Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations Under the Equal Credit Opportunity Act (Regulation B), 7215-7250 [2013-01384]
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Vol. 78
Thursday,
No. 21
January 31, 2013
Part VI
Bureau of Consumer Financial Protection
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12 CFR Part 1002
Disclosure and Delivery Requirements for Copies of Appraisals and Other
Written Valuations Under the Equal Credit Opportunity Act (Regulation B);
Final Rule
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Federal Register / Vol. 78, No. 21 / Thursday, January 31, 2013 / Rules and Regulations
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Part 1002
[Docket No. CFPB–2012–0032]
RIN 3170–AA26
Disclosure and Delivery Requirements
for Copies of Appraisals and Other
Written Valuations Under the Equal
Credit Opportunity Act (Regulation B)
Bureau of Consumer Financial
Protection.
ACTION: Final rule; official
interpretations.
AGENCY:
The Bureau of Consumer
Financial Protection (Bureau) is
amending Regulation B, which
implements the Equal Credit
Opportunity Act (ECOA), and the
Bureau’s official interpretations of the
regulation, which interpret and clarify
the requirements of Regulation B. The
final rule revises Regulation B to
implement an ECOA amendment
concerning appraisals and other
valuations that was enacted as part of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank
Act). In general, the revisions to
Regulation B require creditors to
provide to applicants free copies of all
appraisals and other written valuations
developed in connection with an
application for a loan to be secured by
a first lien on a dwelling, and require
creditors to notify applicants in writing
that copies of appraisals will be
provided to them promptly.
DATES: This final rule is effective
January 18, 2014.
FOR FURTHER INFORMATION CONTACT:
Owen Bonheimer, Counsel, or William
W. Matchneer, Senior Counsel, Office of
Regulations, at (202) 435–7000.
SUPPLEMENTARY INFORMATION:
SUMMARY:
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I. Summary of the Final Rule
Congress amended ECOA section
701(e) to require creditors to provide
applicants with a copy of appraisals and
other written valuations developed in
connection with certain mortgage
transactions as a matter of course, rather
than only providing copies of appraisals
upon applicants’ request as previously
required. For the reasons discussed
below, the Bureau is now adopting
amendments to Regulation B in final
form, generally as proposed. The final
rule amends § 1002.14 of Regulation B
to provide for the following in
connection with applications for credit
to be secured by a first lien on a
dwelling:
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• Require creditors to notify
applicants within three business days of
receiving an application of their right to
receive a copy of appraisals developed.
• Require creditors to provide
applicants a copy of each appraisal and
other written valuation promptly upon
its completion or three business days
before consummation (for closed-end
credit) or account opening (for open-end
credit), whichever is earlier.
• Permit applicants to waive the
timing requirement for providing these
copies. However, applicants who waive
the timing requirement must be given a
copy of all appraisals and other written
valuations at or prior to consummation
or account opening, or, if the transaction
is not consummated or the account is
not opened, no later than 30 days after
the creditor determines the transaction
will not be consummated or the account
will not be opened.
• Prohibit creditors from charging for
the copy of appraisals and other written
valuations, but permit creditors to
charge applicants reasonable fees for the
cost of the appraisals or other written
valuations unless applicable law
provides otherwise.
As discussed further in part VI, this
final rule becomes effective on January
18, 2014. Accordingly, the final rule
applies to mortgage transactions to be
secured by a first lien on a dwelling for
which the creditor receives an
application on or after January 18, 2014.
report on FDICIA suggests that one
purpose of ECOA section 701(e) was to
make it easier for loan applicants to
determine whether a loan was denied
due to a discriminatory appraisal.3
Section 1474 of the Dodd-Frank Act
replaces the existing section 701(e) with
a new provision that imposed several
new requirements concerning appraisals
as well as other valuations, as described
below. The Act also transferred general
rulemaking authority for ECOA from the
Board of Governors of the Federal
Reserve System (Board) to the Bureau
on July 21, 2011.4 Pursuant to the DoddFrank Act and ECOA, as amended, the
Bureau published for public comment
an interim final rule establishing a new
Regulation B, 12 CFR part 1002,
implementing ECOA (except with
respect to persons excluded from the
Bureau’s rulemaking authority by
section 1029 of the Dodd-Frank Act). 76
FR 79442 (Dec. 21, 2011). This interim
final rule did not impose any new
substantive obligations but did make
technical and conforming changes to
reflect the transfer of authority and
certain other changes made by the
Dodd-Frank Act. The Bureau’s
Regulation B took effect on December
30, 2011.
II. Background
Congress enacted the Dodd-Frank Act
after a cycle of unprecedented
expansion and contraction in the
mortgage market sparked the most
severe U.S. recession since the Great
Depression.5 The Dodd-Frank Act
created the Bureau and consolidated
various rulemaking and supervisory
authorities in this new agency,
including the authority to implement
ECOA.6 At the same time, Congress
imposed new statutory requirements
governing mortgage practices with the
intent to restrict the practices that
A. ECOA and Regulation B
ECOA 1 makes it unlawful for
creditors to discriminate in any aspect
of a credit transaction on the basis of
sex, race, color, religion, national origin,
marital status, or age (provided the
applicant has the capacity to contract),
or because all or part of an applicant’s
income derives from public assistance,
or because the applicant has in good
faith exercised any right under the
Consumer Credit Protection Act. ECOA
applies to consumer credit as well as to
business and commercial credit except
as provided in Regulation B,
§ 1002.3(a)–(d).
Prior to its amendment by the DoddFrank Act, section 701(e) of ECOA
required creditors to provide credit
applicants, upon written request, with
copies of appraisal reports used in
connection with their applications for a
loan secured by residential real
property. This provision was added to
ECOA in 1991 as part of the Federal
Deposit Insurance Corporation
Improvement Act (FDICIA).2 The Senate
1 15
U.S.C. 1691 et seq.
Law 102–242, 105 Stat. 2236 (1991).
2 Public
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B. Dodd-Frank Act Amendments
Concerning Appraisals and Other
Valuations
3 For additional legislative history on the
appraisal provision as originally added by the
FDICIA, see S. Rept.167, 102nd Cong. (1991); S.
Rept. 461, 101st Cong. (1990); 137 Cong. Rec. S2519
(daily ed. Feb. 28, 1991); 136 Cong. Rec. S14592,
14598–99 (daily ed. Oct. 5, 1990).
4 Public Law 111–203, 124 Stat. 1376 (2010). The
transfer of authority is further discussed in Part IV
below.
5 For more discussion of the mortgage market, the
financial crisis, and mortgage origination generally,
see the Bureau’s 2012 TILA–RESPA Proposal, 77 FR
51116 (Aug. 23, 2012), available at http://
www.consumerfinance.gov/regulations/.
6 Sections 1011 and 1021 of title X of the DoddFrank Act, the ‘‘Consumer Financial Protection
Act,’’ Public Law 111–203, sections 1001–1100H,
codified at 12 U.S.C. 5491, 5511. The Consumer
Financial Protection Act is substantially codified at
12 U.S.C. 5481–5603.
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contributed to the crisis and to provide
additional protections to consumers.
Sections 1471 through 1474 of the
Dodd-Frank Act established a number of
new requirements for appraisal and
other valuation activities, including
requirements relating to appraisal
independence, appraisals for higher-risk
mortgages, regulation of appraisal
management companies, automated
valuation models (AVMs), and
providing copies of appraisals and other
written valuations.7 Many of the DoddFrank Act appraisal provisions are
required to be implemented through
joint rulemakings involving the Bureau
and other Federal agencies. The
amendment to ECOA section 701(e),
however, does not require a joint
rulemaking. As discussed below, the
amendments to section 701(e) overlap
with the disclosure and appraisal copy
requirements of a Dodd-Frank Act
amendment to the Truth in Lending Act
(TILA) applicable to higher-risk
mortgages. That Dodd-Frank Act
amendment to TILA, which adds TILA
section 129H, is required to be
implemented through joint rulemaking.
See TILA section 129H(b)(4)(A); 15
U.S.C. 1639h(b)(4)(A).
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ECOA Requirements Relating to
Appraisals and Other Valuations
Section 1474 of the Dodd-Frank Act 8
amended ECOA section 701(e) to
require that creditors provide copies of
all appraisals and other written
valuations to loan applicants, in credit
transactions to be secured by a first lien
on a dwelling, at no additional cost and
without requiring applicants to request
such copies affirmatively. Amended
ECOA section 701(e) generally provides
that:
• A creditor shall furnish to an
applicant a copy of any and all
appraisals and other written valuations
developed in connection with the
applicant’s application for a loan that is
or would be secured by a first lien on
a dwelling. The copy must be provided
promptly upon completion, and in no
case later than three days prior to
closing of the loan, whether the creditor
grants or denies the applicant’s request
for credit or the application is
incomplete or withdrawn. However, the
applicant may waive the timing
7 See TILA sections 129E and 129H as established
by Dodd-Frank Act sections 1471 and 1472, 15
U.S.C. 1639e and 1639h; sections 1124 and 1125 of
the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) as established
by Dodd-Frank Act sections 1473(f)(2), 12 U.S.C.
3353, and 1473(q), 12 U.S.C. 3354; and section
701(e) of ECOA as amended by Dodd-Frank Act
section 1474, 15 U.S.C. 1691(e).
8 Public Law 111–203, sec. 1474, 124 Stat. 1376
(2010).
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requirement that copies of such
appraisals or other valuations be
provided three days prior to closing,
except where otherwise required by law.
• The creditor shall provide a copy of
each appraisal or other written
valuation at no additional cost to the
applicant, though the creditor may
impose a reasonable fee on the applicant
to reimburse the creditor for the cost of
the appraisal.
• At the time of application, the
creditor shall notify applicants in
writing of the right to receive a copy of
each appraisal and other written
valuation under ECOA section 701(e).
Amended ECOA section 701(e)(6)
defines the term ‘‘valuation’’ as
including ‘‘any estimate of the value of
a dwelling developed in connection
with a creditor’s decision to provide
credit, including those values developed
pursuant to a policy of a government
sponsored enterprise or by an
automated valuation model, a broker
price opinion, or other methodology or
mechanism.’’
Higher-Risk Mortgage Appraisal
Requirements
On August 15, 2012, the Bureau—
along with the Board, the Federal
Deposit Insurance Corporation (FDIC),
the Federal Housing Finance Agency
(FHFA), the National Credit Union
Administration (NCUA), and the Office
of the Comptroller of the Currency
(OCC)—jointly issued for public
comment a proposal to implement new
section 129H of TILA relating to
appraisals for higher-risk mortgages
(2012 Interagency Appraisals Proposal).
The proposal was published in the
Federal Register on September 5, 2012.
See 77 FR 54722 (Sept. 5, 2012). TILA
section 129H includes certain
requirements that are similar to ECOA
section 701(e). Under Section 129H(d),
creditors must provide applicants, at
least three days prior to closing, a copy
of any appraisal prepared in connection
with a higher-risk mortgage. 15 U.S.C.
1639h(c). Creditors also must provide
applicants, at the time of the initial
mortgage application, a statement that
any appraisal prepared for the mortgage
is for the creditor’s sole use and that the
consumer may choose to have a separate
appraisal conducted at his or her own
expense. Id. 1639h(d). Section 1471 of
the Dodd-Frank Act defines the term
‘‘higher-risk mortgage’’ generally as a
residential mortgage loan, other than a
reverse mortgage, that is secured by a
principal dwelling with an annual
percentage rate (APR) that exceeds the
average prime offer rate for a
comparable transaction by specified
percentages. Id. 1639h(f). To finalize the
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2012 Interagency Appraisals Proposal
described above, the inter-agency group
is issuing a final rule under section
129H of TILA (2103 Interagency
Appraisals Final Rule).
III. Summary of the Rulemaking
Process
A. Pre-Proposal Testing and Outreach
The Bureau has conducted consumer
testing relating to implementation of
ECOA section 701(e) requirements in
conjunction with its 2012 TILA–RESPA
Proposal.9 A more detailed discussion
of the Bureau’s overall testing and form
design can be found in the report Know
Before You Owe: Evolution of the
Integrated TILA–RESPA Disclosures,
which is available on the Bureau’s Web
site.10
In January 2011, the Bureau
contracted with a communication,
design, consumer testing, and research
firm, Kleimann Communication Group,
Inc. (Kleimann), which specializes in
consumer financial disclosures. The
Bureau and Kleimann developed a plan
to conduct qualitative usability testing,
consisting of one-on-one cognitive
interviews, over several iterations of
prototype integrated disclosure forms.
Between January and May 2011, the
Bureau and Kleimann worked
collaboratively on developing a
qualitative testing plan, and several
prototype integrated forms for the
disclosure to be provided in connection
with a consumer’s application (i.e., a
form integrating the RESPA good faith
estimate and the early TILA
disclosure).11 The qualitative testing
plan developed by the Bureau and
Kleimann was unique with respect to
qualitative testing performed by other
9 See 77 FR 51116 at 51313–14, 51427 (Aug. 23,
2012). On July 9, 2012, the Bureau issued for public
comment a proposed rule and forms combining the
TILA mortgage loan disclosures with the Real Estate
Settlement Procedures Act (RESPA) Good Faith
Estimate (GFE) and settlement statement required
pursuant to Dodd-Frank Act section 1032(f) as well
as sections 4(a) of RESPA and 105(b) of TILA, as
amended by Dodd-Frank Act sections 1098 and
1100A, respectively (2012 TILA–RESPA Proposal).
12 U.S.C. 2603(a); 15 U.S.C. 1604(b).
10 Kleimann Comm. Gp., Inc., Know Before You
Owe: Evolution of the Integrated TILA–RESPA
Disclosures (July 9, 2012), available at http://
files.consumerfinance.gov/f/
201207_cfpb_report_tila-respa-testing.pdf.
11 This discussion is limited to testing of the
disclosure to be provided in connection with a
consumer’s application, which is the portion of the
testing relevant to the appraisal-related disclosure
required under § 1002.14(a)(2). As discussed in the
supplementary information to the 2012 RESPATILA Proposal, the Bureau and Kleimann also
tested prototype designs for the integrated
disclosure forms to be provided in connection with
the closing of the mortgage loan and real estate
transaction. See the Bureau’s 2012 TILA-RESPA
Proposal, available at http://
www.consumerfinance.gov/regulations/.
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federal agencies in that the Bureau
planned to conduct qualitative testing
with industry participants as well as
consumers. Each round of qualitative
testing included at least two industry
participants, including lenders from
several different types of depository
(including credit unions) and
nondepository institutions, mortgage
brokers, and closing agents.
In addition, the Bureau launched an
initiative to obtain public feedback on
each round of prototype disclosures at
the same time as it conducted the
qualitative testing of the prototypes,
which it titled ‘‘Know Before You
Owe.’’ 12 This initiative consisted of
publishing and obtaining feedback on
the prototype designs through an
interactive tool on the Bureau’s Web site
or through posting the prototypes to the
Bureau’s blog on its Web site and
providing an opportunity for the public
to email feedback directly to the Bureau.
From May to October 2011, Kleimann
and the Bureau conducted a series of
five rounds of qualitative testing on
revised iterations of integrated
disclosure prototype forms. This testing
was conducted in five different cities
across different U.S. Census regions and
divisions: Baltimore, Maryland; Los
Angeles, California; Chicago, Illinois;
Springfield, Massachusetts; and
Albuquerque, New Mexico. After each
round, Kleimann analyzed and reported
to the Bureau on the results of the
testing. Based on these results and
feedback received from the Bureau’s
Know Before You Owe public outreach
project, the Bureau revised the
prototype disclosure forms for the next
round of testing.
As part of the larger Know Before You
Owe public outreach project, the Bureau
tested two versions of the new
appraisal-related disclosures required
by both TILA section 129H and ECOA
section 701(e).13 The Bureau believed
that it was important to test the TILA
and ECOA appraisal-related disclosures
together, in an integrated manner, to
determine how to provide these
overlapping but separate disclosures in
a manner that would minimize
consumer confusion and improve
consumer comprehension. Testing of
the first version showed that consumers
tended to find the TILA and ECOA
disclosures confusing when they were
given together using the specific
language set forth in the respective
12 See http://www.consumerfinance.gov/
knowbeforeyouowe.
13 Kleimann Comm. Gp., Inc., Know Before You
Owe: Evolution of the Integrated TILA–RESPA
Disclosures 254–256 (July 9, 2012), available at
http://files.consumerfinance.gov/f/
201207_cfpb_report_tila-respa-testing.pdf.
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statutes.14 Consumer comprehension
improved when the Bureau developed a
slightly longer plain language version
that was designed to incorporate the
elements of both statutes. Based on the
results of that testing, the Bureau
developed the following appraisal
disclosure language: ‘‘We may order an
appraisal to determine the property’s
value and charge you for this appraisal.
We will promptly give you a copy of
any appraisal, even if your loan does not
close. You can pay for an additional
appraisal for your own use at your own
cost.’’ The Bureau included this
language in the prototype form used in
the final rounds of the testing process.
In addition, as part of the rulemaking
process for this rule, as described in the
proposal, 77 FR 53090, at 50400 n.39,
50402 n.48 (Aug. 21, 2012), the Bureau
considered information obtained during
pre-proposal outreach to industry
regarding its practices in providing
copies of written appraisals to
applicants. This outreach was carried
out in the context of the development of
the 2012 Interagency Appraisals
Proposal and involved a large bank, a
trade group of smaller depository
institutions, and an independent
mortgage bank (IMB).
B. The Bureau’s 2012 ECOA Proposal on
Providing Copies of Appraisals and
Other Written Valuations
The Bureau issued for public
comment its proposal to amend
Regulation B to implement the DoddFrank Act amendment to ECOA section
701(e) on August 15, 2012. The proposal
was published in the Federal Register
on August 21, 2012. 77 FR 50390 (Aug.
21, 2012). The Bureau proposed to
amend Regulation B, § 1002.14(a)(1), to
set forth a general requirement that
creditors provide applicants for credit to
be secured by a first lien on a dwelling
with copies of all appraisals and other
written valuations developed in
connection with their applications. The
Bureau further proposed timing
requirements for providing such copies
and standards governing any waiver of
the timing requirements. The Bureau
proposed to amend § 1002.14(a)(2) to
require that a creditor provide a written
disclosure of the applicant’s right to
receive a copy of such appraisals and
other written valuations. As proposed,
§ 1002.14(a)(3) would have prohibited
creditors from charging the applicants
for providing a copy of appraisals and
other written valuations, but would
have permitted creditors to require
applicants to pay a reasonable fee to
reimburse the creditor for the cost of
14 Id.
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appraisals and other written valuations.
The Bureau proposed in § 1002.14(a)(4)
to clarify that the requirements of
§ 1002.14(a)(1) would apply regardless
of whether credit is extended or denied,
or if the application is incomplete or
withdrawn. The Bureau proposed in
§ 1002.14(a)(5) to allow the copies of
appraisals and other written valuations
required by § 1002.14(a)(1) to be
provided in electronic form. As is
discussed in more detail below,
proposed § 1002.14(b) would have
defined certain terms used in
§ 1002.14(a).
C. Overview of Comments Received
The Bureau received 68 comments on
the 2012 ECOA Proposal, primarily from
creditors and their representatives. Most
of the industry commenters generally
supported the core elements of the
proposal, while providing suggestions
for exemptions, clarifications, or
changes to particular elements of the
proposal. Comment letters also were
submitted by a group advocating for the
use of plain language, and on behalf of
appraisers, government-sponsored
enterprises (GSEs), and real estate
agents, as well as an affordable housing
advocacy group. The affordable housing
advocacy group commenter generally
supported the proposal and suggested
changes to strengthen consumer
protections. The plain language group
commenter suggested changes to make
the rule easier to understand. Most of
the remaining commenters generally
supported the rule but suggested
clarifications and changes to particular
elements of the proposal. The comments
are discussed in more detail in the
section-by-section analysis below.
D. Other Rulemakings
In addition to this final rule and the
2013 Interagency Appraisals Final Rule
described above, the Bureau currently is
adopting several other final rules and
issuing one proposal, all relating to
mortgage credit to implement
requirements of title XIV of the DoddFrank Act. Each of the final rules
follows a proposal issued in 2011 by the
Board or in 2012 by the Bureau.
Collectively, these proposed and final
rules are referred to as the Title XIV
Rulemakings.
• Ability to Repay: The Bureau is
finalizing a rule, following a May 2011
proposal issued by the Board (Board’s
2011 ATR Proposal),15 to implement
provisions of the Dodd-Frank Act (1)
requiring creditors to determine that a
consumer has a reasonable ability to
repay covered mortgage loans and
15 76
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FR 27390 (May 11, 2011).
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establishing standards for compliance,
such as by making a ‘‘qualified
mortgage,’’ and (2) establishing certain
limitations on prepayment penalties,
pursuant to TILA section 129C as
established by Dodd-Frank Act sections
1411, 1412, and 1414. 15 U.S.C. 1639c.
The Bureau’s final rule is referred to as
the 2013 ATR Final Rule.
Simultaneously with the 2013 ATR
Final Rule, the Bureau is issuing a
proposal to amend the final rule
implementing the ability-to-repay
requirements, including by the addition
of exemptions for certain nonprofit
creditors and certain homeownership
stabilization programs and a definition
of a ‘‘qualified mortgage’’ for certain
loans made and held in portfolio by
small creditors (2013 ATR Concurrent
Proposal). The Bureau expects to act on
the 2013 ATR Concurrent Proposal on
an expedited basis, so that any
exceptions or adjustments to the 2013
ATR Final Rule can take effect
simultaneously with that rule.
• Escrows: The Bureau is finalizing a
rule, following a March 2011 proposal
issued by the Board (Board’s 2011
Escrows Proposal),16 to implement
certain provisions of the Dodd-Frank
Act expanding on existing rules that
require escrow accounts to be
established for higher-priced mortgage
loans and creating an exemption for
certain loans held by creditors operating
predominantly in rural or underserved
areas, pursuant to TILA section 129D as
established by Dodd-Frank Act section
1461. 15 U.S.C. 1639d. The Bureau’s
final rule is referred to as the 2013
Escrows Final Rule.
• HOEPA: Following its July 2012
proposal (2012 HOEPA Proposal),17 the
Bureau is issuing a final rule to
implement Dodd-Frank Act
requirements expanding protections for
‘‘high-cost mortgages’’ under the
Homeownership and Equity Protection
Act (HOEPA), pursuant to TILA sections
103(bb) and 129, as amended by DoddFrank Act sections 1431 through 1433.
15 U.S.C. 1602(bb) and 1639. The
Bureau also is finalizing rules to
implement certain title XIV
requirements concerning
homeownership counseling, including a
requirement that lenders provide lists of
homeownership counselors to
applicants for federally-related mortgage
loans, pursuant to RESPA section 5(c),
as amended by Dodd-Frank Act section
1450. 12 U.S.C. 2604(c). The Bureau’s
final rule is referred to as the 2013
HOEPA Final Rule.
18 77 FR 57200 (Sept. 17, 2012) (RESPA); 77 FR
57318 (Sept. 17, 2012) (TILA).
19 77 FR 55272 (Sept. 7, 2012).
16 76
FR 11598 (Mar. 2, 2011).
17 77 FR 49090 (Aug. 15,2012).
