CUNA Comment Letter

Interim Final Rules on Disclosures Required Under the Mortgage Disclosure Improvement Act

November 23, 2010

Ms. Jennifer J. Johnson
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551

RE: Docket No. R-1366 – Interim Final Rules on Disclosures Required Under the Mortgage Disclosure Improvement Act

Dear Ms. Johnson:

The Credit Union National Association (CUNA) appreciates the opportunity to submit comments to the Federal Reserve Board (Board) in response to the interim final rule that will revise certain Regulation Z disclosure requirements for mortgage loans. Specifically, these changes will implement provisions of the Mortgage Disclosure Improvement Act (MDIA), which was enacted in 2008, and will require lenders to disclose how borrowers’ mortgage payments will change over time so they may be alerted to the risks of payment increases before they consummate the loan. The rule also requires lenders to disclose a statement that there is no guarantee the consumer will be able to refinance the loan to obtain a lower rate and payment. By way of background, CUNA is the largest credit union advocacy organization in this country, representing approximately 90% of our nation’s 7,700 state and federal credit unions, which serve 93 million members.

Summary of CUNA’s Comments


The Interim Final Rule Should be Withdrawn as it will Impose Significant Burdens on Credit Unions and will Confuse Consumers

The Board issued a proposal last year to implement these provisions of the MDIA as part of the comprehensive proposal to amend the Regulation Z mortgage loan disclosures. The Board has now reissued these in this interim final rule in order to finalize them before the required January 30, 2011 statutory effective date. In most respects, this interim final rule is very similar to the provisions in the proposal last year.

CUNA opposes the interim final rule and requests that the Board withdraw the rule as soon as possible. Although CUNA has always supported reasonable disclosures that help consumers, we believe the disclosures required under this rule will impose significant burdens on credit unions that will serve only to confuse consumers, without any corresponding benefits.

In our letter to Chairman Ben Bernanke, Treasury Secretary Timothy Geithner, and Professor Elizabeth Warren, dated October 27, 2010, CUNA outlines the reasons that the Board should use its statutory authority to withdraw this rule, as well as impose a general moratorium on the overall Regulation Z rulemaking process that is currently in progress.

If the Board Proceeds with the Interim Final Rule, it Should Address Concerns with Specific Provisions of the Interim Final Rule

Under the interim final rule, the applicable payment summary table for adjustable rate loans requires disclosure of the maximum possible interest rate at any time during the first five years of the loan, even if it is not the first adjustment, and the earliest date that rate may apply. This is instead of the maximum rate at the first adjustment, which was proposed as part of last year’s comprehensive mortgage loan proposal.

Credit unions would prefer the approach proposed last year in which the disclosures would provide the maximum rate at the first adjustment, instead of the maximum rate during the initial five-year period. The compliance burdens associated with providing the maximum rate during this five-year period will be greater and would not provide any significant, additional benefits for consumers. Under either approach, consumers will be informed of the maximum rate and payment that may apply during the term of the loan, and we believe this is sufficient for purposes of informing consumers as to how high their rates and payments may climb.

Under the interim final rule, lenders will be required to provide the escrow payment, which will be the amount that is paid for taxes and insurance, including private mortgage insurance. For loans with introductory payments, such as adjustable rate mortgages, this may appear to require a disclosure of what the escrow payment will be in the future, including when the interest rate is at the maximum during the initial five-year period and when the rate is at the maximum for the entire loan term.

However, tax and insurance payments will fluctuate, based on changes in the value of the property, changes in premiums, rate or other changes imposed by state and local governments, and other factors. It is simply not possible for lenders to project what the escrow payment will be in the future.

One possibility would be for the Board to clarify that lenders would only need to include the current escrow payment wherever such information is required on these disclosures. However, we recognize this may still reflect future payments that will not be accurate, even if these disclosures are modified to clearly indicate that this is the current payment, instead of an estimated future payment. In addition, borrowers may interpret this to mean such payments will not change over the life of the loan, which will not only confuse borrowers but may lead to conflicts between lenders and borrowers.

For the above reasons, we request that the Board provide further guidance in this area, without requiring additional burdens for credit unions. Any further burdens associated with these requirements to provide accurate information as to future escrow payments would not benefit consumers as these payments are clearly described as “estimates” on these disclosures without any expectation that they will be accurate throughout the term of the loan.

We also request that the Board delay the January 30, 2011 effective date. Although the effective date is mandated by the MDIA, we urge the Board to use its statutory authority under Section 105 of TILA to provide a later mandatory compliance date, as it often does with consumer protection disclosure rules. Credit unions will need at least six to twelve additional months to revise the disclosures, update policies and procedures, and provide the necessary staff training. This additional time will also be important for credit unions and others that rely on third parties, such as software vendors. These third parties will need time to incorporate the necessary updates, complete the necessary testing, and then include this change into their regularly scheduled releases.

Thank you for the opportunity to comment on the interim final rule that will revise certain Regulation Z disclosure requirements for mortgage loans in order to implement provisions of the MDIA. If you have questions about our comments, please contact Senior Vice President and Deputy General Counsel Mary Dunn or me at (202) 638-5777.


Jeffrey P. Bloch
Senior Assistant General Counsel