the Congress.

The statutes impose numerous

requirements and serve various

purposes. TILA seeks to promote the

informed use of consumer credit by

requiring standardized disclosures

about credit terms and costs. The

disclosures are intended to focus

consumers’ attention on certain aspects

of their transaction and to assist them in

comparison shopping. TILA establishes

additional disclosure requirements for

home-secured loans, and in some cases

permits consumers to rescind such

loans. RESPA contains both disclosure

and price-related provisions. It requires

that certain disclosures be given at

various points in most mortgage

transactions to ensure that consumers

receive timely and useful information

about the costs associated with the

transaction. It also prohibits kickbacks

and referral fees to protect consumers

from unnecessarily high settlement

costs.

In December, the Board and HUD

jointly published for comment an

advance notice of proposed rulemaking

on the issue of simplifying and

combining the disclosure requirements

of RESPA and TILA (61 FR 69055, Dec.

31, 1996). The notice requested

comment on both regulatory and

statutory changes to improve the current

disclosure scheme. The Board and HUD

received more than 80 comment letters,

primarily from creditors and their

representatives.

Public comments covered a wide

range of issues, and are discussed

below. Nearly all of the

recommendations for reconciling the

two regulations would require

legislative action, such as certain

suggested changes to the timing of

disclosures under the two statutes.

Some that would not require legislative

change have been addressed already;

where disclosures overlap the

requirements have generally been

consolidated. For example, Regulation Z

permits creditors to substitute the good

faith estimate and the settlement

statement required under RESPA for the

itemization of the ‘‘amount financed’’

under TILA. Similarly, Regulation X

permits Regulation Z’s disclosures for

home equity lines of credit to substitute

for the RESPA disclosures. Consistency

between the regulations also increased

when HUD amended Regulation X to

cover subordinate lien loans, and

through the Board’s updates to the

Regulation Z official staff commentary.

For example, the agencies’ regulations

now use similar definitions for the

terms ‘‘assumption,’’ ‘‘refinance,’’ and

‘‘business day.’’

The remainder of the

recommendations for harmonizing TILA

and RESPA generally involve small

changes that could produce minor

improvements in the disclosures, but

probably would not be worth the

corresponding compliance costs

associated with the change, such as for

retraining employees and printing new

forms. More fundamentally, some

commenters noted the importance of

addressing the disclosure scheme under

the two statutes in a comprehensive

fashion rather than by piecemeal

revisions.

Many other commenters

recommended changes solely to

Regulation Z—changes that would not

directly further the objective of creating

a single simplified disclosure, but that

could simplify compliance. For
Federal Register / Vol. 62, No. 63 / Wednesday, April 2, 1997 / Proposed Rules 15625

example, many commenters suggested

simplifying the Regulation Z disclosures

for adjustable rate mortgages,

recommended consolidating the various

model forms, or raised such matters as

the permissibility of providing

electronic disclosures.

After reviewing the comments, and

upon further analysis in consultation

with HUD, the Board has determined

not to propose any changes to

Regulation Z at this time. The Board

believes that harmonizing TILA and

RESPA to any significant degree

requires changes that can only come

about through legislative action. The

Board will continue to work with HUD

to develop legislative recommendations

that would ease compliance for

creditors and provide consumers useful

information in a more timely manner.

As part of this process, the Board will

explore other mechanisms for obtaining

further guidance from interested parties

(such as public meetings or convening

a working group), as suggested by many

of the commenters. The Board is also

reopening the comment period for three

months to allow for additional public

comment on legislative options.

In addition, the Board has several

initiatives currently planned or under

way that should assist in creating

legislative recommendations, and that

also will involve the consideration of

many of the commenters’ suggestions,

discussed below, for amending

Regulation Z. These initiatives include

a consumer survey that the Board has

commissioned, hearings that will be

held in mid-1997 on the finance charge,

a final rulemaking that involves

streamlining certain adjustable rate

mortgage loan disclosures, a proposal on

electronic disclosures, and an upcoming

comprehensive review of Regulation Z

that will be undertaken pursuant to the

Board’s Regulatory Planning and

Review program.

Developing a Single Format and

Simplifying Disclosure Requirements

Both TILA and RESPA require

creditors to provide preliminary

disclosures soon after they receive an

application. A number of commenters

recommended the consolidation of the

‘‘early’’ TILA and RESPA disclosures for

home purchase loans on a single form,

and some commenters included samples

of their own forms which combined the

TILA disclosures on half the page and

the RESPA disclosure of the good faith

estimate of settlement costs on the other

half. The Board notes that Regulation Z

already permits creditors to place

multiple disclosures on the same page

or document, provided that they

segregate the TILA disclosures from

other information and meet the general

disclosure requirements, such as the

clear and conspicuous standard. This

interpretation is made explicit in the

March 1997 update to the official staff

commentary to Regulation Z (62 FR

10193, March 6, 1997).