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• Servicing: Following its August
2012 proposals (2012 RESPA Servicing
Proposal and 2012 TILA Servicing
Proposal),18 the Bureau is adopting final
rules to implement Dodd-Frank Act
requirements regarding force-placed
insurance, error resolution, information
requests, and payment crediting, as well
as requirements for mortgage loan
periodic statements and adjustable-rate
mortgage reset disclosures, pursuant to
section 6 of RESPA and sections 128,
128A, 129F, and 129G of TILA, as
amended or established by Dodd-Frank
Act sections 1418, 1420, 1463, and
1464. 12 U.S.C. 2605; 15 U.S.C. 1638,
1638a, 1639f, and 1639g. The Bureau
also is finalizing rules on early
intervention for troubled and delinquent
borrowers, and loss mitigation
procedures, pursuant to the Bureau’s
authority under section 6 of RESPA, as
amended by Dodd-Frank Act section
1463, to establish obligations for
mortgage servicers that it finds to be
appropriate to carry out the consumer
protection purposes of RESPA, and its
authority under section 19(a) of RESPA
to prescribe rules necessary to achieve
the purposes of RESPA. The Bureau’s
final rule under RESPA with respect to
mortgage servicing also establishes
requirements for general servicing
standards policies and procedures and
continuity of contact pursuant to its
authority under section 19(a) of RESPA.
The Bureau’s final rules are referred to
as the 2013 RESPA Servicing Final Rule
and the 2013 TILA Servicing Final Rule,
respectively.
• Loan Originator Compensation:
Following its August 2012 proposal
(2012 Loan Originator Proposal),19 the
Bureau is issuing a final rule to
implement provisions of the DoddFrank Act requiring certain creditors
and loan originators to meet certain
duties of care, including qualification
requirements; requiring the
establishment of certain compliance
procedures by depository institutions;
prohibiting loan originators, creditors,
and the affiliates of both from receiving
compensation in various forms
(including based on the terms of the
transaction) and from sources other than
the consumer, with specified
exceptions; and establishing restrictions
on mandatory arbitration and financing
of single-premium credit insurance,
pursuant to TILA sections 129B and
129C as established by Dodd-Frank Act
sections 1402, 1403, and 1414(a). 15
U.S.C. 1639b, 1639c. The Bureau’s final
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rule is referred to as the 2013 Loan
Originator Final Rule.
The Bureau is not at this time
finalizing proposals concerning various
disclosure requirements that were
added by title XIV of the Dodd-Frank
Act, integration of mortgage disclosures
under TILA and RESPA, or a simpler,
more inclusive definition of the finance
charge for purposes of disclosures for
closed-end mortgage transactions under
Regulation Z. The Bureau expects to
finalize these proposals and to consider
whether to adjust regulatory thresholds
under the Title XIV Rulemakings in
connection with any change in the
calculation of the finance charge later in
2013, after it has completed quantitative
testing, and any additional qualitative
testing deemed appropriate, of the forms
that it proposed in July 2012 to combine
TILA mortgage disclosures with the
good faith estimate (RESPA GFE) and
settlement statement (RESPA settlement
statement) required under RESPA,
pursuant to Dodd-Frank Act section
1032(f) and sections 4(a) of RESPA and
105(b) of TILA, as amended by DoddFrank Act sections 1098 and 1100A,
respectively (2012 TILA–RESPA
Proposal).20 Accordingly, the Bureau
already has issued a final rule delaying
implementation of various affected title
XIV disclosure provisions.21 The
Bureau’s approach to coordinating the
implementation of the Title XIV
Rulemakings is discussed below.
Coordinated Implementation of Title
XIV Rulemakings
As noted in all of its foregoing
proposals, the Bureau regards each of
the Title XIV Rulemakings as affecting
aspects of the mortgage industry and its
regulations. Accordingly, as noted in its
proposals, the Bureau is coordinating
carefully the Title XIV Rulemakings,
particularly with respect to their
effective dates. The Dodd-Frank Act
requirements to be implemented by the
Title XIV Rulemakings generally will
take effect on January 21, 2013, unless
final rules implementing those
requirements are issued on or before
that date and provide for a different
effective date. See Dodd-Frank Act
section 1400(c), 15 U.S.C. 1601 note. In
addition, some of the Title XIV
Rulemakings are to take effect no later
than one year after they are issued. Id.
The comments on the appropriate
implementation date for this final rule
are discussed in detail below in part VI
of this notice. In general, however,
consumer advocates requested that the
Bureau put the protections in the Title
20 77
21 77
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XIV Rulemakings into effect as soon as
practicable. In contrast, the Bureau
received some industry comments
indicating that implementing so many
new requirements at the same time
would create a significant cumulative
burden for creditors. In addition, many
commenters also acknowledged the
advantages of implementing multiple
revisions to the regulations in a
coordinated fashion.22 Thus, a tension
exists between coordinating the
adoption of the Title XIV Rulemakings
and facilitating industry’s
implementation of such a large set of
new requirements. Some have suggested
that the Bureau resolve this tension by
adopting a sequenced implementation,
while others have requested that the
Bureau simply provide a longer
implementation period for all of the
final rules.
The Bureau recognizes that many of
the new provisions will require
creditors to make changes to automated
systems and, further, that most
administrators of large systems are
reluctant to make too many changes to
their systems at once. At the same time,
however, the Bureau notes that the
Dodd-Frank Act established virtually all
of these changes to institutions’
compliance responsibilities, and
contemplated that they be implemented
in a relatively short period of time. And,
as already noted, the extent of
interaction among many of the Title XIV
Rulemakings necessitates that many of
their provisions take effect together.
Finally, notwithstanding commenters’
expressed concerns for cumulative
burden, the Bureau expects that
creditors actually may realize some
efficiencies from adapting their systems
for compliance with multiple new,
closely-related requirements at once,
especially if given sufficient overall
time to do so.
Accordingly, the Bureau is requiring
that, as a general matter, creditors and
other affected persons begin complying
with the final rules on January 10, 2014.
22 Of the several final rules being adopted under
the Title XIV Rulemakings, six entail amendments
to Regulation Z, with the only exceptions being the
2013 RESPA Servicing Final Rule (Regulation X)
and the 2013 ECOA Appraisals Final Rule
(Regulation B); the 2013 HOEPA Final Rule also
amends Regulation X, in addition to Regulation Z.
The six Regulation Z final rules involve numerous
instances of intersecting provisions, either by crossreferences to each other’s provisions or by adopting
parallel provisions. Thus, adopting some of those
amendments without also adopting certain other,
closely-related provisions would create significant
technical issues, e.g., new provisions containing
cross-references to other provisions that do not yet
exist, which could undermine the ability of
creditors and other parties subject to the rules to
understand their obligations and implement
appropriate systems changes in an integrated and
efficient manner.
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As noted above, section 1400(c) of the
Dodd-Frank Act requires that some
provisions of the Title XIV Rulemakings
take effect no later than one year after
the Bureau issues them. Accordingly,
the Bureau is establishing January 10,
2014, one year after issuance of the
Bureau’s 2013 ATR, Escrows, and
HOEPA Final Rules (i.e., the earliest of
the title XIV final rules), as the baseline
effective date for most of the Title XIV
Rulemakings. The Bureau believes that,
on balance, this approach will facilitate
the implementation of the rules’
overlapping provisions, while also
affording creditors sufficient time to
implement the more complex or
resource-intensive new requirements.
As discussed in part VI below, however,
the effective date of this final rule is
January 18, 2014, to align with the
effective date of the 2013 Interagency
Appraisals Final Rule.
The Bureau has identified certain
rulemakings or selected aspects thereof,
however, that do not present significant
implementation burdens for industry.
Accordingly, the Bureau is setting
earlier effective dates for those final
rules or certain aspects thereof, as
applicable. Those effective dates are set
forth and explained in the Federal
Register notices for those final rules.
IV. Legal Authority
The final rule was issued on January
18, 2013, in accordance with 12 CFR
1074.1. The Bureau issued this final rule
pursuant to its authority under ECOA
and the Dodd-Frank Act. On July 21,
2011, section 1061 of the Dodd-Frank
Act transferred to the Bureau all of the
‘‘consumer financial protection
functions’’ previously vested in certain
other Federal agencies, including the
Board.23 The term ‘‘consumer financial
protection functions’’ is defined to
include ‘‘all authority to prescribe rules
or issue orders or guidelines pursuant to
any Federal consumer financial law,
including performing appropriate
functions to promulgate and review
such rules, orders, and guidelines.’’ 24
ECOA is a Federal consumer financial
law.25 Accordingly, the Bureau has
authority to issue regulations pursuant
to ECOA.
Section 703(a) of ECOA authorizes the
Bureau to prescribe regulations to carry
out the purposes of ECOA. Section
703(a) further states that such
regulations may contain—but are not
limited to—such classifications,
differentiation, or other provision, and
may provide for such adjustments and
exceptions for any class of transactions
as, in the judgment of the Bureau, are
necessary or proper to effectuate the
purposes of ECOA, to prevent
circumvention or evasion thereof, or to
facilitate or substantiate compliance. 15
U.S.C. 1691b(a).
Section 1022(b)(1) of the Dodd-Frank
Act authorizes the Bureau to prescribe
rules ‘‘as may be necessary or
appropriate to enable the Bureau to
administer and carry out the purposes
and objectives of the Federal consumer
financial laws, and to prevent evasions
thereof[.]’’ 12 U.S.C. 5512(b)(1). ECOA
and title X of the Dodd-Frank Act are
Federal consumer financial laws.
Accordingly, the Bureau is exercising its
authority under Dodd-Frank Act section
1022(b)(1) to prescribe rules that carry
out the purposes and objectives of
ECOA and title X and prevent evasion
of those laws.
Section 1405(b) of the Dodd-Frank
Act provides that, ‘‘[n]otwithstanding
any other provision of [title XIV of the
Dodd-Frank Act], in order to improve
consumer awareness and understanding
of transactions involving residential
mortgage loans through the use of
disclosures, the [Bureau] may, by rule,
exempt from or modify disclosure
requirements, in whole or in part, for
any class of residential mortgage loans
if the [Bureau] determines that such
exemption or modification is in the
interest of consumers and in the public
interest.’’ 15 U.S.C. 1601 note. Section
1401 of the Dodd-Frank Act, which
amended TILA section 103(cc), 15
U.S.C. 1602(cc), generally defines
residential mortgage loan as any
consumer credit transaction that is
secured by a mortgage on a dwelling or
on residential real property that
includes a dwelling other than an openend credit plan or an extension of credit
secured by a consumer’s interest in a
timeshare plan. Notably, the authority
granted by section 1405(b) applies to
‘‘disclosure requirements’’ generally,
and is not limited to a specific statute
or statutes.
V. Section-by-Section Analysis
23 Public
Law 111–203, sec. 1061(b)(7), 124 Stat.
1376; 12 U.S.C. 5581(b)(7).
24 12 U.S.C. 5581(a)(1).
25 Dodd-Frank Act section 1002(14), 12 U.S.C.
5481(14) (defining ‘‘Federal consumer financial
law’’ to include the ‘‘enumerated consumer laws’’
and the provisions of title X of the Dodd-Frank Act);
Dodd-Frank Act section 1002(12), 12 U.S.C.
5481(12) (defining ‘‘enumerated consumer laws’’ to
include ECOA).
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Section 1002.14 Rules on Providing
Copies of Appraisals and Other Written
Valuations
Overview
Public comments generally. Many
commenters offered general support for
the proposed rule, with some
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comments, for example by a large trade
association for real estate brokers and
agents, offering strong support for its
potential to educate and inform
consumers about appraisals and other
valuations and their role in the real
estate transaction. Most of the industry
commenters generally supported the
proposal and provided numerous
suggestions for clarifications or changes
to particular elements of the proposal,
which are discussed in the
corresponding sections below. Some
industry commenters including
community banks and other lending
institutions, however, opposed the
proposal. These comments stated, for
example, that the mortgage credit
industry cannot keep up with the all the
regulations being issued under the
Dodd-Frank Act and that rules requiring
creditors to provide copies of appraisals
are already in place.
Discussion. As discussed above, the
Dodd-Frank Act amendments to ECOA
section 701(e) will take effect 18 months
after the designated transfer date under
the Dodd-Frank Act unless final rules
implementing section 701(e) are issued
on or before that date and provide for
a different effective date. For that
reason, the Bureau believes that, rather
than adding burden to industry, this
final regulation will relieve industry of
uncertainty and potential liability risk
that would likely result from ECOA
section 701(e) taking effect without an
implementing regulation. Furthermore,
by issuing this final rule the Bureau is
able to provide industry with additional
time to develop new policies, train
employees, and make system changes to
implement the rule’s requirements that
would not be available if the statute
takes effect in January 2013.
4(d) General Rules on Providing
Disclosure in Electronic Form
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As discussed in the section-by-section
analysis relating to § 1002.14(a)(5), the
Bureau is updating the cross-reference
in § 1002.4(d) to § 1002.14, to reflect
that the new disclosure requirement is
cited as § 1002.14(a)(2), rather than
§ 1002.14(a)(2)(i). This change will
ensure that electronic disclosure
standards in Regulation B apply to the
new notice required by § 1002.14(a)(2)
to the same extent as they have applied
to the existing notice required by
§ 1002.14(a)(2)(i) that the new notice
will replace.
14(a) Providing Copies of Appraisals
and Other Written Valuations
14(a)(1) In General
ECOA section 701(e)(1) requires a
creditor to provide an applicant a copy
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of all appraisals and other written
valuations developed in connection
with an application for credit that is to
be secured by a first lien on a dwelling.
This requirement replaced the previous
requirement in section 701(e) to provide
copies of appraisal reports upon request
of the applicant for a loan secured by a
lien on a dwelling. Accordingly, the
Bureau proposed to revise
§ 1002.14(a)(1) in two important ways:
to specify the types of materials that
must be provided to consumers (i.e.,
copies of appraisals and other written
valuations developed in connection
with the application), and to specify the
types of transactions for which these
copies must be provided (i.e.,
applications for credit to be secured by
a first lien on a dwelling).
First, consistent with new ECOA
section 701(e)(1), the Bureau proposed
broadening the scope of the valuation
materials for which copies must be
provided to applicants under
§ 1002.14(a)(1) to include copies of ‘‘all
written appraisals and valuations
developed.’’ The Bureau further
proposed new comment 14(a)(1)–3 to
clarify that for purposes of § 1002.14, a
‘‘written’’ appraisal or other valuation
would include, without limitation, an
appraisal or valuation received or
developed by the creditor in any of the
following manners: in paper form (hard
copy); electronically, such as by CD or
email; or by any other similar media. In
addition, the proposed comment would
have clarified that creditors should look
to § 1002.14(a)(5) regarding the
provision of copies of appraisals and
other written valuations to applicants
via electronic means.
Second, the Dodd-Frank Act
amendments to ECOA section 701(e)
also narrowed the types of transactions
that are covered to ‘‘first lien’’
transactions. Accordingly, the Bureau
proposed revising § 1002.14(a)(1) to add
the word ‘‘first’’ to narrow the scope of
the final rule to cover only loans to be
secured by a first lien on a dwelling.
The Bureau also proposed changes to
the Regulation B commentary further
clarifying the types of transactions
subject to the requirement to deliver
copies of appraisals and other written
valuations. Prior to this final rule,
comments 14(a)–1 and 2 had clarified
that Regulation B appraisal delivery
requirements applied to credit for
business purposes and to renewals of
credit secured by a dwelling. The
Bureau proposed generally retaining
these comments (renumbered as
comments 14(a)(1)–1 and 2), with
several conforming and technical
changes. The Bureau proposed comment
14(a)(1)–1 to clarify that § 1002.14(a)(1)
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covers applications for credit to be
secured by a first lien on a dwelling, as
the term ‘‘dwelling’’ is defined in
§ 1002.14(b)(2), whether the credit is
business credit (see § 1002.2(g)) or
consumer credit (see § 1002.2(h)). The
Bureau also proposed comment
14(a)(1)–2 to clarify that § 1002.14(a)(1)
applies when an applicant requests the
renewal of an existing extension of
credit and the creditor develops a new
appraisal or other written valuation.
Consequently, the Bureau proposed that
this comment clarify that § 1002.14(a)
does not apply when a creditor uses the
appraisals or other valuations that were
previously developed in connection
with the prior extension of credit in
order to evaluate the renewal request.
Public comment. Many commenters
provided suggestions on which types of
documents would qualify as appraisals
or other written valuations copies of
which must be provided to applicants.
A significant number of industry
commenters urged the Bureau to require
creditors to provide only ‘‘final’’
versions of appraisals and other written
valuations, to prevent uncertainty over
whether creditors would be required to
provide copies of drafts or preliminary
versions of these documents.
Commenters also suggested this
clarification would help to reduce the
volume of information that must be
provided to and received by applicants,
thereby reducing burden on creditors
and preventing consumer confusion.
Several industry commenters asked
the Bureau to clarify that ECOA only
requires providing copies of appraisals
or other written valuations that are
actually performed. In addition, a few
industry commenters suggested that the
Bureau require providing copies of only
those appraisals and other written
valuations that are used or relied upon
by the creditor in making the credit
decision. This narrower focus was
viewed as more in line with the purpose
of ECOA. One commenter requested that
creditors should not be required to
provide a copy of an appraisal or other
written valuation that is ‘‘materially
deficient,’’ as it could confuse the
consumer.
Some industry commenters expressed
a general concern over liability risks
raised by the proposed requirement to
provide copies of appraisals and other
written valuations. These commenters
suggested that providing these copies to
applicants could create liability risks for
creditors and preparers. Some creditors
and a creditor trade association
expressed concern that applicants might
view valuations that lenders conduct inhouse, without commissioning an
appraisal, as warranting the value of the
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home. Two creditors and a creditor
association in one state expressed
concern over the potential for lender
liability to carry over to investors under
an assignee liability theory, which could
reduce access to credit by reducing
investor demand. Other industry
commenters suggested that applicants
might seek to hold an appraiser liable
for the applicant’s reliance upon the
appraisal in entering into a transaction,
particularly if the appraiser lists, or is
required to list, the applicant as an
‘‘intended user’’ of the appraisal under
the Uniform Standards of Professional
Appraisal Practices (USPAP). Some of
these commenters raised these concerns
over potential liability as part of an
overall concern with the potential
burden of the regulation, and some
urged the Bureau to include provisions
in the final rule protecting creditors and
preparers of appraisals and other
valuations against liability.
A number of commenters also urged
the Bureau to exclude certain types of
transactions from the scope of the final
rule. Several industry group
commenters requested that the Bureau
exempt loan modifications, loss
mitigation, short sales, and deed-in-lieu
transactions from the rule’s
requirements altogether. These
commenters suggested that these
transactions did not involve an
‘‘application’’ by the consumer for an
‘‘extension of credit’’ within the
meaning of ECOA. They also argued that
applying the rule to loss mitigation and
other foreclosure alternatives would
increase the costs of these transactions
and decrease their availability to
consumers. One industry commenter
also suggested that the Bureau clarify
that a loan modification did not fit
within the type of transaction the rule
would cover, because a modification
does not lead to ‘‘consummation’’ of the
loan.
In addition, an industry commenter
requested clarification on whether the
rule applies to an annual renewal clause
under which a creditor makes a
unilateral decision each year whether or
not to renew a line of credit. Another
industry trade association requested that
the final rule exclude temporary loans,
such as bridge or construction loans,
which it argued are treated specially
under other statutes such as RESPA and
TILA. For construction loans, this
commenter also asserted that applicants
are more interested in receiving copies
of valuations when the permanent
financing begins, after the construction
is complete and therefore factored into
the valuation.
One commenter suggested that the
rule should cover second liens to
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protect consumers in these transactions.
This commenter asserted second lien
transactions generally carry higher risk
than first lien transactions, and
therefore are even more worthy of the
protections in the rule.
Discussion. The final rule adopts the
language in § 1002.14(a)(1) discussed
above as proposed, with a minor
clarification. To clarify that an appraisal
is intended to be classified as a type of
‘‘valuation’’ under the final rule, and to
clarify that the rule applies to written
valuations, the final rule uniformly
adopts the phrases ‘‘appraisals and
other written valuations’’ and
‘‘appraisals or other written valuations.’’
This usage also aligns with the use of
the term ‘‘valuation’’ to include
appraisals in recent amendments to
Regulation Z, § 1026.42(b)(3), to
implement section 129E of TILA. See 75
FR 66554, 66558 (Oct. 28, 2010)
(adopting term ‘‘valuation’’).
To provide guidance on
§ 1002.14(a)(1), the final rule also adopts
comments 14(a)(1)–1 through 3 as
proposed, with an additional
clarification in comment 14(a)(1)–1
relating to waiver (see discussion of
waiver further below), and adopts an
additional comment 14(a)(1)–7.26
The Bureau considered comments
seeking clarification that the final rule
does not require lenders to conduct
appraisals or other written valuations.
The Bureau does not believe, however,
that this clarification is needed in the
final rule or its commentary. On its face,
section 701(e) of ECOA requires
disclosure of copies of the appraisals
and other written valuations that are
developed in connection with an
application. Neither ECOA section
701(e) nor the final rule requires that
lenders must obtain appraisals or other
written valuations.
The final rule also retains the
language from the proposed rule—
‘‘developed in connection with an
application for credit’’—for determining
which appraisals and other written
valuations must be disclosed. Prior to
the Dodd-Frank Act, ECOA section
701(e) referred to appraisals that were
‘‘used’’ in connection with the
application. Had Congress intended to
maintain that scope, it could have
continued to use that term; instead,
Congress referred to appraisals and
other valuations that are ‘‘developed’’ in
connection with the application,
without necessarily requiring that they
ultimately be ‘‘used.’’ The Bureau
assumes this difference in terms reflects
a deliberate wording choice by
26 Other comments on § 1002.14(a)(1) relate to
timing and waiver, and are discussed further below.
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Congress, and the Bureau does not
believe consumer protection will be
enhanced by adjusting the statutory
terminology. If an appraisal or other
written valuation is ‘‘developed in
connection with’’ an application, then
the applicant may benefit from receiving
a copy, even if the creditor does not to
use the valuation. Some commenters
expressed concern that applicants could
mistakenly believe that such a valuation
was ‘‘used’’ by the creditor. However,
there is nothing in the final rule that
prohibits creditors from providing
information to applicants concerning
whether a particular valuation was
used.27
As noted above, some commenters
stated a concern that providing copies of
appraisals and other written valuations
to applicants could result in liability
issues for creditors and preparers of
appraisals or other written valuations.
Industry commenters noted questions or
concerns over whether creditors would
be deemed to have warranted home
values contained in their internal
valuations provided to applicants, and
on whether consumers would assert
legal claims based upon their reliance
on appraisals in deciding whether to
enter into transactions. The commenters
do not appear to be raising concerns
over liability under ECOA section 701(e)
itself. On its face, section 701(e)
concerns providing copies of certain
materials and providing a disclosure. It
does not specify the content of
valuations or otherwise supply
standards regarding what they should
contain.28 Moreover, ECOA has long
required creditors to provide copies of
appraisals upon request, and creditors
routinely provide copies of appraisals
for first lien loans including under GSE
requirements. The commenters have not
explained how requiring that copies of
appraisals and other written valuations
be provided as a matter of course
increases creditors’ exposure to liability
under legal standards other than ECOA.
In any event, as for legal standards other
than those contained in ECOA, it is
unclear what authority the Bureau
would have to limit remedies arising
from a creditor’s providing copies of
appraisals or other written valuations.29
27 Other industry commenters suggested that
consumers would not benefit from receiving copies
of valuations that were not used, and which may
contain errors or even material deficiencies. The
statute does not distinguish, however, between
valuations that are used and those that are not used.
