Too little too late? That’s what some critics are calling the Federal Reserve Board’s new rules that crack down on unfair, abusive, or deceptive lending and servicing practices in the subprime mortgage market. After all, the mortgage meltdown has already spread well beyond the subprime market to the credit market and the economy more generally.

“The booming subprime market of 2006 may have gone the way of the dinosaurs.”

The horse is out of the barn, right? Even the Fed would concede that the revised Regulation Z rules it approved on July 14 would have done more good, at least in terms of the current economic turmoil, had they been adopted two or three or four years ago.

Better late than never? With the exception of those consumers forced into the foreclosure process, almost all parties — lenders, servicers, mortgage brokers, even the compliance folks who now have to implement the hefty package of changes (by our count, 418 double-spaced pages) — would agree that the revisions are needed. The booming subprime market of 2006 may have gone the way of the dinosaurs. Nevertheless, as federal bank regulators stressed during the FDIC’s recent “Forum on Mortgage Lending to Low and Moderate Income Households,” the banking industry has an obligation to provide its services, including mortgages, to LMI consumers.

Moreover, the Reg. Z revisions themselves are not limited to subprime loans. While some apply only to a new category of “higher-priced mortgages,” others apply to all closed-end mortgages secured by a consumer’s principal dwelling. And then there are the new advertising provisions, which apply even more broadly, to all mortgages.

If all this sounds like a substantial increase in regulatory burden, even for lenders that haven’t come within a country mile of a subprime loan, that’s because it is. As the Fed concluded in its regulatory flexibility analysis, the new mortgage provisions will have a “significant economic impact” on a substantial number of small entities — a category that includes depository institutions with up to $165 million in assets, and nonbank mortgage lenders, mortgage brokers, and loan servicers with revenues up to $6.5 million.

Bernanke: Level Playing Field and Vigorous Enforcement

Before the Fed signed off on the final rules, FRB Chairman Ben Bernanke emphasized that the new rules will apply to all mortgage lenders and “level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers.” Bernanke also said the Fed will work collaboratively with fellow regulators, both state and federal, to see that the rules are consistently applied and vigorously enforced.

That level playing field Bernanke alluded to was a key element in winning the banking industry’s support of the revisions. The American Bankers Association said it “strongly supports the rules’ application of a uniform standard to all financial firms that make mortgage loans, including non-federally regulated lenders. ABA believes that its members are already adhering to the loan origination, underwriting and servicing standards that protect mortgage customers and the bank.”

For its part, the Independent Community Bankers of America (ICBA) welcomed the revisions and said it “believes that the rule contains a number of elements — including income verification requirements, prohibitions on coercion of appraisers, better controls on prepayment penalties, and new advertising rules — that will address unfair, abusive or deceptive practices undertaken by segments of the residential mortgage lending industry that have contributed to the most serious housing sector problems this nation has experienced in decades.” (italics added)

FRB Goals

The Fed breaks down the goals of the Reg. Z amendments into three areas:

• Protect consumers in the mortgage market from unfair, abusive, or deceptive lending and servicing practices while preserving responsible lending and sustainable homeownership.
• Ensure that advertisements for mortgage loans provide accurate and balanced information and do not contain misleading or deceptive representations.
• Provide consumers transaction-specific disclosures early enough to use while shopping for mortgage loans.

Summary of New Requirements

The Reg. Z revision includes seven new restrictions or requirements for mortgage lending and servicing intended to protect consumers against unfairness, deception, and abuse while preserving responsible lending and sustainable homeownership. Note: The Fed adopted these provisions under Section 129(l)(2) of the Truth in Lending Act (15 USC 1639(l)(2)), which authorizes the Board to prohibit unfair or deceptive practices in connection with mortgage loans, as well as to prohibit abusive practices or practices not in the interest of the borrower in connection with refinancings.

Protections Covering Higher-Priced Mortgage Loans

Four of the new protections apply to consumers receiving “higher-priced mortgage loans” (HPML), which are defined in Section 226.35(a) as consumer-purpose, closed-end loans secured by a consumer’s principal dwelling that have an annual percentage rate (APR) that exceeds the average prime offer rates for a comparable transaction published by the Board by at least 1.5 percentage points for first-lien loans, or 3.5 percentage points for subordinate-lien loans.

