FTC Approves Filing of Staff Comment to the Board of Governors of the Federal Reserve System Regarding Proposed Rule to Restrict Certain Mortgage Practices Under TILA

The Federal Trade Commission has approved the filing of a staff comment to the Board of Governors of the Federal Reserve System regarding the Federal Reserve Board’s proposed rule to restrict certain mortgage practices under the Truth in Lending Act and the Home Ownership Equity Protection Act. In the comment, the FTC staff supports the Board’s goals of protecting consumers in the mortgage market from unfair, abusive, or deceptive lending and servicing practices while preserving responsible lending and sustainable home ownership; ensuring that advertisements for mortgage loans are accurate and not misleading; and providing consumers with transaction-specific disclosures early enough to use while shopping.

The staff comment states that, while the proposed restrictions on a new category of higher-priced mortgage loans appear to strike a reasonable balance, staff encourages the Board to continue to weigh their potential benefits and costs, and to consider any empirical evidence submitted in response to its proposed rulemaking to confirm that this balance is reasonable.

The comment concludes that the proposed restrictions prohibiting lenders or brokers from coercing an appraiser to inflate the value of a property are reasonable and will address a documented consumer harm without imposing undue costs on consumers.

Although supportive of the rule’s restrictions on certain practices by mortgage loan servicers, FTC staff has concerns that the proposed requirement to provide a current schedule of servicing fees and charges may not adequately protect consumers. Providing a schedule of servicing fees and charges, as the Board has proposed, would provide consumers with some information, but would not ensure that consumers get adequate notice of each fee imposed on their accounts. Thus, the FTC staff suggests that the Board consider the costs and benefits of requiring servicers to itemize each new fee assessed during a month or other reasonable period of time.

FTC staff believes consumers are often deceived by the advertising practices that the proposed rule would prohibit and, therefore, supports the rule’s proposed restrictions on them. Staff believes it is critical that the Board clarify its determination that these practices are unfair for purposes of the Home Ownership Equity Protection Act, but they do not limit the ability of the FTC to determine that other acts and practices are unfair or deceptive under the FTC Act.

The FTC staff supports the proposed rule’s requirement that good faith estimates of Truth in Lending Act disclosures be delivered or placed in the mail not later than three business days after the creditor receives the consumer’s written application for a mortgage refinance loan as being beneficial to consumers. Believing that consumers also would benefit substantially from improvements in the content and presentation of the disclosures, staff also recommends that the Board and the Department of Housing and Urban Development consider undertaking a more comprehensive effort to improve federal mortgage disclosures and offers to assist in such an effort.

FTC staff also supports the Board’s goal of making mortgage shopping easier but urges the Board to reconsider the proposed rule’s provisions requiring disclosures of compensation to mortgage brokers. FTC staff research has shown that such disclosures are likely to harm consumers and competition by making broker loans appear to be more expensive or less desirable than identical, or even more costly, direct lender loans. The comment states that alternative disclosures that clarify the role of mortgage originators, applied equally to all sectors of the market, would provide greater benefit to consumers and avoid adverse effects on consumers and competition. The comment suggests that the Board consider, and possibly test, whether other disclosures would be more beneficial to consumers.

The FTC vote approving the filing of the staff comments was 4-0. Copies of the comment can be found as a link to this press release on the Commission’s Web site. (FTC File No. V080008; the staff contact is Allison I. Brown, 202-326-3079).