28 Congress has spelled out the conduct that gives
rise to liability under ECOA. 15 U.S.C. 1691e.
Creditors that ‘‘fail[] to comply with any
requirement imposed under [ECOA] shall be liable
to the aggrieved applicant.’’ 15 U.S.C. 1691e(a).
29 As to whether USPAP will require that
appraisals list applicants as intended users of
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With regard to the types of
transactions that are covered by the final
rule, the Bureau considered industry
comments seeking clarification on
whether loss mitigation activities, such
as loan modifications, short sales, and
deed-in-lieu transactions, are covered.
These comments implicate provisions of
ECOA and Regulation B that turn on
whether there is an ‘‘applicant’’ or
‘‘application’’ for an ‘‘extension of
credit.’’ 30 While some loan
modifications can be subject to the
provisions of Regulation B,31 including
the existing § 1002.14 disclosure-uponrequest regime, there is variation
between different types of loss
mitigation programs; the particulars of
the program at issue are important to
understand in evaluating whether there
is an application or applicant for an
extension of credit within the meaning
of Regulation B. Accordingly, the
Bureau believes that questions on
coverage of these types of transactions
are best addressed with reference to the
existing provisions of Regulation B.32
To the extent a loss mitigation
transaction is covered by Regulation B,
the transaction is covered by the final
rule, including its requirement of
providing copies of appraisals and other
written valuations. Consumers generally
will benefit from receiving information
written appraisal reports, the Bureau believes this
is a question that arises under USPAP and not
ECOA; thus it is a matter for appraisers to
determine pursuant to USPAP, and for the
Appraisal Standards Board, which is charged with
developing, interpreting, and amending USPAP.
30 See 12 CFR 1002.2(e)–(f), (j) and (q).
31 In the context of interpreting the requirement
of Regulation B that there be a notice of an adverse
action on an application, for example, the Federal
Reserve Board Consumer Affairs Letter CA 09–13
(Dec. 4, 2009), noted that loan modifications can
involve an ‘‘application’’ for an ‘‘extension of
credit’’ within the meaning of Regulation B. See
Consumer Affairs Letter CA 09–13, Mortgage Loan
Modification and Regulation B’s Adverse Action
Requirement (2009), available at http://
www.federalreserve.gov/boarddocs/caletters/2009/
0913/caltr0913.htm. The Board determined that
certain transactions under the U.S. Department of
Treasury’s Making Home Affordable Modification
Program (HAMP) then in place did involve
applications for extension of credit within the
meaning of Regulation B. Guidance issued by the
Board prior to the transfer of ECOA rulemaking
authority to the Bureau will be applied by the
Bureau absent further action. 76 FR at 43570 (July
21, 2011).
32 Similarly, questions about the rule’s coverage
of temporary loans, such as bridge or construction
loans, and renewals of credit, relate to the overall
scope of Regulation B. The final rule is not intended
to address whether these loans are subject to ECOA
in the first place. If a temporary loan or a renewal
is subject to ECOA, and an appraisal or other
written valuation is developed for that loan, then
the applicant has a right to receive a copy under
the final rule. This approach is consistent with
existing comment 14(a)(1)–2 concerning the
application of § 1002.14 to renewals, which is
maintained in the final rule.
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about the value of their dwelling, both
in the context of making a decision
about the loss mitigation transaction
and also in detecting potential
discrimination, consistent with the
purposes of ECOA. The Bureau believes
these benefits outweigh the cost to the
creditor of providing copies of
documentation that the creditor already
has received. For the reasons discussed
in the Bureau’s analysis under section
1022(b) below, the Bureau believes the
per-loan cost of providing copies of
these materials is modest, and they will
often be provided in electronic form.
The Bureau is therefore not exercising
its exception authority to exempt loss
mitigation transactions from § 1002.14 if
those transactions would otherwise be
covered by Regulation B.33
While the Bureau has considered the
comment that the final rule should
apply to second lien transactions
because they are higher risk, it is not
expanding the scope of the final rule to
include second liens because such an
expansion would be inconsistent with
the plain meaning of section 701(e). The
Bureau notes that the Dodd-Frank Act
specifically limited the scope of ECOA
section 701(e) to ‘‘first liens,’’ while
applying the overlapping requirements
under section 129H of TILA to certain
subordinate lien loans that meet the
definition of ‘‘higher risk mortgage.’’
The commenters have not presented
data or other specific information
warranting a departure from the plain
language of ECOA section 701(e).
The final rule maintains comment
14(a)(1)–2, pertaining to credit renewals,
with minor changes for consistency and
clarity. Comment 14(a)(1)–2 clarifies
that creditors must provide copies of
appraisals or other written valuations
prepared in connection with credit
renewals requested by the applicant.
Whether an applicant has requested a
credit renewal, and when such an
application is received for purposes of
the timing requirements under
§ 1002.14(a)(2), depend on the facts and
circumstances of an individual
transaction. The remaining part of
comment 14(a)(1)–2, clarifying that the
rule does not apply to the use of an
appraisal or other written valuation that
was developed for a prior extension of
credit, is adopted as proposed. Because
the creditor in a prior transaction
33 With respect to the comment suggesting that
‘‘consummation’’ is not necessarily occurring in the
loan modification context, the Bureau is not
persuaded that this is necessarily the case. The term
‘‘consummation’’ in Regulation Z is defined as the
time the consumer becomes ‘‘contractually
obligated on the credit transaction.’’ A loan
modification can occur contractually, and take
effect on a date certain.
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covered by the final rule would already
have been required to provide a copy of
an appraisal or other written valuation
to the applicant, requiring the creditor
in the subsequent transaction to provide
another copy of that appraisal or other
written valuation would be
duplicative.34 The Bureau is therefore
finalizing comment 14(a)(1)–2 largely as
proposed.
In response to industry comments, the
Bureau has added new comment
14(a)(1)–7, which clarifies what copies
must be provided in the event there are
multiple versions of an appraisal or
other written valuation. The comment
clarifies that, if a creditor receives
multiple versions of a particular
appraisal or other written valuation,
then the creditor is required to provide
a copy of only the latest version
received by the creditor. (See also the
discussion of comment 14(a)(1)–4 below
concerning application of the timing
requirements in common situations
where there are multiple versions of a
particular appraisal or other written
valuation.) The Bureau believes this
comment is consistent with the
language of ECOA section 701(e)(1)
requiring copies of appraisals and other
valuations to be provided promptly
upon ‘‘completion.’’ The ‘‘latest version
received’’ rule thus clarifies that when
creditors have multiple versions of a
particular appraisal or valuation, they
are only required to provide the latest
version. The Bureau believes that this
guidance will help avoid placing
unwarranted burden on creditors and
overloading consumers with multiple
drafts of a particular appraisal or other
written valuation.
The Bureau notes, however, that the
separate requirements of § 1002.14(a)(1)
for the timing of providing copies to
applicants will still apply. The
application of the timing requirements
to situations in which there are multiple
versions of a particular valuation is
further discussed below.
Comment 14(a)(1)–7 also clarifies that
if a creditor provides a version of an
appraisal or other written valuation that
is later superseded, then the creditor
still must provide the latest version.
While the Bureau recognizes that this
guidance could result in instances in
which consumers receive multiple
versions of a particular appraisal or
other written valuation, it does not
believe that this result can be avoided
given the statutory requirements.
34 To the extent that an appraisal or other written
valuation is developed in connection with an
application received before January 18, 2014, it
would not be subject to the final rule.
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Comment 14(a)(1)–7 further clarifies
that a copy of at least one version of
each appraisal or other written
valuation must be provided. The Bureau
believes this comment is needed to
ensure compliance with the statutory
requirement that the applicant receive a
copy of ‘‘any and all’’ appraisals or
other written valuations ‘‘developed’’ in
connection with an application. A rule
requiring only ‘‘final’’ versions to be
provided would not be consistent with
the statutory requirement, because it
would allow creditors to withhold a
valuation that they determine is a draft
or preliminary, even if they never
receive a later version. The statute does
not distinguish between valuations that
are preliminary and those that are final
or valuations that the creditor chooses
to rely on and those it does not.
Additionally, the Bureau does not
believe that such a rule would be
consistent with the purposes of ECOA’s
requirement regarding furnishing copies
of appraisals and other written
valuations. The chief purpose of this
provision is to promote transparency
regarding the loan process to assist
applicants in determining whether they
may be the victims of discrimination.
This purpose would be frustrated if
creditors could subjectively determine
which valuations to provide.
Accordingly, comment 14(a)(1)–7
clarifies that when there is only one
version of a particular appraisal or other
written valuation, a copy must be
provided to the applicant regardless of
whether the creditor relied on it or
viewed it as being preliminary.
Timing and Waiver
tkelley on DSK3SPTVN1PROD with
ECOA section 701(e)(1), requires that
creditors provide copies of each
appraisal or other written valuation
promptly upon completion, but in no
case later than three days prior to the
closing of the loan. Accordingly,
proposed § 1002.14(a)(1) stated that a
creditor must provide a copy of each
appraisal or other written valuation
subject to § 1002.14(a)(1) promptly
(generally within 30 days of receipt by
the creditor), but not later than three
business days prior to consummation of
the transaction, whichever is first to
occur.35 The reference to providing the
copy generally within a 30-day time
frame was proposed to maintain
consistency with the existing
requirements of § 1002.14(a)(2)(ii).
35 For clarity and to be consistent with other
similar regulatory requirements under TILA and
RESPA, the Bureau proposed to use the term
‘‘consummation’’ in place of the statutory term
‘‘closing’’ and to clarify that the statutory term ‘‘3
days’’ means ‘‘three business days.’’
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ECOA section 701(e)(2) provides that
an applicant may waive the three-day
requirement provided in ECOA section
701(e)(1), except where otherwise
required by law. Accordingly, proposed
§ 1002.14(a)(1) would have provided
that, notwithstanding the other
requirements in § 1002.14(a)(1), an
applicant may waive the timing
requirement in the proposal to receive a
copy of an appraisal or other written
valuation three business days prior to
consummation and agree to receive the
copy at or before consummation, except
as otherwise prohibited by law. As
discussed in the proposal, the Bureau
did not propose that such waivers
extend to the requirement that copies of
appraisals and other written valuations
be provided in the case of an
application that is withdrawn,
incomplete, or denied. The Bureau also
proposed a new comment 14(a)(1)–4
that would clarify that waivers under
§ 1002.14(a)(1) are permitted if the
applicant makes an affirmative oral or
written statement (which can be made
by any one applicant in the case of a
multiple-applicant transaction) and if
the creditor provides the copies of all
appraisals and other written valuations
at or before consummation.
Public comment. Some commenters
addressed certain aspects of the timing
requirement, including the waiver
provision.36 A few commenters
suggested shortening the proposed
general 30-day time limit, to ensure that
consumers receive copies of the
appraisals and other written valuations
at an earlier point in the transaction
when they are most useful (and can, for
example, inform price negotiations). An
organization advocating for affordable
housing suggested a deadline of three
days after the creditor’s approval, while
a real estate agent trade association
suggested 10 days after receipt, and an
appraisal group suggested 20 days after
receipt.
A large lending institution opposed a
per se time limit, such as 30 days,
however. This commenter suggested
that removing the reference to 30 days
would ensure lenders can provide an
integrated package that includes all
appraisal and other valuation
documents. Otherwise, an appraisal
received earlier in the application
process potentially would need to be
disclosed before a valuation received
later. Other industry commenters
embraced the requirement to provide
copies of the appraisals and other
36 One commenter also expressed concern that the
term ‘‘consummation’’ is not plain English, and that
a deadline based upon this term could be difficult
to understand. This comment is discussed further
below in the analysis of § 1002.14(b)(1).
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written valuations three business days
before consummation, without
expressing support for the 30-day limit
in the timing requirement. One industry
commenter suggested, however, that the
30-day limit should apply in the case of
an incomplete application. Another
industry commenter suggested the time
period for providing copies should not
begin until the application is
‘‘complete’’ within the meaning of
Regulation B, § 1002.2(f).
One large lending institution
requested that the Bureau exercise its
exception authority to allow creditors to
provide copies of non-substantive
changes to appraisals and other written
valuations, such as typographical errors,
at consummation. This commenter
believed that without this exception, the
applicant could receive multiple
versions of the same document, with
only non-substantive differences. The
commenter expressed concern that this
result would distract consumers and
interfere with their ability to analyze the
information received.
Finally, one commenter suggested
counting the day of consummation for
purposes of the three-business-day
requirement, and the day of receipt for
purposes of the proposed general 30-day
limit.
Commenters generally supported the
proposed provision granting the
borrower the right to waive the threebusiness-days-before closing
requirement for providing copies of the
appraisal or other written valuation so
that the copies can be provided at or
before closing; no comments opposed
the proposal to allow for a waiver.
Several commenters noted that a waiver
right would be important to prevent
delayed closings. A few comments
requested that the final rule provide
additional guidance on what constitutes
a valid waiver. One creditor trade
association suggested this guidance be
provided in the form of a safe harbor,
including explicit authorization for
creditors to seek waivers. Two other
creditor trade associations also sought
confirmation that creditors could inform
consumers of their ability to provide
waivers. An appraisal industry
commenter suggested, however, that
before a creditor could seek a waiver,
the creditor should provide a full
explanation of the value of receiving the
copies in a prompt manner, such as the
value the copy may have in negotiations
where the valuation estimate is below
the originally agreed-upon price.37 A
creditor also requested guidance on
37 This commenter also questioned the logic of
allowing one applicant in a multi-applicant
transaction to waive the timing for all applicants.
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whether the waiver can be provided
within three days prior to
consummation. This commenter cited
instances where a delay in receipt of a
final appraisal due to minor corrections
resulted in a delayed closing because a
waiver had not already been executed
three or more days before closing.38 A
credit union commenter went further,
arguing that consumers should be
allowed to waive the timing
requirement, regardless of whether the
corrections are minor.
Discussion. For the reasons explained
below, proposed § 1002.14(a)(1) and its
accompanying commentary are being
revised to clarify the timing and waiver
provisions of the rule. The timing
requirement in § 1002.14(a)(1) is revised
to provide greater clarity. In addition,
the final rule includes new comments
14(a)(1)–4 and 5 to clarify the timing
requirement. The final rule adopts
proposed comment 14(a)(1)–4 regarding
waiver with clarifications and
renumbers it as comment 14(a)(1)–6.
As proposed, § 1002.14(a)(1) would
have required providing copies
‘‘promptly (generally within 30 days of
receipt by the creditor), but not later
than three business days prior to
consummation of the transaction,
whichever is first to occur.’’ Several
commenters sought clarification and
explanation of this proposed timing
requirement, which had merged
language from ECOA section 701(e) as
amended and existing § 1002.14. For the
reasons discussed below, the Bureau is
revising this language to provide a
simpler rule: The copy must be
provided promptly upon completion of
the appraisal or other written valuation,
or three business days before
consummation (for closed-end credit) or
account opening (for open-end credit),
whichever is earlier. The Bureau is
including the reference to ‘‘account
opening’’ to accommodate the
application of § 1002.14(a)(1) to openend credit transactions and for
consistency with Regulation Z.
Regulation Z does not use the term
‘‘consummation’’ for open-end credit
secured by a dwelling. See, e.g.,
§ 1026.40 (referring to ‘‘opening’’ of
home equity plans).
New comments 14(a)(1)–4 and 5
clarify that the ‘‘promptly upon
completion’’ standard is applied based
upon the facts and circumstances and
provide illustrative examples of
situations in which the timing
requirement would or would not be met.
38 While the commenter did not identify which
existing standards may have caused such closing
delays, the Bureau notes that this type of problem
may arise under GSE Appraisal Independence
Requirements discussed below.
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Comment 14(a)(1)–4.v clarifies that in
the absence of a waiver (see discussion
below), the ‘‘promptly upon
completion’’ requirement governs even
if no consummation or account opening
occurs.
Based upon industry comments
noting that appraisals and other
valuations may undergo review and
revision, the Bureau believes that basing
the ‘‘promptly’’ standard upon the date
of receipt could interfere with creditors’
review processes or lead to copies being
provided to consumers before the
review processes are complete. In
addition, using the date of receipt as a
point of reference could create
confusion and uncertainty, as the DoddFrank Act amendment of section 701(e)
refers to ‘‘promptly upon completion.’’
Therefore the final rule does not
mandate using the date of receipt as the
reference point for the timing
requirement.39
The Bureau also is not finalizing the
use of a fixed time period from the
creditor’s receipt of the appraisal as the
general standard for determining
whether copies are promptly provided
to applicants. Upon further
consideration, and in light of the public
comments received, the Bureau believes
that a time period of 30 days of receipt
may not result in promptly providing
copies to applicants in many instances.
Congress’ use of the term ‘‘promptly
upon completion’’ evidences an intent
that applicants should be provided with
copies of valuations without delay. As
some commenters noted, the earlier
these copies are received in the loan
process, the more helpful they are to
consumers in analyzing the transaction.
Applying a fixed 30-day timing
requirement could result in applicants
not receiving copies of valuations until
late in the loan process, even when
these valuations have been completed
weeks earlier. Thus the final rule does
not generally apply a fixed time of 30
days.40
39 Similarly, the Dodd-Frank Act amendment of
section 701(e)(1) also requires that the creditor
provide applicants with copies of appraisals and
other valuations promptly upon their completion,
even if the application is incomplete, withdrawn,
or denied. Therefore, the Bureau is not adopting the
suggestion of one commenter to tie the timing of
providing copies to the timing of the ‘‘completed’’
application under Regulation B.
40 As noted above, a large creditor suggested if
there are multiple valuations, some of which are
prepared or finalized later in the origination
process, a period longer than 30 days from receipt
of the first valuation could be needed to provide an
integrated package of valuation copies to
consumers. While the Bureau appreciates that an
integrated package that includes all of the
appraisals or other written valuations developed in
connection with the application may be helpful to
applicants, the Bureau believes that this approach
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However, as a large bank commenter
noted, mandating a fixed time frame
could reduce the chance that an
integrated set of materials could be
provided in a transaction involving
several types of valuations. Similarly,
mandating a fixed time frame of any
kind could increase the chances that the
creditor would need to make multiple
deliveries of copies of appraisals or
other valuations. For example, if a
creditor receives a valuation from an
AVM earlier in the application process,
and the fixed time period were to elapse
before the appraisal is complete, then
the creditor would be required to send
the copy of the AVM out before the copy
of the appraisal.41 This would increase
burden on creditors, due to an increase
in the number of transactions in which
creditors would need to make multiple
deliveries of copies to applicants.
In addition, the Bureau notes that a
fixed time period is not specified in
industry guidelines such as
requirements used by the GSEs which
purchase or guarantee a significant
number of first lien mortgage
transactions annually. The timing
requirement for providing copies of
appraisals in these recently-adopted
GSE guidelines is based upon the Home
Valuation Code of Conduct (HVCC). The
HVCC—a standard that had been
previously adopted by FHFA in 2008
shortly before Congress began to draft
the Dodd-Frank Act—contained a
timing standard that is similar to that
ultimately included in ECOA section
701(e) as amended.42
For the reasons stated above, the
commentary to the final rule clarifies
that the meaning of the term ‘‘promptly
upon completion’’ depends upon the
could result in some of the valuations in the
integrated package not being provided promptly.
Further, the Bureau does not believe that the benefit
of this suggested approach would outweigh the
value to the applicant of receiving the copies earlier
in the transaction.
41 The time period creditors will need to review
appraisals also may change in the future, as rules
may be adopted by Federal banking agencies under
section 1473 of the Dodd-Frank Act, amending
section 1110 of FIRREA to provide for review of
appraisals for compliance with USPAP.
42 Fannie Mae Selling Guide, ‘‘Appraiser
Independence Requirements,’’ (Oct. 15, 2010),
available at https://www.fanniemae.com/content/
fact_sheet/air.pdf (Part III requires that ‘‘the
Borrower is provided a copy of any appraisal report
concerning the Borrower’s subject property
promptly upon completion at no additional cost to
the Borrower, and in any event no less than three
days prior to the closing of the Mortgage.’’); Freddie
Mac, Single Family Seller/Servicer Guide, Exhibit
35, Appraiser Independence Requirements (Oct. 15,
2010) (same). These requirements were
incorporated directly from Part II of the Home
Valuation Code of Conduct (Dec. 23, 2008), adopted
by Federal Housing Finance Agency, available at
http://www.fhfa.gov/webfiles/2302/
HVCCFinalCODE122308.pdf.
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facts and circumstances, including
when the creditor receives the appraisal
or other written valuation, and when
any review or revisions occur. New
comment 14(a)(1)–4 also clarifies when
‘‘completion’’ occurs for these purposes.
Completion occurs when the lender has
‘‘reviewed and accepted the appraisal or
other written valuation to include any
changes or corrections required,’’ or
when the creditor receives the last
version, whichever is later.43
This guidance is then illustrated by
several examples in new comment
14(a)(1)–5 of situations in which the
‘‘promptly upon completion’’ standard
would or would not be satisfied. While
the ‘‘promptly upon completion’’
standard does not provide the same
degree of certainty as a fixed time
period, the Bureau believes that the
statute specifically contemplates a
standard that is flexible.
The Bureau’s final rule implements
the statutory requirement that copies of
valuations be provided promptly upon
completion, but not later than three
days before consummation. As noted in
the 2012 ECOA Appraisals Proposal, the
Bureau is interpreting ‘‘days’’ as used in
the statute to mean ‘‘business days.’’
The Bureau did not receive comments
on this interpretation, and is adopting
this standard as proposed.
To ensure applicants actually receive
the mandated copies at least three
business days prior to consummation or
account opening (absent waiver), the
final rule includes additional guidance
in comment 14(a)(1)–4. Under this
comment, ‘‘provide’’—which is a
statutory term in ECOA section
701(e)(4) 44 that is similar to the term
‘‘furnish’’ in ECOA section 701(e)(1)—is
interpreted to mean delivery to the
applicant. The comment clarifies that
delivery occurs three business days after
mailing or delivering the copy to the
last-known address of the applicant, or
when evidence indicates the applicant
actually received the copies, whichever
43 See Fannie Mae, Appraiser Independence
Requirements Frequently Asked Questions (Nov.
2010), available at https://www.fanniemae.com/
content/faq/appraiser-independence-requirementsfaqs.pdf (question 46 stating that ‘‘[t]he word
‘completion’ is meant to reflect when the lender has
reviewed and accepted the appraisal to include any
changes or corrections required.’’); see also Freddie
Mac, Appraiser Independence Requirements
Frequently Asked Questions, available at http://
www.freddiemac.com/singlefamily/
appraiser_independence_faq.html#52 (question 52
stating that ‘‘[t]he terms ‘promptly upon
completion’ and ‘completed appraisal’ refer to
when the lender has reviewed and accepted the
appraisal to include any changes or corrections
required.’’).
44 ECOA section 701(e)(4) states, in pertinent part,
‘‘[T]he creditor shall provide a copy of each written
appraisal or valuation at no additional cost to the
applicant.’’
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is earlier. The Bureau believes this
clarification is consistent with the plain
meaning of the applicable terms
‘‘furnish’’ and ‘‘provide’’ in Dodd-Frank
Act section 1474. In addition, this
approach is generally consistent with
the proposed approach to the threebusiness-day timing requirement in the
2012 TILA–RESPA Proposal.45 This
clarification also should prevent
situations in which the creditor mails
copies of appraisals or other written
valuations to the applicant three
business days before consummation or
account opening, and the applicant does
not receive these materials until after
the consummation or account opening.
