Letter to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System

Letter

U.S. Sen. Sherrod Brown (D-OH) and five of his Senate Banking Committee colleagues urged the Federal Reserve to reconsider proposed rules that would eliminate the ability of homeowners to stop foreclosures and rescind predatory home loans. The proposed rule would prevent homeowners from cancelling mortgages that violate the Truth in Lending Act.

"In this time of record foreclosures and reports of systemic problems with the operations of the largest mortgage servicers, the proposed revisions are unfortunate and unnecessary," Brown wrote. "The mortgage market needs greater oversight and accountability to restore borrower confidence lost during the mortgage crisis. The proposed rules would undermine this goal. The Board's proposal would tilt the balance in favor of creditors who have failed to comply with TILA's disclosure requirements."

Brown joined five members of the Senate Committee on Banking, Housing, and Urban Affairs in writing to the Federal Reserve Board of Governors in response to a proposal to strip a key provision of the Truth in Lending Act (TILA) -- the extended right of rescission. Under TILA, homeowners have up to three years in which to require their lender to cancel a mortgage that violates TILA's disclosure requirements and then pay off the remaining balance. The Board's proposal would require a homeowner to pay off the entire mortgage amount before a creditor is required to cancel its security interest in the home, rendering this important borrower right inaccessible to all but the wealthiest homeowners.

Below is the full text of the letter.

January 3, 2011

Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551

Re: FRB Docket No. R-1390

Dear Members of the Board of Governors:

We write today as members of the Senate Committee on Banking, Housing, and Urban Affairs, to express our concerns regarding proposed changes to Regulation Z implementing the Truth in Lending Act (TILA) that would erode important borrower protections that have been in place since TILA was enacted 42 years ago.

The extended right of rescission has been an important home-saving legal tool protecting borrowers against predatory loans. A borrower has traditionally had the right to rescind a loan agreement that does not comply with TILA's disclosure requirements within three years of the agreement. The statute and its implementing regulations have long been interpreted to require a creditor to cancel its security interest after receiving notice from a homeowner. The agreement is then rescinded.

The Board's proposed rule would reverse the traditional understanding of TILA's right of rescission by requiring a homeowner to pay off the entire mortgage amount before a creditor is required to cancel its security interest in the home. Requiring a borrower to repay the entire mortgage would render this important borrower right inaccessible to all but the wealthiest homeowners.

The Board has said that it "believes this adjustment would facilitate compliance with TILA." We disagree. The existing order of events creates a balance between the consumer and the lender. The Board's proposal would tilt the balance in favor of creditors who have failed to comply with TILA's disclosure requirements.

In this time of record foreclosures and reports of systemic problems with the operations of the largest mortgage servicers, the proposed revisions are unfortunate and unnecessary. The mortgage market needs greater oversight and accountability to restore borrower confidence lost in the mortgage crisis. The proposed rules would undermine this goal. We urge the Board to reconsider its proposed revisions to Regulation Z.

Thank you for considering our views on this important matter.

Sincerely,

Sherrod Brown Christopher Dodd
United States Senator United States Senator

Jack Reed Daniel Akaka
United States Senator United States Senator

Jeff Merkley Tim Johnson
United States Senator United States Senator

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