August 15, 2006


Ms. Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

Re: Docket No. OP-1253
       Home Ownership and Equity Protection Act Hearings
       71 FR 26513 (May 5, 2006)

Dear Ms. Johnson:

America’s Community Bankers (ACB) appreciates the opportunity to comment on the Board of Governors of the Federal Reserve System’s (the Board) inquiry regarding disclosures to consumers required under regulations to implement the Home Ownership and Equity Protection Act (HOEPA) and the Truth in Lending Act (TILA). We commend the Board for holding hearings this summer to gain insight on these important issues from a broad spectrum of industry participants and representatives.

The Board, in its hearings and request for comments, focused on a wide range of topics related to consumer disclosures and educational materials. Our comments are intended to help the Board in its pending review of Regulation Z, with emphasis on alternative mortgage products and reverse mortgages.

The Need for Meaningful Disclosure

ACB believes that prudent lending necessitates that borrowers be well educated about mortgages. ACB strongly supports enhancing a consumer’s ability to shop for, obtain and understand the terms of a mortgage loan. We believe these goals may be accomplished by comprehensive reform of TILA through the rulemaking process so that any new or different disclosure requirements apply to all mortgage lenders. Further, we believe that the details of any changes to consumer disclosure requirements should be structured to improve the process by which consumers obtain mortgage loans, without disrupting the smooth operation of mortgage markets or significantly increasing the regulatory burden on lenders.

Innovation in mortgage products has enabled more Americans than ever before to build wealth through homeownership. This has occurred without an increase in delinquencies or foreclosures. To support the continued expansion of homeownership in this country, unnecessary regulatory burdens must not be imposed on lenders.

Further, in its consideration of revisions to Regulation Z, the Board should work with the other federal agencies to ensure that the requirements of other consumer protection laws are met and that the requirements are not in conflict. Particular attention should be paid to making sure that any reform of Regulation Z does not conflict with any of The Department of Housing and Urban Development’s (HUD) rules and regulations concerning the Real Estate Settlement Procedures Act (RESPA) .

ACB also commends the Board for its proposed initiative to include consumers and lenders in a study, the purpose of which is to develop and test consumer disclosures. We believe that it is critical for consumers to understand completely the terms of all loans made to them. This is especially important because of the proliferation of alternative and reverse mortgages with terms that may be more complex than traditional 30-year fixed rate loans.

Many current regulatory consumer disclosures are too confusing and voluminous to be useful. As a result, much of the information provided by lenders under the current regulatory requirements is ignored or overlooked by the average consumer. ACB believes that testing of disclosure information with consumers could result in disclosures more concise, clear, and meaningful to consumers providing information that consumers want and need. ACB believes that the development of simple, understandable disclosures should involve all of the parties with an interest in the mortgage lending industry.

ACB believes that the disclosure of key product and credit terms associated with various types of mortgage products should come as early as possible during the shopping and application process. However, providing disclosures earlier, than required by RESPA and Regulation Z, of costs for a specific loan likely would result in unintended negative consequences for lenders. Disclosures required in the early stages of shopping or the application process should be meaningful, but general in nature, because an accurate disclosure of costs necessitates an analysis of a borrower’s creditworthiness and collateral. Obtaining the borrower’s information on credit history and collateral is costly and requires payment to third parties (e.g., credit repositories, appraisers, etc.). Therefore, any early disclosures provided with limited information necessarily must be estimated and conditioned on final underwriting. Any proposal for early disclosures should be carefully considered to assure that the proposal provides useful information to the consumer, without resulting in compliance concerns for lenders.

ACB also encourages the Board to commit additional resources to financial literacy. The best way for consumers to choose the mortgage product that best meets their needs is to collect and understand the terms, benefits, and drawbacks of the available products before they begin the process of finding a home. As the range of mortgage products continues to expand, the need for financial education becomes increasingly important. We believe that the Board can help greatly by continuing to foster its commitment to consumer education regarding the array of mortgage products.

Alternative Mortgages

Myriad mortgage products have been developed since Regulation Z was last amended. Therefore, ACB believes that Regulation Z should now be amended to provide clear and concise information to consumers regarding the unique features of alternative mortgage products such as Option ARMs and Interest Only ARMs.