This clarification thus should ensure
that applicants have at least the
minimum amount of time contemplated
by section 701(e) to review these copies
before the transaction is consummated
or the account is opened.
While one commenter requested
including the day of consummation in
the three-business-day time period that
is part of § 1002.14(a)(1), the final rule
does not adopt this approach. Under
this approach, if a closing were to occur
at 9 a.m. on a Friday, copies of the
appraisals and other written valuations
could be disclosed at 11:59 p.m. on the
preceding Wednesday via email. This
would leave the consumer with
effectively only one day to review the
materials, which would be inconsistent
with the three-day requirement in the
statute.
The waiver provision in
§ 1002.14(a)(1) is revised to clarify that
a waiver applies to both components of
the general timing requirement, and not
only to one aspect of it. As proposed,
the waiver would have applied to only
one component of the proposed timing
requirement, the requirement that
copies be provided three business days
before closing. Read literally, the
proposed waiver provision would not
have applied to the other component of
the timing requirement, the requirement
that copies be provided ‘‘promptly.’’ As
a result, as proposed, applicants would
only have been permitted to partially
waive the timing requirement.
Upon further consideration, the
Bureau interprets section 701(e)(2) to
permit consumers to provide a waiver of
both components of the timing
requirements. Otherwise, the effect of a
waiver would be unclear, providing a
disincentive for applicants and creditors
to avail themselves of this provision,
even where a waiver would be in the
applicant’s interest. Additionally, to the
45 See 77 FR 51116 at 51313–14, 51427 (Aug. 23,
2012) (proposed § 1026.19(f)(1)(iii) and
commentary).
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extent that the Bureau’s final rule
departs from the language of the statute
in this regard, the Bureau relies on its
authority under section 703(a) to make
provisions and adjustments to effectuate
the purposes of and facilitate or
substantiate compliance with ECOA.
The Bureau finds that this adjustment is
warranted to ensure creditors’ ability to
obtain and applicants’ ability to provide
a valid waiver of the timing
requirements of § 1002.14(a)(1).
The Bureau is finalizing the provision
in proposed § 1002.14(a)(1) that waiver
is permitted ‘‘except where otherwise
prohibited by law.’’ No commenters
specifically addressed this provision in
the proposed rule, which is based upon
the statutory language in ECOA section
701(e)(2). The Bureau continues to
believe this limitation is important to
clarify that other provisions of law may
not permit waiver. For example, the
2013 Interagency Appraisals Final Rule
under TILA section 129H does not
provide for a waiver of the timing
requirement for providing copies of
written appraisals no later than three
business days before consummation.
With respect to the form of the
waiver, the Bureau is finalizing in
renumbered comment 14(a)(1)–6 the
provision in proposed comment
14(a)(1)–4 allowing for an affirmative
oral or written statement.46 A more
prescriptive, rigid, or specific set of
requirements as to the form of the
waiver could unduly restrict the
applicant’s ability to exercise the waiver
right. By allowing for an affirmative oral
or written waiver, the final rule is
designed to allow creditors to apply
existing practices such as the standards
for waiver of the appraisal copy
requirement under the Appraisal
Independence Requirements applied by
certain GSEs.47 If the waiver resulted in
46 Where there are multiple applicants, the final
rule adopts the proposed approach of allowing one
applicant to waive the timing requirement. This
approach is consistent with the 2013 Interagency
Appraisals Final Rule being adopted under section
129H of TILA. Comment 14(a)–1 is revised to clarify
that the waiver must be provided by the primary
applicant where one is readily apparent. This
change is designed to ensure that in multiple
applicant transactions, the individual providing the
waiver generally is the same individual who would
be receiving the documents.
47 See Fannie Mae, Appraiser Independence
Requirements Frequently Asked Questions (Nov.
2010) (question 45 stating that Fannie Mae ‘‘does
not specify what form the waiver must take or
whether it be oral or written. In addition, [the
Appraiser Independence Requirements standard]
does not prohibit that a waiver, given in a timely
manner, be recorded at some later point when the
parties are available. … For example, a lender may
obtain a waiver from a borrower through an email,
phone call, or some other means, prior to the threeday period, and then have that waiver recorded in
writing at the settlement table or at some other
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an applicant not receiving an appraisal
or other written valuation at all or until
after consummation or account opening,
a more prescriptive approach might be
warranted. Under the final rule,
however, even if the waiver is obtained,
creditors are still required to provide the
required copies at or before
consummation or account opening.
With respect to when the waiver must
be provided, § 1002.14(a)(1) is revised in
the final rule. ECOA section 701(e) is
silent on when the waiver must be
provided. As noted above, several
industry commenters asked the Bureau
to provide more guidance on how
waivers can occur. The Bureau believes
that further clarity on when applicants
can provide waivers is important. Under
§ 1002.14(a)(1) in the final rule, as
further clarified in comment 14(a)(1)–6,
waivers can be provided in either of two
situations: generally before three
business days of consummation or
account opening,48 or within three
business days of consummation or
account opening if certain conditions
are met.
The Bureau believes that, in general,
requests for waivers should not be
presented to consumers less than three
business days before consummation or
account opening. Permitting such
requests would, in the Bureau’s view,
present a risk that consumers would feel
unduly pressured to provide waivers in
order to avoid delays in closing and that
creditors could use such waivers to cure
previous violations of the rule’s timing
requirements. The Bureau is adopting in
§ 1002.14(a)(1) an exception to this
general rule, however, governing
treatment of waivers pertaining to
copies of appraisals or other written
valuations containing correction of
clerical errors in previously-provided
copies.
Section 1002.14(a)(1) and the
associated comment 14(a)(1)–6.ii
therefore clarifies that an applicant can
provide a waiver within three business
days of consummation or account
opening in the following circumstance:
the creditor receives a revised version of
an appraisal or other written valuation
time.’’); see also Freddie Mac, Appraiser
Independence Requirements Frequently Asked
Questions, Questions 45–46.
48 See Freddie Mac, Appraiser Independence
Requirements Frequently Asked Questions
(question 43 stating that ‘‘[i]f the borrower waives
the requirement the waiver must be obtained three
days prior to the closing of the mortgage.’’); see also
Fannie Mae, Appraiser Independence Requirements
Frequently Asked Questions (Nov. 2010) (question
45 stating that ‘‘[s]ituations in which a borrower is
unaware of his or her right to a copy of the
appraisal prior to the three days and is then
provided a waiver of that right at the closing table
would not be compliant with the intent of [the
Appraiser Independence Requirements]’’).
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that the applicant already received three
business days before consummation or
account opening. The option to provide
a waiver in this situation would only
apply, though, if each of the following
criteria are met: (1) The revisions are
solely to correct clerical errors in that
appraisal or other written valuation; (2)
the revisions have no impact on the
estimated value; (3) the revisions have
no impact on the calculation or
methodology used to derive the
estimate; and (4) the applicant receives
the copy of the revised appraisal or
other written valuation at or prior to
consummation or account opening. The
Bureau believes this approach strikes an
appropriate balance by allowing
consumers to exercise their waiver right
to avoid delays in closing due to lastminute, purely clerical corrections in
appraisals and other written
valuations.49
Finally, the Bureau is adding language
to § 1002.14(a)(1) to clarify the timing
requirement in situations where the
applicant has provided a waiver, but no
consummation or account opening
occurs. In that instance, the copy must
be provided no later than 30 days after
the creditor determines the transaction
will not be consummated or the account
will not be opened. In the absence of a
statutory timeframe applicable to this
situation, the Bureau is exercising its
authority under ECOA section 703(a) to
adopt a reasonable period for providing
copies. The Bureau believes that
providing a clear rule will reduce
compliance burden and risks for
creditors, while ensuring that
consumers receive copies in a timely
fashion. Additionally, the timeframe
adopted uses familiar timeframes from
longstanding timing requirements for
providing copies of appraisals under
existing § 1002.14(a)(2)(ii).50
Delivery of Copies of Appraisals and
Other Written Valuations
Section 1474 of the Dodd-Frank Act
amended ECOA section 701(e) to
49 This approach also is supported by other
mortgage regulations that allow for technical
revisions of materials otherwise due to the
consumer prior to consummation. See, e.g., RESPA
Regulation X, § 1024.8(c), providing an exception
for the timing of a disclosure of a HUD–1 settlement
statement which makes a technical correction; see
also the Bureau’s 2012 TILA–RESPA Proposal,
proposed § 1026.19(f)(2)(iv), which would provide
an exception for the timing of a disclosure due to
clerical errors, and proposed comment 19(f)(2)(iv)–
1 (clarifying that ‘‘an error is clerical if it does not
affect a numerical disclosure’’).
50 Tying this timing requirement to a different
point in time, such as receipt of an appraisal or
other written valuation, could result in creditors
who have received waivers not being able to
comply when more than 30 days elapse between
receipt and a decision not to consummate the
transaction or open the account.
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mandate that creditors provide copies of
appraisals and other written valuations
regardless of whether the consumer
affirmatively requests such copies.
Accordingly, the Bureau proposed to
remove current § 1002.14(a)(1) and (2),
which permitted creditors to choose
between the ‘‘routine delivery’’ and
‘‘delivery upon request’’ methods of
complying with the requirements of
§ 1002.14. Further, proposed comment
14(a)(1)–1 clarified that if there is more
than one applicant, the disclosure about
appraisals and the provision of copies of
appraisals need only be given to one
applicant, but they must be given to the
primary applicant where one is readily
apparent.
Public comments. An appraisal group
commenter suggested that the rule
should require providing copies to all
applicants in a multi-applicant
transaction, if consent has been given to
provide the copies by electronic means.
Another industry commenter requested
clarification of whether delivery can be
made to the same address for multiple
applicants. Finally an industry
commenter asked whether delivery can
be made to the last-known address.
Discussion. With respect to whether
copies of appraisals and other written
valuations can be sent to the last known
address, new comment 14(a)(1)–4
provides that copies of appraisals and
other written valuations are deemed
‘‘provided’’ three days after they are
mailed to the last known address of the
applicant. See also comment 9–3
(adopting the ‘‘last-known address’’
standard for adverse action notices). The
Bureau does not believe the other
requested clarifications regarding this
provision are necessary. The
commentary makes clear that the
creditor is required to deliver the
materials only to one applicant in a
multiple-applicant transaction.
The final rule also does not adopt the
suggestion by an appraisal industry
group commenter of requiring copies of
appraisals and other written valuations
to be sent to all applicants in a multipleapplicant transaction, if the copies are
being sent by electronic means. Having
different rules for different means of
communication of the copies would
introduce additional complexity,
especially if not all of the applicants
have consented to electronic
disclosures. This could have the
unintended effect of discouraging
creditors from adopting electronic
delivery methods. Even if all applicants
have consented to delivery by electronic
means, the approach suggested by the
commenter does not override the
general principle that providing copies
to one applicant (such as the primary
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applicant) in a multiple-applicant
transaction is sufficient. Indeed, the
suggestion of this one industry
commenter was not reflected by other
commenters, whether in industry or on
behalf of consumers. The Bureau
therefore believes that a uniform
requirement, allowing copies to be
provided to one applicant regardless of
how they are provided, will best
facilitate compliance.
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14(a)(2) Disclosure
ECOA section 701(e)(5) requires that,
at the time of application, the creditor
‘‘notify an applicant in writing of the
right to receive a copy of each written
appraisal and valuation’’ under section
701(e). Accordingly, the Bureau
proposed in section 1002.14(a)(2) that,
not later than the third business day
after the creditor receives an application
subject to § 1002.14(a)(1), a creditor
shall provide an applicant with a
written disclosure of the applicant’s
right to receive a copy of all appraisals
and other written valuations developed
in connection with such application.
Content
Title XIV of the Dodd-Frank Act
added two new appraisal-related
disclosure requirements for consumers.
New section 701(e)(5) of ECOA, which
is implemented in this final rule,
provides as follows: ‘‘At the time of
application, the creditor shall notify an
applicant in writing of the right to
receive a copy of each written appraisal
and valuation under this subsection.’’
15 U.S.C. 1691(e)(5). Similarly, section
129H(d) of TILA, as added by the DoddFrank Act, provides as follows: ‘‘At the
time of the initial mortgage application,
the applicant shall be provided with a
statement by the creditor that any
appraisal prepared for the mortgage is
for the sole use of the creditor, and that
the applicant may choose to have a
separate appraisal conducted at the
expense of the applicant.’’ 15 U.S.C.
1639h(d). In the absence of regulatory
action to harmonize the two provisions,
creditors would be required to provide
two appraisal-related disclosures to
consumers for certain loans (i.e., a TILA
and an ECOA disclosure for higher-risk
mortgage loans secured by a first lien on
a consumer’s principal dwelling) and
just one for certain others (i.e., an ECOA
disclosure for first-lien, dwellingsecured loans that are not higher-risk
mortgage loans, or a TILA disclosure for
higher-risk mortgage loans secured by a
subordinate lien).
Given that the ECOA and TILA
disclosures were both created by the
same legislation (the Dodd-Frank Act) to
address overlapping subject matter
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(provision of copies of appraisals) in
many of the same transactions (first
liens secured by dwellings), the Bureau
believes that Congress did not intend
the disclosure requirements to be
implemented in a disjointed manner
that might cause consumer confusion
and compliance burden for creditors. As
explained in the proposal, the Bureau
believes the combined disclosure will
allow for additional text necessary to
promote consumer comprehension,
while also reducing compliance burden
for industry by allowing for a single
disclosure to satisfy both statutory
requirements. Accordingly, the Bureau
believes this approach serves the
interests of consumers, the public, and
creditors. On this basis, the Bureau
proposed to exercise its authority under
section 703(a) of ECOA and section
1405(b) of the Dodd-Frank Act to
conform the two disclosure
requirements. In connection with the
proposed § 1002.14(a)(2) requirement of
notifying applicants of their ‘‘right to
receive a copy of all written appraisals
and valuations developed in connection
with [their] application,’’ the Bureau
proposed revising the sample disclosure
form C–9 for appraisals in Regulation B
to include language to satisfy the new
appraisal-related disclosure
requirements of both ECOA and TILA.
As part of its larger Know Before You
Owe public outreach project, which is
described in more detail in Part III
above, the Bureau tested several
versions of the new appraisal-related
disclosures, all of which combined the
disclosures required by both ECOA
section 701(e) and TILA section 129H.
This testing included consumers and
industry participants.51 The Bureau
believed that it was important to test
both disclosures together in order to
determine how best to provide
disclosures required by ECOA section
701(e) and TILA section 129H in a
manner that would minimize consumer
confusion and improve consumer
comprehension. Testing showed that
consumers tended to find the combined
TILA and ECOA disclosures confusing
when they used specific language set
forth in the statute. Consumer
comprehension improved when the
Bureau developed a slightly longer plain
language disclosure that was designed
to incorporate the elements of both
statutes.52 Based upon the results of that
51 Kleimann Comm. Gp., Inc., Know Before You
Owe: Evolution of the Integrated TILA–RESPA
Disclosures 254–256 (July 9, 2012), available at
http://files.consumerfinance.gov/f/
201207_cfpb_report_tila-respa-testing.pdf.
52 Id. The discussion in the section-by-section
analysis of this final rule is limited to the testing
of the disclosure to be provided in connection with
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testing, the Bureau developed and tested
the following sample disclosure
language it proposed to include in Form
C–9: ‘‘We may order an appraisal to
determine the property’s value and
charge you for this appraisal. We will
promptly give you a copy of any
appraisal, even if your loan does not
close. You can pay for an additional
appraisal for your own use at your own
cost.’’
Public comment. Industry
commenters generally supported
development of sample disclosure
language that meets the disclosure
requirements of both ECOA section
701(e) and TILA section 129H.
Commenters said this approach would
increase consumer understanding and
reduce creditor burden and cost,
eliminating the need for multiple,
partially duplicative disclosures.
Several commenters requested that the
sample disclosure include additional
clarifying language.
First, some industry commenters
suggested the sample disclosure include
an explanation of creditor use of
applicant-ordered appraisals. These
comments suggested that applicants
should either be told that creditors are
prohibited from using such appraisals,
or that borrowers should be notified that
creditors are under no obligation to use
the appraisals. One commenter also
suggested that confusion on this issue
could be avoided by simply removing
language concerning the right of
applicants to order their own appraisals.
Comments by two national associations
of creditors suggested the final rule
provide guidance confirming that
creditors could vary the text of the
disclosure to exclude the sentence about
applicant-ordered appraisals, as ECOA
did not require this sentence.53
Second, several industry commenters
urged the Bureau to include the word
‘‘valuation’’ in the sample consumer
disclosure describing the materials the
consumer may receive. Commenters
generally believed this additional
language would help consumers to
understand that some of the information
they receive may not be appraisals, and
a consumer’s application, which is the portion of
the testing relevant to the appraisal-related
disclosure required by § 1002.14(a)(2). As discussed
in the supplementary information to the 2012
RESPA–TILA Proposal, the Bureau and Kleimann
also tested prototype designs for the integrated
disclosure forms to be provided in connection with
the closing of the mortgage loan and real estate
transaction. See the Bureau’s 2012 TILA–RESPA
Proposal, available at http://consumerfinance.gov/
regulations/.
53 An industry commenter also was concerned
that applicants might think they could order their
own appraisals directly from the creditor, because
the creditor was providing the disclosure.
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in some cases they might not receive an
appraisal.
Other industry commenters offered
other suggestions. These ranged from
informing consumers that the time
frame for ‘‘promptly’’ providing the
copies would begin from when the
creditor receives the appraisal or other
valuation, to advising consumers that
the creditor could charge for additional
copies of appraisals or other valuations
beyond the first copy provided.
Discussion. While the Bureau has
considered the comments described
above, the Bureau is adopting the
sample disclosure language in form C–
9 as proposed. The 2013 Interagency
Appraisals Final Rule under TILA
section 129H allows for an appraisal
notice that is the same as the language
in form C–9, thus preserving the option
of using a single disclosure to satisfy
both rules.
The Bureau is not modifying the
sentence regarding applicant-ordered
appraisals. The language informing
applicants they can order their own
additional appraisals is included in the
sample disclosure in form C–9 so that
this disclosure can also be used to
satisfy the requirements of the 2013
Interagency Appraisals Final Rule under
TILA section 129H, as discussed above,
and more broadly to educate consumers
(whether or not they are applying for a
higher risk mortgage subject to TILA
section 129H) on their right to order an
additional appraisal for their own use.
If this information were not included in
the sample disclosure, then it could not
be used to satisfy the requirements
under TILA section 129H and its
implementing regulation, the 2013
Interagency Appraisals Final Rule.
Therefore the final rule maintains this
portion of the sample disclosure in form
C–9. To address industry comments
suggesting borrowers might try to
compel lenders to use applicant-ordered
appraisals in an inappropriate manner,
new comment 14(a)(2)–1 is being
included in the final rule. This
comment clarifies that the rule does not
affect restrictions on creditor use of
applicant-ordered appraisals by
creditors. The Bureau does not believe,
however, that the concise, tested
language in the sample disclosure
should be expanded to discuss these
standards, which are complex and
subject to varying interpretations. For
example, industry commenters differed
in their views on whether or how
creditors may use these appraisals.
Elaborating on this language in the
sample disclosure to inform consumers
that creditors cannot use or are not
obligated to use the appraisals
applicants may order, without a more
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detailed explanation of the standards
governing the creditor conduct in the
appraisal process, could discourage
consumers from ordering their own
appraisal as a means of disputing the
appraisal ordered by the creditor, if they
were to choose to do so.54 Such
information could detract from
consumer comprehension of the
disclosure, and in any event is not
required by ECOA section 701(e).
On the issue of whether to include the
word ‘‘valuations’’ in the text of the
consumer disclosure, the Bureau is not
persuaded that this additional language
would improve consumer
comprehension and understanding.
Consumer testing of an earlier version of
the sample disclosure language,
conducted in connection with the
Bureau’s 2012 TILA–RESPA Proposal,
indicated that consumers preferred a
disclosure that did not include the word
‘‘valuation’’, as simpler and easier to
understand. While ECOA section 701(e)
calls for a disclosure that includes this
word, as noted above, the Bureau is
exercising its exception authority so that
the disclosure under section 701(e) can
be harmonized with TILA section 129H,
which, among other differences, does
not refer to ‘‘valuations.’’ Based upon
consumer testing indicating the
proposed text was easier to understand
without the word ‘‘valuation,’’ and
because allowing a single disclosure
option for creditors that satisfies both
regulations under ECOA section 701(e)
and TILA section 129H reduces creditor
burden and the volume of consumer
disclosures, the Bureau believes this
exception would facilitate compliance
and consumer understanding. If the
term ‘‘valuations’’ were included in the
text of the consumer disclosure, the
disclosure would not be the same as the
disclosure for subordinate lien
transactions (which are not subject to
section 701(e)), detracting from the
unified approach that industry
commenters widely supported.
Regardless, if a non-appraisal valuation
is developed in connection with a
creditor’s credit decision, then a copy of
that valuation must be provided under
the final rule. The final rule does not
regulate communications at the time the
valuation copy is provided. Creditors
may choose to include explanations of
54 See
12 CFR 1026.42(c)(3) (describing permitted
actions that do not conflict with appraisal
independence standards in § 1026.42(a)–(b)). While
one commenter suggested the sample disclosure
could lead borrowers to believe, incorrectly, that
they may order appraisals from the creditor,
consumer testing did not suggest this confusion is
likely. The Bureau therefore declines to alter the
sample disclosure to instruct applicants on how
they can order appraisals.
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7229
the non-appraisal valuation, if one is
provided. The Bureau believes that
allowing voluntary description by the
creditor at the point of providing copies
is preferable to mandating a more
complex up-front disclosure that could
generate consumer confusion. In
summary, the Bureau believes that the
unified disclosure benefits both
consumers and creditors because it
clearly communicates basic information
required by both ECOA section 701(e)
and TILA section 129H in one
disclosure.
The Bureau notes, however, that
proposed § 1002.14(a)(2) would have
required notifying applicants of their
right to receive not only an appraisal,
but also a ‘‘valuation.’’ This may have
led to some of the commenters’
suggestions of including the term
‘‘valuation’’ in the sample disclosure.
Accordingly, for the sake of clarity, and
to confirm that sample disclosure C–9
(whose text does not refer to the word
‘‘valuation’’) would satisfy the
disclosure requirement in
§ 1002.14(a)(2), the final rule modifies
the disclosure requirement to delete the
word ‘‘valuation.’’ 55 This change is
made based upon the same exercise of
the exception authority used to develop
form C–9, discussed above. The Bureau
believes this change will prevent
confusion as to what language is
required to be included in the
disclosure.56
The final rule also does not adopt
other changes industry commenters
suggested for the sample consumer
disclosure, as consumer testing did not
suggest these changes are necessary. For
example, the Bureau does not believe it
is necessary to modify the sample
disclosure to inform consumers that
applicants can be charged for additional
copies beyond the first copy. The
sample disclosure already only refers to
the right to receive ‘‘a copy’’ without
charge. Consumer testing did not
indicate that consumers were concerned
about what could happen if they wanted
additional copies. The Bureau also does
not believe that the sample disclosure
should be revised to state when the time
period for ‘‘promptly’’ providing the
copies begins. The sample disclosure
already states the creditor will promptly
provide a copy of an appraisal the
55 The word ‘‘valuation’’ also is removed from the
title of the sample disclosure, for consistency with
the disclosure requirement and the disclosure text.
