Circular
Board Issues Final Rule Amending Home Mortgage Provisions of Regulation Z
July 14, 2008
Circular No. 11969

The Federal Reserve Board has approved a final rule for home mortgage loans to better protect consumers and facilitate responsible lending. The rule prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction.

The final rule, which amends Regulation Z (Truth in Lending) and was adopted under the Home Ownership and Equity Protection Act, largely follows a proposal released by the Board in December 2007, with enhancements that address ensuing public comments, consumer testing and further analysis.

For all mortgages, the rule also sets additional advertising standards.  Advertising rules now require additional information about rates, monthly payments and other loan features.  The final rule bans seven deceptive or misleading advertising practices, including representing that a rate or payment is "fixed" when it can change.

The rule's definition of "higher-priced mortgage loans" will capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the "average prime offer rate," based on a survey currently published by Freddie Mac.

The new rules take effect on October 1, 2009. The single exception is the escrow requirement, which will be phased in during 2010 to allow lenders to establish new systems as needed.

See the press release for full details.

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