Proposed Illustrations of Consumer Information for Subprime Mortgage Lending, 45495-45500 [07-3945]

Download as PDF Federal Register / Vol. 72, No. 156 / Tuesday, August 14, 2007 / Notices DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency [Docket ID OCC–2007–0013] BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [Docket No. OP–1292] FEDERAL DEPOSIT INSURANCE CORPORATION DEPARTMENT OF THE TREASURY Office of Thrift Supervision [Docket ID OTS–2007–0016] NATIONAL CREDIT UNION ADMINISTRATION Proposed Illustrations of Consumer Information for Subprime Mortgage Lending 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). ACTION: Notice of proposed illustrations of consumer information with request for comment. mstockstill on PROD1PC66 with NOTICES AGENCIES: SUMMARY: The OCC, Board, FDIC, OTS, and NCUA (the Agencies), request comment on these Proposed Illustrations of Consumer Information for Subprime Mortgage Lending. The illustrations are intended to assist institutions in providing consumer information as discussed in the consumer protection portion of the Agencies’ Statement on Subprime Mortgage Lending (Subprime Statement). The illustrations are not intended as model forms, and institutions will not be required to use them. Rather, they are provided to respond to the requests of commenters that the Agencies provide uniform disclosures for, or illustrations of, the type of consumer information contemplated by the Subprime Statement. DATES: Comments must be submitted on or before October 15, 2007. ADDRESSES: The Agencies will jointly review all of the comments submitted. Therefore, interested parties may send comments to any of the Agencies and need not send comments (or copies) to all of the Agencies. Please consider submitting your comments by e-mail or fax, since paper mail in the Washington VerDate Aug<31>2005 16:35 Aug 13, 2007 Jkt 211001 area and at the Agencies is subject to delay. Interested parties are invited to submit comments to: OCC: You may submit comments by any of the following methods: • E-mail: regs.comments@occ.treas.gov. • Fax: (202) 874–4448. • Mail: Office of the Comptroller of the Currency, 250 E Street, SW., Mail Stop 1–5, Washington, DC 20219. • Hand Delivery/Courier: 250 E Street, SW., Attn: Public Information Room, Mail Stop 1–5, Washington, DC 20219. Instructions: You must include ‘‘OCC’’ as the agency name and ‘‘Docket ID OCC–2007–0013’’ in your comment. In general, OCC will enter all comments received into the docket without change, including any business or personal information that you provide such as name and address information, e-mail addresses, or phone numbers. Comments, including attachments and other supporting materials, received are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials by any of the following methods: • Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC’s Public Information Room, 250 E Street, SW., Washington, DC. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 874–5043. Upon arrival, visitors will be required to present valid government-issued photo identification and submit to security screening in order to inspect and photocopy comments. Docket: You may also view or request available background documents and project summaries using the methods described above. Board: You may submit comments, identified by Docket No. OP–1292, by any of the following methods: • Agency Web Site: https:// www.federalreserve.gov. Follow the instructions for submitting comments at https://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • E-mail: regs.comments@federalreserve.gov. Include the docket number in the subject line of the message. • Fax: 202/452–3819 or 202/452– 3102. PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 45495 • Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. All public comments are available from the Board’s Web site at https://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed in electronic or paper form in Room MP– 500 of the Board’s Martin Building (20th and C Streets, NW.) between 9 a.m. and 5 p.m. on weekdays. FDIC: You may submit comments by any of the following methods: • Agency Web Site: https:// www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency Web Site. • E-mail: Comments@FDIC.gov. Include ‘‘Proposed Illustrations’’ in the subject line of the message. • Mail: Robert E. Feldman, Executive Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. • Hand Delivery/Courier: Guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7 a.m. and 5 p.m. (EST). • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. Public Inspection: All comments received will be posted without change to https://www.fdic.gov/regulations/laws/ federal including any personal information provided. Comments may be inspected and photocopied in the FDIC Public Information Center, 3501 North Fairfax Drive, Room E–1002, Arlington, VA 22226, between 9 a.m. and 5 p.m. (EST) on business days. Paper copies of public comments may be ordered from the Public Information Center by telephone at (877) 275–3342 or (703) 562–2200. OTS: You may submit comments, identified by ID OTS–2007–0016, by any of the following methods: • E-mail: regs.comments@ots.treas.gov. Please include ID OTS–2007–0016 in the subject line of the message and include your name and telephone number in the message. • Fax: (202) 906–6518. • Mail: Regulation Comments, Chief Counsel’s Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, Attention: ID OTS–2007–0016. • Hand Delivery/Courier: Guard’s Desk, East Lobby Entrance, 1700 G E:\FR\FM\14AUN1.SGM 14AUN1 mstockstill on PROD1PC66 with NOTICES 45496 Federal Register / Vol. 72, No. 156 / Tuesday, August 14, 2007 / Notices Street, NW., from 9 a.m. to 4 p.m. on business days. Address envelope as follows: Attention: Regulation Comments, Chief Counsel’s Office, Attention: ID OTS–2007–0016. Instructions: All submissions received must include the agency name and docket number for this proposed