56 In addition, because the sample disclosure is
not a mandatory disclosure, creditors may
voluntarily choose to refer to the term ‘‘valuation’’
in the disclosure unless prohibited by other
regulations (for example, if the sample language is
required to be included in the Loan Estimate under
any final TILA–RESPA Integration rule, and that
rule applies to the transaction).
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creditor may order in the future. This
language already implies that the
creditor will first need to receive and if
necessary review the original before it
makes copies. Consumer testing
indicated a strong preference for
succinct, focused language in the
appraisals disclosure, and did not
suggest consumers wanted additional
clarification on the precise nature of the
timing requirement.
Finally, to clarify the extent to which
the text in sample disclosure from C–9
can be modified by creditors, the Bureau
is revising the commentary. If the 2012
TILA–RESPA Proposal is adopted as
proposed, that rule would require
including in the TILA–RESPA Loan
Estimate the same language as this final
rule adopts in the sample disclosure
form C–9, without variation. On the
other hand, the 2012 TILA–RESPA
Proposal and the mandatory forms
proposed therein would not apply to
open-end credit or reverse mortgage
transactions. Therefore the potential to
modify the language in the sample
disclosure may depend on the
applicability of laws and regulations
other than ECOA and this final rule.
Comment Appendix C–1–ii therefore is
revised to clarify that creditors may
modify the model form C–9 unless
otherwise provided by law.57 This
comment, as revised, addresses the
commenter question of whether the
sentence in form C–9 referring to
applicant-ordered appraisals can be
modified (or deleted); as the comment
suggests, the sentence could not be
changed if the sentence is required by
another applicable regulation, such as
the consumer disclosure requirement in
the 2013 Interagency Appraisals Final
Rule under TILA section 129H
applicable to higher-risk mortgages.
This change to the commentary also
clarifies that this or any other
modification would not be permitted in
a transaction that is subject to the TILA–
RESPA rule that the Bureau finalizes in
the future, to the extent that final rule
maintains the mandatory forms from the
2012 TILA–RESPA Proposal.
Timing of Disclosure
ECOA section 701(e)(5) requires
creditors to notify applicants in writing,
at the time of application, of the right to
receive a copy of each appraisal and
other written valuation. The Bureau
interprets the phrase ‘‘at the time of
application’’ to require creditors to
provide the ECOA appraisal disclosure
not later than three business days after
57 This comment also is revised to refer to the
‘‘appraisal or other written valuations’’, consistent
with the scope of the final rule.
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receiving an application. The Bureau’s
proposed § 1002.14(a)(2) would have
required creditors to notify applicants in
writing, not later than the third business
day after a creditor receives such
application, of the right to receive a
copy of all appraisals and other written
valuations developed in connection
with such application.
This approach to the timing of the
notification is consistent with the
disclosure requirements of TILA and
RESPA. Currently, in transactions
subject to TILA and RESPA, creditors
are required to provide disclosures
required under TILA and RESPA not
later than the third business day after
receiving a consumer’s written
application.58 In its 2012 TILA–RESPA
Proposal to integrate the other TILA and
RESPA requirements, the Bureau has
proposed that the ECOA appraisal
disclosure be provided as part of the
Loan Estimate disclosure to be delivered
not later than the third business day
after application.59
The Bureau stated in the preamble to
its ECOA proposal that it believes this
approach is warranted because
providing the disclosure to applicants at
the same time as other similar
disclosures—and (once adopted) as part
of a broader integrated disclosure
document—would allow consumers to
read the notification in context with
other important information that must
be delivered not later than the third
business day after the creditor receives
the application. Such an approach could
reduce the number of pieces of paper
that consumers receive and facilitate
compliance by creditors.
Public comments. Many commenters
expressed support for the threebusiness-day time frame for the
disclosure to be made, consistent with
the current and proposed TILA–RESPA
approach. Several commenters cited the
ability to integrate the ECOA appraisal
disclosure into the integrated TILA–
RESPA Loan Estimate when adopted as
a reason for supporting the timing
requirement in the proposed rule. While
58 See, e.g., 12 CFR 1026.19(a)(1)(i) providing in
relevant part:
In a mortgage transaction subject to the Real
Estate Settlement Procedures Act that is secured by
the consumer’s dwelling * * * the creditor shall
make good-faith estimates of the disclosures
required by section 1026.18 and shall deliver or
place them in the mail not later than the third
business day after the creditor receives the
consumer’s written application.
59 2012 TILA–RESPA Proposal, at proposed
§§ 1026.19(e)(1)(iii) and 1026.37(m)(1), available at
http://www.consumerfinance.gov/regulations/.
Proposed § 1026.19(e)(1)(iii) provides as follows:
‘‘Timing. The creditor shall deliver the disclosures
required under paragraph (e)(1)(i) of this section not
later than the third business day after the creditor
receives the consumer’s application.’’
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one commenter suggested the disclosure
could be better timed as part of the
application process itself, other
commenters said it would be
burdensome for lenders to provide the
disclosure at that time. One commenter
also suggested the deadline for the
disclosure be extended to 10 business
days.
A large lending institution also
requested clarification on when the
disclosure must be given in business
transactions in which the use of a
dwelling as collateral is negotiated and
added as a term of the credit agreement
well after the initial application has
been submitted. In this type of situation,
the comment recommended that the
final rule either clarify that the
disclosure requirement applies only if
the initial loan application contemplates
the lender taking a first lien on a
dwelling, or provide the creditor an
opportunity to cure and provide the
disclosure at some later point in the
application process when it becomes
apparent a dwelling will be used as
collateral.
Discussion. Consistent with most of
comments received on the timing of the
disclosure, the final rule maintains the
three-business day timing requirement
for the reasons stated in the proposal.
This time period allows lenders to align
ECOA appraisal disclosures with TILA–
RESPA early disclosures in transactions
that are covered by TILA and RESPA.
Earlier timing requirements would place
additional burden on creditors, while
later timing requirements could result in
an unwarranted departure from the
statutory time frame. To ensure
consistency with the requirements of
TILA and RESPA, including section
129H of TILA, the final rule also
includes new conforming language in
§ 1002.14(a)(2) providing that the
disclosure shall be mailed or delivered
not later than the third business day
after the creditor receives the
consumer’s application.60
The final rule includes an exception
to this requirement, however. In the
case of an application for credit that is
not to be secured by a first lien on a
dwelling at the time of application, if
the creditor later determines the credit
will be secured by a first lien on a
dwelling, the creditor shall mail or
deliver the notice required under
§ 1002.14(a)(2) in writing not later than
the third business day after the creditor
determines that the loan is to be secured
60 In addition, if TILA disclosures are provided
earlier than three days after application, such as for
open-end credit under Regulation Z § 1026.40, the
creditor also could provide the disclosure required
under § 1002.14(a)(2) at that time, though the
creditor would not be required to do so.
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by a first lien on a dwelling. The Bureau
believes this is a reasonable
interpretation of the statute in the
absence of a specific provision in ECOA
section 701(e) on this point. ECOA
section 701(e)(5) calls for a notice ‘‘at
the time of application,’’ but does not
address the timing of the notice when
the creditor does not know at that time
that the credit will be secured by a first
lien on a dwelling. The Bureau is
therefore exercising its authority under
ECOA section 703(a) to provide a
timeframe for notification in this
situation to assist creditors in
complying with rule and to ensure that
applicants involved in these
transactions receive the notice.
The Bureau also notes that it did not
receive comments on its proposal to set
the start of the three-day time period as
the time when the creditor receives the
‘‘application.’’ The Bureau is finalizing
the use of this term as proposed.
Because Regulation B already defines
the term ‘‘application’’ in § 1002.2(f)
with reference to the creditor’s
‘‘procedures’’ for receiving a request for
credit, the Bureau believes this
approach will permit creditors to setup
their procedures to align the timing for
the appraisal notice with other
disclosure requirements.
14(a)(3) Reimbursement
ECOA section 701(e)(3) affirms that
creditors may require applicants to pay
reasonable fees to reimburse the creditor
for the cost of the appraisal, except
where otherwise required in law.
Section 701(e)(4) provides, however,
that creditors shall provide a ‘‘free’’
copy of each appraisal or other written
valuation at no additional cost to the
applicant. Accordingly, the Bureau
proposed § 1002.14(a)(3) to implement
section 701(e)(3) and (4), as added by
the Dodd-Frank Act, and provide greater
clarity. The Bureau stated in the
preamble to its proposal that it
interpreted these two provisions to
permit creditors to charge applicants
reasonable fees to reimburse the creditor
for costs of the appraisal or other
valuation itself, but not for
photocopying, postage, or similar costs
associated with providing one written
copy to the applicant. Thus the Bureau
proposed removing current comment
14(a)(2)(ii)–1, which permits creditors to
charge photocopy and postage costs
incurred in providing a copy to the
applicant.
The Bureau also proposed that
§ 1002.14(a)(3) affirm that creditors may
impose fees to reimburse the costs of
appraisals or other valuations. ECOA
section 701(e)(3) does not expressly
refer to valuations, and thus does not
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expressly permit or prohibit creditors
from charging reasonable fees to
reimburse the cost of valuations. The
Bureau stated that because ECOA
section 701(e)(3) does expressly permit
such fees for ‘‘appraisals,’’ legislative
intent with respect to other types of
‘‘valuations’’ is unclear. The Bureau
stated that it believed that there is both
consumer and industry benefit to
affirming that creditors may charge
reasonable fees for reimbursement for
all types of property valuations. Absent
such clarification, the statutory language
might be read as implicitly forbidding
creditors from charging reimbursement
fees for obtaining certain types of
valuations, such as broker-price
opinions or AVM reports, but not for
others, such as appraisals. The Bureau
stated that it did not believe that
Congress intended such a result, which
could create an incentive for creditors to
favor full appraisals over less costly
forms of valuation that may be
appropriate in particular
circumstances.61 Such a result would
impose additional costs on loan
applicants. Accordingly, the Bureau
proposed to interpret section 701(e)(3)
of ECOA as permitting creditors to
charge applicants a reasonable fee to
reimburse the creditor for the cost of
developing an appraisal or other
valuation, except as otherwise provided
by law. In proposing this interpretation,
to the extent necessary, the Bureau
proposed to rely on the authority
provided in ECOA section 703(a) to
provide adjustments and exceptions for
any class of transactions.
The Bureau proposed that comment
14(a)(3)–2 clarify that § 1002.14(a)(3)
would not prohibit the creditor from
charging a fee reasonably designed to
reimburse costs incurred in connection
with obtaining appraisal and other
valuations services, but would not
permit increasing the fee for the
appraisal or other valuation to cover
costs of providing documentation under
§ 1002.14. As stated in the proposal, the
Bureau believed that ECOA section
701(e)(3) and (4) did not call for more
prescriptive rate regulation of valuationrelated activities. By contrast, section
61 According to estimates for the average cost of
an appraisal provided by the U.S. Government
Accountability Office (GAO), consumers on average
pay $300–450 for full interior appraisal. See U.S.
Gov’t Accountability Office, GAO–11–653,
Residential Appraisals: Opportunities to Enhance
Oversight of an Evolving Industry, at 22 (2011).
Other forms of valuation, however, tend to cost less
than appraisals. Broker Price Opinions typically
cost $65–125; valuations derived from an AVM
typically cost $5–25. See id., at 17–18; see also U.S.
Gov’t Accountability Office, GAO–12–147, Real
Estate Appraisals: Appraisal Subcommittee Needs
to Improve Monitoring Procedures, at 39 (2012).
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1472 of the Dodd-Frank Act created
TILA section 129E, which specifically
imposes a criterion for appraiser fees—
that they be ‘‘reasonable and
customary’’ in the market area where
the property is located—and specified
various sources for determining whether
fees meet the standard. The Bureau
therefore stated that it did not believe
that Congress intended ECOA section
701, which focuses on the provision of
copies of written valuation documents
to loan applicants rather than the
substantive performance of appraisal
and other valuation services, to function
in such a manner. Accordingly, the
Bureau stated that it believed that
section 701(e)(3) and (4) is simply
designed to prevent direct or indirect
‘‘upcharging’’ related to the provision of
documents that is the focus of this
section of the statute.
To clarify the statutory language
stating that creditors cannot seek
reimbursement for the cost of the
appraisal ‘‘where otherwise required in
law,’’ the Bureau also proposed that
comment 14(a)(3)–2 note that other laws
may separately prohibit creditors from
charging fees to reimburse the costs of
appraisals, and are not overridden by
section 701(e)(3). For instance, section
1471 of the Dodd-Frank Act requires
creditors to obtain a second interior
appraisal in connection with certain
higher-risk mortgages, but prohibits
creditors from charging applicants for
the cost of the second appraisal. TILA
section 129H(b)(2)(B), 15 U.S.C.
1639h(b)(2)(B).
The Bureau proposed comment
14(a)(3)–1 to provide examples of the
specific types of charges that are
prohibited under the regulation, such as
photocopying fees and postage for
mailing a copy of appraisals or other
written valuations. In addition,
comment 14(a)(3)–2 was proposed to
clarify that § 1002.14(a)(3) does not
prohibit creditors from imposing fees
that are reasonably designed to
reimburse the creditor for costs incurred
in connection with obtaining actual
appraisal or other valuation services, so
long they are not increased to cover the
costs of providing copies required under
§ 1002.14(a)(1).
Public comment. Several commenters
addressed proposed § 1002.14(a)(3).
These comments generally addressed
the following two aspects of
§ 1002.14(a)(3): the proposed provision
relating to reasonable fees charged to
reimburse costs of appraisals and other
valuations, and the provision
prohibiting charges for the costs of
providing copies of appraisals and other
valuations to applicants.
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No commenters opposed the proposal
to allow creditors to charge reasonable
fees for appraisals and other valuations
unless otherwise provided by law. One
industry commenter requested that the
rule explicitly allow the fee to cover
costs charged by appraisal management
companies (AMCs), which can be either
a component of or supplemental to the
cost of the appraisal. This commenter
argued that Congress did not intend to
prohibit AMC fees in the Dodd-Frank
Act, as it specifically provided for their
disclosure in the settlement statement
pursuant to RESPA section 4(c). 12
U.S.C. 2603(c). Another industry
commenter suggested that the final rule
interpret ‘‘reasonable fee’’ to mean a fee
that was disclosed and agreed to by the
applicant. A different industry
commenter requested additional
clarification on what could not be
charged under this provision.62
In addition, several industry
commenters requested that the rule
allow creditors to withhold copies of the
appraisals and other valuations if the
borrower did not pay the permitted fees
to reimburse the cost of appraisals and
other valuations. Some commenters
noted this type of exception would be
particularly important in transactions
where the application is withdrawn,
incomplete, or denied. One commenter
also requested that disclosure required
under section 14(a)(2) inform the
consumer of the ability of the creditor
to withhold these copies.
Industry commenters were generally
supportive of the proposed prohibition
on charges for providing copies of
appraisals and other written valuations.
While a large internet lender
specifically agreed with the proposed
prohibition, a few lending institutions
objected to the proposed prohibition on
the grounds that it would force them to
absorb additional costs. Because
proposed § 1002.14(a)(3) and comment
14(a)(3)–1 referred to a prohibition on
charges for providing ‘‘a copy,’’ several
industry commenters suggested this
could be read as prohibiting charges for
providing duplicate or additional
copies. These commenters therefore
requested that the final rule clarify that
creditors could charge for subsequent
copies of appraisals and other written
valuations. A large industry trade
association also noted a concern over
whether the prohibition against
62 An appraisal industry commenter objected to
certain language in the Bureau’s preamble,
including the statement that appraisals could
involve ‘‘needless cost’’ in certain transactions
where other valuations could be used, and to the
statement that broker price opinions and automated
valuation models are ‘‘equally appropriate’’ for
some transactions.
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charging for copies of appraisals and
other written valuations would prohibit
indirect recovery of these costs.
Discussion. Section 1002.14(a)(3) in
the final rule and associated
commentary are generally adopted as
proposed, with some minor
clarifications as discussed below.
As in the proposal, § 1002.14(a)(3) in
the final rule clarifies that charges for
valuations are not prohibited by section
701(e)(3) of ECOA. No commenters
addressed this provision in the
proposal. As noted in the proposal, in
adopting this provision in the final rule,
the Bureau relies to the extent necessary
on its authority to make adjustments
under section 703(a) of ECOA. Such an
adjustment would facilitate compliance
with ECOA and prevent circumvention,
and also would effectuate the purposes
of ECOA. Otherwise, ECOA section
701(e)(3) might be interpreted as
distinguishing between one type of
valuation (an ‘‘appraisal’’) whose cost
may be reimbursed by applicants, and
all other types of valuations whose cost
may not be reimbursed by the applicant.
Yet the definition of ‘‘valuation’’ in
section 701(e)(6) of ECOA refers broadly
to ‘‘any estimate of the value of a
dwelling,’’ without distinguishing
between these types of valuations.
Under such an interpretation, the
Bureau would need to provide guidance
on how to distinguish between appraisal
and non-appraisal valuations; without
such guidance, creditors could
deliberately or inadvertently
mischaracterize non-appraisal
valuations as appraisals to recover their
cost, or creditors may avoid valuations
altogether to avoid incurring
unrecoverable costs. Additionally, as
noted in the proposal, a distinction
between the ability to recover costs for
appraisals versus other types of
valuations could discourage creditors
from using less costly forms of
valuations, especially in smaller dollaramount transactions. For example,
Federal banking regulations do not
require federally-insured financial
institutions to obtain an appraisal in
low-risk real estate-related financial
transactions in which the transaction
value is $250,000 or less.63 It is not the
purpose of ECOA section 701(e) to
encourage one type of valuation over
another; its purpose is to inform the
consumer of the basis for the credit
decision. Thus the adjustment in
63 See, e.g., 12 CFR 323.3(a)(1) exempting real
estate-related financial transactions with a
transaction value of less than $250,000 from the
FDIC’s rule requiring FDIC-insured institutions to
obtain an appraisal performed by a State certified
or licensed appraiser for all real estate-related
financial transactions.
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§ 1002.14(a)(3) will ensure the final rule
adheres more closely to the purpose of
ECOA as well.
At the same time, comment 14(a)(3)–
2 in the final rule clarifies that in
allowing reasonable fees to reimburse 64
the cost of appraisals and other
valuations, § 1002.14(a)(3) is not
intended to create a legal obligation of
the applicant to pay these fees. As noted
above, one commenter suggested a link
between the concept of a ‘‘reasonable
fee,’’ and whether the fee was disclosed
and agreed to by the consumer. While
the Bureau does not believe that the
term ‘‘reasonable fee’’ could be equated
in all cases with fees disclosed to and
agreed by the applicant, the commenter
highlights the relevance of the
applicant’s agreement to pay the fee.
Whether the legal obligation to pay the
fee exists is a matter arising under other
laws, including without limitation
contract law, however. Other laws also
may limit the ability to recover these
fees, as indicated by the phrase ‘‘unless
otherwise provided by law’’ in
§ 1002.14(a)(3).65
In response to the comment seeking
clarification that § 1002.14(a)(3) does
not limit the recoverability of AMC
charges, the Bureau recognizes that the
Dodd-Frank Act did not intend to
prohibit recovery of AMC fees. As the
commenter noted, RESPA section 4(c)
allows but does not require creditors to
break out the AMC fees on the
settlement statement from the fees paid
directly to the appraiser. The
commenter suggests that recoverability
of AMC fees was left in doubt by the
proposed comment 14(a)(3)–2, referring
to fees ‘‘reasonably designed’’ to
reimburse creditor costs incurred ‘‘in
connection with obtaining’’ appraisal
and other valuation services. To clarify,
the Bureau is revising comment
14(a)(3)–2 so its language more closely
tracks ECOA section 701(e) (which
refers to ‘‘reasonable fees’’ to reimburse
appraisal costs, rather than fees that are
64 With respect to proposed § 1002.14(a)(3) more
broadly, the comment suggesting the word
‘‘reimbursement’’ be used more consistently left
unclear exactly how it would suggest the term be
used.
65 These other laws may include requirements
applicable to estimates of loan fees provided at the
time of application, limitations on changes to these
fees in certain circumstances, prohibitions against
charging for second appraisals in higher-riskmortgage transactions involving ‘‘flipping,’’ and
prohibitions against unfair, deceptive, and abusive
acts and practices under applicable law. While one
commenter requested additional clarification of
what charges are prohibited by § 1002.14(a)(3), the
Bureau believes that the phrase ‘‘otherwise
provided by law’’ is intended to be open-ended, and
calls for creditors to consider applicable laws when
setting their fees. As noted in the proposal, the
Bureau does not believe that ECOA section 701(e)
calls for rate regulations.
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‘‘reasonably designed’’ for this purpose)
and to specifically indicate that section
14(a)(3) is not intended to prohibit
recovery of AMC fees.
The final rule also adopts the
prohibition in proposed § 1002.14(a)(3)
against charging for providing a copy of
an appraisal or other written valuation
‘‘as required under the final rule.’’
While industry commenters raised a
question of whether creditors could
charge for providing additional copies
of the same appraisal or other written
valuation, such as when the applicant
requests them, the Bureau does not
believe that the regulation is unclear on
this point. The final rule, in
§ 1002.14(a)(1), requires only that the
creditor provide ‘‘a copy’’ of each
appraisal or other written valuation. The
prohibition against charging for copies
only applies to copies that are ‘‘required
under the final rule.’’ Because the final
rule does not require that creditors
provide more than one copy, there is no
suggestion in the final rule that creditors
are prohibited from charging for
duplicates or additional copies. If they
do provide additional duplicate copies,
it would not be pursuant to a
requirement in the rule. The Bureau also
does not believe the rule requires, as
one commenter suggested, the tracking
of mailing or copying costs and even
their refund to the consumer to ensure
they are not included in the interest rate
previously set.66
To fully implement the prohibition in
§ 1002.14(a)(3) against charging for
providing a copy of an appraisal or
other written valuation, the Bureau also
is amending the commentary to sample
disclosure form C–9. Comment
Appendix C–1–ii is revised to remove
the suggestion that a creditor may add
text to the disclosure notifying the
applicant of the cost the applicant will
be required to pay for a copy of the
report.
The Bureau declines to add an
exception in the final rule to the
requirement to provide copies of
appraisals and other written valuations
where the applicant has not paid the fee
for the appraisal or other written
valuation. Section 1002.14(a)(2)(ii) of
Regulation B currently calls for
providing the copy after receipt of the
request, the report, or reimbursement for
66 As noted in comment 14(a)(3)–2, the
prohibition against charging for copies is designed
to prevent an increase of charges within a specific
transaction based upon the copies that must be
provided. Thus a creditor would be prohibited from
imposing a line-item fee for providing copies, or
from adjusting other line item fees based upon the
copies that are provided (for example, increasing
the points and fees in the closing statement above
the amount specified in the loan estimate to
account for costs of copies that are being provided).
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the report, ‘‘whichever is last to occur.’’
As proposed, § 1002.14(a)(2) would no
longer have based the timing of
disclosure upon the receipt of payment.
The Bureau believes this approach is
consistent with the language of ECOA
section 701(e) as amended. The
statutory timing requirement concerning
providing copies contains no reference
to receipt of reimbursement for the
valuation from the applicant. Moreover,
ECOA section 701(e)(4) specifically
states that ‘‘notwithstanding’’ the
creditor’s ability to charge a reasonable
fee to reimburse the creditor’s appraisal
costs, the creditor ‘‘shall provide’’ the
copy at no additional cost. The Bureau
does not believe that conditioning the
creditor’s obligation to provide copies at
no additional cost on the applicant’s
reimbursement of the costs of the
appraisal or other written valuation
would be consistent with legislative
intent as expressed in ECOA section
701.
