Illustrations of Consumer Information for Nontraditional Mortgage Products, 31825-31832 [07-2859]

Download as PDF Federal Register / Vol. 72, No. 110 / Friday, June 8, 2007 / Notices pwalker on PROD1PC71 with NOTICES plurality opinion, two concurring opinions, and two dissenting opinions), with no single opinion commanding a majority of the Court. During the first six months implementing the guidance, the agencies invite public comment and case studies on early experience with implementing the guidance. The agencies, within nine months from the date of issuance, will either reissue, revise, or suspend the guidance after carefully considering the public comments received and field experience with implementing the guidance. A copy of the guidance can be found on EPA’s Web site at https://www.epa.gov/ owow/wetlands/guidance/ CWAwaters.html and on the Corps’ Web site at https://www.usace.army.mil/cw/ cecwo/reg/. The Court’s split decision is causing uncertainty among agency field personnel and the general public regarding the scope of Federal jurisdiction under the CWA’s section 404 program. As a result, many jurisdictional determinations and their associated permitting actions have been delayed. For this reason, the agencies believe it is imperative that the guidance be issued immediately, so that agency field personnel can address the backlog of pending jurisdictional determinations. At the same time, the agencies appreciate that the public has considerable interest in the issues addressed in this guidance. The agencies are particularly interested in hearing from the public regarding their actual experience with implementing the guidance. For this reason, we are providing a six month public comment period, which will allow us to address the backlog of pending jurisdictional determinations, while encouraging the public to provide comments, case studies, and experiences with the use of this guidance. To assure the public of our commitment to carefully consider their comments, and to address issues that may unexpectedly arise during implementation of the guidance, the agencies will within nine months from the date of issuance either reissue, revise, or suspend the guidance. Dated: June 5, 2007. Benjamin H. Grumbles, Assistant Administrator, Office of Water. [FR Doc. E7–11123 Filed 6–7–07; 8:45 am] BILLING CODE 6560–50–P VerDate Aug<31>2005 18:14 Jun 07, 2007 Jkt 211001 DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency FEDERAL RESERVE SYSTEM [Docket No. OP–1267] FEDERAL DEPOSIT INSURANCE CORPORATION DEPARTMENT OF THE TREASURY Office of Thrift Supervision NATIONAL CREDIT UNION ADMINISTRATION Illustrations of Consumer Information for Nontraditional Mortgage Products AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS); and National Credit Union Administration (NCUA) (collectively, the Agencies). ACTION: Final guidance ‘‘ Illustrations of Consumer Information for Nontraditional Mortgage Products. SUMMARY: The Agencies are publishing three documents that set forth Illustrations of Consumer Information for Nontraditional Mortgage Products. The illustrations are intended to assist institutions in implementing the consumer protection portion of the Interagency Guidance on Nontraditional Mortgage Product Risks (Interagency NTM Guidance) adopted on October 4, 2006. 71 FR 58609 (Oct. 4, 2006). The illustrations are not model forms and institutions may choose not to use them in providing information to consumers on nontraditional mortgage products as recommended in the Interagency NTM Guidance. EFFECTIVE DATE: June 8, 2007. FOR FURTHER INFORMATION CONTACT: OCC: Michael Bylsma, Director, Stephen Van Meter, Assistant Director, or Kathryn Ray, Special Counsel, Community and Consumer Law Division, (202) 874–5750. Board: Kathleen C. Ryan, Counsel, or Jamie Z. Goodson, Attorney, Division of Consumer and Community Affairs, (202) 452–3667. For users of Telecommunication Device for Deaf only, call (202) 263–4869. FDIC: April Breslaw, Acting Associate Director, Compliance Policy & Exam Support Branch, Division of Supervision and Consumer Protection, (202) 898–6609; or Richard Foley, PO 00000 Frm 00031 Fmt 4703 Sfmt 4703 31825 Counsel, Legal Division, (202) 898– 3784. OTS: Montrice G. Yakimov, Assistant Managing Director, Compliance and Consumer Protection Division, (202) 906–6173; or Glenn Gimble, Senior Project Manager, Compliance and Consumer Protection Division, (202) 906–7158. NCUA: Cory Phariss, Program Officer, Examination and Insurance, (703) 518– 6618. SUPPLEMENTARY INFORMATION: I. Background On December 29, 2005, the Agencies published the Interagency NTM Guidance for comment. 70 FR 77249 (Dec. 29, 2005). After carefully reviewing and considering all comments received, the Agencies published the Interagency NTM Guidance (applicable to all banks and their subsidiaries, bank holding companies and their nonbank subsidiaries, savings associations and their subsidiaries, savings and loan holding companies and their subsidiaries, and credit unions) in final form on October 4, 2006. 71 FR 58609 (Oct. 4, 2006). The Interagency NTM Guidance sets forth recommended practices to ensure that consumers have clear and balanced information about nontraditional mortgages prior to making a mortgage product choice, such as when lenders provide promotional materials about nontraditional mortgages or during faceto-face meetings when consumers are shopping for a mortgage. The guidance also recommends that any monthly statements given with payment option adjustable rate mortgages (ARMs) provide information to enable consumers to make informed payment choices. Several commenters on the proposed guidance, including industry trade associations, encouraged the Agencies to include model or sample disclosures or other descriptive materials as part of the Interagency NTM Guidance. In response, the Agencies determined that illustrations of consumer information would be useful to institutions as they seek to implement the consumer information recommendations. Therefore, on the same day the Interagency NTM Guidance was published in the Federal Register, the Agencies published for comment proposed Illustrations of Consumer Information for Nontraditional Mortgage Products (Proposed Illustrations). 71 FR 58673 (Oct. 4, 2006). The three Proposed Illustrations consisted of (1) A narrative explanation of nontraditional mortgage products, (2) a chart comparing interest only (IO) E:\FR\FM\08JNN1.SGM 08JNN1 pwalker on PROD1PC71 with NOTICES 31826 Federal Register / Vol. 72, No. 110 / Friday, June 8, 2007 / Notices loans and payment option ARMs to fixed rate and traditional adjustable rate loans, and (3) a table that could be included with any monthly statement for a payment option ARM providing information on the impact of various payment options on the loan balance. The Agencies noted that there would be no Agency requirement or expectation that institutions use the illustrations in their communications with consumers. Instead, the Agencies intended to illustrate the type of information that the Interagency NTM Guidance contemplates. Institutions would be able to determine whether or not to use the illustrations and whether and how to tailor them to their own circumstances. The Agencies requested comment on all aspects of the Proposed Illustrations. Specifically, they requested commenters to address whether the illustrations, as proposed, would be useful to institutions, including community banks, seeking to implement the ‘‘Communications with Consumers’’ portion of the Interagency NTM Guidance, or whether changes should be made. The Agencies also encouraged specific comment on whether the illustrations, as proposed, would be useful in promoting consumer understanding of the risks and material terms of nontraditional mortgage products, as described in the Interagency NTM Guidance, or whether changes should be made. Finally, the Agencies sought comment on whether other illustrations relating to nontraditional mortgages, in addition to those proposed, would be useful to institutions and consumers. After considering the comments received, the Agencies are now issuing final illustrations of consumer information for nontraditional mortgage products. The Interagency NTM Guidance recommends that promotional materials and other product descriptions provide consumers with information about the costs, terms, features, and