Guidance. All comments received will be posted without change to the OTS Internet Site at https://www.ots.treas.gov/ pagehtml.cfm?catNumber=67&an=1, including any personal information provided. Docket: For access to the docket to read background documents or comments received, go to https:// www.ots.treas.gov/ pagehtml.cfm?catNumber=67&an=1. In addition, you may inspect comments at the Public Reading Room, 1700 G Street, NW., by appointment. To make an appointment for access, call (202) 906–5922, send an e-mail to public.info@ots.treas.gov, or send a facsimile transmission to (202) 906– 7755. (Prior notice identifying the materials you will be requesting will assist us in serving you.) We schedule appointments on business days between 10 a.m. and 4 p.m. In most cases, appointments will be available the next business day following the date we receive a request. NCUA: You may submit comments by any of the following methods: • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • NCUA Web Site: https:// www.ncua.gov/ RegulationsOpinionsLaws/ proposed_regs/proposed_regs.html. Follow the instructions for submitting comments. • E-mail: Address to regcomments@ncua.gov. Include ‘‘[Your name] Comments on’’ in the e-mail subject line. • Fax: (703) 518–6319. Use the subject line described above for e-mail. • Mail: Address to Mary Rupp, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mail address. FOR FURTHER INFORMATION CONTACT: OCC: Michael S. Bylsma, Director, Stephen Van Meter, Assistant Director, or Kathryn D. 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; or Kara Handzlik, Attorney, VerDate Aug<31>2005 16:35 Aug 13, 2007 Jkt 211001 Legal Division, (202) 452–3852. For users of Telecommunications Device for the Deaf (‘‘TDD’’) only, contact (202) 263–4869. FDIC: Victoria M. Pawelski, Policy Analyst, (202) 898–3571, or Mira N. Marshall, Acting Chief, CRA/Fair Lending Section, (202) 898–3912, Compliance Policy & Exam Support Branch, Division of Supervision and Consumer Protection; or Richard B. Foley, Counsel, Legal Division, (202) 898–3784. OTS: Montrice G. Yakimov, Assistant Managing Director, (202) 906–6173 or Glenn Gimble, Senior Project Manager, (202) 906–7158, Compliance and Consumer Protection Division. NCUA: Cory W. Phariss, Program Officer, Examination and Insurance, (703) 518–6618. SUPPLEMENTARY INFORMATION: I. Background On March 8, 2007, the Agencies published for comment a proposed Statement on Subprime Mortgage Lending, 72 FR 10533 (Mar. 8, 2007) (proposed statement). The consumer protection portion of the proposed statement set forth recommended practices to ensure that consumers have clear and balanced information about the relative benefits and risks of certain adjustable rate mortgage (ARM) products. The proposed statement specifically indicated that consumers should be informed about issues relating to potential payment shock—i.e., significant increases in monthly payments that may occur when the interest rate adjusts to a fully-indexed rate—as well as other features that may be present in these loans, including prepayment penalties, balloon payments, pricing premiums for reduced documentation loans, and the borrower’s responsibility for real estate taxes and insurance if not escrowed. The Agencies revised the proposed statement based on the comments received, and recently published the final Statement on Subprime Mortgage Lending in the Federal Register (Subprime Statement). 72 FR 37569 (July 10, 2007). Like the Interagency Guidance on Nontraditional Mortgage Product Risks, 71 FR 58609 (Oct. 4, 2006), the Subprime Statement is 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. The Subprime Statement, including the consumer protection portion, provides recommended practices to PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 assist institutions in addressing particular risks and consumer protection concerns raised by certain ARM products typically offered to subprime borrowers. Some industry group commenters on the proposal asked the Agencies to provide uniform disclosures for these products, or to publish illustrations of the consumer information contemplated by the Subprime Statement similar to those previously proposed by the Agencies in connection with nontraditional mortgage products. 71 FR 58609 (Oct. 4, 2006). The Agencies recently published final Illustrations of Consumer Information for Nontraditional Mortgage Products. 72 FR 31825 (June 8, 2007). As was done with those illustrations, the Agencies believe that it would be desirable to seek public comment before issuing these illustrations in order to determine the types of illustrations that would be most useful to consumers and institutions. II. Proposed Illustrations The Agencies believe that illustrations of consumer information may be useful to institutions as they implement the consumer information recommendations of the Subprime Statement. The Agencies appreciate that some institutions, including community banks, may prefer not to incur the costs and other burdens of developing their own consumer information documents to address the issues raised in the Subprime Statement, and could benefit from illustrations like those below. Use of the proposed illustrations is entirely voluntary. Accordingly, there is no Agency requirement or expectation that institutions must use the illustrations in their communications with consumers. Institutions seeking to follow the recommendations set forth in the Subprime Statement could, 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: Æ 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; Æ the consumer’s particular loan requirements or qualifications; Æ current market conditions, such as by changing the loan amounts, interest rates, and corresponding payment E:\FR\FM\14AUN1.SGM 14AUN1 Federal Register / Vol. 72, No. 156 / Tuesday, August 14, 2007 / Notices amounts to reflect current local market circumstances; and Æ other material information relating to