The Bureau understands the need for
creditors to manage payment risks. The
final rule does not affect the ability of
creditors to request up-front payment
from applicants before appraisals or
other written valuations are ordered
(which would protect creditors even if
the application is withdrawn,
incomplete, or denied), to collect
payment at consummation or account
opening, or to undertake other efforts to
collect the fee if the transaction is not
consummated or the account is not
opened. The Bureau therefore declines
to adopt this exception suggested by
comments it received.
14(a)(4) Withdrawn, Denied, or
Incomplete Applications
ECOA section 701(e)(1) requires
providing copies of the appraisals or
other written valuations ‘‘whether the
creditor grants or denies the applicant’s
request for credit or the application is
incomplete or withdrawn.’’ The Bureau
therefore proposed in § 1002.14(a)(4)
that the requirements of § 1002.14(a)(1)
also apply whether credit is extended or
denied or if the application is
incomplete or withdrawn. Specifically,
creditors would be required to provide
copies of appraisals and other written
valuations even in situations where an
applicant provides only an incomplete
application.
Public comments. Two national
associations of creditors suggested that
the Bureau use its adjustment authority
under ECOA to eliminate the statutory
requirement to provide copies of
appraisals and other written valuations
where an applicant withdraws from the
application process before indicating an
intent to proceed. These commenters
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argued that the valuation is not relevant
to the withdrawing applicant, and
providing a copy would impose an
unnecessary cost.
Discussion. Dodd-Frank Act section
1474 amended ECOA section 701(e) to
require providing copies of appraisals
and other written valuations even in
cases where the application is
withdrawn. The statute did not
distinguish between withdrawals that
occur before or after declaring an intent
to proceed with the transaction. While
the commenter suggested the Bureau
should exercise its exception authority
in cases in which the application is
withdrawn before the applicant
expresses an intent to proceed, the
Bureau is not persuaded there is a basis
for doing so here. The ‘‘intent to
proceed’’ standard governs whether fees
can be charged to applicants under
Regulation X, which implements
RESPA, and not when applicants have
a protected interest against
discrimination under ECOA. The
Bureau does not believe that the
purpose of ECOA in preventing,
detecting, and remedying
discrimination would be served by
providing such an exception. Under
Regulation X, § 1024.7(a)(4), the intent
to proceed comes after the applicant has
received a good faith estimate (or a
revised good faith estimate), which
quotes loan terms to applicants and
which could be based upon an appraisal
or other written valuation. Indeed, in
some cases the very reason that the
consumer elects to withdraw the
application may be the result of what
the lender has said or done in response
to the appraisal or other valuation, for
example by changing the interest rate
based on a lower-than-expected loan to
value ratio. Therefore the text of
§ 1002.14(a)(4) is adopted as proposed.
14(a)(5) Copies in Electronic Form
The Bureau believes that it is
appropriate to allow creditors to provide
applicants with copies of appraisals and
other written valuations in electronic
form if the applicant consents to
receiving the copies in such form.
Accordingly, the Bureau proposed that
§ 1002.14(a)(5) permit copies of
appraisals and other written valuations
required by § 1002.14(a)(1) to be
provided to the applicant in electronic
form, subject to compliance with the
consumer consent and other applicable
provisions of the Electronic Signatures
in Global and National Commerce Act
(E-Sign Act) (15 U.S.C. 7001 et seq.).67
67 As noted in the proposal, § 1002.4(d)(2) of
Regulation B currently provides that the disclosures
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Public comments. Several industry
commenters supported the option of
consent-based electronic delivery. Two
lenders suggested the E-Sign Act
consent process is burdensome, and
should not be required; one industry
commenter suggested that the E-Sign
Act consent process is important,
however.
Discussion. The Bureau believes that
application of the E-Sign Act to the
electronic disclosure of copies of
appraisals and other written valuations
is appropriate, and the final rule
maintains this condition. While one
commenter noted that the appraisal is
not a contract document, Section 101(a)
of the E-Sign Act governing electronic
signatures in contracts is not the
provision at issue here. Rather, Section
101(c) of the E-Sign Act, 15 U.S.C.
7001(c), governs consent for provision
of consumer disclosures by electronic
means. The commenter therefore has
not articulated a basis for treating copies
of appraisals and other written
valuations as falling outside the scope of
Section 101(c). In any event, however,
applying the E-Sign Act requirements to
provision of copies of appraisals and
other written valuations by electronic
means would not force creditors to
institute E-Sign Act compliance
procedures. Creditors could simply
choose not to provide the copies by
electronic means.
The Bureau also notes that because
the disclosure required by
§ 1002.14(a)(2) is a written disclosure
required by Regulation B, § 1002.4(d)(2)
will permit that disclosure to be
provided electronically based upon a
consent given in compliance with the ESign Act. There is no need to restate this
point in a separate provision within
§ 1002.14. As discussed at the beginning
of the section-by-section analysis above,
the Bureau is revising the electronic
disclosure provision in § 1002.4(d)(2),
however, to ensure its exception can
apply to the new notice required by
§ 1002.14(a)(2) of the final rule, which
replaces the consumer notice required
by existing § 1002.14(a)(2)(i). While this
change was not proposed in the
proposal, this revision is necessary to
maintain the consistency of crossreferences in Regulation B and its
required to be provided in writing by Regulation B
may be provided to the applicant in electronic form,
subject to compliance with the consumer consent
and other applicable provisions of the E-Sign Act.
While § 1002.4(d)(2) refers to written ‘‘disclosures’’,
the E-Sign Act also applies more broadly to
‘‘information relating to a transaction’’ that is
required to be made available in writing. 15 U.S.C.
7001(c)(1). Thus the proposal sought to clarify that
the requirements of the E-Sign Act also would
apply to providing copies of appraisals and other
written valuations.
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existing approach to electronic
disclosure of the consumer notice
required under § 1002.14. In particular,
existing § 1002.4(d)(2) allows the
creditor to provide written disclosures
required by certain specified provisions
of existing Regulation B, including
existing § 1002.14(a)(2)(i), electronically
without regard to consumer consent or
provisions of the E-Sign Act, if the
disclosure ‘‘accompan[ies] an
application accessed by the applicant in
electronic form.’’ The Bureau believes
this cross-reference in § 1002.4(d)(2) to
the notice requirement in § 1002.14(a)(2)
should be maintained, for the same
reasons the Board did not apply the ESign Act requirements to disclosures
provided with the application.68 In
addition, creditors could choose to
provide the notice as an accompanying
disclosure with the application, which
would, by definition, be provided
within three business days of the
application as required by this final
rule.69 Therefore, the cross-reference is
being updated to reflect the citation to
the disclosure provision in the final
rule, § 1002.14(a)(2).
Removal of Exemption for Credit
Unions
The Board’s 1993 Final Rule on
Providing Appraisal Reports (1993 Final
Rule) provided in § 1002.14(b) that
credit unions were exempt from the
requirements in § 1002.14(a) to provide
copies of appraisals upon request, if not
provided routinely. See 58 FR 65657,
65660 (Dec. 16, 1993). In the 1993 Final
Rule, the Board pointed to pre-existing
NCUA regulations, and how they
already required credit unions to
provide copies of appraisals upon
request.70 The Board also cited the
68 The Bureau notes that the Board adopted this
exception to the requirements of the E-Sign Act for
certain disclosures required in Regulation B in
amendments to provide guidance on electronic
delivery of disclosures. For the same reasons that
the Board cited, the Bureau believes that permitting
the disclosure required in § 1002.14(a)(2) to be
provided without regard to the consumer consent
or other provisions of the E-Sign Act when the
disclosure accompanies an application the
consumer accesses electronically eliminates a ‘‘a
potential significant burden on electronic
commerce without increasing the risk of harm to
consumers.’’ 72 FR 63445, 63448 (Nov. 9, 2007).
69 This option would not necessarily be available
for all transactions. For example, if the 2012 TILA–
RESPA Proposal is finalized as proposed, the
appraisal notice will be required to be included in
the integrated TILA–RESPA Loan Estimate. The
exception under § 1002.4(d)(2) would not be
triggered by a Loan Estimate disclosed after the
application, rather than accompanying the
application.
70 See 12 CFR 701.31(c)(5), which currently
provides:
Each Federal credit union shall make available,
to any requesting member/applicant, a copy of the
appraisal used in connection with that member’s
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legislative history of the 1991 ECOA
amendments, which indicated Congress
was aware of these pre-existing
regulations and thus did not intend to
modify them.71 Accordingly, the Board
found it unnecessary to require under
Regulation B what the NCUA already
required under its own regulations.
Under today’s version of the NCUA
regulation, 12 CFR 701.31(c)(5), Federal
credit unions are still required to make
available to any requesting member/
applicant a copy of the appraisal used
in connection with that member’s real
estate-related loan application.
However, as described above, the DoddFrank Act amendments to ECOA
removed the prior provisions of section
701(e) and replaced them with
requirements that were significantly
broader in scope. Unlike the prior
provisions of section 701(e), section
701(e) as amended requires creditors to
provide copies of all valuations, and not
only appraisals; section 701(e) also
requires that creditors provide these
copies automatically, rather than
allowing them to be provided upon
request. Thus amended section 701(e)
guarantees that applicants will receive
copies of valuations that are performed,
including non-appraisal valuations, and
regardless of whether applicants
specifically request the copies. In
addition, neither section 1474 of the
Dodd-Frank Act nor its legislative
history refers to an exception for credit
unions subject to, and complying with,
the provisions of the NCUA regulations
relating to making appraisals available
upon request. Accordingly, the Bureau
proposed deleting the exemption for
credit unions provided in § 1002.14(b).
Public comment. Most credit union
commenters urged the Bureau to
maintain the exemption for credit
unions, suggesting, for example, that the
existing rule (requiring disclosure on
request) be maintained and that credit
unions did not need to be covered by
the new rule because they were not a
cause of the financial crisis that the
Dodd-Frank Act was intended to
address. One of the commenters argued
that the Bureau should maintain the
real estate-related loan application. The appraisal
shall be available for a period of 25 months after
the applicant has received notice from the Federal
credit union of the action taken by the Federal
credit union on the real estate-related loan
application.
71 S. Rept. 167, 102nd Cong., at 90 (1991). The
Senate Report stated as follows: ‘‘Regulations by the
National Credit Union Administration (NCUA)
currently require credit unions to make appraisals
available without regard to who has paid for the
appraisal;[] test[sic] this legislation is not intended
to modify those NCUA regulations. Neither is the
legislation intended to affect the current custom of
many lenders routinely to provide copies of
appraisal reports.’’
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exemption in order to allow the NCUA
to amend its regulations to conform to
section 701(e) of ECOA. Some of these
commenters suggested the proposed
rule would be burdensome, particularly
when viewed in combination with the
other rules being implemented under
the Dodd-Frank Act. One credit union
stated, however, that it understood the
Bureau’s proposed rationale for
removing the exemption in Regulation
B. An appraisal industry commenter
also stated that it supported removing
the exemption.
Discussion. As noted in the proposal,
Congress did not exclude credit unions
from the requirements of ECOA section
701(e), and the legislative history of the
Dodd-Frank Act did not suggest
Congress intended to exclude credit
unions, unlike when Congress adopted
the previous version of section 701(e) in
1991. Moreover, even assuming credit
unions may have had a lesser role in
precipitating the financial crisis to
which the Dodd-Frank Act responded,
the purposes of ECOA include
preventing and remedying unlawful
discrimination in credit transactions. By
including the requirement to provide
copies of appraisals and other written
valuations in ECOA, Congress made the
judgment that enhanced transparency of
appraisals and other written valuations
would further these purposes. In
addition, applicants to credit unions
have an equal interest in the protection
and remedies afforded by ECOA as
applicants to other creditors. Failure to
apply the rule to credit unions would
result in applicants to these creditors
not having the same guarantees of
receiving copies of appraisals and other
written valuations promptly (regardless
of whether they request them), or of
receiving copies of non-appraisal
valuations at all. In addition, the Bureau
is not persuaded by the comments that
the final rule implementing section
701(e) would impose a significant
additional burden on creditors, as credit
union commenters did not establish that
credit unions do not follow the general
industry practice of providing copies of
appraisals to applicants in first lien
transactions.72 The Bureau therefore is
not persuaded that the standards for
exercising its exception authority are
met, whether under section 703(a) of
ECOA to effectuate the purposes of, or
72 The Bureau also does not believe that the final
rule implementing section 701(e) affects the ability
of credit unions to comply with the existing NCUA
regulations at 12 CFR 701.31(c)(5). Credit unions
that comply with the final rule requiring disclosure
of appraisals and other valuations to applicants also
would be able to comply with existing NCUA
regulations by maintaining appraisals on file for the
specified time period for provision upon request.
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foster compliance with, ECOA or under
section 1405(b) of the Dodd-Frank Act
to protect the interests of consumers and
the public.73 Accordingly, the final rule
does not include an exemption for
credit unions.
14(b) Definitions
As discussed below, the Bureau
proposed to define three terms in
§ 1002.14(b). The Bureau also requested
comment on whether there are
additional terms that should be defined
for purposes of this rule and how best
to define those terms in a manner
consistent with ECOA section 701(e).
14(b)(1) Consummation
As discussed above, for clarity and to
be consistent with other similar
regulatory requirements under TILA and
RESPA, the Bureau proposed that
§ 1002.14(a)(1) use the term
‘‘consummation’’ in place of the
statutory term ‘‘closing.’’ The Bureau
proposed to define the term
‘‘consummation’’ in § 1002.14(b)(1) as
the time that a consumer becomes
contractually obligated on a credit
transaction. This definition mirrors the
definition of the term provided in
§ 1026.2(a)(13) of Regulation Z.
The Bureau also proposed two
comments to clarify the meaning of the
term ‘‘consummation.’’ First, comment
14(b)(1)–1 was proposed to clarify that
the question of when a contractual
obligation on the consumer’s part is
created is a matter to be determined
under applicable law; proposed
§ 1002.14 does not make this
determination. A contractual
commitment agreement, for example,
that under applicable law binds the
consumer to the credit terms would be
consummation. Consummation,
however, does not occur merely because
the consumer has made some financial
investment in the transaction (for
example, by paying a nonrefundable fee)
unless, of course, applicable law holds
otherwise. Second, comment 14(b)(1)–2
was proposed to clarify that
consummation does not occur when the
consumer becomes contractually
73 Despite commenter suggestions that the Bureau
could wait to see if NCUA adopted its own rule, the
Dodd-Frank Act does not suggest it is the
responsibility of NCUA to issue such a rule under
ECOA, backed by the remedies which ECOA
provides. Section 1085 of the Dodd-Frank Act
amended ECOA to transfer ECOA rulemaking
authority (including authority under ECOA section
701(e)) to the Bureau. Section 1061 of the DoddFrank Act also transferred consumer financial
protection functions of the NCUA to the Bureau. In
any event, if the NCUA were to amend its rules in
a manner consistent with section 701(e), the Bureau
would review that regulation and consider any
consequences that regulation could have on the
application of this final rule to credit unions.
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committed to a sale transaction, unless
the consumer also becomes legally
obligated to accept a particular credit
arrangement.
Public comments. The Bureau
received very few comments on this
definition. One industry commenter
suggested the term would be confusing
in the case of a rescindable transaction,
and also queried whether
consummation would occur when the
lender issues a loan commitment. One
commenter suggested the term is not
plain English.
Discussion. The lack of industry
comments on use of the term
‘‘consummation’’ suggests that industry
is familiar with the meaning of the term.
Consummation is a term that is defined
elsewhere in regulations and used
throughout mortgage regulations. The
Bureau believes it is appropriate to use
here for consistency and precision for
closed-end transactions, and that given
its common usage confusion is
unlikely.74 In any event, for clarity, this
final rule adopts the proposed
comments 14(b)(1)–1 and 2 clarifying
the meaning of ‘‘consummation;’’ this
guidance mirrors longstanding guidance
in Regulation Z.75 Accordingly, the final
rule thus maintains the definition of the
term ‘‘consummation’’ as proposed.
14(b)(2) Dwelling
The Bureau proposed that
§ 1002.14(b)(2) retain the definition of
the term ‘‘dwelling’’ in current
§ 1002.14(c). Specifically,
§ 1002.14(b)(2) proposed to define the
term ‘‘dwelling’’ as a residential
structure that contains one to four units
whether or not that structure is attached
to real property, and including but not
limited to an individual condominium
or cooperative unit, and a mobile or
other manufactured home.
Public comment. Industry
commenters asked the Bureau to clarify
several aspects of the definition of
‘‘dwelling.’’ For example, several
commenters asked the Bureau to clarify
in the final rule whether the definition
of ‘‘dwelling’’ refers only to an owneroccupied dwelling, or to any residential
74 Section 3(2)(C) of the Plain Writing Act of 2010
excludes regulations from the scope of its
requirements. In any event, the term
‘‘consummation’’ need not be included in the
disclosure applicants will receive under
§ 1002.14(a)(2) and is not included in the sample
disclosure.
75 The Bureau also does not agree with the
comment suggesting that consummation could
occur at the end of the rescission period. TILA
specifically defines its rescission right as arising
‘‘following the consummation of the transaction,’’
15 U.S.C. 1635(a), such that the existence of a
rescission period after consummation under TILA
would not affect the pre-consummation timing
standards in this final rule.
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dwelling regardless of the applicant’s
residence in the building. Several
commenters in the manufactured
housing industry also requested that the
definition of ‘‘dwelling’’ exclude
residential structures that are not
attached to the real property, such as
recreational vehicles and house boats, as
well as manufactured homes when
titled as chattel. Further, some industry
commenter asked for clarification on
whether the rule applies to commercial
transactions. Some of these comments
requested that the final rule exclude
commercial transactions even when
they involve a first lien on a dwelling.
One commenter argued, however, that
covering commercial transactions would
promote education, knowledge, and
creditor safety and soundness by
ensuring applicants are aware of the
appraisals and other valuations on
which the credit decisions are based. In
addition, some industry commenters
requested clarification on whether the
final rule would cover certain multiple
residence situations involving a single
lot, such as three four-unit buildings
situated on a single land parcel and
operated as one small 12-unit apartment
complex. Finally, one commenter
suggested the definition of ‘‘dwelling’’
be harmonized with the definition in
Regulation C promulgated under the
Home Mortgage Disclosure Act (HMDA),
which is not limited to one-to-fourfamily structures, while another
commenter suggested the definition be
limited to single-family housing.
Discussion. The final rule does not
exclude business credit when it is
secured by a first lien on a dwelling
because business credit is covered by
ECOA and Regulation B. ECOA section
701(e) applies to a ‘‘creditor’’, a term
that ECOA section 702(e) defines by
reference to the term ‘‘credit’’ in section
702(d). Section 702(d) of ECOA does not
limit the term ‘‘credit’’ to credit for
personal, family, or household
purposes, and Regulation B has long
interpreted ‘‘credit’’ to include personal
and ‘‘business credit.’’ See comment
1002.2(j)–1 (discussing definition of
‘‘credit’’ in § 1002.2(j)); 76 § 1002.2(g)
(definition of ‘‘business credit’’).77
Thus, the final rule covers applications
76 The comment provides that ‘‘[u]nder
Regulation B, a transaction is credit if there is a
right to defer payment of a debt—regardless of
whether the credit is for personal or commercial
purposes, the number of installments required for
repayment, or whether the transaction is subject to
a finance charge.’’
77 Regulation B generally uses the term ‘‘business
credit’’ where unique or different requirements are
applied to business or commercial transactions. The
final rule does not adopt special or different
requirements, and therefore uniformly uses the term
‘‘credit.’’
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for business credit to be secured by a
first lien on a dwelling.
The final rule adopts the definition of
‘‘dwelling’’ as proposed. When
describing the transactions subject to
section 701(e) of ECOA, Dodd-Frank Act
section 1474 used the term ‘‘dwelling’’,
which has been defined in § 1002.14(c)
as follows: ‘‘[T]he term dwelling means
a residential structure that contains one
to four units whether or not that
structure is attached to real property.
The term includes, but is not limited to,
an individual condominium unit, and a
mobile or other manufactured home.’’ 78
Given that this definition was in place
when Congress amended ECOA section
701(e) and used the term ‘‘dwelling’’ in
specifying the scope of the requirement,
the Bureau believes that it is appropriate
to continue to use the existing definition
of ‘‘dwelling.’’
The definition of ‘‘dwelling’’ in
§ 1002.14(c) requires that the unit be a
‘‘residential structure’’, but does not
require that it be ‘‘owner-occupied.’’ As
a result, the requirements of the final
rule can apply to transactions involving
one-to-four-unit residential structures
that may be business or commercial in
nature, including for investment
purposes. Beyond this, whether a
transaction meets the definition will
depend on the facts and circumstances.
Because transaction structures can vary
widely, the Bureau does not believe it
would be efficient or appropriate to try
to address all such variations in the text
of the rule or the commentary.79
The definition of ‘‘dwelling’’ in
Regulation B, § 1002.14(c), currently
includes a residential structure
78 This definition also is similar to the definition
of dwelling in Regulation C, which covers ‘‘a
residential structure (whether or not attached to real
property) located in a state of the United States of
America, the District of Columbia, or the
Commonwealth of Puerto Rico. The term includes
an individual condominium unit, cooperative unit,
or mobile or manufactured home.’’ 12 CFR 1003.2.
The Bureau does not believe the Regulation C
definition should be adopted for this rule, however.
The Regulation C definition could broaden the
scope of the final rule beyond one-to-four family
dwellings, while it is unclear that ECOA section
701(e) as amended contemplated this result.
79 With respect to the example raised by a creditor
and two national creditor associations—three fourunit buildings operated as a 12-unit apartment
complex, the text of the rule makes clear that a fourunit residential building would be a dwelling, but
a 12-unit apartment complex is not. Thus a
transaction secured by a four-unit residential
building would be covered by the rule, but a
transaction secured by the entire 12-unit apartment
complex would not be. Because this question can
be analyzed in a straightforward manner by
reference to the text of the rule, the Bureau does not
believe that further commentary is needed for this
to be apparent. Similarly, the definition of
‘‘dwelling’’ refers to the example of an ‘‘individual
condominium or cooperative unit,’’ but not to a
cooperative building as a whole, even though such
a building may contain several individual units.
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‘‘whether or not * * * attached to real
property,’’ and lists as an example a
‘‘mobile or other manufactured home.’’
Industry commenters reported that a
significant number of consumers in the
United States reside in manufactured
homes. The Bureau does not believe the
comments articulate a valid basis for a
new exemption under Regulation B for
manufactured homes that would
otherwise meet the definition of
‘‘dwelling.’’ Whether an applicant has a
right to receive a copy of an appraisal
or other written valuation that has been
performed should not turn on whether
the residential structure is built on site
or in a factory for later installation on
site—particularly when such valuations
can be done for these transactions.80
The definition of ‘‘dwelling’’ in
Regulation B is appropriately broad
enough to encompass manufactured
homes. The Bureau recognizes,
however, that transactions involving
manufactured homes will not always
result in appraisals or other written
valuations. This issue is taken into
account in § 1002.14(b)(3) discussed
below.