The new HPML requirements in Section 226.35(b):

• Prohibit creditors from extending credit without regard to a consumer’s ability to repay from sources other than the collateral itself;
• Require creditors to verify income and assets they rely on to determine repayment ability;
• Prohibit prepayment penalties except under certain conditions; and
• Require creditors to establish escrow accounts for taxes and insurance, but permit creditors to allow borrowers to cancel escrows 12 months after loan consummation.

Note on coverage. As noted above, the protections of Section 226.35 apply to first-lien, as well as subordinate-lien, closed-end mortgage loans secured by the consumer’s principal dwelling. Thus, HPMLs include home purchase loans, refinancings, and home equity loans. HPMLs do not include loans that do not have primarily a consumer purpose (such as loans for real estate investment), HELOCs (home equity lines of credit), reverse mortgages, construction-only loans, and bridge loans. Under the final rule, nontraditional mortgage loans, which permit non-amortizing payments or negatively amortizing payments, are covered by Section 226.35 if their APRs exceed the threshold.

HELOC exemption. The Fed exempted HELOCs largely for two reasons. First, most originators of HELOCs hold them in portfolio rather than sell them, which aligns these originators’ interests in loan performance more closely with their borrowers’ interests. Second, unlike originations of higher-priced closed-end mortgage loans, HELOC originations are concentrated in the banking and thrift industries, where the federal banking agencies can use supervisory authorities to protect borrowers. Because creditors may seek to evade limitations on closed-end transactions by structuring such transactions as open-end transactions, the Reg. Z revisions at Section 226.35(b)(5) prohibit structuring a closed-end loan as an open-end transaction for the purpose of evading the new rules in Section 226.35.

HOEPA loans distinguished. The Home Ownership and Equity Protection Act (HOEPA) imposes substantive restrictions, and special pre-closing disclosures, on particularly high-cost refinancings and home equity loans. These “HOEPA loans” include closed-end, non-purchase money mortgages secured by a consumer’s principal dwelling (other than a reverse mortgage) where either: (a) the APR at consummation will exceed the yield on Treasury securities of comparable maturity by more than 8 percentage points for first-lien loans, or 10 percentage points for subordinate-lien loans; or (b) the total points and fees payable by the consumer at or before closing exceed the greater of 8 percent of the total loan amount, or $547 for 2007 (adjusted annually). HOEPA restrictions include limitations on prepayment penalties and “balloon payment” loans, and prohibitions of negative amortization and of engaging in a pattern or practice of lending based on the collateral without regard to repayment ability.

Protections Covering Closed-End Loans Secured by Consumer’s Principal Dwelling

For all consumer–purpose, closed-end loans secured by a consumer’s principal dwelling, the Reg. Z amendments:

• Prohibit any creditor or mortgage broker from coercing, influencing, or otherwise encouraging an appraiser to provide a misstated appraisal in connection with a mortgage loan; and
• Prohibit mortgage servicers from “pyramiding” late fees, failing to credit payments as of the date of receipt, or failing to provide loan payoff statements upon request within a reasonable time.
• Require creditors to provide a good faith estimate of the loan costs, including a schedule of payments, before consummation or within three business days after the creditor receives the consumer’s written application, whichever is earlier, for any mortgage loan secured by a consumer’s principal dwelling, such as a home improvement loan or a loan to refinance an existing loan (Sections 226.18 and 226.19(a)). This provision implements the third of the Fed’s goals, to provide consumers transaction-specific disclosures early enough to use while shopping for a mortgage loan. Note that subsections 226.19(a)(ii) and (iii) add the following:

(ii) Imposition of fees. Except as provided in paragraph (a)(1)(iii) of this section, neither a creditor nor any other person may impose a fee on the consumer in connection with the consumer’s application for a mortgage transaction subject to paragraph (a)(1)(i) of this section before the consumer has received the disclosures required by paragraph (a)(1)(i) of this section. If the disclosures are mailed to the consumer, the consumer is considered to have received them three business days after they are mailed.

(iii) Exception to fee restriction. A creditor or other person may impose a fee for obtaining the consumer’s credit history before the consumer has received the disclosures required by paragraph (a)(1)(i) of this section, provided the fee is bona fide and reasonable in amount.

Also note that the Fed has acknowledged that these disclosures need to be updated to reflect the increased complexity of mortgage products. It began testing potential revisions to current TILA mortgage disclosures earlier this year and expects that this testing will identify potential improvements for the Board to propose for public comment in a separate rulemaking.