risks of nontraditional mortgage products that can assist consumers in their product selection decisions. This includes information about potential payment shock and negative amortization and, where applicable, information about prepayment penalties and the costs of reduced documentation loans. Institutions seeking to follow the recommendations set forth in the Interagency NTM Guidance may, at their option, elect to: • Use the illustrations; • Provide information based on the illustrations, but expand, abbreviate, or otherwise tailor any information in the VerDate Aug<31>2005 18:14 Jun 07, 2007 Jkt 211001 illustrations as appropriate to reflect, for example: • The institution’s product offerings, such as by deleting information about loan products and loan terms not offered by the institution and by revising the illustrations to reflect specific terms currently offered by the institution; • The consumer’s particular loan requirements; • Current market conditions, such as by changing the loan amounts, interest rates, and corresponding payment amounts to reflect current local market circumstances; • Other information, consistent with the Interagency NTM Guidance, such as the payment and loan balance information for statements discussed in connection with Illustration No. 3 or information about when a prepayment penalty may be imposed; and • The results of consumer testing of such forms; or • Provide the information described in the Interagency NTM Guidance, as appropriate, in an alternate format. To assist institutions that wish to use the illustrations, the Agencies will be posting each of the illustrations on their respective websites in a form that can be downloaded and printed for easy reproduction. In addition, in response to concerns that the interest rates used in Illustration No. 2 may become outdated with changes in market interest rates— and consistent with the Agencies’ intention, expressed above, that the illustrations may be modified to reflect, among other things, current market conditions—the Agencies also will be posting on their respective websites a template that can be used by institutions that wish to modify the information presented in Illustration No. 2 to reflect more current interest rates (and corresponding payment amounts). Illustration No. 2 itself reflects typical interest rates for prime borrowers in today’s environment, rounded to the nearest whole number to enhance simplicity.1 II. Overview of the Comments Collectively, the Agencies received letters from over 30 commenters on the proposal, including comments from two financial institutions, 12 consumer advocates and community 1 Illustration No. 2 also embodies assumptions about other product features that are typical in the current market: for example, the illustration assumes that the payment option ARM provides for a cap on increases in the minimum monthly payment equal to 7.5 percent per year for the first 5 years of the loan. Thus, the illustration shows the minimum monthly payment increasing over this time period from $739 (in Year 1) to $987 (in Year 5). PO 00000 Frm 00032 Fmt 4703 Sfmt 4703 organizations, 12 trade organizations, two individuals, and three state regulatory organizations. Most commenters generally approved of the illustrations and expressed appreciation for the Agencies’ efforts to demonstrate ways lenders could advance the consumer communication goals outlined in the Interagency NTM Guidance. Generally, commenters stated that the proposed illustrations would be useful to financial institutions— including community banks—seeking to develop their own disclosures to help consumers understand the risks of nontraditional mortgage products. Commenters also suggested that the illustrations provided helpful guidance on the Agencies’ expectations and would help reduce implementation costs. Most financial institutions and trade organizations supported the voluntary nature of the illustrations. These commenters stated that the flexibility afforded them by the Agencies would allow them to convey information to their customers in a format most suited to customers’ needs. Additionally, having the flexibility to develop their own disclosures would allow financial institutions to tailor their disclosures to take into account specific product offerings and market conditions. However, a smaller group of commenters that included 8 consumer groups and one industry group disagreed, and suggested that consumer education efforts should be mandatory. The trade group noted that providing for voluntary use of the illustrations makes unclear the degree to which the illustrations will be used, when they will be used, and how they will assist consumers. This commenter suggested that the Agencies propose model forms and provide lenders with a safe harbor when they use the model forms. Several financial institutions, trade organizations, and community organizations suggested that the illustrations should be made part of the Board’s revisions to Regulation Z, which implements the Truth in Lending Act. These commenters suggested that making the illustrations part of Regulation Z would ensure more widespread industry use. Additionally, some commenters expressed concern that issuing guidance on consumer information materials applicable only to federally-supervised institutions would put those institutions at a competitive disadvantage. The Conference of State Bank Supervisors (CSBS), the American Association of Residential Mortgage Regulators (AARMR), and the National Association of Consumer Credit Administrators (NACCA) commented E:\FR\FM\08JNN1.SGM 08JNN1 Federal Register / Vol. 72, No. 110 / Friday, June 8, 2007 / Notices pwalker on PROD1PC71 with NOTICES that they believe the illustrations also could be used by state-licensed entities subject to state-issued guidance that parallels the Interagency NTM Guidance. A number of commenters expressed concern that the illustrations were difficult to follow and would be confusing to consumers, and should be simplified. A few industry trade groups and a consumer group advised the Agencies to engage in consumer testing or hire consultants to determine how to improve the illustrations. A number of commenters provided very specific suggestions aimed at making the illustrations easier to understand. Several industry commenters requested that the Agencies add language explaining how a consumer could benefit from nontraditional mortgage products. Further, one trade organization stated that lenders should be able to implement the consumer information recommendations of the Interagency NTM Guidance by providing consumers with the interagency publication titled, ‘‘InterestOnly Mortgage Payments and PaymentOption ARMs—Are They for You?’’2 Finally, two commenters suggested that the Agencies include in these illustrations information about two additional products—2/28 and 3/27 adjustable rate mortgages. These are ‘‘hybrid’’ ARMs that start with a fixed interest rate for two or three years, respectively, and then reset to a variable rate, which generally will be higher than the introductory fixed rate. Because the Interagency NTM Guidance does not cover fully-amortizing mortgage products such as hybrid ARMs, the Agencies are not including information on these products in the NTM illustrations. However, when the Agencies finalize the ‘‘Statement on Subprime Mortgage Lending,’’ which was proposed on March 8, 2007, and which provides guidance concerning hybrid ARM products, we expect to issue for public comment disclosure illustrations appropriate for that guidance.3 III. Final Illustrations After carefully considering all of the comments received, the Agencies have decided to publish the proposed illustrations, with some modifications. The Agencies have determined that illustrations of the type of information contemplated in the Interagency NTM Guidance are needed now. Additionally, 2 ‘‘Interest-Only Mortgage Payments and Payment-Option ARMs—Are They for You?’’ available at: https://www.federalreserve.gov/pubs/ mortgage_interestonly/mortgage_interestonly.pdf. 3 72 FR 10533 (March 8, 2007). VerDate Aug<31>2005 18:14 Jun 07, 2007 Jkt 211001 the Agencies believe that issuing the materials as nonmandatory illustrations will provide institutions with the flexibility needed to tailor the materials to their own circumstances and customer needs. Some commenters asserted