Federal Reserve Issues Interim Rule Revising Disclosure Requirements for Closed-end Mortgages
August 16, 2010
Circular No. 12240

The Federal Reserve Board has issued an interim rule that revises the disclosure requirements for closed-end mortgage loans under Regulation Z (Truth in Lending). The interim rule implements provisions of the Mortgage Disclosure Improvement Act (MDIA) that require lenders to disclose how borrowers' regular mortgage payments can change over time.

Under the interim rule, lenders' cost disclosures must include a payment summary in the form of a table stating the following:

  • The initial interest rate together with the corresponding monthly payment;
  • For adjustable-rate or step-rate loans, the maximum interest rate and payment that can occur during the first five years and a "worst case" example showing the maximum rate and payment possible over the life of the loan; and
  • The fact that consumers might not be able to avoid increased payments by refinancing their loans.

The interim rule also requires lenders to disclose certain features, such as balloon payments, or options to make only minimum payments that will cause loan amounts to increase. All of the disclosures required in the interim rule were developed through several rounds of qualitative consumer testing, including one-on-one interviews with consumers around the country.

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