Upcoming changes concerning Risk-Based Pricing Loans, Transfer of Mortgages and the TIL Disclosure

HAPPY 2011!!  This promises to be another great year for residential lenders throughout Texas and we look forward to working with you day-to-day to make this year as productive and successful as it can be!

One of the realities facing us in 2011 is a continuing array of regulatory and statutory changes that need to be monitored by each lender to verify that their residential disclosures and procedures are compliant.

Our office will continue to assist however we can with your compliance questions.


From all of us at the Law Offices of Morton W. Baird II

Morton (Mote) Baird, Karen Miller, Kim Selsor, Vicky Rodriquez, Karen Starks, Shelley Thomas, Kimberly Alcala

Below please find a reminder about upcoming changes concerning Risk-Based Pricing Loans, Transfer of Mortgages and the TIL Disclosure.

If you have any questions are concerns, please contact Morton, Karen Miller or Kim Selsor at the office (210) 828 5844.


Effective January 1, 2011, under the new section 615(h) of Fair Credit Reporting Act, a RISK-BASED PRICING NOTICE must be provided when a consumer report is used in connection with providing credit with materially less favorable terms than the most favorable terms available to a substantial proportion of customers. In a transaction involving more than one consumer, a risk-based pricing notice must be provided to each consumer.

There is, however,  a significant exception for loans secured by 1-4 unit residential properties.

This exception permits creditors offering consumer loans secured by 1-4 unit residential properties  to add certain supplemental disclosures to the credit score disclosure they already are required to provide to consumers under FCRA.

This integrated notice must include:

• A statement that a credit report is a record of the consumer’s credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors;

• A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer’s credit history;

• A statement that a consumer’s credit score can affect whether the consumer can obtain credit and what the cost of that credit will be;

• The information required to be disclosed under the Fair Credit Reporting Act;

• The distribution of credit scores among consumers who are scored under the same scoring model, presented either in the form of a bar graph or other graphical means or in a narrative statement;

• A statement that the consumer is encouraged to verify the accuracy of the information contained in the credit report and has the right to dispute any inaccurate information in the report.

Consumer lenders should consult with their form providers to assure they have the proper notice.


Beginning January 1, 2011 for all closed-end or open-end loans secured by the borrower’s primary dwelling, any entity that acquires ownership of an existing consumer mortgage loan must notify the borrower/homeowners of their acquisition of the mortgage on or before the 30th day following the date of transfer.  This new notice is different and in addition to the Notice of Servicing Disclosure and the Notice of Transfer of Servicing that must currently be provided to the applicant/borrower.

The Notice must contain certain information:

a.   the new owner’s identity, address, and telephone number;

b.   the date the loan was transferred; and

c.   contact information that the borrower/homeowner can use to reach an agent or other party, if any, authorized to act on behalf of   the owner.

To review the Federal Reserve Board announcement, see http://www.federalreserve.gov/newsevents/press/bcreg/20100816c.htm



Beginning with consumer loan applications received on or after January 30, 2011, the Truth-in-Lending Disclosure Form for closed-end loans secured by real estate or a dwelling must be revised to include the following information:

a.      For Fixed-Rate loans, the initial interest rate together with the corresponding monthly payment (including principal, interest plus estimated tax and insurance escrow).  This replaces the current Schedule of Payments on the TIL Disclosure.

A sample of the new disclosure information  is provided at Reg. Z Form H-4E:

b.      For Adjustable-Rate or Step-Rate loans, in addition to the initial interest rate and monthly payment, 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.  This replaces the current Schedule of Payments on the TIL Disclosure.

A sample of the new disclosure information  is provided at Reg. Z Form H-4F:

c.       For Fixed Rate loans with Interest Only Payments, a sample of the new disclosure information  is provided at Reg. Z Form H-4H:

d.      For loans with introductory “teaser rates” (the initial interest rate is discounted for a period of time, after which the interest rate changes to a higher rate), the following clause must be added to the TIL Disclosure:

“Introductory Rate Notice.    You have a discounted introductory rate of ____% that ends after (period).  In the (period in sequence), even if market rates do not change, this rate will increase to ____%.”

e.      For Balloon loans, the date and projected loan balance at the time loan becomes due and payable in full as follows:

“ Final Balloon Payment due (date): $________________”

f.        The fact that consumers might not be able to avoid increased payments by refinancing their loans with the following language on the TIL Disclosure:

“There is no guarantee that you will be able to refinance to lower your rate and payments.”

The interim Reg. Z rule is set out at  http://edocket.access.gpo.gov/2010/pdf/2010-20663.pdf.

Lenders should consult with their form providers to verify that the TIL Disclosures will be modified appropriately for consumer mortgage loan applications received on or after January 30, 2011.


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