Protections for All (Open- and Closed-End) Mortgages (Revisions to Improve Mortgage Advertising)

To implement the goal of ensuring that mortgage loan advertisements provide accurate and balanced information and do not contain misleading or deceptive representations, the Reg. Z amendments:

• Require that advertisements for both open-end and closed-end mortgage loans provide accurate and balanced information, in a clear and conspicuous manner, about rates, monthly payments, and other loan features.

The amendments also include rules to prohibit the following seven deceptive or misleading practices in advertisements for closed-end mortgage loans:

• Advertisements that state “fixed” rates or payments for loans whose rates or payments can vary without adequately disclosing that the interest rate or payment amounts are “fixed” only for a limited period of time, rather than for the full term of the loan;
• Advertisements that compare an actual or hypothetical rate or payment obligation to the rates or payments that would apply if the consumer obtains the advertised product unless the advertisement states the rates or payments that will apply over the full term of the loan;
• Advertisements that characterize the products offered as “government loan programs,” “government-supported loans,” or otherwise endorsed or sponsored by a federal or state government entity even though the advertised products are not government-supported or -sponsored loans;
• Advertisements, such as solicitation letters, that display the name of the consumer’s current mortgage lender, unless the advertisement also prominently discloses that the advertisement is from a mortgage lender not affiliated with the consumer’s current lender;
• Advertisements that make claims of debt elimination if the product advertised would merely replace one debt obligation with another;
• Advertisements that create a false impression that the mortgage broker or lender is a “counselor” for the consumer; and
• Foreign-language advertisements in which certain information, such as a low introductory “teaser” rate, is provided in a foreign language, while required disclosures are provided only in English.

Changes Made to the Proposal

The final rule included several significant changes to the proposal the Fed published last December.

Higher-Priced Mortgage Loans

Under the Fed’s December 2007 proposal, higher-priced mortgage loans would be defined as consumer credit transactions secured by the consumer’s principal dwelling for which the APR on the loan exceeds the yield on comparable Treasury securities by at least three percentage points for first-lien loans, or five percentage points for subordinate-lien loans. This proposed definition included home purchase loans, refinancings, and home equity loans; it excluded home equity lines of credit (HELOCs). The proposal also provided exclusions for reverse mortgages, construction-only loans, and bridge loans.

In response to comments, the final rule adopted by the Fed includes a “higher-priced mortgage loan” definition (see Section 226.35(a)) that is “substantially similar to that proposed but different in the particulars.” The final definition, like the proposed definition, sets a threshold above a measure of market rates to distinguish higher-priced mortgage loans from the rest of the mortgage market. However, instead of yields on Treasury securities, the definition uses average offer rates for the lowest-risk prime mortgages, termed “average prime offer rates,” which the Fed will obtain or derive from the Freddie Mac Primary Mortgage Market Survey®. Under the final rule, the threshold is set at 1.5 percentage points above the average prime offer rate on a comparable transaction for first-lien loans, and 3.5 percentage points for subordinate-lien loans. The exclusions from “higher-priced mortgage loans” for HELOCs and certain other types of transactions are adopted as proposed. As discussed above, loans that fall within the definition of “higher-priced mortgage loans” are subject to the restrictions and requirements in Section 226.35(b) concerning repayment ability, income verification, prepayment penalties, escrows, and evasion, except that only first-lien higher-priced mortgage loans are subject to the escrow requirement.

Pattern or Practice

TILA Section 129(h) (15 USC 1639(h)) and Regulation Z Section 226.34(a)(4) prohibit a pattern or practice of extending credit subject to Section 226.32 (HOEPA loans) based on consumers’ collateral without regard to their repayment ability. The Fed proposed revising the prohibition on disregarding repayment ability and extend it, through proposed Section 226.35(b)(1), to higher-priced mortgage loans as defined in Section 226.35(a). The proposed revisions included adding several rebuttable presumptions of violations for a pattern or practice of failing to follow certain underwriting procedures, and a safe harbor.