The final rule also provides
clarification in response to comments by
several industry trade associations that
§ 1002.14 should not apply to certain
other structures, such as recreational
vehicles or boats. Unlike manufactured
homes, which are specifically
enumerated examples of a ‘‘dwelling’’ in
existing § 1002.14(c) and proposed
§ 1002.14(b)(2),81 other structures such
as boats and recreational vehicles are
not enumerated as examples. Though
boats and recreational vehicles may
have residential uses in some cases, the
fact that they are not expressly
enumerated here in existing Regulation
B suggests that, unlike manufactured
homes, they are not exclusively
residential by nature and are not always
covered by the existing appraisal copy
requirements at § 1002.14. Therefore,
80 HUD standards for its Title I insurance program
for manufactured homes, for example, provide
valuation standards. U.S. Dep’t of Hous. & Urban
Dev., TI–481, Changes to the Title I Manufactured
Home Loan Program, at App. 2–1, D (Apr. 2009)
(requiring valuations that meet HUD standards for
transactions involving existing manufactured
homes); id. at App. 8–9, C (describing valuation
standards for certain manufactured home
transactions); U.S. Dep’t of Hous. & Urban Dev., TI–
437, Appraisals of Manufactured Homes and Lots,
at 1–2 (Jan. 1996) (describing valuation standards
for manufactured homes classified as personal
property and manufactured home transactions
involving real property). GSEs also have standard
forms available on their Web sites, such as Fannie
Mae Form 1004C and Freddie Mac Form 70B, for
conducting appraisals of manufactured home
transactions eligible for purchase by them.
81 For a definition of ‘‘manufactured home,’’ see
also 42 U.S.C. 5402(6) and related HUD regulations
at 24 CFR 3280.2.
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while the Bureau does not see a basis for
removing ‘‘manufactured homes’’ from
the list of enumerated examples of a
dwelling in § 1002.14 (see existing
§§ 1002.14(c) and 1002.13(a)(2)), there is
a basis for analyzing boats and
recreational vehicles differently.
In addition, even though Regulation Z
commentary has long stated that boats
and trailers can be dwellings and has
not ruled out that recreational vehicles
and campers also could be dwellings,82
they are not covered by the 2013
Interagency Appraisals Final Rule under
TILA section 129H. See Regulation Z,
§ 1026.35(c)(2)(iii). As noted above, the
rules implementing ECOA section
701(e) and TILA section 129H allow for
identical consumer disclosure
concerning appraisals and require
creditors to provide copies of appraisals
to applicants. To the extent regulations
implementing ECOA section 701(e) and
TILA section 129H can be aligned,
burden on creditors is reduced.
Accordingly, the Bureau is adopting
comment 14(b)(2)–1 to confirm that the
requirements of § 1002.14 in particular
do not apply to transactions secured
solely by motor vehicles as defined by
12 U.S.C. 5519(f)(1)—a term that
includes boats, motor homes,
recreational vehicles, and other
vehicles, but not manufactured
homes.83 It is not clear that in amending
section 701(e) of ECOA in the DoddFrank Act, Congress intended to provide
a basis for requiring creditors to provide
copies of valuations when selling motor
vehicles used as residences. The
legislative history for section 701(e)
specifically refers to providing
protections for ‘‘mortgage applicants,’’
for example.84 ECOA section 701(e)(6)
also lists examples of ‘‘valuations’’ that
are used in the real estate context—
broker price opinions, GSE values, and
AVMs (a term which section 1473 of the
Dodd-Frank Act defined within the
82 See 12 CFR part 1026, Supp. I, comment
2(a)(19)–2. This comment states as follows: ‘‘Use as
a residence. Mobile homes, boats, and trailers are
dwellings if they are in fact used as residences, just
as are condominium and cooperative units.
Recreational vehicles, campers, and the like not
used as residences are not dwellings.’’
83 Under 12 U.S.C. 5519(f)(1), the term ‘‘motor
vehicle’’ means—(A) Any self-propelled vehicle
designed for transporting persons or property on a
street, highway, or other road; (B) recreational boats
and marine equipment; (C) motorcycles; (D) motor
homes, recreational vehicle trailers, and slide-in
campers, as those terms are defined in sections
571.3 and 575.103(d) of title 49, Code of Federal
Regulations, or any successor thereto; and (E) other
vehicles that are titled and sold through dealers.’’
84 H. Conf. Rept. 517, 111th Cong., at 877 (2010)
(joint explanatory statement on Dodd-Frank Act);
see also H. Rept. 94, 111th Cong., at 99 (2009)
(discussing proposed revision to ECOA in H.R. 1728
that was later introduced in the Dodd-Frank Act,
H.R. 4173).
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context of Title XI of the Financial
Institutions Reform, Recovery, and
Enforcement Act (FIRREA), a statute
focused on ‘‘real estate related
transactions’’, 12 U.S.C. 3331). To the
extent any motor vehicle transactions
otherwise could be subject to § 1002.14,
the Bureau exercises its exception
authority under ECOA section 703(a) to
exclude them. As noted above, because
the legislative history does not clearly
suggest an intent to cover motor vehicle
transactions, the exclusion will facilitate
compliance by reducing regulatory
uncertainty, and will be consistent with
the purposes of section 701(e) of ECOA
as reflected in the legislative history
described above.
The Bureau did not, however, seek
comment in the proposal on whether
structures that are ‘‘motor vehicles’’ can
be covered by or should be excluded
from the scope of ECOA and Regulation
B more broadly, including the
information collection requirements of
§ 1002.13. This clarification in comment
14(b)(2)–1 is therefore limited to
§ 1002.14 and is not a pronouncement
on whether boats, trailers, recreational
vehicles, campers, or motor vehicles
would otherwise fall within the
definition of ‘‘dwelling’’ in other
provisions of Regulation B.
14(b)(3) Valuation
ECOA section 701(e) refers to
‘‘valuations,’’ which it defines as ‘‘any
estimate of the value of a dwelling
developed in connection with a
creditor’s decision to provide credit,
including those values developed
pursuant to a policy of a government
sponsored enterprise or by an
automated valuation model, a broker
price opinion, or other methodology or
mechanism.’’ Accordingly, proposed
§ 1002.14(b)(3) would have defined the
statutory term ‘‘valuation’’ as ‘‘any
estimate of the value of a dwelling
developed in connection with a
creditor’s decision to provide credit.’’
Comment 14(b)(3)–1 was proposed,
based on current comment 14(c)–1, to
provide the following list of examples of
valuations, which included the three
examples listed in the existing comment
(which were examples of an ‘‘appraisal
report’’), and added the three additional
specific examples of ‘‘valuations’’
provided in ECOA section 701(e)(6):
• A report prepared by an appraiser
(whether or not certified and licensed),
including written comments and other
documents submitted to the creditor in
support of the appraiser’s estimate or
opinion of the property’s value.
• A document prepared by the
creditor’s staff that assigns value to the
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property, if a third-party appraisal
report has not been used.
• An internal review document
reflecting that the creditor’s valuation is
different from a valuation in a third
party’s appraisal report (or different
from valuations that are publicly
available or valuations such as
manufacturers’ invoices for mobile
homes).
• A value developed pursuant to a
methodology or mechanism required by
a government sponsored enterprise,
including written comments and other
documents submitted to the creditor in
support of the estimate of the property’s
value.
• A value developed by an automated
valuation model, including written
comments and other documents
submitted to the creditor in support of
the estimate of the property’s value.
• A broker price opinion prepared by
a real estate broker, agent, or sales
person, including written comments
and other documents submitted to the
creditor in support of the estimate of the
property’s value.
The proposal noted that the Bureau
understands that many documents
prepared in the course of a mortgage
transaction may contain information
regarding the value of a dwelling, but
are not themselves an appraisal or other
written valuation. The Bureau explained
it does not believe that consumers
would benefit from receiving
duplicative pieces of information
concerning appraisals and other written
valuations. Additionally, the proposal
noted that it is important that the rule
make it simple for creditors to
distinguish between documents that
must be provided to applicants and
those that are not required to be
provided. Accordingly, the Bureau
proposed comment 14(b)(3)–2, based on
current comment 14(c)–2, to clarify that
not all documents that discuss or restate
a valuation of an applicant’s property
constitute ‘‘appraisals or other written
valuations’’ for purposes § 1002.14(a)(1).
For further clarification, the Bureau
proposed that the comment provide the
following list of examples of documents
that discuss the valuation of the
applicant’s property but nonetheless are
not appraisals or other written
valuations for purposes of the
requirement to provide a copy to
applicants:
• Internal documents, that merely
restate the estimated value of the
dwelling contained in an appraisal or
other written valuation being provided
to the applicant.
• Governmental agency statements of
appraised value that are publically
available.
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• Valuations lists that are publically
available (such as published sales prices
or mortgage amounts, tax assessments,
and retail price ranges) and valuations
such as manufacturers’ invoices for
mobile homes.
Public Comments. As noted above, a
few industry commenters argued that
the definition of valuation generally
should be limited to estimates that were
relied upon or used by the creditor in
making its credit decision.
An appraisal industry group
suggested that the first proposed
example of a valuation in proposed
comment 14(b)(3)–1—a report prepared
by an appraiser (whether or not licensed
or certified)—should be modified to
avoid suggesting that an unlicensed and
uncertified appraiser is qualified.85
GSEs and other industry commenters
commented on the fourth proposed
valuation example, values developed
pursuant to a GSE-required method or
mechanism.86 The GSE commenters
noted that they allow but do not require
that lenders use the GSE AVMs. A GSE
commenter also noted that its AVM
report could be provided to the
borrower to satisfy the proposed rule.
While some commenters expressed
concern that GSE valuations were
proprietary and creditors were
forbidden from disclosing them, a large
lending institution noted that the GSEs
have reviewed and approved standard
letters for the disclosure of GSEdeveloped valuations to consumers.
Several lending and appraisal
industry groups commented on the fifth
proposed valuation example—
valuations developed by AVMs.
Commenters noted that AVM reports
can be highly technical, including
special coding and information that
would be confusing to consumers. Some
of these commenters suggested that
AVMs therefore be excluded from the
definition of ‘‘valuation.’’ Other
commenters requested additional
clarification of how the term AVM is
defined, such as whether it would
include property inspection waivers
(PIW), property inspection alternatives
(PIA), Desktop Underwriter (DU)®, and
Loan Prospector (LP)® reports. A few
commenters suggested that the property
inspection reports (PIPs) that may
accompany some AVMs should be
excluded from the definition of
‘‘valuation.’’ On the other hand, an
85 An appraisal industry group also noted that the
sixth proposed valuation example—broker price
opinion—should clarify that they would not
necessarily be permitted to be used in the credit
transaction.
86 In addition, a GSE commenter indicated that
one of its tools does not communicate a ‘‘value’’ to
the creditor.
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appraisal industry commenter suggested
including PIPs accompanying AVMs.
More broadly, a significant number of
industry commenters strongly objected
to the inclusion, in the first, fourth,
fifth, and sixth proposed valuation
examples, of ‘‘written comments and
other documents submitted to the
creditor in support of’’ the estimate.
These commenters generally believed
this language exceeded the statutory
definition of the term ‘‘valuation’’ in
section 701(e)(6) of ECOA, and argued
that the language was vague and would
expose them to substantial uncertainty
as to what they would need to provide
to applicants in a given transaction.
Some commenters believed this
wording could trigger time consuming
and costly internal discovery by
creditors and valuation preparers to
search within and outside the credit
institution for all written
correspondence and other documents
pertaining to the valuation, including
reviews by AMCs, internal reviews, and
evaluations of appraisal reports, some of
which may be privileged or proprietary,
and other materials. Some commenters
also noted this language could result in
burdensome disclosures to consumers
who would be confused by voluminous
information including background
materials.
Industry commenters requested
clarifications of and additions to the list
of examples of documents that are not
valuations. Manufactured housing
industry commenters strongly
supported the third proposed example
excluding manufacturers’ invoices for
mobile homes, but suggested that the
term ‘‘mobile home’’ is outdated and the
term ‘‘manufactured home’’ should be
used instead, consistent with industry
usage and regulations of the Department
of Housing and Urban Development
(HUD). These comments also requested
that the documents reflecting the
‘‘maximum loan amount’’ for
manufactured homes be excluded,
because they may reveal manufacturer
pricing information.
Other commenters suggested that the
list of examples of documents that are
not valuations include the following:
quality checks, fraud checks, internal
reviews of valuations such as appraisal
reviews, technical background data used
by AVMs, and other ancillary
documents developed for use by the
appraiser or underwriter. Some
commenters were concerned that some
documents meeting the definition of
valuation would be proprietary or
reflect proprietary information. One
industry commenter also was unsure
whether a document integrating
multiple publicly-available valuations
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would itself be a valuation. Finally, as
discussed above, several industry
commenters requested clarification that
preliminary, draft, or other non-final
documents be excluded.
Discussion. The Bureau is finalizing
the definition of valuation in
§ 1002.14(b)(3) as proposed, with one
technical change. In the proposal, the
phrases ‘‘developed in connection with
an application for credit’’ in the
description of the requirement in
§ 1002.14(a)(1) regarding the materials
that must be provided, and the phrase
‘‘developed in connection with a
creditor’s decision to provide credit’’ in
the definition of valuation in
§ 1002.14(b)(3), were taken directly from
the text of ECOA sections 701(e)(1) and
(6) respectively. The Bureau does not
believe that Congress intended these
phrases to have different meanings. As
a practical matter, many appraisals or
other written valuations developed in
connection with an application for
credit will be a valuation developed in
connection with a creditor’s decision to
provide credit and vice versa. However,
using different terms in the rule could
suggest there may be circumstances in
which a valuation falls into one
category, but not another. To facilitate
compliance by eliminating uncertainty
and to ensure the final rule gives full
effect to section 701(e)(1), which is
controlling as to the materials that must
be provided to applicants, the Bureau
interprets section 701(e)(6) consistently
with 701(e)(1), and to the extent
necessary is exercising its authority
under ECOA section 703(a), to use the
phrase ‘‘developed in connection with
an application for credit’’ in the
definition of ‘‘valuation’’ in
§ 1002.14(b)(3).
The final rule also makes a number of
clarifying revisions to the commentary.
As noted earlier, comment 14(a)(1)–7 is
being added to the final rule to clarify
that drafts or other non-final materials
need not be provided if they have been
superseded by later versions. In
addition, as discussed below, the final
rule incorporates several revisions to
proposed comment 14(b)(3)–1 and
proposed comment 14(b)(3)–2 (which is
renumbered as comment 14(b)(3)–3),
and adds a new comment 14(b)(3)–2.
These revisions address certain
additional concerns of commenters
regarding the materials that must be
provided to applicants.87
87 Comments 14(b)(3)–1 and 2 in the final rule
provide a list of examples of documents that are
valuations subject to the copy requirement, and
comment 14(b)(3)–3 provides a list of documents
that are not valuations subject to the copy
requirement. As these comments note, these lists
are not exclusive. The Bureau may issue guidance
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The list of examples of valuations in
comment 14(b)(3)–1 has been revised to
eliminate the phrase ‘‘written comments
and other documents submitted to the
creditor in support of’’ the estimate. The
Bureau believes that the list of materials
that must be provided will be easier for
creditors to understand if it refers
simply to the reports themselves. The
Bureau notes that this phrase (‘‘written
comments and other documents’’) is not
explicitly provided for in the definition
of ‘‘valuation’’ in ECOA section
701(e)(6), and a number of commenters
suggested that the phrase may be
susceptible to uncertainty that could
lead to overburdening creditors and
consumers with the disclosure of
information that is background in
nature. The Bureau further notes that, in
the absence of a definition of
‘‘appraisal’’ within ECOA, a 1993
amendment to the definition of an
appraisal report in the commentary to
Regulation B (58 FR 65658, 65659) had
included this phrase ‘‘written comments
and other documents.’’ In light of the
inclusion in section 701(e) of ECOA of
a definition of ‘‘valuation’’ that is broad
enough to include appraisal reports, and
the comments received, the Bureau does
not believe a general reference to
ancillary and supplementary
information is useful to include in the
list. Instead, the Bureau has added
comment 14(b)(3)–2 in the final rule to
clarify that the term ‘‘valuation’’
includes any attachments or exhibits
that are part of an integrated valuation
report. The Bureau believes that this
comment is clearer, more specific, and
addresses the commenters’ concerns
over uncertainty in the meaning of the
phrase ‘‘written comments and other
documents.’’ Under this comment in the
final rule, for example, if a creditor
receives an AVM report that has a list
of comparable properties included as an
exhibit or an attachment, then a copy of
this exhibit or attachment would need
to be provided. This comment therefore
should ensure that consumers receive a
copy of the complete, integrated report,
without being distracted or burdened by
additional ancillary information that
falls outside the four corners of the
report. Comment 14(b)(3)–1 also
clarifies, however, that the list of
examples is not exhaustive. Ultimately,
the definition of ‘‘valuation’’ in
§ 1002.14(b)(3) governs.
For clarity and consistency across the
examples in the final rule, the Bureau
has revised the second proposed
example to make clear that an internal
creditor valuation must be disclosed,
from time to time to identify other examples for
either list.
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regardless of whether a third-party
appraisal report is prepared. As a result
of this change, the third proposed
example—internal review documents
reflecting the creditor valuation—was
removed as largely duplicative. This
deletion also addresses industry
commenters’ concerns that internal
review documents, such as quality
checks, fraud checks, automated
underwriting determinations that do not
estimate the value of the dwelling (such
as certain GSE tools that simply suggest
another valuation is excessive), or
expressions of criticism of a valuation,
should not be treated as themselves
being valuations.
In response to GSE comments that
they do not ‘‘require’’ use of their
valuation methods, the Bureau has
revised the example relating to GSE
valuations to delete the word
‘‘required’’, which also is not used in
the statute. The statute simply refers to
values developed ‘‘pursuant to a policy
of a government sponsored enterprise.’’
To provide additional guidance, this
example in the comment now refers to
GSE-approved forms for disclosing to
consumers values developed pursuant
to proprietary GSE mechanisms and
methodologies.88 This revision also
should help to clarify the type of GSE
automated tools whose output would be
considered valuations.
The Bureau is finalizing inclusion of
valuations developed by AVMs in the
list of examples because they are
included in the statutory list of
valuation types in section 701(e)(6). The
Bureau does not believe that the
potential for AVM valuations to be
coded or difficult for some consumers to
understand is a basis for excluding them
from the disclosure requirement.
Consistent with the purpose of ECOA
section 701(e) and ECOA more broadly,
if an AVM develops a valuation in
connection with the application that is
provided to the creditor, then the
creditor has a duty under the final rule
to disclose a copy to the applicant.
While some AVMs may use proprietary
methods, the final rule does not require
the disclosure of these methods per se;
rather, the final rule requires disclosure
of the written valuations developed by
the AVMs which are provided to the
creditors.89 That is, the revised list of
88 This revision also is intended to focus this
example on GSE valuation methods, and to
distinguish this example from appraisals and other
written valuations prepared by other third parties.
89 Similarly, one commenter expressed concern
that the proposed rule could require disclosure of
documents in the possession of third parties other
than the creditor. Yet the final rule does not apply
to persons who are not creditors within the
meaning of Regulation B, § 1002.2(l), and thus does
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examples focuses on the report
generated by the AVM to estimate the
property’s value, as opposed to the
AVM methodology itself. Because AVM
providers have control over such
output, it should be within their control
to ensure such output does not reveal
proprietary information. Similarly, to
the extent AVM reports are complex and
coded, and creditors wish to voluntarily
educate consumers, the creditors may
provide additional explanatory
information to the applicant at the time
the AVM report is provided or request
that the AVM generate such
information. The rule does not require
that creditors do so, however.
The Bureau also does not believe it
would be appropriate to define the term
‘‘automated valuation model’’ in
comment 14(b)(3)–1. When in receipt of
a particular computer-generated report
that may provide an estimate of the
value of the dwelling, the creditor
ultimately must make its own judgment
of whether that report meets the
definition of valuation in
§ 1002.14(b)(3). The final rule cannot
foresee all the types of computergenerated reports that might include
valuations. Moreover, comment
14(b)(3)–1 is merely intended as a list of
examples of valuations. In addition,
section 1473 of the Dodd-Frank Act
amends a different statute—FIRREA—to
define the term ‘‘automated valuation
model’’ for purposes of that statute as
‘‘any computerized model’’ used to
determine the value of a dwelling that
secures a mortgage. That definition
would be implemented by a separate
inter-agency rulemaking.
Further, the Bureau does not believe
that changes to the text of the regulation
or commentary are needed to address
the appraisal industry comments on the
references to appraisers ‘‘whether or not
licensed or certified’’ and to broker
price opinions in the list of examples of
valuations. The final rule does not
regulate, or purport to regulate, the use
of valuations such as broker price
opinions by creditors. By referring to an
example of a valuation, the final rule
also does not suggest such a valuation
would be permitted in any specific
transaction, or that the person preparing
such a valuation would be qualified.
The list of examples that do not
qualify as valuations, finalized in
comment 14(b)(3)–3, is revised to refer
to a manufacturer’s invoice for a
‘‘manufactured home’’ instead of a
‘‘mobile home,’’ consistent with the
comment indicating that the term
not impose any obligation on a creditor to compel
a third party to provide a copy of such
documentation to the applicant.
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‘‘manufactured home’’ is current
industry usage.90 Removing the
reference to ‘‘mobile home’’ in this
example also aligns with the exclusion
of motor vehicles from the scope of the
final rule.
The Bureau has considered the
observations from manufactured
housing industry commenters that data
from the manufacturers’ invoice for
manufactured homes is sometimes
included as a factor in the lender’s
calculation of the loan amount or
maximum loan amount. For example,
two industry commenters pointed to
HUD Title I insurance underwriting
criteria, under which the maximum
Title I insurable loan amount for
manufactured housing loans for new
homes is based, in part, upon the
manufacturer invoice amount. See HUD,
TI–481, App. 2 at 3–4 (Apr. 2009). The
comments did not provide information
that would clearly establish a basis for
categorically determining that loan
amounts, maximum loan amounts, or
loan-to-value calculations are not
valuations under the final rule,
however. These creditor calculations, if
they would otherwise be valuations,
would not lose such status merely by
taking into account manufacturer
invoice information. Indeed, the
comments did not provide a rationale
for why an applicant should be barred
from viewing a valuation that contains
manufacturer invoice data, if the
creditor has received information from
that invoice and used it in a valuation.
The list of examples that would not be
covered by the rule also is revised to
clarify that property inspection reports
are not valuations, if they do not
provide an estimate or opinion of the
property’s value and are not used in the
development of such an estimate or
opinion. This example is added to
address several comments seeking
clarification about a variety of property
reports that may be provided in the
underwriting process.
Finally, the comment clarifies that the
list is not exhaustive. Again, the
definition of ‘‘valuation’’ in
§ 1002.14(b)(3) governs. This serves to
emphasize that the commentary cannot
exhaustively catalog all of the types of
documents that might or might not fit
the definition of ‘‘valuation.’’ The final
rule seeks to address those comments
the Bureau believes point to the most
common types of documents that may
raise the most significant questions
under the final rule.
90 The phrase ‘‘mobile or other manufactured
home’’ is retained in the definition of ‘‘dwelling’’
in § 1002.14(b)(2), however, to ensure internal
consistency with the other definition of ‘‘dwelling’’
in Regulation B at § 1002.13(a)(2).
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VI. Effective Date
This final rule is effective on January
18, 2014. The Bureau requested
comment on the effective date of the
final rule, particularly given the
likelihood that the TILA–RESPA Loan
Estimate containing the ECOA appraisal
disclosure would not be finalized on the
same timeline as this final rule. These
comments and the Bureau’s
consideration of them are described
below. As discussed above in part III,
the Bureau believes that this effective
date is consistent with the timeframes
established in section 1400(c) of the
Dodd-Frank Act and, on balance, will
facilitate the implementation of the
rules’ overlapping provisions, while
also affording creditors sufficient time
to implement the more complex or
resource-intensive new requirements.