that use of the illustrations may place entities subject to the Interagency NTM Guidance at a competitive disadvantage. In this regard, we note that the Interagency NTM Guidance, which includes the consumer disclosure recommendations, is already in effect for these entities, and also has been adopted for state-regulated mortgage brokers and companies by over 30 state agencies and the District of Columbia.4 The illustrations will be helpful to those institutions that prefer not to incur the costs and burdens of developing their own consumer information documents to implement the recommendations in the Interagency NTM Guidance. Additionally, as previously noted, CSBS, AARMR, and NACCA stated their belief that the illustrations also could be used by state-licensed entities subject to state-issued guidance that parallels the Interagency NTM Guidance. The Agencies agree with the commenters who urged simplification of the Proposed Illustrations, particularly Proposed Illustration No. 2. The specific changes made in response to these comments are detailed below. The Agencies opted not to include additional text in the illustrations that would discuss the benefits of nontraditional mortgage products, to ensure that the materials focus on an objective description of material terms, risks, and features of such products. Institutions are not precluded, of course, from providing factual information concerning the features of their products to consumers. One commenter asked whether the consumer information brochure entitled ‘‘Interest-Only Mortgage Payments and Payment-Option ARMs—Are They for You?’’ could be used in place of the illustrations to provide information to consumers. The information contemplated by the Interagency NTM Guidance serve a different purpose than this brochure. This detailed, multi-page publication includes valuable in-depth information, but it does not represent the more concise and focused consumer information contemplated by, and recommended in, the Interagency NTM Guidance. Illustrations 1 and 2, by contrast, are designed to be concise and 4 See www.csbs.org/Content/NavigationMenu/ RegulatoryAffairs/ FederalAgencyGuidanceDatabase/ State_Implementation.htm. PO 00000 Frm 00033 Fmt 4703 Sfmt 4703 31827 focused so they can be quickly referenced by consumers during the mortgage shopping process. While, as explained in detail above, institutions are not required to use the illustrations, and may elect to provide the information contemplated in the Interagency NTM Guidance in a modified or alternate format, delivering this more detailed publication to consumers would not serve this same purpose or provide the information as recommended in the guidance. The Agencies’ changes to each Proposed Illustration are discussed below. A. Proposed Illustration No. 1 Although most commenters stated that Illustration No. 1 would be useful in helping consumers understand the risks of nontraditional mortgage products, several suggested that the Agencies make the illustration more user-friendly by using simpler language and larger fonts. Most trade organization and financial institution commenters generally agreed that Illustration No. 1 would be helpful. Consumer groups, on the other hand, expressed their desire that the illustrations strongly communicate the risks of nontraditional mortgage products and add language clarifying that making the minimum payments on a payment option mortgage could lead to a reduction in a borrower’s equity. Several consumer groups recommended that the illustration not suggest that consumers should request information orally from a lender, because consumers should be encouraged to review written information rather than rely on oral representations. To address the commenters’ concerns, the Agencies have simplified Illustration No. 1, deleted text where possible to shorten the length of the illustration, and made formatting changes to improve readability. Additionally, the Agencies have included language clarifying that making the minimum payments on a payment option mortgage could lead to a reduction in a borrower’s equity. The Agencies have also added language advising consumers that if they do not understand the terms of a particular loan, they should not sign any loan contracts, and may want to consider other types of loans. B. Proposed Illustration No. 2 Many commenters found proposed Illustration No. 2 confusing. Specifically, several commenters said the footnotes and the explanation of the minimum monthly payment row for years one through five of a payment E:\FR\FM\08JNN1.SGM 08JNN1 31828 Federal Register / Vol. 72, No. 110 / Friday, June 8, 2007 / Notices pwalker on PROD1PC71 with NOTICES option ARM would confuse consumers. A few commenters suggested that Illustration No. 2 would be most helpful to consumers if a loan officer or credit counselor reviewed it with them. Additionally, one financial institution suggested that Illustration No. 2 should emphasize the risks of payment shock and negative amortization. One industry trade group stated that assuming borrowers make minimum payments is unrealistic. This commenter added that the interest rates in the examples should represent a typical interest rate environment in which a fixed rate loan would have a higher rate than an adjustable rate loan. However, one financial institution suggested that the illustration should use the same interest rates for all the products to make comparison easier. One trade group stated that the rates for interest-only and payment option ARM loans should be higher to reflect the terms offered to non-prime borrowers. Two commenters stated that the illustration should use a $100,000 loan amount that would be easier for consumers to compare to their loan amounts than the $180,000 amount used in the proposed illustration. A few commenters warned against using any assumptions that could become dated. Instead, one industry group suggested that payment amounts and interest rate information in Illustration No. 2 should be left blank so that loan officers and consumers could fill out the numbers themselves as they discuss and consider loan options. Another commenter suggested that the Agencies create a Web site where consumers could input their own specific information into different mortgage structures and get accurate VerDate Aug<31>2005 18:14 Jun 07, 2007 Jkt 211001 and easy-to-understand cost alternatives. To address commenter concerns, and to maintain consistency with the Interagency NTM Guidance, the Agencies have simplified Illustration No. 2 by reducing the number of products for which information is provided. The simplified illustration eliminates the need for footnotes or similar explanations. Additionally, the Agencies made formatting changes to draw consumers’ attention to the important points the chart seeks to illustrate. The Agencies agreed with commenters that a sample loan amount of $180,000 could make it more difficult for consumers to estimate their own payment amounts. The Agencies, therefore, have adopted a representative loan amount of $200,000, which is closer to the national median price for a single family home than the $100,000 loan amount suggested by some commenters. C. Proposed Illustration No. 3 The Agencies received the fewest specific comments on Illustration No. 3. Moreover, commenters did not express concern that consumers would have difficulty understanding Illustration No. 3. Several commenters, however, asked the Agencies to make clear that lenders will have flexibility with regard to how and when to provide the information contemplated by the third illustration. One trade group stated that the third illustration could be burdensome for lenders that do not provide monthly statements. Similarly, another trade group asked the Agencies to state that lenders could provide the third illustration less frequently than PO 00000 Frm 00034 Fmt 4703 Sfmt 4703 monthly, or through an explanation on the lender’s Web site. In contrast, another trade group stated that the Agencies should encourage lenders to provide monthly statements. One financial institution recommended that the illustration include the resulting loan balance with each payment choice so that the consumer can see how their choice affects the loan on a monthly basis. However, one financial institution and one trade group commenter stated that providing specific payment