The Federal Reserve Board (the “Board“) recently announced that it will not seek to finalize mortgage disclosure rules proposed in August 2009 and September 2010. The Board‘s decision recognizes the forthcoming transfer of Truth in Lending Act (“TILA”) and Real Estate Settlement Procedures Act (“RESPA”) rulemaking authority to the Consumer Financial Protection Bureau (“CFPB”) pursuant to the Dodd-Frank Act. Indeed, the Board considered the likelihood that CFPB would seek advance notice of proposed rulemaking on similar issues. Now that the CFPB’s launch is approximately five months away, the Board‘s move could foreshadow a rulemaking quiet period for those agencies that will lose rulemaking authority to the CFPB.
The Proposed Rules
The proposed rules focused primarily on new, more expansive disclosures to consumers prior to assuming home-secured loan obligations. Two of the proposed rules, released contemporaneously in August 2009, expanded the required disclosures for home equity lines of credit and closed-end mortgages, respectively. The rules would have required more disclosures on “potentially risky loan features” such as adjustable interest rates, amortization, and payment schedules. The third proposed rule, released in September 2010, changed disclosures on a mortgagee’s right to rescind and the rescission procedure.
Receiving the most attention from consumer advocacy groups was the proposed rule modifying the rescission process for borrowers who did not receive mandated disclosures. The proposed rule would have required borrowers to pay their principal balance prior to rescission. This proposal would have altered current procedure in certain jurisdictions, requiring a creditor to release its security interest before the borrower is obligated to repay the loan (enabling the borrower to obtain another mortgage or negotiate a loan modification). Among the comments of the consumer advocacy groups was a request to postpone rulemaking until the CFPB’s plans for a combined TILA-RESPA disclosure rule could be considered.
In a statement released on February 1, 2011, the Board acknowledged that “a combined TILA-RESPA disclosure rule could well be proposed by the CFPB before any new disclosure requirements issued by the Board could be fully implemented.” In fact, the U.S. Treasury Department—the agency charged with establishing the CFPB—is considering advance notice of proposed rulemaking “as a means of gathering information and input, before the transfer date.” Given the timetable to promulgate disclosure rules, the Treasury may seek advance comment on this very issue.
Posted via email from Title Insurance President Obama has signed a new Bureau of Consumer Financial Protection into law, but he will take some time before deciding who will lead it. “I do not expect an imminent announcement on that,” said White House spokesman Robert Gibbs. Lawmakers who backed the new Wall Street regulation bill are touting Elizabeth Warren, the former Harvard law professor who came up with the idea of the consumer protection board in the first place. Others wonder if Warren can win Senate confirmation. “There’s a serious question about it,” said Sen. Chris Dodd, D-Conn., who helped write the new financial regulations, speaking on NPR. Some conservatives say Warren — who currently chairs a federal bailout watchdog committee — may be too anti-business. Senate Minority Leader Mitch McConnell, R-Ky., declined to comment on Warren’s confirmation prospects, saying he will wait to see who Obama nominates. “If it had been up to me, we wouldn’t have created that agency in the first place,” McConnell said. “It will be a massive bureaucracy.” Gibbs said Warren is one of the names under consideration. After all, the new bureau is something that Warren “thought should be put in place to ensure that consumers were on equal footing with big banks,” Gibbs said, adding that she would be “a terrific nominee.” “I have seen comments by those that questioned whether she could be confirmed,” Gibbs said. “And I don’t agree with those at all.” Posted via email from Title Insurance With foreclosure sales steadily rising, four states are concerned that the use of the foreclosure sale prices in appraisals of neighboring homes is distorting the market. Legislators in Illinois, Nevada, and Missouri have all proposed separate bills that would exclude or restrict foreclosure sales from being used as comparisons to determine the value of homes around them. Maryland had proposed a similar bill, but withdrew the legislation on Tuesday. Industry participants have expressed reservation at the idea of barring distressed sales from consideration when appraising properties, saying such actions would cause homes to be appraised for more than they are really worth. According to the Appraisal Institute, “Elimination of foreclosures and short sales as comparables would result in an artificial market and would mislead lenders as to the true value of their mortgage collateral.” Furthermore, the institute notes that under the Uniform Standards of Professional Appraisal Practice, all federally related transactions are required to consider all sales for appraisals, including short sales and other distressed sales. Most residential lending transactions fall into this category. “In some markets, there are so many distressed sales that they are the market and must be considered. When there is a glut of distress sales in the marketplace, and those properties are truly comparable to the subject, it would be misleading not to use them as part, or in some cases all, of the basis for a value conclusion,” a representative of the institute said in an e-ma Posted via email from Title Insurance
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