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

38461

Vol. 63, No. 137

Friday, July 17, 1998

1 15 U.S.C. 1601 et seq.

2 12 CFR 226.19(b) n. 45a and 226.20(c) n. 45c.

3 12 U.S.C. 1463(a) and 1464(a).

4 50 FR 32005 (Aug. 8, 1985).

5 12 CFR 226.19(b)(2) (1997).

6Pub. L. 104–208, 110 Stat. 3009 (September 30,

1996).

7 63 FR 1051.

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 560

[No. 98–70]

RIN 1550–AB12

Disclosures for Adjustable-Rate

Mortgage Loans

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Final rule.

SUMMARY: The Office of Thrift

Supervision (OTS) is issuing a final rule

revising adjustable-rate mortgage loan

(ARM) disclosure requirements for

savings associations. In the interim final

rule, the OTS conformed its ARM

disclosure rule text to recent changes to

related disclosure provisions in

Regulation Z, which was issued by the

Federal Reserve Board (FRB) under the

Truth in Lending Act (TILA). In today’s

final rule, the OTS replaces its existing

rule with a simple cross-reference to the

Regulation Z disclosure provisions. The

rule also makes minor technical

changes. This substitution does not

affect the rule’s function of promoting

safe and sound lending by savings

associations nor OTS’s enforcement of

its provisions.

EFFECTIVE DATE: Effective date: July 17,

1998. Compliance date: Compliance is

optional until October 1, 1998.

FOR FURTHER INFORMATION CONTACT:

Susan Miles, Attorney, (202) 906–6798,

Regulations and Legislation Division,

Chief Counsel’s Office, Office of Thrift

Supervision, 1700 G Street, NW.,

Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

To assist borrowers in making

informed decisions on the cost of credit,

the OTS and FRB have issued

regulations imposing disclosure

requirements on creditors issuing

ARMs. The FRB disclosure rules at 12

CFR Part 226 implement TILA 1 and are

commonly referred to as Regulation Z.

Regulation Z applies to all lenders

subject to TILA, including savings

associations. Regulation Z, however,

specifically states that information

provided in accordance with the

variable rate regulations of other federal

agencies, such as the OTS, may be

substituted for the disclosures required

by Regulation Z.2 To this extent,

Regulation Z incorporates the OTS ARM

disclosure rule at 12 CFR 560.210, and

the OTS rule serves as an implementing

regulation of TILA.

Section 560.210 applies to ARMs with

a term of more than one year that are

secured by property occupied by or to

be occupied by the borrower. This rule

was first issued by the OTS’s

predecessor agency, the Federal Home

Loan Bank Board (FHLBB) under the

agency’s authority under the Home

Owners’ Loan Act (HOLA) 3 to ensure

that savings associations operate in a

safe and sound manner. The FHLBB

believed the regulation was necessary

because ‘‘[s]afe and sound lending using

ARMs requires that the borrower have a

full understanding of the type of

obligation being incurred in order to

make a reasonable and meaningful

decision concerning ability to repay.’’ 4

The OTS continues to consider

promoting safe and sound lending an

important function of this regulation.

Although the original FHLBB

regulation was more detailed than

Regulation Z, the disclosures required

under OTS regulations have been

identical to those required under

Regulation Z since 1988. Under

Regulation Z, if a variable rate

transaction exceeds a term of one year

and is secured by the consumer’s

principal dwelling, the creditor must

provide various initial disclosures for

each variable rate program in which the

consumer is interested.5 Until recently

amended, Regulation Z required an

institution to provide: (1) A fifteen-year

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; and (2) The maximum

interest rate and payment for a $10,000

loan, originated at the most recent

interest rate shown in the historical

example assuming the maximum

periodic increases in rates and

payments under the loan, and the initial

interest rate and payment for that loan.

Section 2105 of the Economic Growth

and Regulatory Paperwork Reduction

Act of 1996 (EGRPRA) 6 amended

section 128(a) of TILA to permit a

creditor to elect to provide a statement

that periodic rates may substantially

increase or decrease (together with the

maximum interest rate and payment

amount based on a $10,000 loan

amount), in lieu of the historical

example. On December 1, 1997, the FRB

published a final rule implementing

section 2105 of EGRPRA.

On January 8, 1998, the OTS

published an interim final rule making

identical amendments to § 560.210.7

Under the OTS interim final rule, a

savings association may provide either

the historical example or the maximum

interest rate and payment. If the savings

association chooses the maximum

interest rate and payment option,

however, it must also provide the initial

rate and payment amount and a

statement that the periodic rate may

increase or decrease substantially.