the loan consistent with the Subprime Statement; or • Provide the information described in the Subprime Statement, as appropriate, in an alternate format. Whether or not an institution chooses to use the proposed illustrations, the Subprime Statement provides that communications with consumers, including advertisements, oral statements, and promotional materials, should provide clear and balanced information about the relative benefits and risks of certain ARM products. Further, product descriptions and advertisements are to provide clear, detailed information about the costs, terms, features, and risks of the loan to the borrower. In particular, the Subprime Statement indicates that ‘‘[i]nformation provided to consumers should clearly explain the risk of payment shock and the ramifications of prepayment penalties, balloon payments, and the lack of escrow for taxes and insurance, as necessary.’’ 1 Consumers also should be informed about any pricing premium associated with a stated income or reduced documentation loan program. This recommended information could be presented as shown in the two illustrations set forth below. Illustration 1 is a narrative explanation of some of the key features of certain ARM loans that are identified in the Subprime Statement, including payment shock, responsibility for taxes and insurance, prepayment penalties, balloon payments, and increased costs associated with stated income or reduced documentation loans. The Subprime Statement indicates that information provided to consumers should clearly explain these features and their ramifications in a timely manner. Illustration 1 seeks to provide both the general and loan-specific mstockstill on PROD1PC66 with NOTICES 1 72 FR at 37574. VerDate Aug<31>2005 16:35 Aug 13, 2007 Jkt 211001 information contemplated in the Subprime Statement in a format that could be used by creditors seeking to implement the consumer protection recommendations in the guidance. Creditors that use Illustration 1 should, of course, delete or modify the prepayment penalty or other language in the illustration in order to reflect the actual terms being offered. Illustration 1 is also intended to enable creditors to implement the Subprime Statement with minimal burden. Illustration 2 is a chart with numerical examples that is designed to show the potential consequences of payment shock in a concrete, readily understandable manner for a loan structured with a discounted interest rate for the first two years. Illustration 2 provides information on payments for an ARM loan, assuming caps on annual and aggregate interest rate increases based on typical terms in the market,2 and information for a comparable fixed rate mortgage. Creditors could satisfy the consumer information recommendations by simply photocopying the illustrations (after making any necessary deletions or modifications) and distributing them to consumers in a timely manner. In addition, once the Agencies adopt illustrations as final, to assist institutions that wish to use them, the Agencies will post them on their respective Web sites in a form that can be downloaded, modified as appropriate, and printed for easy reproduction. III. Request for Comment The Agencies request comment on all aspects of the proposed illustrations. We 2 The ARM loan in Illustration 2 assumes a start rate of 7 percent, an initial index of 5.5 percent and a margin of 6 percent. It assumes annual payment adjustments after the initial discount period, a 3 percent cap on the interest rate increase at the end of year 2, and a 2 percent annual payment adjustment cap on interest rate increases thereafter, with a lifetime payment adjustment cap of 6 percent (or a maximum rate of 13 percent). It also assumes no change in the index through year 4. PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 45497 encourage specific comment on whether the illustrations, as proposed, would be useful to institutions, including community banks, seeking to implement the ‘‘Consumer Protection Principles’’ portion of the Subprime Statement, or whether changes should be made to them. We also encourage specific comment on the following: whether the illustrations, as proposed, would be useful in promoting consumer understanding of the risks and material terms of certain ARM products, as described in the Subprime Statement, or whether changes should be made to them. We also seek comment on whether the information in the proposed illustrations is set forth in a clear manner and format; whether these illustrations or a modified form should be adopted by the Agencies; and whether there are additional illustrations relating to certain ARM products that would be useful to consumers and institutions. The Agencies are aware that individual institutions and industry associations have developed and are likely to continue developing documents that can be effective in conveying critical information discussed in the ‘‘Consumer Protection Principles’’ portion of the Subprime Statement. These illustrations are not intended to dissuade institutions and associations from developing their own means of delivering important information about these products to consumers. In this regard, the Agencies note that they have not conducted any consumer testing to assess the effectiveness of any existing documents currently used by institutions, or of the proposed illustrations set forth below. Commenters are specifically invited to provide information on any consumer testing they have conducted in connection with comparable disclosures. E:\FR\FM\14AUN1.SGM 14AUN1 VerDate Aug<31>2005 Federal Register / Vol. 72, No. 156 / Tuesday, August 14, 2007 / Notices 16:35 Aug 13, 2007 Jkt 211001 PO 00000 Frm 00087 Fmt 4703 Sfmt 4725 E:\FR\FM\14AUN1.SGM 14AUN1 EN14AU07.000</GPH> mstockstill on PROD1PC66 with NOTICES 45498 VerDate Aug<31>2005 17:36 Aug 13, 2007 Jkt 211001 PO 00000 Frm 00088 Fmt 4703 Sfmt 4725 E:\FR\FM\14AUN1.SGM 14AUN1 45499 EN14AU07.001</GPH> mstockstill