information would be burdensome and that lenders would require implementation time to make system changes. After reviewing and considering the comments, the Agencies decided not to make substantial changes to Illustration No. 3. The Interagency NTM Guidance recommends that if institutions provide monthly statements to consumers on payment option mortgages, those monthly statements should provide information that enables consumers to make informed payment choices, including an explanation of each payment option available and the impact of that choice on loan balances. Illustration No. 3 shows one way in which this information could be presented. Financial institutions retain the flexibility to provide the information in a format best suited to their customer’s needs. Moreover, it is important to note this illustration is not intended to set forth all of the information lenders could provide that may be useful, such as the current loan balance, an itemization of the payment amount devoted to interest and to principal, and whether the loan balance has increased. The final illustrations appear below. E:\FR\FM\08JNN1.SGM 08JNN1 VerDate Aug<31>2005 18:14 Jun 07, 2007 Jkt 211001 PO 00000 Frm 00035 Fmt 4703 Sfmt 4725 E:\FR\FM\08JNN1.SGM 08JNN1 31829 EN08JN07.014</GPH> pwalker on PROD1PC71 with NOTICES Federal Register / Vol. 72, No. 110 / Friday, June 8, 2007 / Notices VerDate Aug<31>2005 Federal Register / Vol. 72, No. 110 / Friday, June 8, 2007 / Notices 18:14 Jun 07, 2007 Jkt 211001 PO 00000 Frm 00036 Fmt 4703 Sfmt 4725 E:\FR\FM\08JNN1.SGM 08JNN1 EN08JN07.015</GPH> pwalker on PROD1PC71 with NOTICES 31830 VerDate Aug<31>2005 18:14 Jun 07, 2007 Jkt 211001 PO 00000 Frm 00037 Fmt 4703 Sfmt 4725 E:\FR\FM\08JNN1.SGM 08JNN1 31831 EN08JN07.016</GPH> pwalker on PROD1PC71 with NOTICES Federal Register / Vol. 72, No. 110 / Friday, June 8, 2007 / Notices 31832 Federal Register / Vol. 72, No. 110 / Friday, June 8, 2007 / Notices Dated: May 30, 2007. John C. Dugan, Comptroller of the Currency. By order of the Board of Governors of the Federal Reserve System, May 29, 2007. Jennifer J. Johnson, Secretary of the Board. Dated at Washington, DC, the 8th day of May, 2007. By order of the Federal Deposit Insurance Corporation. Robert E. Feldman, Assistant Executive Secretary. Dated: May 30, 2007. By the Office of Thrift Supervision. John Reich, Director. Dated: May 31, 2007. By the National Credit Union Administration. JoAnn M. Johnson, Chairman. [FR Doc. 07–2859 Filed 6–7–07; 8:45 am] BILLING CODE 4810–35–P; 7535–01–P; 6210–01–P; 6714–01–P; 6720–01–P FEDERAL MARITIME COMMISSION Agency Information Collection Activities: Proposed Collection; Comment Request Federal Maritime Commission. Notice and request for comments. AGENCY: (Telephone: (202) 523–5800), jgregory@fmc.gov. SUPPLEMENTARY INFORMATION: Request for Comments The Federal Maritime Commission, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to comment on the revised information collection listed in this notice, as required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). Comments submitted in response to this notice will be included or summarized in our request for OMB approval of the relevant information collection. All comments are part of the public record and subject to disclosure. Please do not include any confidential or inappropriate material in your comments. We invite comments on: (1) The necessity and utility of the proposed information collection for the proper performance of the agency’s functions; (2) the accuracy of the estimated burden; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) the use of automated collection techniques or other forms of information technology to minimize the information collection burden. ACTION: Information Collection Open for Comment SUMMARY: In accordance with the Paperwork Reduction Act of 1995 and the Office of Management and Budget (‘‘OMB’’) regulations, the Federal Maritime Commission is announcing its intention to request a revision of an approved information collection regarding the licensing of ocean transportation intermediaries. DATES: Comments must be submitted on or before August 7, 2007. ADDRESSES: You may send comments to: Peter J. King, Director, Office of Administration, Federal Maritime Commission, 800 North Capitol Street, NW., Washington, DC 20573, (Telephone: (202) 523–5800), administration@fmc.gov. Please reference the information collection’s title and OMB number in your comments. Title: 46 CFR 515—Licensing, Financial Responsibility Requirements and General Duties for Ocean Transportation Intermediaries and Related Forms. OMB Approval Number: 3072–0018 (Expires July 31, 2007). Abstract: Section 19 of the Shipping Act of 1984 (the ‘‘Act’’), 46 U.S.C. 40901–40904 (2006), as modified by Public Law 105–258 (The Ocean Shipping Reform Act of 1998) and Section 424 of Public Law 105–383 (The Coast Guard Authorization Act of 1998), provides that no person in the United States may act as an ocean transportation intermediary (‘‘OTI’’) unless that person holds a license issued by the Commission. The Commission shall issue an OTI license to any person that the Commission determines to be qualified by experience and character to act as an OTI. Further, no person may act as an OTI unless that person furnishes a bond, proof of insurance or other surety in a form and amount determined by the Commission to ensure financial responsibility. The Commission has implemented the provisions of section 19 in regulations contained in 46 CFR part 515, including To obtain additional information, copies of the information collection and instructions, or copies of any comments received, contact Jane Gregory, Management Analyst, Office of Administration, Federal Maritime Commission, 800 North Capitol Street, NW., Washington, DC 20573, pwalker on PROD1PC71 with NOTICES FOR FURTHER INFORMATION CONTACT: VerDate Aug<31>2005 19:26 Jun 07, 2007 Jkt 211001 PO 00000 Frm 00038 Fmt 4703 Sfmt 4703 financial responsibility forms FMC–48, FMC–67, FMC–68, and FMC–69, Optional Rider Forms FMC–48A and FMC–69A, and its related license application form, FMC–18. Current Actions: The Commission intends to revise Form FMC–18, Application for a License as an Ocean Transportation Intermediary. Specifically, language is being added to the Privacy Act Notice regarding voluntary disclosure of the applicant’s Social Security Number, and the System of Records citation is being updated. In the Paperwork Reduction Act Notice, the estimated time to prepare an Application is being revised from 1.5 hours per response to 2 hours. Throughout the Application, any reference to the Bureau of Consumer Complaints and Licensing (‘‘BCCL’’) has been changed to the Bureau of Certification and Licensing (‘‘BCL’’). Also, language has been added to Question 7(2) in Part B, and to Question 13(3) in Part D, allowing applicant or its qualifying individual to disclose whether he/she has ‘‘been declared bankrupt, been subject to a tax lien, or had legal judgment rendered for a debt.’’ In accordance with the Privacy Act of 1974, this would allow the agency, to the greatest extent practicable, to collect information about an applicant that may be used in making a decision with respect to the granting of an OTI license, directly from the applicant. Type of Review: Revision of information collection contained in Form FMC–18, Application for a License as an Ocean Transportation Intermediary. Needs and Uses: The Commission uses information obtained under 46 CFR part 515 and through Form FMC–18 to determine the qualifications of OTIs and their compliance with shipping statutes and regulations and to enable the Commission to discharge its duties under the Act by ensuring that OTIs maintain acceptable evidence of financial responsibility. If the collection of information were not conducted, there would be no basis upon which the Commission could determine if applicants are qualified for licensing. Frequency: This information is collected when applicants apply for a license or when existing licensees change certain information in their application forms. Type of Respondents: The respondents are persons desiring to obtain a license to act as an OTI. Under the Act, OTIs may be either an ocean freight forwarder, a non-vessel-operating common carrier, or both. Number of Annual Respondents: The Commission estimates a potential E:\FR\FM\08JNN1.SGM 08JNN1