The final rule differs from the proposed rule in that it removes the proposed “pattern or practice” phrase and adds a presumption of compliance when certain underwriting procedures are followed. The Fed’s Federal Register discussion provided the following explanation of this change:

The final rule removes “pattern or practice” and therefore prohibits any HOEPA loan or higher-priced mortgage loan from being extended based on the collateral without regard to repayment ability. Verifying repayment ability has been made a requirement rather than a presumptive requirement. The proposal provided that a failure to follow any one of several specified underwriting procedures would create a presumption of a violation. In the final rule, those procedures, with modifications, have instead been incorporated into a presumption of compliance which replaces the proposed safe harbor.

As FRB Governor Randall Kroszner summed up this change, “The final rule establishes a lender’s responsibility to assess a borrower’s ability to repay on every loan originated, effectively giving wronged consumers a private right of action without demonstrating that their case was part of a broader pattern.”

Prepayment Penalties

The Fed proposed to apply to higher-priced mortgage loans the prepayment penalty restrictions that TILA Section 129(c) applies to HOEPA loans. (HOEPA-covered loans may only have a prepayment penalty if: the penalty period does not exceed five years from loan consummation; the penalty does not apply if there is a refinancing by the same creditor or its affiliate; the borrower’s debt-to-income (DTI) ratio at consummation does not exceed 50 percent; and the penalty is not prohibited under other applicable law.) In addition, the Fed proposed, for both HOEPA loans and higher-priced mortgage loans, to require that the penalty period expire at least sixty days before the first date, if any, on which the periodic payment amount may increase under the terms of the loan.

The final rule substantially revises the rules for prepayment penalties. As the Fed explained,

There are two components to the final rule. First, the final rule prohibits a prepayment penalty with a higher-priced mortgage loan or HOEPA loan if payments can change during the four-year period following consummation. Second, for all other higher-priced mortgage loans and HOEPA loans — loans whose payments may not change for four years after consummation — the final rule limits prepayment penalty periods to a maximum of two years following consummation, rather than five years as proposed. In addition, the final rule applies to this second category of loans two requirements for HOEPA loans that the Board proposed to apply to higher-priced mortgage loans: the penalty must be permitted by other applicable law, and it must not apply in the case of a refinancing by the same creditor or its affiliate.

The Fed decided to not adopt the proposed rule requiring a prepayment penalty provision to expire at least sixty days before the first date on which a periodic payment amount may increase under the loan’s terms. The Fed concluded that the “final rule makes such a rule unnecessary. Under the final rule, if the consumer’s payment may change during the first four years following consummation, a prepayment penalty is prohibited outright. If the payment is fixed for four years, the final rule limits a prepayment penalty period to two years, leaving the consumer a penalty-free window of at least two years before the payment may increase.”

In addition, the Fed decided to not adopt the proposed rule prohibiting a prepayment penalty where a consumer’s verified DTI ratio, as of consummation, exceeds 50 percent. Note, however, that this restriction will continue to apply to HOEPA loans, as provided by the statute.

Footnote 48. As the Fed noted in its discussion, under Regulation Z, 12 CFR 226.23(a)(3), footnote 48, a HOEPA loan having a prepayment penalty that does not conform to the requirements of Section 226.32(d)(7) is a mortgage containing a provision prohibited by TILA Section 129, 15 USC 1639, and therefore is subject to the three-year right of the consumer to rescind. The Reg. Z revision at Section 226.35(b)(2) applies restrictions on prepayment penalties for higher-priced mortgage loans that are substantially the same as the restrictions that subsections 226.32(d)(6) and (7) apply on prepayment penalties for HOEPA loans. The Fed therefore revised footnote 48 to clarify that a higher-priced mortgage loan (whether or not it is a HOEPA loan) having a prepayment penalty that does not conform to the requirements of Section 226.35(b)(2) also is subject to a three-year right of rescission. However, that right of rescission does not extend to home purchase loans, construction loans, or certain refinancings with the same creditor.

Creditor Payments to Mortgage Brokers

As adopted in the final rule, Section 226.35, the part of the Reg. Z revision that applies new protections to mortgage loans generally, though only if secured by the consumer’s principal dwelling, no longer includes the proposal to require servicers to deliver a fee schedule to consumers upon request, nor the proposal to prohibit creditors from paying a mortgage broker more than the consumer had agreed in advance that the broker would receive.