on PROD1PC66 with NOTICES Federal Register / Vol. 72, No. 156 / Tuesday, August 14, 2007 / Notices 45500 Federal Register / Vol. 72, No. 156 / Tuesday, August 14, 2007 / Notices Dated: August 2, 2007. John C. Dugan, Comptroller of the Currency. Dated at Washington, DC the 31st day of July, 2007. By order of the Federal Deposit Insurance Corporation. Valerie J. Best, Assistant Executive Secretary. Dated: August 7, 2007. By the Office of Thrift Supervision. John M. Reich, Director. Dated: August 3, 2007. By the National Credit Union Administration. JoAnn M. Johnson, Chairman. DEPARTMENT OF THE TREASURY Internal Revenue Service Open Meeting of the Area 3 Taxpayer Advocacy Panel (Including the States of Florida, Georgia, Alabama, Mississippi, Louisiana, and Arkansas, and the Territory of Puerto Rico) BILLING CODE 4810–33–P, 6210–01–P, 6714–01–P, 6720–01–P, 7535–01–P DEPARTMENT OF THE TREASURY Internal Revenue Service (IRS), Treasury. ACTION: Notice. AGENCY: Internal Revenue Service Open Meeting of the Wage and Investment Reducing Taxpayer Burden (Notices) Issue Committee of the Taxpayer Advocacy Panel Internal Revenue Service (IRS), Treasury. ACTION: Notice of meeting. AGENCY: SUMMARY: An open meeting of the Wage and Investment Reducing Taxpayer Burden (Notices) Issue Committee of the Taxpayer Advocacy Panel will be conducted (via teleconference). The Taxpayer Advocacy Panel is soliciting public comments, ideas and suggestions on improving customer service at the Internal Revenue Service. DATES: The meeting will be held Thursday, September 6, 2007 from 1 p.m. ET. FOR FURTHER INFORMATION CONTACT: mstockstill on PROD1PC66 with NOTICES Dated: August 7, 2007. John Fay, Acting Director, Taxpayer Advocacy Panel. [FR Doc. E7–15862 Filed 8–13–07; 8:45 am] BILLING CODE 4830–01–P DEPARTMENT OF THE TREASURY Open Meeting of the Taxpayer Assistance Center Committee of the Taxpayer Advocacy Panel Internal Revenue Service (IRS), Treasury. ACTION: Notice. AGENCY: [FR Doc. 07–3945 Filed 8–13–07; 8:45 am] Sallie Chavez at 1–888–912–1227, or 954–423–7979. SUPPLEMENTARY INFORMATION: Notice is hereby given pursuant to section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988) that an open meeting of the Wage and 16:35 Aug 13, 2007 Internal Revenue Service BILLING CODE 4830–01–P [OCC–4810–33–P 20%] [FRB–6210–01–P 20%] [FDIC–6714–01–P 20%] [OTS–6720–01–P 20%] [NCUA–7535–01–P 20%] VerDate Aug<31>2005 Island Rd., Suite 340, Plantation, FL 33324. Due to limited conference lines, notification of intent to participate in the telephone conference call meeting must be made with Sallie Chavez. Ms. Chavez can be reached at 1–888–912– 1227 or 954–423–7979, or post comments to the Web site: https:// www.improveirs.org. The agenda will include: Various IRS issues. Dated: August 7, 2007. John Fay, Acting Director, Taxpayer Advocacy Panel. [FR Doc. E7–15860 Filed 8–13–07; 8:45 am] By order of the Board of Governors of the Federal Reserve System, August 2, 2007. Jennifer J. Johnson, Secretary of the Board. Investment Reducing Taxpayer Burden (Notices) Issue Committee of the Taxpayer Advocacy Panel will be held Thursday, September 6, 2007 from 1 p.m. ET via a telephone conference call. If you would like to have the TAP consider a written statement, please call 1–888–912–1227 or 954–423–7979, or write Sallie Chavez, TAP Office, 1000 South Pine Island Road, Suite 340, Plantation, FL 33324. Due to limited conference lines, notification of intent to participate in the telephone conference call meeting must be made with Sallie Chavez. Ms. Chavez can be reached at 1–888–912–1227 or 954– 423–7979, or post comments to the Web site: https://www.improveirs.org. The agenda will include: Various IRS issues. Jkt 211001 SUMMARY: An open meeting of the Area 3 Committee of the Taxpayer Advocacy Panel will be conducted (via teleconference). The Taxpayer Advocacy Panel is soliciting public comments, ideas, and suggestions on improving customer service at the Internal Revenue Service. DATES: The meeting will be held Tuesday, September 11, 2007, from 11:30 a.m. ET. FOR FURTHER INFORMATION CONTACT: Sallie Chavez at 1–888–912–1227, or 954–423–7979. SUPPLEMENTARY INFORMATION: Notice is hereby given pursuant to section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988) that an open meeting of the Area 3 Committee of the Taxpayer Advocacy Panel will be held Tuesday, September 11, 2007, from 11:30 a.m. ET via a telephone conference call. If you would like to have the TAP consider a written statement, please call 1–888–912–1227 or 954–423–7979, or write Sallie Chavez, TAP Office, 1000 South Pine PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 SUMMARY: An open meeting of the Taxpayer Assistance Center Committee of the Taxpayer Advocacy Panel will be conducted (via teleconference). The Taxpayer Advocacy Panel (TAP) is soliciting public comments, ideas, and suggestions on improving customer service at the Internal Revenue Service. DATES: The meeting will be held Tuesday, September 4, 2007. FOR FURTHER INFORMATION CONTACT: Dave Coffman at 1–888–912–1227, or 206–220–6096. SUPPLEMENTARY INFORMATION: Notice is hereby given pursuant to section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988) that an open meeting of the Taxpayer Assistance Center Committee of the Taxpayer Advocacy Panel will be held Tuesday, September 4, 2007 from 9 a.m. to 10 a.m. Pacific Time via a telephone conference call. If you would like to have the TAP consider a written statement, please call 1–888–912–1227 or 206–220–6096, or write to Dave Coffman, TAP Office, 915 2nd Avenue, MS W–406, Seattle, WA 98174 or you can contact us at https:// www.improveirs.org. Due to limited conference lines, notification of intent to participate in the telephone conference call meeting must be made with Dave Coffman. Mr. Coffman can be reached at 1–888–912–1227 or 206– 220–6096. The agenda will include the following: Various IRS issues. E:\FR\FM\14AUN1.SGM 14AUN1

