Proposed Illustrations of Consumer Information for Subprime
AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve System (Board); Federal
Deposit Insurance Corporation (FDIC); Office of Thrift Supervision,
Treasury (OTS); and National Credit Union Administration (NCUA).
ACTION: Notice of proposed illustrations of consumer information with
request for comment.
SUMMARY: The OCC, Board, FDIC, OTS, and NCUA (the Agencies), request
comment on these Proposed Illustrations of Consumer Information for
Subprime Mortgage Lending. The illustrations are intended to assist
institutions in providing consumer information as discussed in the
consumer protection portion of the Agencies' Statement on Subprime
Mortgage Lending (Subprime Statement). The illustrations are not
intended as model forms, and institutions will not be required to use
them. Rather, they are provided to respond to the requests of
commenters that the Agencies provide uniform disclosures for, or
illustrations of, the type of consumer information contemplated by the
DATES: Comments must be submitted on or before October 15, 2007.
ADDRESSES: The Agencies will jointly review all of the comments
submitted. Therefore, interested parties may send comments to any of
the Agencies and need not send comments (or copies) to all of the
Agencies. Please consider submitting your comments by e-mail or fax,
since paper mail in the Washington area and at the Agencies is subject
to delay. Interested parties are invited to submit comments to:
OCC: You may submit comments by any of the following methods: E-mail:
firstname.lastname@example.org. Fax: (202) 874-4448. Mail: Office of the Comptroller of the Currency, 250 E
Street, SW., Mail Stop 1-5, Washington, DC 20219. Hand Delivery/Courier: 250 E Street, SW., Attn: Public
Information Room, Mail Stop 1-5, Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2007-0013'' in your comment. In general, OCC will enter
all comments received into the docket without change, including any
business or personal information that you provide such as name and
address information, e-mail addresses, or phone numbers. Comments,
including attachments and other supporting materials, received are part
of the public record and subject to public disclosure. Do not enclose
any information in your comment or supporting materials that you
consider confidential or inappropriate for public disclosure.
You may review comments and other related materials by any of
following methods: Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC's Public Information Room, 250 E
Street, SW., Washington, DC. For security reasons, the OCC requires
that visitors make an appointment to inspect comments. You may do so by
calling (202) 874-5043. Upon arrival, visitors will be required to
present valid government-issued photo identification and submit to
security screening in order to inspect and photocopy comments.
Docket: You may also view or request available background
and project summaries using the methods described above.
Board: You may submit comments, identified by Docket No.
by any of the following methods: Agency Web Site:
http://www.federalreserve.gov Follow the instructions
Follow the instructions for submitting comments. E-mail:
email@example.com. Include the
docket number in the subject line of the message. Fax: 202/452-3819 or 202/452-3102. Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551. All public comments are available from the
Board's Web site at
as submitted, unless modified for technical reasons.
Accordingly, your comments will not be edited to remove any identifying
or contact information. Public comments may also be viewed in
electronic or paper form in Room MP-500 of the Board's Martin Building
(20th and C Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FDIC: You may submit comments by any of the following
methods: Agency Web Site:
Follow instructions for submitting comments on the Agency Web
Site. E-mail: Comments@FDIC.gov.
Illustrations'' in the subject line of the message. Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429. Hand Delivery/Courier: Guard station at the rear of the
550 17th Street Building (located on F Street) on business days between
7 a.m. and 5 p.m. (EST). Federal eRulemaking Portal:
Follow the instructions for submitting comments.
Public Inspection: All comments received will be posted
http://www.fdic.gov/regulations/laws/federal including any
personal information provided. Comments may be inspected and
photocopied in the FDIC Public Information Center, 3501 North Fairfax
Drive, Room E-1002, Arlington, VA 22226, between 9 a.m. and 5 p.m.
(EST) on business days. Paper copies of public comments may be ordered
from the Public Information Center by telephone at (877) 275-3342 or
OTS: You may submit comments, identified by ID OTS-2007-0016,
any of the following methods: E-mail:
firstname.lastname@example.org. Please include ID
OTS-2007-0016 in the subject line of the message and include your name
and telephone number in the message. Fax: (202) 906-6518. Mail: Regulation Comments, Chief Counsel's Office, Office
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552,
Attention: ID OTS-2007-0016. Hand Delivery/Courier: Guard's Desk, East Lobby Entrance,
Street, NW., from 9 a.m. to 4 p.m. on business days. Address envelope
as follows: Attention: Regulation Comments, Chief Counsel's Office,
Attention: ID OTS-2007-0016.
