National organizations representing state financial regulators have registered their general support of the Federal Reserve Board's proposed changes to Regulation Z. In a comment letter sent Dec. 18, the Conference of State Bank Supervisors (CSBS), joined the American Association of Residential Mortgage Regulators (AARMR) and the National Association of Consumer Credit Administrators (NACCA), to weigh in on proposed changes dealing with closed-end mortgage transactions and HELOC (home equity line of credit) transactions.
“Although the state regulators believe that the majority of the changes the Board has proposed with regard to closed-end and HELOC transactions will benefit both consumers and creditors, we feel it is important to acknowledge that disclosures are not a panacea for the predatory lending that has plagued residential real estate markets throughout the financial crisis. We therefore encourage policymakers to continue to explore methods for addressing and rooting out unfair and deceptive practices in the marketplace,” the letter stated.
The letter included state regulators’ commentary on the Fed’s proposed amendments, as follows:
“Deceptive loan originator compensation practices have worked to create an unfair environment for consumers. Providing financial incentives to originators to provide nontraditional mortgage loan products has led to consumers taking on excessive risks in unsuitable mortgage loans.”
In general, the state regulators believe that the proposed amendments to the disclosures involved in closed-end and HELOC transactions represent substantial improvements to the existing disclosures in Regulation Z. The states support the majority of changes but made suggestions about specific details in various instances.
“The state regulators want to express their strong support for the Board’s proposal to include a creditor’s unique identifier number as governed by the Nationwide Mortgage Licensing System (NMLS) on various disclosure forms. The states, through CSBS and AARMR, developed and launched NMLS to enhance supervision of the residential mortgage market. The unique identifier granted to residential mortgage loan originators through NMLS allows supervisors to track mortgage providers across state lines to ensure a provider will not escape regulatory action in one state, simply by crossing into another state. Coupled with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, NMLS enables state and federal regulators to better coordinate our efforts to create a seamless system of mortgage supervision.
State regulators also voiced their support for the following:
► An anti-steering measure;
► The proposal to prohibit payments to mortgage brokers or a creditor’s loan officer based on the loan’s interest rate or other payment features;
► The Board’s proposal to rename the finance charge “interest and settlement charges” and to adopt a more inclusive approach to determine which fees and charges to include in the finance charge;
► Increasing beyond two years the current requirement that obliges a creditor to retain records of compliance with Regulation Z;
► The Board’s proposal to extend the scope of Regulation Z to all transactions secured by real property or a dwelling, not simply to principal residences;
► The proposed amendment that would require a creditor to determine whether a consumer meets age and or employment eligibility criteria for credit insurance or debt cancellation type programs at the time of enrollment and provide a disclosure that such a determination has been made, in addition to making this requirement applicable to all consumer credit transactions.
► The letter also commended the Federal Reserve Board on the extensive consumer testing, which provided a rational framework for the proposed amendments.
Click here for a copy of the comment letter.
For more information, visit www.csbs.org.