Consistent with the FRB final rule, the

OTS interim rule also modified how the

interest rate is calculated under the

maximum interest rate and payment

option. Before the interim final rule, a

savings association calculated the

maximum interest rate using ‘‘the most

recent interest rate shown in the

historical example.’’ Since a savings

association is not required to provide

the historical example when it elects the

maximum interest rate and payment

option, the interim final rule provided

for the disclosure of ‘‘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 particular loan

program.’’

Similarly, before the interim final

rule, the OTS required a savings

association to explain how a customer

could calculate payments for the loan
38462 Federal Register / Vol. 63, No. 137 / Friday, July 17, 1998 /Rules and Regulations

8We note that the recent FRB final rule was

effective on November 21, 1997. The OTS’s related

interim final rule was effective on January 8, 1998.

9 12 U.S.C. 1818.

10 15 U.S.C. 1607(b) & (e)(5).

11 12 U.S.C. 1464(d).

12One commenter noted that borrowers have

additional enforcement remedies under state law

and under RESPA’s mortgage loan servicing

provisions. See 12 U.S.C. 2605(e)(1)(B). The OTS

does not wish to rely on the efforts of the individual

plaintiffs to ensure that thrift institutions use safe

and sound banking practices and comply with

applicable laws and regulation. Rather, the OTS has

retained and will exercise the broadest possible

enforcement authority permitted under the existing

statutes.

13See e.g., 12 CFR Part 226, Supp. I. Official Staff

Interpretation, Section 226.19, Paragraph 19(b),

Comment 1.

14 61 FR 50951, 50962–63 (Sept. 30, 1996).

Moreover, we note that the FHLBB’s initial ARM

disclosure regulation originally specifically

excluded the coverage of second homes. 50 FR

32010 (August 8, 1985). In 1987, however, the

relevant language was deleted without any

discussion. 52 FR 3668 (February 5, 1987).

amount based on the most recent

payment shown in the historical

example. To allow customers to

understand the relationship between

their transactions and the disclosures

made under the maximum interest rate

and payment option, the interim final

rule permits a savings association to

provide a customer with a similar

explanation using the initial interest

rate. The FRB made a similar change to

Regulation Z.

II. Discussion of Comments

The OTS received comments from

three commenters: one state-chartered

savings institution, one federal savings

bank, and one law firm. All three

commenters supported the substantive

changes in the interim final rule.

Accordingly, today’s final rule

incorporates the substantive changes to

the ARM disclosure requirements.

The OTS specifically solicited

comment on whether it should delete

the text of the disclosure requirements

in § 560.210 and rely on the disclosure

requirements in Regulation Z. All three

commenters urged the OTS to adopt this

approach.

The OTS has deleted the text of the

disclosure requirements from the final

rule and has substituted appropriate

cross-references to Regulation Z. This

approach will permit OTS-regulated

institutions to immediately comply with

all future changes to the Regulation Z

disclosures in this area without waiting

for the OTS to conform its rule through

the rulemaking process.8 Thus, the rule

will ensure that all competing lenders

are subject to similar regulatory

requirements for ARM loans. This

approach is consistent with section 303

of the Community Development

Regulatory Improvement Act of 1994

(CDRIA), which instructs each banking

agency to review their regulations and

remove duplicate requirements and

encourages common interagency

supervisory policies. Finally, this

change more closely conforms OTS

rules to those issued by the Office of the

Comptroller of the Currency and Federal

Deposit Insurance Corporation. These

agencies’ rules do not prescribe any

ARM disclosures and, instead, rely

entirely on Regulation Z.

Rather than delete all references to

ARM disclosure requirements from the

regulations, the OTS has decided to

retain appropriate cross-references to

the disclosure provisions in Regulation

Z. This approach, which two

commenters supported, preserves the

OTS’s authority to utilize the full

panoply of enforcement actions

available under the HOLA and section

8 of the Federal Deposit Insurance Act

(FDIA) 9 when an institution has

improperly adjusted ARM interest rates.

As noted above, § 560.210 implements

both HOLA and TILA. Although TILA

authorizes the OTS to utilize the

standard enforcement remedies under

section 8 of the FDIA, it limits when an

agency may require an institution to

‘‘make dollar adjustments’’ for errors.