Agencies

[Federal Register Volume 72, Number 110 (Friday, June 8, 2007)]
[Notices]
[Pages 31825-31832]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-2859]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

[Docket No. OP-1267]

FEDERAL DEPOSIT INSURANCE CORPORATION

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

NATIONAL CREDIT UNION ADMINISTRATION


Illustrations of Consumer Information for Nontraditional Mortgage 
Products

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC); 
Board of Governors of the Federal Reserve System (Board); Federal 
Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, 
Treasury (OTS); and National Credit Union Administration (NCUA) 
(collectively, the Agencies).

ACTION: Final guidance `` Illustrations of Consumer Information for 
Nontraditional Mortgage Products.

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SUMMARY: The Agencies are publishing three documents that set forth 
Illustrations of Consumer Information for Nontraditional Mortgage 
Products. The illustrations are intended to assist institutions in 
implementing the consumer protection portion of the Interagency 
Guidance on Nontraditional Mortgage Product Risks (Interagency NTM 
Guidance) adopted on October 4, 2006. 71 FR 58609 (Oct. 4, 2006). The 
illustrations are not model forms and institutions may choose not to 
use them in providing information to consumers on nontraditional 
mortgage products as recommended in the Interagency NTM Guidance.

EFFECTIVE DATE: June 8, 2007.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Michael Bylsma, Director, Stephen Van Meter, Assistant 
Director, or Kathryn Ray, Special Counsel, Community and Consumer Law 
Division, (202) 874-5750.
    Board: Kathleen C. Ryan, Counsel, or Jamie Z. Goodson, Attorney, 
Division of Consumer and Community Affairs, (202) 452-3667. For users 
of Telecommunication Device for Deaf only, call (202) 263-4869.
    FDIC: April Breslaw, Acting Associate Director, Compliance Policy & 
Exam Support Branch, Division of Supervision and Consumer Protection, 
(202) 898-6609; or Richard Foley, Counsel, Legal Division, (202) 898-
3784.
    OTS: Montrice G. Yakimov, Assistant Managing Director, Compliance 
and Consumer Protection Division, (202) 906-6173; or Glenn Gimble, 
Senior Project Manager, Compliance and Consumer Protection Division, 
(202) 906-7158.
    NCUA: Cory Phariss, Program Officer, Examination and Insurance, 
(703) 518-6618.