Instructions: All submissions received must include the
and docket number for this proposed Guidance. All comments received
will be posted without change to the OTS Internet Site at
, including any
In addition, you may inspect comments at the Public Reading
1700 G Street, NW., by appointment. To make an appointment for access,
call (202) 906-5922, send an e-mail to
send a facsimile transmission to (202) 906-7755. (Prior notice
identifying the materials you will be requesting will assist us in
serving you.) We schedule appointments on business days between 10 a.m.
and 4 p.m. In most cases, appointments will be available the next
business day following the date we receive a request.
NCUA: You may submit comments by any of the following
methods: Federal eRulemaking Portal:
instructions for submitting comments. E-mail: Address to
email@example.com. Include ``[Your
name] Comments on'' in the e-mail subject line. Fax: (703) 518-6319. Use the subject line described above
for e-mail. Mail: Address to Mary Rupp, Secretary of the Board,
National Credit Union Administration, 1775 Duke Street, Alexandria,
Virginia 22314-3428. Hand Delivery/Courier: Same as mail address.
FOR FURTHER INFORMATION CONTACT:
OCC: Michael S. Bylsma, Director, Stephen Van Meter,
Director, or Kathryn D. Ray, Special Counsel, Community and Consumer
Law Division, (202) 874-5750.
Board: Kathleen C. Ryan, Counsel, or Jamie Z. Goodson,
Division of Consumer and Community Affairs, (202) 452-3667; or Kara
Handzlik, Attorney, Legal Division, (202) 452-3852. For users of
Telecommunications Device for the Deaf (``TDD'') only, contact (202)
FDIC: Victoria M. Pawelski, Policy Analyst, (202) 898-3571,
N. Marshall, Acting Chief, CRA/Fair Lending Section, (202) 898-3912,
Compliance Policy & Exam Support Branch, Division of Supervision and
Consumer Protection; or Richard B. Foley, Counsel, Legal Division,
OTS: Montrice G. Yakimov, Assistant Managing Director, (202)
6173 or Glenn Gimble, Senior Project Manager, (202) 906-7158,
Compliance and Consumer Protection Division.
NCUA: Cory W. Phariss, Program Officer, Examination and
On March 8, 2007, the Agencies published for comment a
Statement on Subprime Mortgage Lending, 72 FR 10533 (Mar. 8, 2007)
(proposed statement). The consumer protection portion of the proposed
statement set forth recommended practices to ensure that consumers have
clear and balanced information about the relative benefits and risks of
certain adjustable rate mortgage (ARM) products. The proposed statement
specifically indicated that consumers should be informed about issues
relating to potential payment shock--i.e., significant increases in
monthly payments that may occur when the interest rate adjusts to a
fully-indexed rate--as well as other features that may be present in
these loans, including prepayment penalties, balloon payments, pricing
premiums for reduced documentation loans, and the borrower's
responsibility for real estate taxes and insurance if not escrowed.
The Agencies revised the proposed statement based on the
received, and recently published the final Statement on Subprime
Mortgage Lending in the Federal Register (Subprime Statement). 72 FR
37569 (July 10, 2007). Like the Interagency Guidance on Nontraditional
Mortgage Product Risks, 71 FR 58609 (Oct. 4, 2006), the Subprime
Statement is applicable to all banks and their subsidiaries, bank
holding companies and their nonbank subsidiaries, savings associations
and their subsidiaries, savings and loan holding companies and their
subsidiaries, and credit unions.
The Subprime Statement, including the consumer protection
provides recommended practices to assist institutions in addressing
particular risks and consumer protection concerns raised by certain ARM
products typically offered to subprime borrowers. Some industry group
commenters on the proposal asked the Agencies to provide uniform
disclosures for these products, or to publish illustrations of the
consumer information contemplated by the Subprime Statement similar to
those previously proposed by the Agencies in connection with
nontraditional mortgage products. 71 FR 58609 (Oct. 4, 2006). The
Agencies recently published final Illustrations of Consumer Information
for Nontraditional Mortgage Products. 72 FR 31825 (June 8, 2007). As
was done with those illustrations, the Agencies believe that it would
be desirable to seek public comment before issuing these illustrations
in order to determine the types of illustrations that would be most
useful to consumers and institutions.
II. Proposed Illustrations
The Agencies believe that illustrations of consumer
be useful to institutions as they implement the consumer information
recommendations of the Subprime Statement. The Agencies appreciate that
some institutions, including community banks, may prefer not to incur
the costs and other burdens of developing their own consumer
information documents to address the issues raised in the Subprime
Statement, and could benefit from illustrations like those below.
Use of the proposed illustrations is entirely voluntary.