In December 2007, the Fed proposed to prohibit a creditor from paying a mortgage broker in connection with a covered transaction more than the consumer agreed in writing, in advance, that the broker would receive. Under the proposal, the broker would also disclose that the consumer ultimately would bear the cost of the entire compensation even if the creditor paid any part of it directly; and that a creditor’s payment to a broker could influence the broker to offer the consumer loan terms or products that would not be in the consumer’s interest or the most favorable the consumer could obtain. Creditors could demonstrate compliance with the proposed rule by obtaining a copy of the broker-consumer agreement and ensuring their payment to the broker does not exceed the amount stated in the agreement. Creditors would have two alternative means to comply, one where the creditor complies with a state law that provides consumers equivalent protection, and one where a creditor can demonstrate that its payments to a mortgage broker are not determined by reference to the transaction’s interest rate. The proposed commentary also provided model language for the agreement and disclosures.

Since issuing the proposal, the Fed has found that consumers who participated in one-on-one interviews about the proposed agreement and disclosures often erroneously concluded that brokers are categorically more expensive than creditors or that brokers would serve their best interests notwithstanding the conflict resulting from the relationship between interest rates and brokers’ compensation. Because of these test results, the Fed decided to withdraw the proposal.

The Fed emphasized, however, that it will continue to explore available options to address unfair acts or practices associated with originator compensation arrangements such as yield spread premiums. The Fed said it is particularly concerned with arrangements that cause the incentives of originators to conflict with those of consumers, where the incentives are not transparent to consumers who rely on the originators for advice.

Expanded Coverage

The Reg. Z revisions expand on the guidance the federal agencies issued on nontraditional mortgages, which allow the borrower to defer repayment of principal and sometimes interest (Interagency Guidance on Nontraditional Mortgage Product Risks, 71 FR 58609, Oct. 4, 2006) and their guidance on subprime mortgages (Statement on Subprime Mortgage Lending, 72 FR 37569, Jul. 10, 2007), which advised lenders to (1) use the fully-indexed rate and fully-amortizing payment when qualifying borrowers for loans with adjustable rates and potentially non-amortizing payments; (2) limit stated income and reduced documentation loans to cases where mitigating factors clearly minimize the need for full documentation of income; (3) provide that prepayment penalty clauses expire a reasonable period before reset, typically at least 60 days. The Conference of State Bank Supervisors (CSBS) and American Association of Residential Mortgage Regulators (AARMR) issued parallel statements for state supervisors to use with state-supervised entities, and many states have adopted the statements. The new Reg. Z protections apply uniformly to all creditors and are enforceable by federal and state supervisory and enforcement agencies and in many cases by borrowers.

Authority (Beyond HOEPA)

The substantive limitations in new Sections 226.35 (Prohibited Acts or Practices in Connection with Higher Priced-Mortgage Loans) and 226.36 (Prohibited Acts or Practices in Connection with Credit Secured by a Consumer’s Principal Dwelling) and corresponding revisions to Sections 226.32 and 226.34, as well as restrictions on misleading and deceptive advertisements, are based on the Fed’s broad authority under TILA Section 129(l)(2) (15 USC 1639(l)(2)) to prohibit acts or practices in connection with (1) mortgage loans that the Board finds to be unfair, deceptive, or designed to evade the provisions of HOEPA, and (2) refinancing of mortgage loans the Fed finds to be associated with abusive lending practices or that are otherwise not in the interest of the borrower.

As the Fed pointed out in its preamble to the new provisions, the authority under Section 129(l)(2) reaches mortgage loans with rates and fees that do not meet HOEPA’s rate or fee trigger in TILA Section 103(aa) (15 USC 1602(aa)) as well as types of mortgage loans not covered under that section, such as home purchase loans. This broad Section 129(l)(2) authority allows the Fed to strengthen the HOEPA loan protections in Section 129(c)-(i), which sets minimum standards for HOEPA loans, when the Fed finds practices unfair, deceptive, or abusive. Section 129(l)(2) also authorizes the Fed to apply these strengthened standards to loans that are not HOEPA loans.

The Fed’s Federal Register discussion also highlighted the following observations about the authority underlying the Reg. Z revisions:

• While HOEPA’s statutory restrictions apply only to creditors and only to loan terms or lending practices, Section 129(l)(2) is not limited to acts or practices by creditors, nor is it limited to loan terms or lending practices.
• Section 129(l)(2) authorizes protections against unfair or deceptive practices when such practices are “in connection with mortgage loans,” and it authorizes protections against abusive practices “in connection with refinancing of mortgage loans.”
• Other aspects of the Reg. Z revisions, including the requirement for providing early disclosures for residential mortgage transactions as well as many of the revisions for improving advertising disclosures, are based on the Fed’s general authority under TILA Section 105(a) (15 USC 1604(a)) to prescribe regulations necessary or proper to carry out TILA’s purposes.

