WHAT’S UP WITH THE DECEMBER 22 REGULATION Z CHANGES

On September 24, 2010 the Federal Reserve board issued an interim rule that requires new rate and payment disclosures in the “Fed Box.” The rule is effective on January 30, 2011.

On December 22, 2010 the Fed issued an interim rule that modifies the September 24th interim rule. (An interim rule that modifies an interim rule; the Fed is starting to look like HUD.) The latest interim rule makes a couple of small changes to the September rule. The December interim rule:
• Clarifies that creditors’ disclosure should reflect the first rate adjustment for a “5/1 ARM” loan because the new rate typically becomes effective within 5 years after the first regular payment due date.
• Corrects the requirements for interest-only loans to clarify that creditors’ disclosures should show the earliest date the consumer’s interest rate can change rather than the due date for making the first payment under the new rate.
• Clarifies which mortgage transactions are covered by the special disclosure requirements for loans that allow minimum payments that cause the loan balance to increase.

Banks have the option to comply with the interim rule now or they may delay compliance with the new interim rule until October 1, 2011.

Note: Contrary to a popular rumor the December interim rule does not delay the effective date for the new rate and payment disclosures to October; the new disclosures are still required on January 31, 2011.

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