SUPPLEMENTARY INFORMATION:

I. Background

    On December 29, 2005, the Agencies published the Interagency NTM 
Guidance for comment. 70 FR 77249 (Dec. 29, 2005). After carefully 
reviewing and considering all comments received, the Agencies published 
the Interagency NTM Guidance (applicable to all banks and their 
subsidiaries, bank holding companies and their nonbank subsidiaries, 
savings associations and their subsidiaries, savings and loan holding 
companies and their subsidiaries, and credit unions) in final form on 
October 4, 2006. 71 FR 58609 (Oct. 4, 2006).
    The Interagency NTM Guidance sets forth recommended practices to 
ensure that consumers have clear and balanced information about 
nontraditional mortgages prior to making a mortgage product choice, 
such as when lenders provide promotional materials about nontraditional 
mortgages or during face-to-face meetings when consumers are shopping 
for a mortgage. The guidance also recommends that any monthly 
statements given with payment option adjustable rate mortgages (ARMs) 
provide information to enable consumers to make informed payment 
choices.
    Several commenters on the proposed guidance, including industry 
trade associations, encouraged the Agencies to include model or sample 
disclosures or other descriptive materials as part of the Interagency 
NTM Guidance. In response, the Agencies determined that illustrations 
of consumer information would be useful to institutions as they seek to 
implement the consumer information recommendations. Therefore, on the 
same day the Interagency NTM Guidance was published in the Federal 
Register, the Agencies published for comment proposed Illustrations of 
Consumer Information for Nontraditional Mortgage Products (Proposed 
Illustrations). 71 FR 58673 (Oct. 4, 2006).
    The three Proposed Illustrations consisted of (1) A narrative 
explanation of nontraditional mortgage products, (2) a chart comparing 
interest only (IO)

[[Page 31826]]

loans and payment option ARMs to fixed rate and traditional adjustable 
rate loans, and (3) a table that could be included with any monthly 
statement for a payment option ARM providing information on the impact 
of various payment options on the loan balance. The Agencies noted that 
there would be no Agency requirement or expectation that institutions 
use the illustrations in their communications with consumers. Instead, 
the Agencies intended to illustrate the type of information that the 
Interagency NTM Guidance contemplates. Institutions would be able to 
determine whether or not to use the illustrations and whether and how 
to tailor them to their own circumstances.
    The Agencies requested comment on all aspects of the Proposed 
Illustrations. Specifically, they requested commenters to address 
whether the illustrations, as proposed, would be useful to 
institutions, including community banks, seeking to implement the 
``Communications with Consumers'' portion of the Interagency NTM 
Guidance, or whether changes should be made. The Agencies also 
encouraged specific comment on whether the illustrations, as proposed, 
would be useful in promoting consumer understanding of the risks and 
material terms of nontraditional mortgage products, as described in the 
Interagency NTM Guidance, or whether changes should be made. Finally, 
the Agencies sought comment on whether other illustrations relating to 
nontraditional mortgages, in addition to those proposed, would be 
useful to institutions and consumers.
    After considering the comments received, the Agencies are now 
issuing final illustrations of consumer information for nontraditional 
mortgage products. The Interagency NTM Guidance recommends that 
promotional materials and other product descriptions provide consumers 
with information about the costs, terms, features, and risks of 
nontraditional mortgage products that can assist consumers in their 
product selection decisions. This includes information about potential 
payment shock and negative amortization and, where applicable, 
information about prepayment penalties and the costs of reduced 
documentation loans.
    Institutions seeking to follow the recommendations set forth in the 
Interagency NTM Guidance may, at their option, elect to:
     Use the illustrations;
     Provide information based on the illustrations, but 
expand, abbreviate, or otherwise tailor any information in the 
illustrations as appropriate to reflect, for example:
     The institution's product offerings, such as by deleting 
information about loan products and loan terms not offered by the 
institution and by revising the illustrations to reflect specific terms 
currently offered by the institution;
     The consumer's particular loan requirements;
     Current market conditions, such as by changing the loan 
amounts, interest rates, and corresponding payment amounts to reflect 
current local market circumstances;
     Other information, consistent with the Interagency NTM 
Guidance, such as the payment and loan balance information for 
statements discussed in connection with Illustration No. 3 or 
information about when a prepayment penalty may be imposed; and
     The results of consumer testing of such forms; or
     Provide the information described in the Interagency NTM 
Guidance, as appropriate, in an alternate format.
    To assist institutions that wish to use the illustrations, the 
Agencies will be posting each of the illustrations on their respective 
websites in a form that can be downloaded and printed for easy 
reproduction. In addition, in response to concerns that the interest 
rates used in Illustration No. 2 may become outdated with changes in 
market interest rates--and consistent with the Agencies' intention, 
expressed above, that the illustrations may be modified to reflect, 
among other things, current market conditions--the Agencies also will 
be posting on their respective websites a template that can be used by 
institutions that wish to modify the information presented in 
Illustration No. 2 to reflect more current interest rates (and 
corresponding payment amounts). Illustration No. 2 itself reflects 
typical interest rates for prime borrowers in today's environment, 
rounded to the nearest whole number to enhance simplicity.\1\
---------------------------------------------------------------------------

    \1\ Illustration No. 2 also embodies assumptions about other 
product features that are typical in the current market: for 
example, the illustration assumes that the payment option ARM 
provides for a cap on increases in the minimum monthly payment equal 
to 7.5 percent per year for the first 5 years of the loan. Thus, the 
illustration shows the minimum monthly payment increasing over this 
time period from $739 (in Year 1) to $987 (in Year 5).
---------------------------------------------------------------------------