Many commenters suggested that to

achieve the goal of simplified

disclosures, the agencies would have to

develop a new disclosure scheme. In

commenting on possible alternatives, a

number of commenters noted that

RESPA and TILA reflect differing but

related goals that exist within each

statute and that they need to be

harmonized. The goal for some of the

disclosures is comparison shopping.

These disclosures must be given very

early, before the consumer has decided

what transaction to enter into, and

estimates of costs would suffice for

these disclosures. The goal of other

disclosures is to highlight certain

specific features of the transaction.

These disclosures can only be made

once the terms of the transaction are

agreed to, and must be accurate to be

useful. More generally, TILA focuses on

credit costs (interest, points, and

document preparation fees, for

example), while RESPA includes both

credit costs and the costs associated

with the property transaction (property

appraisal, real estate taxes, and the

downpayment, for example).

A number of commenters made

recommendations on what information

might be disclosed under a new

disclosure scheme. Some suggested that

the new disclosure should list all the

fees paid in connection with the

transaction (this would include, for

example, the mortgage broker,

application, hazard insurance, title

search, and recording fees), a simple

interest rate and perhaps the annual

percentage rate (APR), and certain terms

like the monthly payment amount and

escrow amounts. They suggested that all

of the other required disclosures—

including the amount financed, the

finance charge, and the list of required

providers—be eliminated. Others

recommended adding an itemization of

the finance charge to the existing TILA

disclosures and identifying all costs on

the RESPA settlement statement as part

of either the finance charge or the

amount financed.

Some commenters recommended that

the disclosures provided at application

should have the same format and

content as the disclosures provided at

settlement. Other commenters

recommended that the disclosures at

application contain just a few items of

the most significance for comparison

shopping and the disclosures at

settlement contain comprehensive

information about the terms of the

transaction. Some commenters

recommended that the disclosures at

application should contain estimates of

the range of costs a consumer could

expect to pay, while other commenters

urged that the cost disclosures be as

accurate as possible, particularly where

the creditor has control over the cost,

and be specific to the particular

contemplated transaction.

Many commenters urged the Board

and HUD to adopt consistent timing

rules for disclosures. For TILA, the

statute establishes the timing rules for

all the required disclosures except those

for variable-rate transactions (adjustable

rate mortgages, or ‘‘ARMs’’), which are

set by regulation. The timing of

disclosures goes to whether the purpose

of the disclosures is to facilitate

shopping, in which case the disclosures

should be provided as early as possible,

or to reveal critical features of the

transaction, in which case the

disclosures can only be provided once

the details are resolved.

Several commenters urged that the

scope of transactions covered by RESPA

and TILA disclosure requirements be

consistent. For example, RESPA’s good

faith estimate of closing costs is

required for both purchase money and

refinance transaction, while RESPA’s

special information booklet and the

early TILA disclosures are required only

for purchase money transactions. In

preparing the report to the Congress on

potential legislative changes, the Board

will consider whether the current

distinctions between purchase money

transactions and refinancings, for

example, are appropriate or whether, as

some commenters recommended, the

disclosure requirements—even if

expanded—should be the same for all

transactions.

Improving Disclosure Requirements

Under TILA

TILA requires the disclosure of the

APR (the cost of credit as a yearly rate)

and the finance charge (the cost of credit

as a lump sum). A number of

commenters expressed concerns

regarding this framework. Several

focused on the exclusion from the

finance charge of certain fees that a

consumer pays as part of mortgage

transactions, such as appraisal and

application fees. They asserted that the

mixed treatment of mortgage costs

increases the complexity of compliance

and reduces the usefulness of the APR.

In addition, the fees included in the

calculation of the APR and finance

charge under TILA do not wholly

correspond to the fees disclosed under
15626 Federal Register / Vol. 62, No. 63 / Wednesday, April 2, 1997 / Proposed Rules

RESPA. Some asserted that the APR can

be misleading because it assumes the

loan is held to maturity, when most

consumers hold their loans for a much

shorter period. A few commenters

objected to the inclusion in the finance

charge of all the interest that would

accrue over the life of the loan. They

claimed the resulting APR is misleading

because too much interest is included in

the APR and because the interest is not

discounted to its present value.

TILA requires that up to 16 items be

disclosed in addition to the APR and

finance charge. The commenters raised

a number of general concerns about

these other disclosures. Some

questioned the value of certain

disclosures required by the statute,

including the total of payments and the

security interest. Other commenters

recommended modifications to certain

disclosures. For example, creditors must

disclose whether or not a penalty will

be imposed if the obligation is prepaid

in full. Some commenters asserted that

the penalty should be disclosed only if

it might be imposed. Several

commenters recommended that the

payment schedule disclosure be

modified to require only the monthly

payment amount, not the number of

payments and dates too. Other

commenters recommended that the

disclosures concerning the contract

reference, security interest, assumption

policy, required deposit, demand

feature, late payment, and prepayment

penalty be explained in a booklet,

perhaps as part of RESPA’s special

information booklet.

