Federal Reserve Board approves interim rule to amend Regulation Z

The Federal Reserve Board approved an interim rule late last week that will require lenders to show borrowers examples how of a loan’s interest rate or monthly payments can change in accordance with a five-year, adjustable-rate mortgage. The rule amends Regulation Z, which implements the Truth in Lending Act. On Sept. 24, the Fed issued a first interim rule regarding the Mortgage Disclosure Improvement Act, which first stated lenders had to give borrowers examples of how payment and interest rates could change. The newest rule was proposed and approved to clarify the MDIA in response to public comment. The new rule states lenders must use the five-year ARM module “because the new rate typically becomes effective within five years after the first regular payment due date,” the Federal Reserve Board said. The rule also corrects the requirements for interest-only loans. Lenders will now have to show borrowers the earliest date the consumer’s interest rate can change rather than the due date for making the first payment under the new rate. The rule also clarifies which mortgage transactions are covered by the special disclosure requirements for loans that allow minimum payments that cause the loan balance to increase. All statutory amendments go into effect Jan. 31. The board said lenders have the option of complying with the September version of the rule or the most recent version until Oct. 1. After that, compliance with the newest issued rule will be mandatory. Write to Christine Ricciardi.