II. Overview of the Comments

    Collectively, the Agencies received letters from over 30 commenters 
on the proposal, including comments from two financial institutions, 12 
consumer advocates and community organizations, 12 trade organizations, 
two individuals, and three state regulatory organizations.
    Most commenters generally approved of the illustrations and 
expressed appreciation for the Agencies' efforts to demonstrate ways 
lenders could advance the consumer communication goals outlined in the 
Interagency NTM Guidance. Generally, commenters stated that the 
proposed illustrations would be useful to financial institutions--
including community banks--seeking to develop their own disclosures to 
help consumers understand the risks of nontraditional mortgage 
products. Commenters also suggested that the illustrations provided 
helpful guidance on the Agencies' expectations and would help reduce 
implementation costs.
    Most financial institutions and trade organizations supported the 
voluntary nature of the illustrations. These commenters stated that the 
flexibility afforded them by the Agencies would allow them to convey 
information to their customers in a format most suited to customers' 
needs. Additionally, having the flexibility to develop their own 
disclosures would allow financial institutions to tailor their 
disclosures to take into account specific product offerings and market 
conditions.
    However, a smaller group of commenters that included 8 consumer 
groups and one industry group disagreed, and suggested that consumer 
education efforts should be mandatory. The trade group noted that 
providing for voluntary use of the illustrations makes unclear the 
degree to which the illustrations will be used, when they will be used, 
and how they will assist consumers. This commenter suggested that the 
Agencies propose model forms and provide lenders with a safe harbor 
when they use the model forms.
    Several financial institutions, trade organizations, and community 
organizations suggested that the illustrations should be made part of 
the Board's revisions to Regulation Z, which implements the Truth in 
Lending Act. These commenters suggested that making the illustrations 
part of Regulation Z would ensure more widespread industry use. 
Additionally, some commenters expressed concern that issuing guidance 
on consumer information materials applicable only to federally-
supervised institutions would put those institutions at a competitive 
disadvantage. The Conference of State Bank Supervisors (CSBS), the 
American Association of Residential Mortgage Regulators (AARMR), and 
the National Association of Consumer Credit Administrators (NACCA) 
commented

[[Page 31827]]

that they believe the illustrations also could be used by state-
licensed entities subject to state-issued guidance that parallels the 
Interagency NTM Guidance.
    A number of commenters expressed concern that the illustrations 
were difficult to follow and would be confusing to consumers, and 
should be simplified. A few industry trade groups and a consumer group 
advised the Agencies to engage in consumer testing or hire consultants 
to determine how to improve the illustrations. A number of commenters 
provided very specific suggestions aimed at making the illustrations 
easier to understand. Several industry commenters requested that the 
Agencies add language explaining how a consumer could benefit from 
nontraditional mortgage products. Further, one trade organization 
stated that lenders should be able to implement the consumer 
information recommendations of the Interagency NTM Guidance by 
providing consumers with the interagency publication titled, 
``Interest-Only Mortgage Payments and Payment-Option ARMs--Are They for 
You?''\2\
---------------------------------------------------------------------------

    \2\ ``Interest-Only Mortgage Payments and Payment-Option ARMs--
Are They for You?'' available at: https://www.federalreserve.gov/
pubs/mortgage_interestonly/mortgage_interestonly.pdf.
---------------------------------------------------------------------------

    Finally, two commenters suggested that the Agencies include in 
these illustrations information about two additional products--2/28 and 
3/27 adjustable rate mortgages. These are ``hybrid'' ARMs that start 
with a fixed interest rate for two or three years, respectively, and 
then reset to a variable rate, which generally will be higher than the 
introductory fixed rate. Because the Interagency NTM Guidance does not 
cover fully-amortizing mortgage products such as hybrid ARMs, the 
Agencies are not including information on these products in the NTM 
illustrations. However, when the Agencies finalize the ``Statement on 
Subprime Mortgage Lending,'' which was proposed on March 8, 2007, and 
which provides guidance concerning hybrid ARM products, we expect to 
issue for public comment disclosure illustrations appropriate for that 
guidance.\3\
---------------------------------------------------------------------------

    \3\ 72 FR 10533 (March 8, 2007).
---------------------------------------------------------------------------

III. Final Illustrations

    After carefully considering all of the comments received, the 
Agencies have decided to publish the proposed illustrations, with some 
modifications. The Agencies have determined that illustrations of the 
type of information contemplated in the Interagency NTM Guidance are 
needed now. Additionally, the Agencies believe that issuing the 
materials as nonmandatory illustrations will provide institutions with 
the flexibility needed to tailor the materials to their own 
circumstances and customer needs.
    Some commenters asserted that use of the illustrations may place 
entities subject to the Interagency NTM Guidance at a competitive 
disadvantage. In this regard, we note that the Interagency NTM 
Guidance, which includes the consumer disclosure recommendations, is 
already in effect for these entities, and also has been adopted for 
state-regulated mortgage brokers and companies by over 30 state 
agencies and the District of Columbia.\4\ The illustrations will be 
helpful to those institutions that prefer not to incur the costs and 
burdens of developing their own consumer information documents to 
implement the recommendations in the Interagency NTM Guidance. 
Additionally, as previously noted, CSBS, AARMR, and NACCA stated their 
belief that the illustrations also could be used by state-licensed 
entities subject to state-issued guidance that parallels the 
Interagency NTM Guidance.
---------------------------------------------------------------------------

    \4\ See www.csbs.org/Content/NavigationMenu/RegulatoryAffairs/
FederalAgencyGuidanceDatabase/State_Implementation.htm.
---------------------------------------------------------------------------

    The Agencies agree with the commenters who urged simplification of 
the Proposed Illustrations, particularly Proposed Illustration No. 2. 
The specific changes made in response to these comments are detailed 
below. The Agencies opted not to include additional text in the 
illustrations that would discuss the benefits of nontraditional 
mortgage products, to ensure that the materials focus on an objective 
description of material terms, risks, and features of such products. 
Institutions are not precluded, of course, from providing factual 
information concerning the features of their products to consumers.
    One commenter asked whether the consumer information brochure 
entitled ``Interest-Only Mortgage Payments and Payment-Option ARMs--Are 
They for You?'' could be used in place of the illustrations to provide 
information to consumers. The information contemplated by the 
Interagency NTM Guidance serve a different purpose than this brochure. 
This detailed, multi-page publication includes valuable in-depth 
information, but it does not represent the more concise and focused 
consumer information contemplated by, and recommended in, the 
Interagency NTM Guidance. Illustrations 1 and 2, by contrast, are 
designed to be concise and focused so they can be quickly referenced by 
consumers during the mortgage shopping process. While, as explained in 
detail above, institutions are not required to use the illustrations, 
and may elect to provide the information contemplated in the 
Interagency NTM Guidance in a modified or alternate format, delivering 
this more detailed publication to consumers would not serve this same 
purpose or provide the information as recommended in the guidance.
    The Agencies' changes to each Proposed Illustration are discussed 
below.