Under TILA, the agency is authorized to

direct an institution to make dollar

adjustments only where an annual

percentage rate or finance charge was

inaccurately disclosed.10

By contrast, the OTS may seek any

remedy authorized under the HOLA or

section 8 of the FDIA for violations of

regulations adopted pursuant to its

authority under the HOLA.11 As

previously discussed, a long-standing

purpose of the disclosure requirements

of § 560.210 and its predecessor

regulations has been promoting safe and

sound lending by savings associations

through ensuring that borrowers have a

full understanding of their obligations

and can therefore make reasonable and

meaningful decisions about their ability

to repay their loans. Thus, when

enforcing § 560.210 as a safety and

soundness regulation, the agency has a

wider array of enforcement tools than

would be available if it were solely

enforcing violations of TILA. Section 8

of the FDIA, for example, permits the

OTS to issue cease and desist orders

requiring affirmative corrective actions,

which may include account

adjustments. FDIA also authorizes the

OTS to require an institution to make

restitution if the institution was unjustly

enriched, or acted with reckless

disregard.

Changing the format of the regulation

to incorporate some provisions of

Regulation Z by cross-referencing does

not affect this authority. As with other

OTS regulations that incorporate

regulations of other agencies by cross

referencing (e.g., 12 CFR 560.93,

563.43), OTS has the responsibility of

enforcing the incorporated regulations

as they apply to savings associations.

The OTS will continue to enforce

violations of § 560.210 using the

enforcement remedies provided under

the HOLA and FDIA.12

In the preamble to the interim rule,

the OTS observed that § 560.210, on its

face, applies to loans secured by a

borrower’s principal dwelling or by a

second home. By contrast, the

applicable Regulation Z disclosure

requirements at 12 CFR 226.19(b) and

226.20(c) apply only when the secured

property serves as the borrower’s

primary dwelling.13 Two commenters

urged the OTS to eliminate coverage for

loans secured by second homes.

In recent years, the OTS has revised

the scope of its ARM disclosure rule to

more closely conform to Regulation Z

requirements. For example, in the recent

Lending and Investment rulemaking,

OTS eliminated coverage of ARM loans

that are primarily for a business,

commercial, or agricultural purpose.

The OTS made this revision to

minimize the differences between its

ARM regulation and Regulation Z and to

ensure parity in coverage for all

lenders.14 To ensure that the scope of

the OTS rule is, and continues to be,

coextensive with Regulation Z, the

cross-reference in the final rule refers to

variable rate transactions as described

under 12 CFR 226.19(b) and 226.20(c).

These transactions are limited to those

involving principal residences.

In addition to the changes discussed

above, the OTS has made minor

technical changes to current § 560.210.

For example, the new cross-references

to variable rate mortgage transactions

under Regulation Z, permit the deletion

of the existing definitions of

‘‘adjustable-rate mortgage loan,’’

‘‘applicant,’’ and ‘‘home.’’

The OTS has also deleted current

§ 560.210(e). This paragraph states that

a savings association making a closedor open-end ARM loan must comply

with Regulation Z (12 CFR 226.30) by

specifying in their credit contracts the

maximum interest rate that may be

imposed during the term of the

obligation. This section simply

reiterates already applicable

requirements under Regulation Z, and

may be deleted as unnecessary.
Federal Register / Vol. 63, No. 137 / Friday, July 17, 1998 /Rules and Regulations 38463

III. Effective Date

The OTS has determined that there is

good cause to dispense with a 30-day

delayed effective date under 5 U.S.C.

553(d)(3). The revised disclosure

requirements reduce regulatory

confusion by conforming the OTS

disclosure rules under the HOLA more

closely to those of the FRB under TILA.

The changes do not have an adverse

impact on savings associations because

they reduce regulatory burden.

Moreover, the substantive changes to

disclosure requirements were

immediately effective upon publication

of the interim rule in January, 1998 and

many institutions have already adopted

the changes. Accordingly, OTSregulated institutions will not require

additional time to adjust their policies

or practices to comply with the rule.

The OTS has also determined, for the

reasons stated in the preceding

paragraph, that good cause exists to

adopt an effective date that is before

date that would otherwise be required

by section 302 of CDRIA (i.e., the first

day of the calendar quarter after the date

of publication).

Accordingly, the final rule is effective

immediately. However, like the FRB

rule, compliance with the OTS rule is

optional until October 1, 1998.

IV. Paperwork Reduction Act of 1995

The collections of information

contained in this final rule were

submitted to and approved by the Office

of Management and Budget in

accordance with the Paperwork

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

3507(d)) under OMB Control Number

1550–0078.