Agencies

[Federal Register Volume 72, Number 156 (Tuesday, August 14, 2007)]
[Notices]
[Pages 45495-45500]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-3945]



[[Page 45495]]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket ID OCC-2007-0013]

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

[Docket No. OP-1292]

FEDERAL DEPOSIT INSURANCE CORPORATION

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

[Docket ID OTS-2007-0016]

NATIONAL CREDIT UNION ADMINISTRATION


Proposed Illustrations of Consumer Information for Subprime 
Mortgage Lending

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).

ACTION: Notice of proposed illustrations of consumer information with 
request for comment.

-----------------------------------------------------------------------

SUMMARY: The OCC, Board, FDIC, OTS, and NCUA (the Agencies), request 
comment on these Proposed Illustrations of Consumer Information for 
Subprime Mortgage Lending. The illustrations are intended to assist 
institutions in providing consumer information as discussed in the 
consumer protection portion of the Agencies' Statement on Subprime 
Mortgage Lending (Subprime Statement). The illustrations are not 
intended as model forms, and institutions will not be required to use 
them. Rather, they are provided to respond to the requests of 
commenters that the Agencies provide uniform disclosures for, or 
illustrations of, the type of consumer information contemplated by the 
Subprime Statement.

DATES: Comments must be submitted on or before October 15, 2007.