A. Proposed Illustration No. 1

    Although most commenters stated that Illustration No. 1 would be 
useful in helping consumers understand the risks of nontraditional 
mortgage products, several suggested that the Agencies make the 
illustration more user-friendly by using simpler language and larger 
fonts. Most trade organization and financial institution commenters 
generally agreed that Illustration No. 1 would be helpful. Consumer 
groups, on the other hand, expressed their desire that the 
illustrations strongly communicate the risks of nontraditional mortgage 
products and add language clarifying that making the minimum payments 
on a payment option mortgage could lead to a reduction in a borrower's 
equity. Several consumer groups recommended that the illustration not 
suggest that consumers should request information orally from a lender, 
because consumers should be encouraged to review written information 
rather than rely on oral representations.
    To address the commenters' concerns, the Agencies have simplified 
Illustration No. 1, deleted text where possible to shorten the length 
of the illustration, and made formatting changes to improve 
readability. Additionally, the Agencies have included language 
clarifying that making the minimum payments on a payment option 
mortgage could lead to a reduction in a borrower's equity. The Agencies 
have also added language advising consumers that if they do not 
understand the terms of a particular loan, they should not sign any 
loan contracts, and may want to consider other types of loans.

B. Proposed Illustration No. 2

    Many commenters found proposed Illustration No. 2 confusing. 
Specifically, several commenters said the footnotes and the explanation 
of the minimum monthly payment row for years one through five of a 
payment

[[Page 31828]]

option ARM would confuse consumers. A few commenters suggested that 
Illustration No. 2 would be most helpful to consumers if a loan officer 
or credit counselor reviewed it with them. Additionally, one financial 
institution suggested that Illustration No. 2 should emphasize the 
risks of payment shock and negative amortization.
    One industry trade group stated that assuming borrowers make 
minimum payments is unrealistic. This commenter added that the interest 
rates in the examples should represent a typical interest rate 
environment in which a fixed rate loan would have a higher rate than an 
adjustable rate loan. However, one financial institution suggested that 
the illustration should use the same interest rates for all the 
products to make comparison easier. One trade group stated that the 
rates for interest-only and payment option ARM loans should be higher 
to reflect the terms offered to non-prime borrowers. Two commenters 
stated that the illustration should use a $100,000 loan amount that 
would be easier for consumers to compare to their loan amounts than the 
$180,000 amount used in the proposed illustration.
    A few commenters warned against using any assumptions that could 
become dated. Instead, one industry group suggested that payment 
amounts and interest rate information in Illustration No. 2 should be 
left blank so that loan officers and consumers could fill out the 
numbers themselves as they discuss and consider loan options. Another 
commenter suggested that the Agencies create a Web site where consumers 
could input their own specific information into different mortgage 
structures and get accurate and easy-to-understand cost alternatives.
    To address commenter concerns, and to maintain consistency with the 
Interagency NTM Guidance, the Agencies have simplified Illustration No. 
2 by reducing the number of products for which information is provided. 
The simplified illustration eliminates the need for footnotes or 
similar explanations. Additionally, the Agencies made formatting 
changes to draw consumers' attention to the important points the chart 
seeks to illustrate.
    The Agencies agreed with commenters that a sample loan amount of 
$180,000 could make it more difficult for consumers to estimate their 
own payment amounts. The Agencies, therefore, have adopted a 
representative loan amount of $200,000, which is closer to the national 
median price for a single family home than the $100,000 loan amount 
suggested by some commenters.

C. Proposed Illustration No. 3

    The Agencies received the fewest specific comments on Illustration 
No. 3. Moreover, commenters did not express concern that consumers 
would have difficulty understanding Illustration No. 3. Several 
commenters, however, asked the Agencies to make clear that lenders will 
have flexibility with regard to how and when to provide the information 
contemplated by the third illustration. One trade group stated that the 
third illustration could be burdensome for lenders that do not provide 
monthly statements. Similarly, another trade group asked the Agencies 
to state that lenders could provide the third illustration less 
frequently than monthly, or through an explanation on the lender's Web 
site. In contrast, another trade group stated that the Agencies should 
encourage lenders to provide monthly statements.
    One financial institution recommended that the illustration include 
the resulting loan balance with each payment choice so that the 
consumer can see how their choice affects the loan on a monthly basis. 
However, one financial institution and one trade group commenter stated 
that providing specific payment information would be burdensome and 
that lenders would require implementation time to make system changes.
    After reviewing and considering the comments, the Agencies decided 
not to make substantial changes to Illustration No. 3. The Interagency 
NTM Guidance recommends that if institutions provide monthly statements 
to consumers on payment option mortgages, those monthly statements 
should provide information that enables consumers to make informed 
payment choices, including an explanation of each payment option 
available and the impact of that choice on loan balances. Illustration 
No. 3 shows one way in which this information could be presented. 
Financial institutions retain the flexibility to provide the 
information in a format best suited to their customer's needs. 
Moreover, it is important to note this illustration is not intended to 
set forth all of the information lenders could provide that may be 
useful, such as the current loan balance, an itemization of the payment 
amount devoted to interest and to principal, and whether the loan 
balance has increased.
    The final illustrations appear below.

[[Page 31829]]

[GRAPHIC] [TIFF OMITTED] TN08JN07.014


[[Page 31830]]


[GRAPHIC] [TIFF OMITTED] TN08JN07.015


[[Page 31831]]


[GRAPHIC] [TIFF OMITTED] TN08JN07.016



[[Page 31832]]


    Dated: May 30, 2007.
John C. Dugan,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, May 29, 2007.
Jennifer J. Johnson,
Secretary of the Board.
    Dated at Washington, DC, the 8th day of May, 2007.

    By order of the Federal Deposit Insurance Corporation.
Robert E. Feldman,
Assistant Executive Secretary.
    Dated: May 30, 2007.

    By the Office of Thrift Supervision.
John Reich,
Director.
    Dated: May 31, 2007.

    By the National Credit Union Administration.
JoAnn M. Johnson,
Chairman.
[FR Doc. 07-2859 Filed 6-7-07; 8:45 am]
BILLING CODE 4810-35-P; 7535-01-P; 6210-01-P; 6714-01-P; 6720-01-P

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