By the Division of Banks

Regulation Z And Disclosure For Variable Rate Mortgage Loans

The Federal Reserve Board has recently amended Regulation Z concerning disclosure requirements for closed-end variable rate mortgage loans with a term exceeding one year and secured by the consumer's principal dwelling. The effect of the change is to allow creditors to provide a statement that the periodic payment may substantially increase or decrease together with a maximum interest rate and payment based on a $10,000 loan amount, in lieu of providing a fifteen-year historical example of index values. This amendment became effective on November 21, 1997. Compliance is optional until October 1, 1998.

Regulation 209 CMR 32.00 governs truth-in-lending disclosure requirements for creditors within the Commonwealth. 209 CMR 32.19 sets forth disclosure requirements for variable rate mortgage loans secured by a consumer's principal dwelling and includes a requirement of a 15-year historical example of the index to be used to calculate the interest charges for such a loan. The recent amendment to Regulation Z has not been adopted on the state level. However, 209 CMR 32.19(2) n. 45a states that "information provided in accordance with variable rate regulations of other federal agencies may be substituted for the disclosures required by 209 CMR 32.19(2)." It is the position of the Division of Banks that footnote 45a provides Massachusetts creditors, including state-chartered banks, the authority to disclose variable rate mortgage transactions under the recent amendment to Regulation Z and still be deemed in compliance with 209 CMR 32.00.