ADDRESSES: The Agencies will jointly review all of the comments 
submitted. Therefore, interested parties may send comments to any of 
the Agencies and need not send comments (or copies) to all of the 
Agencies. Please consider submitting your comments by e-mail or fax, 
since paper mail in the Washington area and at the Agencies is subject 
to delay. Interested parties are invited to submit comments to:
    OCC: You may submit comments by any of the following methods:
     E-mail: regs.comments@occ.treas.gov.
     Fax: (202) 874-4448.
     Mail: Office of the Comptroller of the Currency, 250 E 
Street, SW., Mail Stop 1-5, Washington, DC 20219.
     Hand Delivery/Courier: 250 E Street, SW., Attn: Public 
Information Room, Mail Stop 1-5, Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2007-0013'' in your comment. In general, OCC will enter 
all comments received into the docket without change, including any 
business or personal information that you provide such as name and 
address information, e-mail addresses, or phone numbers. Comments, 
including attachments and other supporting materials, received are part 
of the public record and subject to public disclosure. Do not enclose 
any information in your comment or supporting materials that you 
consider confidential or inappropriate for public disclosure.
    You may review comments and other related materials by any of the 
following methods:
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC's Public Information Room, 250 E 
Street, SW., Washington, DC. For security reasons, the OCC requires 
that visitors make an appointment to inspect comments. You may do so by 
calling (202) 874-5043. Upon arrival, visitors will be required to 
present valid government-issued photo identification and submit to 
security screening in order to inspect and photocopy comments.
    Docket: You may also view or request available background documents 
and project summaries using the methods described above.
    Board: You may submit comments, identified by Docket No. OP-1292, 
by any of the following methods:
     Agency Web Site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include the 
docket number in the subject line of the message.
     Fax: 202/452-3819 or 202/452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551. All public comments are available from the 
Board's Web site at https://www.federalreserve.gov/generalinfo/foia/
ProposedRegs.cfm as submitted, unless modified for technical reasons. 
Accordingly, your comments will not be edited to remove any identifying 
or contact information. Public comments may also be viewed in 
electronic or paper form in Room MP-500 of the Board's Martin Building 
(20th and C Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
    FDIC: You may submit comments by any of the following methods:
     Agency Web Site: https://www.fdic.gov/regulations/laws/
federal. Follow instructions for submitting comments on the Agency Web 
Site.
     E-mail: Comments@FDIC.gov. Include ``Proposed 
Illustrations'' in the subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (EST).
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
    Public Inspection: All comments received will be posted without 
change to https://www.fdic.gov/regulations/laws/federal including any 
personal information provided. Comments may be inspected and 
photocopied in the FDIC Public Information Center, 3501 North Fairfax 
Drive, Room E-1002, Arlington, VA 22226, between 9 a.m. and 5 p.m. 
(EST) on business days. Paper copies of public comments may be ordered 
from the Public Information Center by telephone at (877) 275-3342 or 
(703) 562-2200.
    OTS: You may submit comments, identified by ID OTS-2007-0016, by 
any of the following methods:
     E-mail: regs.comments@ots.treas.gov. Please include ID 
OTS-2007-0016 in the subject line of the message and include your name 
and telephone number in the message.
     Fax: (202) 906-6518.
     Mail: Regulation Comments, Chief Counsel's Office, Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, 
Attention: ID OTS-2007-0016.
     Hand Delivery/Courier: Guard's Desk, East Lobby Entrance, 
1700 G

[[Page 45496]]

Street, NW., from 9 a.m. to 4 p.m. on business days. Address envelope 
as follows: Attention: Regulation Comments, Chief Counsel's Office, 
Attention: ID OTS-2007-0016.
    Instructions: All submissions received must include the agency name 
and docket number for this proposed Guidance. All comments received 
will be posted without change to the OTS Internet Site at https://
www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1, including any 
personal information provided.
    Docket: For access to the docket to read background documents or 
comments received, go to https://www.ots.treas.gov/
pagehtml.cfm?catNumber=67&an=1.
    In addition, you may inspect comments at the Public Reading Room, 
1700 G Street, NW., by appointment. To make an appointment for access, 
call (202) 906-5922, send an e-mail to public.info@ots.treas.gov, or 
send a facsimile transmission to (202) 906-7755. (Prior notice 
identifying the materials you will be requesting will assist us in 
serving you.) We schedule appointments on business days between 10 a.m. 
and 4 p.m. In most cases, appointments will be available the next 
business day following the date we receive a request.
    NCUA: You may submit comments by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web Site: https://www.ncua.gov/
RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the 
instructions for submitting comments.
     E-mail: Address to regcomments@ncua.gov. Include ``[Your 
name] Comments on'' in the e-mail subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

