Disclosure requirements related to a new law affecting consumers’ options to cancel private mortgage insurance under Regulation Z, or Trust-In-Lending (TILA) laws, were tightened and clarified last week when the Federal Reserve Board staff issued new commentary.

The new staff commentary also increases the tolerance level for loans to qualify for the special rules dealing with high yield credits. Other issues touched on include treatment of combined credit/debit or credit/stored value cards, and required periodic disclosures for open-end credit.

The changes to Reg Z were prompted by the new homeowners protection law, which was passed by Congress last year. It allows borrowers to cancel private mortgage insurance (PMI) under some circumstances and requires lenders to terminate PMI automatically when other conditions are met.

The new staff commentary explains that the cost of PMI must be reflected in the payment schedule disclosure through the time of automatic termination under the new law, or other applicable law, and no further. The new commentary also makes clear that any assumptions required to be made in order to calculate the time of automatic termination for adjustable-rate mortgages should be made consistently with assumptions made for other TILA purposes, according to an industry lawyer.

In another provision dealing with mortgage practices, the commentary establishes new tolerances for the points-and-fees test for loans qualifying as "high-yield." The new figures reflect cost-of-living adjustments, and require that loans with associated points and fees which are the greater of $441, or 8% of the total loan amount, are subject to high-yield disclosure provisions.

The new commentary also notes that in making disclosures for open-end credit, prior-cycle finance charge adjustments can be calculated into the annual percentage rate (APR) for the subsequent period, or they can be disclosed as a separate item and not included in the calculation of the APR for the subsequent period.

Regarding combined credit/debit or credit/stored-value cards, the new commentary expands the definition of credit card to include cards with both credit and non-credit features. The lawyer said that issuance of a card with credit features at the time of issuance, even if such a card also has noncredit features, may not be unsolicited.

On the other hand, the lawyer said, issuance of a card with non-credit features that the consumer later activates as a credit card may be unsolicited.