RICHARD G. LUGAR                                                                                                 CO4MlmfS;...

                                  BOARD OF GOVERNORS
                                             OF TH E
The Honorable Richard G. Lugar
Page Two

or other loan terms. Originators could continue to receive compensation from len...
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Response from federal reserve proposed tila revisions


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This is the letter I got back from the Federal Reserve in response to my comments about the proposed changes to Reg. Z.

Senator Lugar (IN) followed up with the Board to ensure that I received a response.

Published in: Real Estate
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Response from federal reserve proposed tila revisions

  1. 1. RICHARD G. LUGAR CO4MlmfS; INDlANA FOREIGN RELATIONS, RANKING MEMBER AGRICULTURE, NUTRITION, AND FORESTRY 306 BART SENAJ;E OFFICE BUILDING WASHINGTON, DC 20510 202-224-4814 http://lugar.Senale,gov ianitro i'tatcs i'cnatc WASHINGTON, DC 2051()-'1401 April 23. 2010 Mr. Jeremiah Wean 5111 Brookstone Court Indianapolis, Indiana 46268 Dear Mr. Wean: Enclosed is the final response I received regarding my inquiry on your behalf. I hope this reply includes the information that you need. Thank you for giving me this opportunity to assist you. Responding to the concerns of individual Hoosiers in dealing with the federal government remains an important part of my work as a U.S. Senator. Please let me know ifthere is anything more I can do. Sincerely, Richard G. Lugar United States Senator RGLlcgd PRINTED ON RECYCLED PAPER
  2. 2. ':.:,' BOARD OF GOVERNORS OF TH E FED ERAL RES ERVE SYSTEM WAsHINGTON, 0. C. 2tJ551 i~'1bfii'13> 2010 i The Honorable Richard G. Lugar United States Senate Washington, DC 20510 Dear Senator: Thank you for forwarding correspondence that you received from your constituent, Jeremiah Wean. Mr.·Vea."l'S letter included a copy ofthe commentJetter he submitted on the Federal Reserve Board's August 2009 proposal to revise the Truth in Lending Act (TILA) rules for mortgage transactions. Mr. Wean expresses concern about the Board's proposal to prohibit certain practices relating to loan originator compensation. He also suggests that the Board work with the Department of Housing and Urban Development (HUD) to integrate the disclosures required by TILA and the Real Estate Settlement Procedures Act (RESP A). One of the purposes of TILA is to provide meaningful disclosure of credit terms, enabling consumers to compare credit terms available in the marketplace more readily and avoid the uninformed use of credit. .In connection with mortgage lendiIlg, TILA also grants the Board responsibility for prohibiting acts' or practices that the Board Bnds to be unfair·or deceptive. The August 2009 proposal is a comprehensive effort to improve the usefulness ofthe disclosures consumers receive in connection with mortgage transactions. The Board determined, however, that disc1osuresalone are not sufficient to address some concerns. Accordingly; the Board proposed to use itsTILA authority to restrict certain acts and practices related to originator compeIlsation., . The Board has found that consumers generally are not aware that creditors pay commissions in the form of "yield spread premiums" to retail loan officers and mortgage brokers. This finding was based on the results of consumer testing that the Board conducted after it issued an earlier proposal in 2007 to enhance the disclosures consumers receive about originator compensation. Because yield spread premiums are based on the difference between the lowest interest rate the lender would have accepted and the interest rate the loan originator actually obt&ins for ,the lel)der,theycan create incentives for steeringconsu..11ers to riskier, higher:-p~iced 10an,S.. The proposed rules are intended to ' ensurethat the commissions creditors pay to loan originators donot provide unfair inceptives to steer consumers into lpans having higher interest rates. or other less advaIltCJ,geous terms. . T0acldressthe~econc~rns;: th~.proposed,~l~~ would prohibitlenders fiom .' varying the amount ofthe originator's.compensation based on a transaction's interest rate
  3. 3. The Honorable Richard G. Lugar Page Two or other loan terms. Originators could continue to receive compensation from lenders based on other factors, such as the originator's loan volume, the amount oftime spent in originating the loan, loan file quality, or the performance of the loans received from the originator. Because the proposed rule would not prohibit all lender payments to loan originators, a lender that pays a fixed commission to the originator, regardless of the loan's terms, could fund that payment from origination fees collected by the lender or from the interest rate. Thus, under the proposal, a consumer could choose a loan with a higher interest rate to fund the lender's payment ofa larger yield spread premium to cover closing costs, rather than originator compensation. The Board also has solicited comment on an alternative proposal that would permit the originator's compensation to vary based on the size ofthe loan. Mr. Wean also suggests that the disclosures required under TILA arid RESPA be combined in a single set of simplified disclosures. The Board's staff is working with HUD's staff to ensure that TILA and RESPA disclosures are compatible and complementary, including potentially developing a single disclosure form that creditors could use to combine the initial disclosures required under TILA and RESP A. Consumer testing is currently being used in an effort to develop a combined disclosure. Although the two statutes have different purposes, they have considerable overlap and harmonizing the two disclosure schemes would ensure that consumers receive consistent information under both laws. Eliminating some duplicative disclosures may also help reduce information overload. Thank you for sharing Mr. Wean's views on the Board's proposal, which we will consider along with the other public comments as we work to develop any fmal rules. Sincerely, J#-;J~ tZla ~obertson Assistant to the Board