Accordingly, there is no Agency requirement or expectation that
institutions must use the illustrations in their communications with
Institutions seeking to follow the recommendations set forth
Subprime Statement could, at their option, elect to: Use the illustrations; Provide information based on the illustrations, but
expand, abbreviate, or otherwise tailor any information in the
illustrations as appropriate to reflect, for example:
[cir] the institution's product offerings, such as by
information about loan products and loan terms not offered by the
institution and by revising the illustrations to reflect specific terms
currently offered by the institution;
[cir] the consumer's particular loan requirements or
[cir] current market conditions, such as by changing the loan
amounts, interest rates, and corresponding payment
amounts to reflect current local market circumstances; and
[cir] other material information relating to the loan
with the Subprime Statement; or Provide the information described in the Subprime
Statement, as appropriate, in an alternate format.
Whether or not an institution chooses to use the proposed
illustrations, the Subprime Statement provides that communications with
consumers, including advertisements, oral statements, and promotional
materials, should provide clear and balanced information about the
relative benefits and risks of certain ARM products. Further, product
descriptions and advertisements are to provide clear, detailed
information about the costs, terms, features, and risks of the loan to
the borrower. In particular, the Subprime Statement indicates that
``[i]nformation provided to consumers should clearly explain the risk
of payment shock and the ramifications of prepayment penalties, balloon
payments, and the lack of escrow for taxes and insurance, as
necessary.'' \1\ Consumers also should be informed about any pricing
premium associated with a stated income or reduced documentation loan
\1\ 72 FR at 37574.
This recommended information could be presented as shown in
illustrations set forth below. Illustration 1 is a narrative
explanation of some of the key features of certain ARM loans that are
identified in the Subprime Statement, including payment shock,
responsibility for taxes and insurance, prepayment penalties, balloon
payments, and increased costs associated with stated income or reduced
documentation loans. The Subprime Statement indicates that information
provided to consumers should clearly explain these features and their
ramifications in a timely manner. Illustration 1 seeks to provide both
the general and loan-specific information contemplated in the Subprime
Statement in a format that could be used by creditors seeking to
implement the consumer protection recommendations in the guidance.
Creditors that use Illustration 1 should, of course, delete or modify
the prepayment penalty or other language in the illustration in order
to reflect the actual terms being offered. Illustration 1 is also
intended to enable creditors to implement the Subprime Statement with
Illustration 2 is a chart with numerical examples that is
to show the potential consequences of payment shock in a concrete,
readily understandable manner for a loan structured with a discounted
interest rate for the first two years. Illustration 2 provides
information on payments for an ARM loan, assuming caps on annual and
aggregate interest rate increases based on typical terms in the
market,\2\ and information for a comparable fixed rate mortgage.
\2\ The ARM loan in Illustration 2 assumes a start rate of 7
percent, an initial index of 5.5 percent and a margin of 6 percent.
It assumes annual payment adjustments after the initial discount
period, a 3 percent cap on the interest rate increase at the end of
year 2, and a 2 percent annual payment adjustment cap on interest
rate increases thereafter, with a lifetime payment adjustment cap of
6 percent (or a maximum rate of 13 percent). It also assumes no
change in the index through year 4.
Creditors could satisfy the consumer information
simply photocopying the illustrations (after making any necessary
deletions or modifications) and distributing them to consumers in a
timely manner. In addition, once the Agencies adopt illustrations as
final, to assist institutions that wish to use them, the Agencies will
post them on their respective Web sites in a form that can be
downloaded, modified as appropriate, and printed for easy reproduction.
III. Request for Comment
The Agencies request comment on all aspects of the proposed
illustrations. We encourage specific comment on whether the
illustrations, as proposed, would be useful to institutions, including
community banks, seeking to implement the ``Consumer Protection
Principles'' portion of the Subprime Statement, or whether changes
should be made to them. We also encourage specific comment on the
following: whether the illustrations, as proposed, would be useful in
promoting consumer understanding of the risks and material terms of
certain ARM products, as described in the Subprime Statement, or
whether changes should be made to them. We also seek comment on whether
the information in the proposed illustrations is set forth in a clear
manner and format; whether these illustrations or a modified form
should be adopted by the Agencies; and whether there are additional
illustrations relating to certain ARM products that would be useful to
consumers and institutions.
The Agencies are aware that individual institutions and
associations have developed and are likely to continue developing
documents that can be effective in conveying critical information
discussed in the ``Consumer Protection Principles'' portion of the
Subprime Statement. These illustrations are not intended to dissuade
institutions and associations from developing their own means of
delivering important information about these products to consumers. In
this regard, the Agencies note that they have not conducted any
consumer testing to assess the effectiveness of any existing documents
currently used by institutions, or of the proposed illustrations set
forth below. Commenters are specifically invited to provide information
on any consumer testing they have conducted in connection with
Dated: August 2, 2007.
John C. Dugan,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, August 2, 2007.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington, DC the 31st day of July, 2007.
By order of the Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
Dated: August 7, 2007.
By the Office of Thrift Supervision.
John M. Reich,