FOR FURTHER INFORMATION CONTACT:
    OCC: Michael S. Bylsma, Director, Stephen Van Meter, Assistant 
Director, or Kathryn D. 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; or Kara 
Handzlik, Attorney, Legal Division, (202) 452-3852. For users of 
Telecommunications Device for the Deaf (``TDD'') only, contact (202) 
263-4869.
    FDIC: Victoria M. Pawelski, Policy Analyst, (202) 898-3571, or Mira 
N. Marshall, Acting Chief, CRA/Fair Lending Section, (202) 898-3912, 
Compliance Policy & Exam Support Branch, Division of Supervision and 
Consumer Protection; or Richard B. Foley, Counsel, Legal Division, 
(202) 898-3784.
    OTS: Montrice G. Yakimov, Assistant Managing Director, (202) 906-
6173 or Glenn Gimble, Senior Project Manager, (202) 906-7158, 
Compliance and Consumer Protection Division.
    NCUA: Cory W. Phariss, Program Officer, Examination and Insurance, 
(703) 518-6618.

SUPPLEMENTARY INFORMATION: 

I. Background

    On March 8, 2007, the Agencies published for comment a proposed 
Statement on Subprime Mortgage Lending, 72 FR 10533 (Mar. 8, 2007) 
(proposed statement). The consumer protection portion of the proposed 
statement set forth recommended practices to ensure that consumers have 
clear and balanced information about the relative benefits and risks of 
certain adjustable rate mortgage (ARM) products. The proposed statement 
specifically indicated that consumers should be informed about issues 
relating to potential payment shock--i.e., significant increases in 
monthly payments that may occur when the interest rate adjusts to a 
fully-indexed rate--as well as other features that may be present in 
these loans, including prepayment penalties, balloon payments, pricing 
premiums for reduced documentation loans, and the borrower's 
responsibility for real estate taxes and insurance if not escrowed.
    The Agencies revised the proposed statement based on the comments 
received, and recently published the final Statement on Subprime 
Mortgage Lending in the Federal Register (Subprime Statement). 72 FR 
37569 (July 10, 2007). Like the Interagency Guidance on Nontraditional 
Mortgage Product Risks, 71 FR 58609 (Oct. 4, 2006), the Subprime 
Statement is 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.
    The Subprime Statement, including the consumer protection portion, 
provides recommended practices to assist institutions in addressing 
particular risks and consumer protection concerns raised by certain ARM 
products typically offered to subprime borrowers. Some industry group 
commenters on the proposal asked the Agencies to provide uniform 
disclosures for these products, or to publish illustrations of the 
consumer information contemplated by the Subprime Statement similar to 
those previously proposed by the Agencies in connection with 
nontraditional mortgage products. 71 FR 58609 (Oct. 4, 2006). The 
Agencies recently published final Illustrations of Consumer Information 
for Nontraditional Mortgage Products. 72 FR 31825 (June 8, 2007). As 
was done with those illustrations, the Agencies believe that it would 
be desirable to seek public comment before issuing these illustrations 
in order to determine the types of illustrations that would be most 
useful to consumers and institutions.

II. Proposed Illustrations

    The Agencies believe that illustrations of consumer information may 
be useful to institutions as they implement the consumer information 
recommendations of the Subprime Statement. The Agencies appreciate that 
some institutions, including community banks, may prefer not to incur 
the costs and other burdens of developing their own consumer 
information documents to address the issues raised in the Subprime 
Statement, and could benefit from illustrations like those below.
    Use of the proposed illustrations is entirely voluntary. 
Accordingly, there is no Agency requirement or expectation that 
institutions must use the illustrations in their communications with 
consumers.
    Institutions seeking to follow the recommendations set forth in the 
Subprime Statement could, 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:
    [cir] 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;
    [cir] the consumer's particular loan requirements or 
qualifications;
    [cir] current market conditions, such as by changing the loan 
amounts, interest rates, and corresponding payment

[[Page 45497]]

amounts to reflect current local market circumstances; and
    [cir] other material information relating to the loan consistent 
with the Subprime Statement; or
     Provide the information described in the Subprime 
Statement, as appropriate, in an alternate format.
    Whether or not an institution chooses to use the proposed 
illustrations, the Subprime Statement provides that communications with 
consumers, including advertisements, oral statements, and promotional 
materials, should provide clear and balanced information about the 
relative benefits and risks of certain ARM products. Further, product 
descriptions and advertisements are to provide clear, detailed 
information about the costs, terms, features, and risks of the loan to 
the borrower. In particular, the Subprime Statement indicates that 
``[i]nformation provided to consumers should clearly explain the risk 
of payment shock and the ramifications of prepayment penalties, balloon 
payments, and the lack of escrow for taxes and insurance, as 
necessary.'' \1\ Consumers also should be informed about any pricing 
premium associated with a stated income or reduced documentation loan 
program.
---------------------------------------------------------------------------

    \1\ 72 FR at 37574.
---------------------------------------------------------------------------