As we stated in our comment letter on the proposed Interagency Guidance on Nontraditional Mortgage Products , ACB firmly believes that any new mortgage disclosure requirements should be implemented by amending Regulation Z through the rulemaking process. (Our comment letter is attached.) Efforts to alter or expand consumer disclosure requirements through mechanisms like the proposed Interagency Guidance on Nontraditional Mortgage Products are ill advised. Disclosure requirements implemented through federal banking agency guidance would apply only to regulated depository institutions, leaving consumers exposed to inadequate disclosures by less regulated entities. Any mandate for new or different disclosure requirements should be implemented by amending Regulation Z so that they apply to all mortgage lenders.

One issue of serious concern to ACB was raised in the Interagency Guidance and also during the Board’s public hearings. Several of the consumer representatives stated that lenders should be responsible for deciding whether an alternative loan product is suitable for a particular borrower, based on the borrower’s specific circumstances. We believe that the notion of imposing a “suitability” standard on lenders is a very serious mistake. The bank’s responsibility is to ensure they underwrite a safe and sound loan that is within their underwriting policy. Lenders also have responsibility to provide borrowers with sufficient information for them to clearly understand the loan terms and associated risks, we do not believe it is appropriate or possible for the lender to identify or dictate the best mortgage product for individual consumers. For example, one borrower may place a higher priority on retiring of debt, while another may place a higher priority on current cash flow.

Reverse Mortgages

Within the past few years, there has been significant growth in the reverse mortgage market. ACB believes that the demand for reverse mortgages will continue to grow in coming years due to the expected changes in the demographics in the United States.

ACB member banks have a keen interest in serving the needs of elderly citizens in their communities by offering more reverse mortgage products. These mortgages can enable many senior citizens to enjoy a secure and comfortable retirement. However, ACB recognizes that under the wrong circumstances, reverse mortgages can be detrimental to senior homeowners. The critical element for a homeowner in determining the appropriateness of a reverse mortgage lies in a full understanding of all terms, benefits and drawbacks of the loan. While this is true for every type of mortgage, it is especially critical for reverse mortgages because of their unique and somewhat complicated characteristics.

The Board’s request for comments asks whether “current Regulation Z requirements are adequate to inform consumers about the costs of reverse mortgages and to ensure that they understand the terms of the product.” ACB believes that current disclosure requirements are meaningful and adequate to convey necessary information to consumers regarding reverse mortgages.

Further, the Board asked whether “in reverse mortgages that are not insured by HUD, is counseling offered to applicants.” Typically, ACB member banks not only offer counseling, they require it. We believe that prudent lending necessitates that borrowers be educated about these mortgages and have an opportunity to have all their questions answered in a confidential setting.

ACB has a strategic partnership with a financial institution, Financial Freedom^TM, that purchases and services reverse mortgages originated by our member banks. Financial Freedom^TM was instrumental in the development of the reverse mortgage concept in the United States back in the late 1990s and currently they are the largest retail and wholesale originator of reverse mortgages in the country. Financial Freedom^TM helps to train ACB member banks on interacting with and educating homebuyers, as well as how to close a reverse mortgage. We have attached to this letter a brochure entitled “Is A Reverse Mortgage Right for You?” developed by Financial Freedom^TM to help consumers understand the factors to consider before obtaining a reverse mortgage.

This brochure is the most comprehensive, understandable, plain-language literature that we have seen regarding reverse mortgages. It covers all features of reverse mortgages including product information, disclosures, costs involved in closing the loan, other financial implications, alternatives to reverse mortgages, and many other items. We offer this in hopes that it might assist the Board’s development of its own educational material for reverse mortgages.

Conclusion

ACB appreciates this opportunity to comment on these important issues. We are deeply committed to assisting the Board in its review and possible amendment of consumer disclosure regulations. This endeavor is critically important to the continued efficiency of the mortgage lending community in serving the American consumer and we look forward to ongoing work with the Board on these issues. If you have questions or would like additional information, please contact the undersigned at 202-857-3129 or [email protected].

Sincerely,


Janet Frank
Director, Mortgage Finance

Attachment: Brochure “Is A Reverse Mortgage Right for You?”