Comments on all aspects of this

information collection above should be

sent to the Office of Management and

Budget, Paperwork Reduction Project

(1550–0078), Washington, DC 20503,

with copies to the Office of Thrift

Supervision, 1700 G Street, NW,

Washington, DC 20552.

Under the Paperwork Reduction Act

of 1995, no persons are required to

respond to a collection of information

unless it displays a valid OMB control

number. The valid OMB control number

assigned to the collection of information

in this final rule is displayed at 12 CFR

506.1(b).

The collection of information

requirements in this final rule are found

at 12 CFR 560.210. The OTS needs the

disclosures requirements to ensure that

savings associations comply with a

statutory TILA requirement and to

otherwise supervise safe and sound

lending by savings associations. The

likely respondents/recordkeepers are

OTS-regulated savings associations.

V. Executive Order 12866

The Director of the OTS has

determined that this final rule does not

constitute a ‘‘significant regulatory

action’’ for the purposes of Executive

Order 12866.

VI. Regulatory Flexibility Act Analysis

Pursuant to section 605(b) of the

Regulatory Flexibility Act, the OTS

certifies that this final rule will not have

a significant economic impact on a

substantial number of small entities.

The final rule will not impose any

additional burdens or requirements.

Rather, it reduces the disclosures

required for ARMs and eases the

compliance burden on all savings

associations, including small savings

associations. Accordingly, a regulatory

flexibility analysis is not required.

VII. Unfunded Mandates Act of 1995

The OTS has determined that the

requirements of this final rule will not

result in expenditures by State, local,

and tribal governments, or by the

private sector, of more than $100

million in any one year. Accordingly, a

budgetary impact statement is not

required under section 202 of the

Unfunded Mandates Act of 1995, as

codified at 2 U.S.C. 1571(a).

List of Subjects in 12 CFR Part 560

Consumer protection, Investments,

Manufactured homes, Mortgages,

Reporting and recordkeeping

requirements, Savings associations.

Accordingly, the Office of Thrift

Supervision amends title 12, chapter V,

of the Code of Federal Regulations as set

forth below:

PART 560—LENDING AND

INVESTMENT

1. The authority citation for part 560

continues to read as follows:

Authority: 12 U.S.C. 1462, 1462a, 1463,

1464, 1467a, 1701j–3, 1828, 3803, 3806; 42

U.S.C. 4106.

2. Section 560.210 is revised to read

as follows:

§ 560.210 Disclosures for variable rate

transactions.

A savings association must provide

the initial disclosures described at 12

CFR 226.19(b) and the adjustment

notices described at 12 CFR 226.20(c)

for variable rate transactions, as

described in those regulations. The OTS

administers and enforces those

provisions for savings associations.

Dated: July 14, 1998.

By the Office of Thrift Supervision.

Ellen Seidman,

Director.

[FR Doc. 98–19143 Filed 7–16–98; 8:45 am]

BILLING CODE 6720–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 98–NM–133–AD; Amendment

39–10662; AD 98–15–11]

RIN 2120–AA64

Airworthiness Directives; Dornier

Model 328–100 Series Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule.

SUMMARY: This amendment adopts a

new airworthiness directive (AD),

applicable to certain Dornier Model

328–100 series airplanes, that requires

replacing the existing roll spoiler

control rods with improved parts. This

amendment is prompted by issuance of

mandatory continuing airworthiness

information by a foreign civil

airworthiness authority. The actions

specified by this AD are intended to

prevent bending stress to the fork end of

the roll spoiler, which could result in

failure of the roll spoiler and

consequent reduced controllability of

the airplane.

DATES: Effective August 21, 1998. The

incorporation by reference of certain

publications listed in the regulations is

approved by the Director of the Federal

Register as of August 21, 1998.

ADDRESSES: The service information

referenced in this AD may be obtained

from Fairchild Dornier, Dornier

Luftfahrt GmbH, P.O. Box 1103, D–

82230 Wessling, Germany. This

information may be examined at the

Federal Aviation Administration (FAA),

Transport Airplane Directorate, Rules

Docket, 1601 Lind Avenue, SW.,

Renton, Washington; or at the Office of

the Federal Register, 800 North Capitol

Street, NW., suite 700, Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Norman B. Martenson, Manager,

International Branch, ANM–116, FAA,

Transport Airplane Directorate, 1601

Lind Avenue, SW., Renton, Washington

98055–4056; telephone (425) 227–2110;

fax (425) 227–1149.

SUPPLEMENTARY INFORMATION: A

proposal to amend part 39 of the Federal

Aviation Regulations (14 CFR part 39) to

include an airworthiness directive (AD)