    This recommended information could be presented as shown in the two 
illustrations set forth below. Illustration 1 is a narrative 
explanation of some of the key features of certain ARM loans that are 
identified in the Subprime Statement, including payment shock, 
responsibility for taxes and insurance, prepayment penalties, balloon 
payments, and increased costs associated with stated income or reduced 
documentation loans. The Subprime Statement indicates that information 
provided to consumers should clearly explain these features and their 
ramifications in a timely manner. Illustration 1 seeks to provide both 
the general and loan-specific information contemplated in the Subprime 
Statement in a format that could be used by creditors seeking to 
implement the consumer protection recommendations in the guidance. 
Creditors that use Illustration 1 should, of course, delete or modify 
the prepayment penalty or other language in the illustration in order 
to reflect the actual terms being offered. Illustration 1 is also 
intended to enable creditors to implement the Subprime Statement with 
minimal burden.
    Illustration 2 is a chart with numerical examples that is designed 
to show the potential consequences of payment shock in a concrete, 
readily understandable manner for a loan structured with a discounted 
interest rate for the first two years. Illustration 2 provides 
information on payments for an ARM loan, assuming caps on annual and 
aggregate interest rate increases based on typical terms in the 
market,\2\ and information for a comparable fixed rate mortgage.
---------------------------------------------------------------------------

    \2\ The ARM loan in Illustration 2 assumes a start rate of 7 
percent, an initial index of 5.5 percent and a margin of 6 percent. 
It assumes annual payment adjustments after the initial discount 
period, a 3 percent cap on the interest rate increase at the end of 
year 2, and a 2 percent annual payment adjustment cap on interest 
rate increases thereafter, with a lifetime payment adjustment cap of 
6 percent (or a maximum rate of 13 percent). It also assumes no 
change in the index through year 4.
---------------------------------------------------------------------------

    Creditors could satisfy the consumer information recommendations by 
simply photocopying the illustrations (after making any necessary 
deletions or modifications) and distributing them to consumers in a 
timely manner. In addition, once the Agencies adopt illustrations as 
final, to assist institutions that wish to use them, the Agencies will 
post them on their respective Web sites in a form that can be 
downloaded, modified as appropriate, and printed for easy reproduction.

III. Request for Comment

    The Agencies request comment on all aspects of the proposed 
illustrations. We encourage specific comment on whether the 
illustrations, as proposed, would be useful to institutions, including 
community banks, seeking to implement the ``Consumer Protection 
Principles'' portion of the Subprime Statement, or whether changes 
should be made to them. We also encourage specific comment on the 
following: whether the illustrations, as proposed, would be useful in 
promoting consumer understanding of the risks and material terms of 
certain ARM products, as described in the Subprime Statement, or 
whether changes should be made to them. We also seek comment on whether 
the information in the proposed illustrations is set forth in a clear 
manner and format; whether these illustrations or a modified form 
should be adopted by the Agencies; and whether there are additional 
illustrations relating to certain ARM products that would be useful to 
consumers and institutions.
    The Agencies are aware that individual institutions and industry 
associations have developed and are likely to continue developing 
documents that can be effective in conveying critical information 
discussed in the ``Consumer Protection Principles'' portion of the 
Subprime Statement. These illustrations are not intended to dissuade 
institutions and associations from developing their own means of 
delivering important information about these products to consumers. In 
this regard, the Agencies note that they have not conducted any 
consumer testing to assess the effectiveness of any existing documents 
currently used by institutions, or of the proposed illustrations set 
forth below. Commenters are specifically invited to provide information 
on any consumer testing they have conducted in connection with 
comparable disclosures.

[[Page 45498]]

[GRAPHIC] [TIFF OMITTED] TN14AU07.000


[[Page 45499]]


[GRAPHIC] [TIFF OMITTED] TN14AU07.001



[[Page 45500]]


    Dated: August 2, 2007.
John C. Dugan,
Comptroller of the Currency.


    By order of the Board of Governors of the Federal Reserve 
System, August 2, 2007.
Jennifer J. Johnson,
Secretary of the Board.


    Dated at Washington, DC the 31st day of July, 2007.

    By order of the Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.


    Dated: August 7, 2007.

    By the Office of Thrift Supervision.
John M. Reich,
Director.


    Dated: August 3, 2007.

    By the National Credit Union Administration.

JoAnn M. Johnson,
Chairman.

[OCC-4810-33-P 20%]
[FRB-6210-01-P 20%]
[FDIC-6714-01-P 20%]
[OTS-6720-01-P 20%]
[NCUA-7535-01-P 20%]
[FR Doc. 07-3945 Filed 8-13-07; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P, 7535-01-P
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