Other commenters noted that recent

legislative changes have given the Board

the authority to exempt certain

transactions from TILA. The legislation

directs the Board, in exercising this

authority, to consider the amount of the

loan, the financial sophistication of the

borrower, and whether the loan is

secured, among other factors. Some

commenters made recommendations on

how to exercise that authority, and

recommended that similar exemptions

be made under RESPA.

A number of commenters

recommended changes to the right of

rescission rules under TILA. They

recommended limiting the types of

transactions that are subject to the right

of rescission and increasing the

circumstances under which a consumer

may waive that right. Some commenters

recommended that creditors be required

to provide a single copy of the notice of

the right to rescind, instead of two

copies as currently required.

A number of commenters

recommended that the ARM disclosures

be simplified. Detailed disclosures for

ARM loans must be provided at

application or before a nonrefundable

fee is paid, whichever is earlier.

Commenters recommended eliminating

the requirement that a creditor provide

a historical example of how rates had

varied in the past. Several commenters

recommended that the Board modify the

requirements so that creditors disclose

the actual terms of the transaction and

the actual contract language.

Commenters also recommended

improvements to the disclosures

required for home-equity lines of credit.

Several consumer group commenters

urged that the disclosures for these

transactions should reflect the

particulars of the transaction and

assume that the maximum amount of

the line of credit is borrowed

immediately, that only the minimum

monthly payments are made, and that

the interest rate will vary as it has in the

past. A number of commenters

recommended that the Board eliminate

the requirement to disclose a historical

example. Commenters also urged the

Board to modify the disclosures for

home-secured loans to facilitate

comparisons between lines of credit and

installment loans by including all fees

in the calculation of the APR.

Commenters identified other minor

adjustments to TILA’s disclosure

requirements. For example, several

commenters recommended that the

Board require creditors to disclose a

simple interest rate in addition to the

APR and an explanation of how the APR

is related to the interest rate. One

commenter recommended that the

Board add an introductory statement to

each disclosure, explaining the purpose

of the disclosure. (The Board notes that

the regulation does not preclude

creditors from providing additional

information, and creditors can currently

make these disclosures, separate from

the required disclosures, if they choose.)

A number of commenters recommended

that the Board provide guidance on the

permissible use of electronic

disclosures. Some commenters

recommended some reorganization of

the required disclosure booklets, and

suggested that the Board and HUD

combine the special information

booklet, the home-equity line of credit

booklet, and adjustable rate mortgage

booklet into one.

Legislative Recommendations

The information required to be

disclosed under RESPA and TILA is

extensive, the concepts disclosed are

complex, and the statutes are written

with different goals in mind. After

consideration of the comments and

further analysis, the Board has

determined that the changes that could

be made to Regulation Z alone would

not achieve the goals the Congress

identified: simplifying and improving

the TILA and RESPA disclosures and

providing a single format that satisfies

the requirements of the two laws.

Improving the TILA and RESPA

disclosures to make them significantly

shorter, easier to understand, and

consistent requires legislative change.

The Board will continue to work with

HUD to develop a set of legislative

recommendations that would promote

streamlined disclosures for transactions

subject to both RESPA and TILA. In

preparing the report, the Board and

HUD will consider the issues raised by

the commenters and take steps to seek

additional public views, such as by

jointly convening a forum or task force.

The public is invited to submit

comments with any further suggestions

they may have for legislative changes.

By order of the Board of Governors of the

Federal Reserve System, March 28, 1997.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 97–8407 Filed 4–1–97; 8:45 am]

BILLING CODE 6210–01–P

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 545, 556, 557, 561, 563,

and 563g

[97–27]

RIN 1550–AB00

Deposits and Electronic Banking

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Notice of proposed rulemaking

and advance notice of proposed

rulemaking.

SUMMARY: The Office of Thrift

Supervision (OTS) is proposing to

substantially streamline its depositrelated regulations. This Notice of

Proposed Rulemaking (NPR) follows a

detailed staff review of pertinent

regulations and policy statements in the

Code of Federal Regulations (CFR) to

determine whether each provision is

necessary, imposes the least possible

burden consistent with safety and

soundness, and is clearly written.

Today’s proposal is issued pursuant to

the Regulatory Reinvention Initiative of

the Vice-President’s National

Performance Review and section 303 of

the Community Development and

Regulatory Improvement Act of 1994.