Unfair or Deceptive Acts of Practices (UDAPs)

As noted above (see “Authority (Beyond HOEPA)”), many of the Reg. Z revisions are based on the Fed’s broad authority under TILA Section 129(l)(2) to prohibit acts or practices in connection with (1) mortgage loans that the Board finds to be unfair, deceptive, or designed to evade the provisions of HOEPA, and (2) refinancing of mortgage loans the Fed finds to be associated with abusive lending practices or that are otherwise not in the interest of the borrower. In adopting the new Reg. Z revisions, the Fed considered the standards currently applied to the FTC Act’s prohibition against UDAPs, as well as the standards applied to similar state statutes. The Fed’s discussion of the Reg. Z revision included the following observations relevant to the regulatory response to UDAPs:

• Although HOEPA does not set forth a standard for what is unfair or deceptive, its Conference Report (25 H.R. Rep. 103-652, at 162 (1994)) indicates the Fed, in determining whether a practice in connection with mortgage loans is unfair or deceptive, should look to the standards employed for interpreting state unfair and deceptive trade practices statutes and the Federal Trade Commission Act (FTC Act), Section 5(a) (15 USC 45(a)).
• What’s unfair? Under the FTC Act, an act or practice is unfair when it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. In determining whether an act or practice is unfair, the FTC is permitted to consider established public policies, but public policy considerations may not serve as the primary basis for an unfairness determination (15 USC 45(n)). The FTC has interpreted these standards to mean that consumer injury is the central focus of any inquiry regarding unfairness (Statement of Basis and Purpose and Regulatory Analysis, Credit Practices Rule, 42 FR 7740, 7743, March 1, 1984. Consumer injury may be substantial if it imposes a small harm on a large number of consumers, or if it raises a significant risk of concrete harm. The FTC looks to whether an act or practice is injurious in its net effects. It has observed that an unfair act or practice will almost always reflect a market failure or market imperfection that prevents the forces of supply and demand from maximizing benefits and minimizing costs. It also looks to whether consumers’ free market decisions are unjustifiably hindered.
• What’s deceptive? According to the FTC, a determination that an act or practice is deceptive has three elements. First, there must be a representation, omission or practice that is likely to mislead the consumer. Second, the act or practice is examined from the perspective of a consumer acting reasonably in the circumstances. Third, the representation, omission, or practice must be material, i.e., it must be likely to affect the consumer’s conduct or decision with regard to a product or service.
• Many states have adopted statutes prohibiting UDAPs. These statutes employ a variety of standards, many of them different from the standards currently applied to the FTC Act. Some states follow an unfairness standard formerly used by the FTC under which an act or practice is unfair where it offends public policy; or is immoral, unethical, oppressive, or unscrupulous; and causes substantial injury to consumers.

Effective Dates

The Reg. Z revisions are generally effective on October 1, 2009. Note, however, that the requirement to establish an escrow account for taxes and insurance (see Section 226.35(b)(3)) for higher-priced mortgage loans is effective on April 1, 2010; for higher-priced mortgage loans secured by manufactured housing, on October 1, 2010.

HMDA Proposal

In conjunction with the final rule adopting the Reg. Z revisions, the Fed issued a proposal to amend Regulation C (Home Mortgage Disclosure) to revise the rules for reporting price information on higher-priced loans. Regulation C currently requires lenders to report the spread between the annual percentage rate (APR) on a loan and the yield on Treasury securities of comparable maturity if the spread meets or exceeds 3.0 percentage points for a first-lien loan (or 5.0 percentage points for a subordinate-lien loan).

Under the proposal, a lender would report the spread between the loan’s APR and a survey-based estimate of rates currently offered on prime mortgage loans of a comparable type if the spread meets or exceeds 1.5 percentage points for a first-lien loan (or 3.5 percentage points for a subordinate-lien loan).

The Fed contemplates that any final amendments to Regulation C under this rulemaking would take effect for data collection beginning January 1, 2009.