This is the letter I got back from the Federal Reserve in response to my comments about the proposed changes to Reg. Z. Senator Lugar (IN) followed up with the Board to ensure that I received a response.

1. RICHARD G. LUGAR CO4MlmfS;
INDlANA FOREIGN RELATIONS, RANKING MEMBER
AGRICULTURE, NUTRITION, AND FORESTRY
306 BART SENAJ;E OFFICE BUILDING
WASHINGTON, DC 20510
202-224-4814
http://lugar.Senale,gov
ianitro i'tatcs i'cnatc
WASHINGTON, DC 2051()-'1401
April 23. 2010
Mr. Jeremiah Wean
5111 Brookstone Court
Indianapolis, Indiana 46268
Dear Mr. Wean:
Enclosed is the final response I received regarding my inquiry on your behalf. I hope this
reply includes the information that you need.
Thank you for giving me this opportunity to assist you. Responding to the concerns of
individual Hoosiers in dealing with the federal government remains an important part of my
work as a U.S. Senator. Please let me know ifthere is anything more I can do.
Sincerely,
Richard G. Lugar
United States Senator
RGLlcgd
PRINTED ON RECYCLED PAPER

2. ':.:,'
BOARD OF GOVERNORS
OF TH E
FED ERAL RES ERVE SYSTEM
WAsHINGTON, 0. C. 2tJ551
i~'1bfii'13> 2010 i
The Honorable Richard G. Lugar
United States Senate
Washington, DC 20510
Dear Senator:
Thank you for forwarding correspondence that you received from your
constituent, Jeremiah Wean. Mr.·Vea."l'S letter included a copy ofthe commentJetter he
submitted on the Federal Reserve Board's August 2009 proposal to revise the Truth in
Lending Act (TILA) rules for mortgage transactions. Mr. Wean expresses concern about
the Board's proposal to prohibit certain practices relating to loan originator
compensation. He also suggests that the Board work with the Department of Housing
and Urban Development (HUD) to integrate the disclosures required by TILA and the
Real Estate Settlement Procedures Act (RESP A).
One of the purposes of TILA is to provide meaningful disclosure of credit terms,
enabling consumers to compare credit terms available in the marketplace more readily
and avoid the uninformed use of credit. .In connection with mortgage lendiIlg, TILA also
grants the Board responsibility for prohibiting acts' or practices that the Board Bnds to be
unfair·or deceptive. The August 2009 proposal is a comprehensive effort to improve the
usefulness ofthe disclosures consumers receive in connection with mortgage
transactions. The Board determined, however, that disc1osuresalone are not sufficient to
address some concerns. Accordingly; the Board proposed to use itsTILA authority to
restrict certain acts and practices related to originator compeIlsation., .
The Board has found that consumers generally are not aware that creditors pay
commissions in the form of "yield spread premiums" to retail loan officers and mortgage
brokers. This finding was based on the results of consumer testing that the Board
conducted after it issued an earlier proposal in 2007 to enhance the disclosures consumers
receive about originator compensation. Because yield spread premiums are based on the
difference between the lowest interest rate the lender would have accepted and the
interest rate the loan originator actually obt&ins for ,the lel)der,theycan create incentives
for steeringconsu..11ers to riskier, higher:-p~iced 10an,S.. The proposed rules are intended to
'
ensurethat the commissions creditors pay to loan originators donot provide unfair
inceptives to steer consumers into lpans having higher interest rates. or other less
advaIltCJ,geous terms.
. T0acldressthe~econc~rns;: th~.proposed,~l~~ would prohibitlenders fiom .'
varying the amount ofthe originator's.compensation based on a transaction's interest rate

3. The Honorable Richard G. Lugar
Page Two
or other loan terms. Originators could continue to receive compensation from lenders
based on other factors, such as the originator's loan volume, the amount oftime spent in
originating the loan, loan file quality, or the performance of the loans received from the
originator. Because the proposed rule would not prohibit all lender payments to loan
originators, a lender that pays a fixed commission to the originator, regardless of the
loan's terms, could fund that payment from origination fees collected by the lender or
from the interest rate. Thus, under the proposal, a consumer could choose a loan with a
higher interest rate to fund the lender's payment ofa larger yield spread premium to
cover closing costs, rather than originator compensation. The Board also has solicited
comment on an alternative proposal that would permit the originator's compensation to
vary based on the size ofthe loan.
Mr. Wean also suggests that the disclosures required under TILA arid RESPA be
combined in a single set of simplified disclosures. The Board's staff is working with
HUD's staff to ensure that TILA and RESPA disclosures are compatible and
complementary, including potentially developing a single disclosure form that creditors
could use to combine the initial disclosures required under TILA and RESP A. Consumer
testing is currently being used in an effort to develop a combined disclosure. Although
the two statutes have different purposes, they have considerable overlap and harmonizing
the two disclosure schemes would ensure that consumers receive consistent information
under both laws. Eliminating some duplicative disclosures may also help reduce
information overload.
Thank you for sharing Mr. Wean's views on the Board's proposal, which we will
consider along with the other public comments as we work to develop any fmal rules.
Sincerely,
J#-;J~
tZla ~obertson
Assistant to the Board