A. Public Comments
Many industry commenters suggested
that the effective date of the rule, or at
least the disclosure requirement, should
be delayed at least until the integrated
TILA–RESPA Loan Estimate is finalized
by the Bureau and the associated TILA–
RESPA rule takes effect. One large
lending institution suggested that the
final ECOA rule take effect 12 months
after the effective date for other rules
under the Dodd-Frank Act that had
mandatory statutory deadlines. Two
industry group commenters suggested
that the Bureau seek ways to avoid
staggered effective dates of these rules,
which in their view would be wasteful
because it would require that lenders
update their systems twice—once for
the ECOA rule, and then again when the
TILA–RESPA Loan Estimate takes effect.
Other commenters supported the use
of a specific time period to set the rule’s
effective date, whether late 2013, 12
months, 18–24 months, or two years. A
GSE also suggested that the rule take
effect after 2013, to avoid interfering
with home modification and refinance
programs scheduled to end by late 2013
so that resources currently used to
support the GSE-administered refinance
and modification programs do not have
to be diverted to systems and process
changes that would in any event be
short-lived.91
B. Discussion
The final rule will be effective on
January 18, 2014. Thus, the final rule
applies to loans to be secured by first
liens on dwellings for which an
91 The GSE also requested further delayed
implementation, in case these programs are
extended very close to or after their expiration date
at the end of 2013.
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application is received by the creditor
on or after January 18, 2014.
The Bureau believes this transition
period will provide sufficient time for
creditors to make changes to their
appraisal disclosures and their practices
for providing copies of appraisals and
other written valuations. The Bureau
does not believe a later effective date,
such as 18 or 24 months after issuance
of this final rule, is necessary. Appraisal
disclosures are already required by
Regulation B and provided by creditors,
the final rule allows for creditors to
continue to make these disclosures
electronically (even without compliance
with the E-Sign Act if they are provided
as an accompaniment to application
documents), and creditors should not
need to undertake complex dynamic
systems programming to update this
disclosure. In addition, copies of
appraisals already are provided to
applicants as a routine practice in most
transactions covered by the final rule.
While providing copies of valuations
other than appraisals may be new in
some transactions, the Bureau believes
12 months is sufficient time for
creditors to prepare to include these
with other materials (such as copies of
appraisals) that already are provided to
applicants as a routine practice in first
lien transactions.92 In addition, as noted
in the proposal, the Bureau believes it
is important that consumers begin to
receive disclosures with information on
their new rights under ECOA with
respect to appraisals.
Further, if the effective date of the
ECOA rule were delayed more than 12
months, then it would take effect after
the 2013 Interagency Appraisals Final
Rule under TILA section 129H, which
must take effect within 12 months after
its issuance pursuant to section
1400(c)(1)(B) of the Dodd-Frank Act.
Because these rules under ECOA section
701(e) and TILA section 129H cover a
similar subject matter (appraisals), with
harmonized disclosure requirements,
relating to an overlapping set of
transactions (loans secured by first liens
on dwellings), the Bureau believes it is
important for these rules to take effect
at the same time. The Bureau believes
that staggered effective dates for the
ECOA and TILA rules could increase
complexity and burden rather than ease
compliance.
92 Even if GSE refinance or modification programs
are extended very shortly at or after the end of 2013,
and the GSEs elected not to prepare to implement
this final rule until that time, this effective date
would still leave a few weeks to prepare to provide
a short appraisals disclosure to consumers who file
new applications and to provide copies of
appraisals and other valuations to consumers.
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As noted above, commenters raised
concerns over the potential cost or
burden of phased compliance, first with
an ECOA disclosure requirement, and
second with a rule on integrated TILA–
RESPA disclosures. The Bureau does
not believe, however, that it is
appropriate to delay the consumer
protections mandated by section 1474 of
the Dodd-Frank Act for the 2012 TILA–
RESPA Proposal, which would not even
apply to some transactions covered by
the ECOA Appraisals Rule. See 77 FR
51116 (Aug. 23, 2012). The disclosure
required by the final rule will provide
consumers with important information
about their rights under ECOA. In
addition, for transactions covered by the
ECOA Appraisals Rule that also would
be covered by the Bureau’s 2012 TILA–
RESPA Proposal, the Bureau does not
believe it would significantly increase
burden to set an earlier effective date for
the ECOA Appraisals Rule. Under the
2012 TILA–RESPA Proposal, creditors
in these transactions could simply adopt
a TILA–RESPA Loan Estimate that
includes the appraisals disclosure and
therefore satisfies the ECOA Appraisals
Rule.
VII. Dodd-Frank Act Section 1022(b)(2)
Analysis
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In developing the final rule, the
Bureau has considered potential
benefits, costs, and impacts.93 The
proposal set forth a preliminary analysis
of these effects, and the Bureau
requested comments and received some
comments on this topic. In addition, the
Bureau has consulted, or offered to
consult with, the prudential regulators,
FHFA, HUD, and the Federal Trade
Commission (FTC), including regarding
consistency with any prudential,
market, or systemic objectives
administered by such agencies.
The final rule amends Regulation B,
which implements ECOA, and the
official interpretations to the regulation,
which interpret and clarify the
requirements of Regulation B. The
revisions to Regulation B implement an
ECOA amendment concerning
appraisals and other valuations that was
enacted as part of the Dodd-Frank Act.
In general, the revisions to Regulation B
require creditors to provide a free copy
of each appraisal and other written
valuation developed in connection with
93 Specifically, section 1022(b)(2)(A) calls for the
Bureau to consider the potential benefits and costs
of a regulation to consumers and covered persons,
including the potential reduction of access by
consumers to consumer financial products or
services; the impact on depository institutions and
credit unions with $10 billion or less in total assets
as described in section 1026 of the Act; and the
impact on consumers in rural areas.
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an application for a loan to be secured
by a first lien on a dwelling. The final
rule also requires creditors to notify
applicants in writing of the right to
receive a copy of each written appraisal
at no additional cost.
The amendment to ECOA section
701(e) is self-effectuating, and the DoddFrank Act does not require the Bureau
to adopt a regulation to implement these
amendments. Thus, many costs and
benefits of the final rule considered
below would arise largely or entirely
from the statute, not from the final rule.
The final rule would provide substantial
benefits compared to allowing the
amendment to ECOA section 701(e) to
take effect alone. These benefits arise
because the final rule clarifies parts of
the statute that call for interpretation,
such as the definition of ‘‘valuation’’ in
section 701(e)(6), the provision
governing reimbursement of the creditor
for certain costs in section 701(e)(3), and
the timing requirement for providing
copies of appraisals and other written
valuations in section 701(e)(1). Greater
clarity on these issues should reduce the
compliance burdens on covered persons
by reducing costs for attorneys and
compliance officers as well as potential
costs of over-compliance and
unnecessary litigation. In this light, the
costs that the regulation would impose
beyond those imposed by the statute
itself are likely to be at most minimal.
Section 1022 permits the Bureau to
consider the benefits, costs, and impacts
of the final regulation solely compared
to the state of the world in which the
statute takes effect without an
implementing regulation. To provide
the public better information about the
benefits and costs of the statute,
however, the Bureau has chosen to
consider the benefits, costs, and impacts
of the major provisions of the final rule
against a pre-statutory baseline (i.e., the
benefits, costs, and impacts of the
relevant provisions of the Dodd-Frank
Act and the regulation combined).94
Section 1022 of the Dodd-Frank Act
requires that the Bureau, in adopting the
rule, consider potential benefits and
costs to consumers and covered persons
resulting from the rule, including the
potential reduction of access by
consumers to consumer financial
products or services resulting from the
rule, as noted above; it also requires the
Bureau to consider the impact of its
rules on covered persons described in
94 The
Bureau has discretion in any rulemaking
to choose an appropriate scope of analysis with
respect to potential benefits and costs and an
appropriate baseline. The Bureau, as a matter of
discretion, has chosen to describe a broader range
of potential effects to inform the rulemaking more
fully.
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section 1026 and the impact on
consumers in rural areas. These
potential benefits and costs, and these
impacts, however, are not generally
susceptible to particularized or
definitive calculation in connection
with this rule. The incidence and scope
of such potential benefits and costs, and
such impacts, will be influenced very
substantially by economic cycles,
market developments, and business and
consumer choices that are substantially
independent from adoption of the rule.
No commenter has advanced data or
methodology that it claims would
enable precise calculation of these
benefits, costs, or impacts.
In considering the relevant potential
benefits, costs, and impacts, the Bureau
has utilized the available data discussed
in this preamble, where the Bureau has
found it informative, and applied its
knowledge and expertise concerning
consumer financial markets, potential
business and consumer choices, and
economic analyses that it regards as
most reliable and helpful, to consider
the relevant potential benefits and costs,
and relevant impacts. The data relied
upon by the Bureau also includes the
public comment record established by
the proposed rule. The Bureau notes,
however, that for some aspects of this
analysis, in particular with respect to
the benefits of the rule, there are limited
data available with which to quantify
the potential impacts of the final rule.
In light of these data limitations, the
analysis below generally provides a
qualitative discussion of the benefits of
the final rule. General economic
principles, together with the limited
data that are available, provide insight
into these benefits. Where possible, the
Bureau has made quantitative estimates
based on these principles and the data
that are available; these estimates are
primarily with regard to the costs of the
rule. For the reasons stated in this
preamble, the Bureau considers that the
rule as adopted faithfully implements
the purposes and objectives of Congress
in the statute. Based on each and all of
these considerations, the Bureau has
concluded that the rule is appropriate as
an implementation of the Dodd-Frank
Act.
The primary source of data used in
this analysis is data collected under the
Home Mortgage Disclosure Act
(HMDA).95 Because the latest complete
95 The Home Mortgage Disclosure Act (HMDA),
enacted by Congress in 1975, as implemented by
the Bureau’s Regulation C requires lending
institutions annually to report public loan-level
data regarding mortgage originations. For more
information, see http://www.ffiec.gov/hmda. It
should be noted that not all mortgage lenders report
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data set available is for loans made in
calendar year 2011, the empirical
analysis generally uses the 2011 market
as the baseline. Data from fourth quarter
2011 Reports of Condition and Income
filed by federally-regulated banks and
thrifts (Call Reports),96 fourth quarter
2011 credit union call reports from the
NCUA, and de-identified data from the
Nationwide Mortgage Licensing System
(NMLS) Mortgage Call Reports (MCR) 97
for the fourth quarter of 2011 were also
used to identify financial institutions
and their characteristics. The unit of
observation in this analysis is the entity:
If there are multiple subsidiaries of a
parent company, then their originations
are summed and revenues are total
revenues for all subsidiaries.
In addition, the Bureau notes that
Regulation B generally applies to openend credit and business or commercial
credit; accordingly, the final rule also
applies to these types of credit to the
extent they are secured by a first lien on
a dwelling. Calculations from the
Experian Oliver-Wyman analysis of
credit bureau data in the Q3 2012
Market Intelligence Reports 98 were used
HMDA data. The HMDA data capture roughly 90–
95 percent of lending by the Federal Housing
Administration and 75–85 percent of other first-lien
home loans, in both cases including first liens on
manufactured homes (transactions which also are
subject to the final rule). U.S. Dep’t of Hous. &
Urban Dev., Office of Policy Development and
Research, ‘‘A Look at the FHA’s Evolving Market
Shares by Race and Ethnicity,’’ U.S. Housing
Market Conditions (May 2011), at 6–12. Depository
institutions (including credit unions) with assets
less than $40 million (in 2011), for example, and
those with branches exclusively in nonmetropolitan areas and those that make no home
purchase loan or loan refinancing a home purchase
loan secured by a first lien on a dwelling are not
required to report under HMDA. Reporting
requirements for non-depository institutions
depend on several factors, including whether the
company made fewer than 100 home purchase
loans or refinancings of home purchase loans, the
dollar volume of mortgage lending as share of total
lending, and whether the institution had at least
five applications, originations, or purchased loans
from metropolitan areas. Robert B. Avery et al., The
Mortgage Market in 2011: Highlights from the Data
Reported under the Home Mortgage Disclosure Act,
98 Fed. Res. Bull. (Fed. Res. Sys.), Dec. 2012, n.6.
96 Every national bank, State member bank, and
insured nonmember bank is required by its primary
Federal regulator to file consolidated Reports of
Condition and Income, also known as Call Report
data, for each quarter as of the close of business on
the last day of each calendar quarter (the report
date). The specific reporting requirements depend
upon the size of the bank and whether it has any
foreign offices. For more information, see http://
www2.fdic.gov/call_tfr_rpts/.
97 The NMLS is a national registry of nondepository financial institutions including mortgage
loan originators. Portions of the registration
information are public. The Mortgage Call Report
data are reported at the institution level and include
information on the number and dollar amount of
loans originated, the number and dollar amount of
loans brokered.
98 Q3 2012 Experian-Oliver Wyman Market
Intelligence Report. More information about the
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to estimate the number of home equity
lines of credit (HELOCs) originated in
2011, and the Survey of Consumer
Finances (SCF) was used to calculate
the proportion of HELOCs that are first
liens.99 Reverse mortgages are believed
to be predominantly first liens; counts
of reverse mortgages are calculated from
home equity conversion mortgages
(HECM) in the HUD HECM
Endorsement Summary Report.100
Several comments from large and
small lending institutions indicated it is
standard practice for lenders in first lien
residential real estate transactions to
provide consumers with copies of
appraisals performed. One lending
institution stated its belief this is not a
widespread industry practice, however.
The comments did not provide data on
the extent to which other valuations are
conducted in first lien transactions, and
also did not provide data on the extent
to which creditors provide applicants
with copies of valuations other than
appraisal reports under current lending
practices.101 As discussed below, one
commenter criticized the proposal’s
estimate of $1.80 as the average increase
in per-loan cost due to the rule.
A large lending institution reported
that in one month in 2012, more than
2,000 appraisals it ordered were revised
to correct misspellings or clerical errors.
This information was provided to
illustrate challenges creditors could face
if prohibited from making minor, nonsubstantive corrections to valuations
and appraisals within three days of
closing, after the time frame in which
copies should have been provided to the
applicant absent a waiver.
As discussed and addressed
throughout this preamble, other
commenters expressed general concerns
about the burden of various aspects of
the proposed rule. The Bureau has taken
these comments into account in
developing its final rule and in its
analysis below.
Experian-Oliver Wyman quarterly Market
Intelligence Report is available at http://
www.marketintelligencereports.com.
99 The Bureau calculates that 26 percent of
HELOCs are first liens from the 2010 SCF.
100 Monthly HUD HECM Endorsement Summary
reports are available at http://www.hud.gov/pub/
chums/f17fvc/hecm.cfm. The non-HECM market for
reverse mortgages has all but disappeared in recent
years, so the Bureau believes the HECM count
provides a reasonable estimate of reverse mortgage
volume.
101 One commenter stated that GSEs charge $50
to generate a report from their proprietary valuation
tools. It was not clear from this comment that GSEs
would impose additional charges for creditors to
disclose the valuation results to consumers. GSEs
did not mention any such charges in their
comments.
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A. Potential Benefits and Costs to
Covered Persons and Consumers
Consumers. Because the final
regulation requires creditors to deliver
copies of written valuations, including
appraisals, to consumers and creditors
are explicitly prohibited from charging
consumers for these copies, consumers
do not bear any direct costs from the
rule. As noted above and discussed
further below, outreach indicated and
GSE standards corroborated that it is
standard practice for industry to provide
copies of appraisals to applicants in first
lien transactions that are consummated.
Consumers therefore currently benefit
from this industry practice already. The
final rule provides a marginal increase
in the number of transactions in which
consumers will receive appraisals, and
also ensures they will receive copies of
other types of valuations (including in
transactions where no appraisals are
performed).
Providing a free copy of any valuation
consumers do not already receive
provides consumers with details about
the valuation and, in some cases,
additional information on the condition
of the property. Although consumers
may receive some of this information
from a home inspection or from an
appraisal they would otherwise receive
already under standard industry
practice, each valuation provides the
consumer with another independent
evaluation. To the extent it would not
already be provided to them, this
detailed information may be particularly
valuable to the consumer in a purchase
transaction when the estimated value is
less than their offer.102 In addition,
consumers in transactions where
appraisals are not conducted may not
currently receive any information about
the valuations developed in connection
with their application. The final rule
would therefore provide them with new
information that may help them make
decisions about their mortgage
borrowing.
The final rule changes the consumer’s
right under Regulation B to obtain a
copy from one where the consumer
must request the copy to one where the
copy is given as the default.
Nonetheless, as noted above, it is
standard industry practice to provide
copies of appraisals in first lien
transactions that are consummated.
Thus the rule may result in more
consumers obtaining copies of written
appraisals in transactions that are not
consummated because, despite low
102 The value of the information may vary
depending on when in the home purchase and loan
origination process the consumer receives the
information.
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transaction costs, there is evidence that
default rules can have significant effects
on outcomes in various settings.103
Consumers who previously may have
requested copies of appraisals in the
absence of the amendment save the time
and effort required to make requests.
For those applicants who would not
already receive a copy of an appraisal or
other written valuation under existing
practice, having a copy of any
professional appraisal or other written
valuation that is conducted as a point of
reference may help them to gain a better
understanding of the home’s value and
improve overall market efficiency,
relative to the case where the applicant
has less information about the value of
the property.104 Individual consumers
engage in real estate transactions
infrequently, and because the expertise
to value real estate is costly consumers
often rely on real estate agents and list
prices to make price determinations.
These methods may not lead a
consumer to an accurate valuation of a
property. For example, there is evidence
that real estate agents sell their own
homes for significantly more than other
similar homes, which suggests that
other sellers may not accurately price
the homes that they are selling.105 Other
research, conducted in a laboratory
setting, provides evidence that
individuals are sensitive to anchor
values when estimating home prices.106
In such cases, an independent signal of
the value of the home should benefit the
consumer.
Although the Bureau has not received
comments from consumers on the
proposed rule indicating any concerns,
the Bureau believes that some
consumers may not be interested in
receiving copies of appraisals or other
written valuations. While copies of
appraisals are routinely provided in first
lien transactions that are consummated,
it is unclear that copies of other types
103 See, e.g., John Beshears et al., The Importance
of Default Options for Retirement Savings
Outcomes: Evidence from the United States, Social
Security Policy in a Changing Environment 169
(Jeffrey Brown et al. eds., Univ. of Chi. Press); Eric
Johnson & Daniel Goldstein. Do Defaults Save
Lives?, 302 Science 1338 (2003).
104 For example, in Quan and Quigley’s
theoretical model where buyers and seller have
incomplete information, trades are decentralized,
and prices are the result of pairwise bargaining,
‘‘[t]he role of the appraiser is to provide information
so that the variance of the price distribution is
reduced.’’ Daniel Quan & John Quigley, Price
Formation and the Appraisal Function in Real
Estate Markets, 4 J. Real Est. Fin. and Econ. (1991).
105 Steven Levitt & Chad Syverson, Market
Distortions When Agents are Better Informed: The
Value of Information In Real Estate Transactions,
90 Rev. Econ. & Stat. 599 (2008).
106 Peter Scott & Colin Lizieri, Consumer House
Price Judgments: New Evidence of Anchoring and
Arbitrary Coherence, 29 J. Prop. Rsch. 49 (2012).
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of valuations are provided. For these
consumers, the additional information
received in copies of valuations may be
unwelcome, or potentially distract their
attention from other disclosures that are
received shortly before consummation
or account opening. The final rule seeks
to reduce the volume of unnecessary
information, by clarifying the list of
examples of ‘‘valuations’’ and that
multiple versions of the same valuation
need not be provided so long as the
timing requirements of the regulation
are satisfied.
In addition, the costs of the final rule
may be indirectly passed on to
consumers through very small increases
in the cost of credit, largely associated
with the costs of mailing copies to
consumers who have not consented to
receive them electronically under the ESign Act. Creditors also could charge for
valuations—though this is not a
consequence of the rule because
creditors could charge for valuations
now. These costs are discussed further
below.
Covered Persons. In the context of the
final rule, ‘‘covered persons’’ includes
depository institutions such as banks,
credit unions, and thrifts, as well as
non-depository creditors such as IMBs.
The Bureau estimates that, of the
roughly 14,700 depository institutions,
about 11,400 originate mortgage loans.
Another 2,800 non-depository
institutions engage in real estate credit,
based on data from the NMLS MCR. The
final rule codifies the common practice
of sending copies of all written
appraisals to consumers who obtain
loans secured by a first lien on a
dwelling. In outreach to creditors prior
to the proposal, all respondents reported
providing copies of written appraisals to
borrowers as a matter of course if a first
lien loan is originated.107 This practice
also aligns with pre-existing
requirements of certain GSEs to provide
copies of appraisals promptly and no
later than three business days before
closing, as discussed in the section-bysection analysis above. These GSEs
participate in a substantial portion of
first lien transactions each year. In
addition, the final rule requires that
copies of other written valuations be
provided to the applicant, and that
copies of written appraisals be sent in
the event that an application is received
but does not result in a loan being
originated. The final rule prohibits
creditors from charging consumers for
these copies. The final rule does,
however, eliminate the cost of
107 Respondents include a large bank, a trade
group of smaller depository institutions, and an
IMB.
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7243
responding to individual requests for
copies of an appraisal on an ad hoc
basis, which is currently required under
Regulation B, § 1002.14. That is, the
final rule eliminates any need to
respond to ad hoc requests by querying
a loan file, retrieving the appraisal, and
then going through the process of
sending copies of the appraisal to the
applicant.
Under the final rule, covered persons
would incur the paperwork costs, for a
set of applications and originations, of
replicating and sending (either
electronically or physically) copies of
the appraisals and other written
valuations.108 A recent government
study found that appraisals are
performed in about 90 percent of first
lien transactions, and that non-appraisal
valuations are obtained in first lien
transactions in which an appraisal is not
performed.109 The Bureau also believes
that a second appraisal is conducted,
and is sent, for any property with a loan
size equal to or above $600,000. Further,
appraisals are considered to be of
inadequate quality 10 percent of the
time, necessitating a second appraisal.
Based on outreach to industry prior to
the proposal, the Bureau assumes that
creditors currently send to consumers
copies of 100 percent of those written
appraisals that are performed for an
application for a transaction secured by
108 Based on its pre-proposal outreach and
research, the Bureau assumes that the average
appraisal is 20 pages long and that printing a copy
of an appraisal costs $0.10 per page. In the
proposal, the Bureau assumed that 84 percent of
appraisals are sent via email and that these are
already being sent in a manner that complies with
the E-Sign Act, 15.75 percent of appraisals are sent
via the United States Postal Service, and 0.25
percent of appraisals are sent via courier. The final
rule adopts this assumption, recognizing that some
creditors, as reflected in comments received on the
proposal, may elect not to provide copies
electronically in compliance with the E-Sign Act
(and therefore these copies would be provided as
part of the 16 percent of copies that are sent via the
postal service or courier). Because the Bureau does
not have data, for purposes of this analysis, the
Bureau conservatively assumes that the average
non-appraisal valuation is as long as an appraisal
(20 pages), that printing costs for valuations other
than appraisals are the same as for appraisals, that
currently, no written valuations other than
appraisals are sent to applicants, and that the cost
of sending copies of these valuations would be the
same as an appraisal. Mailing an appraisal is
assumed to cost $2.12 based on the cost of first class
mail for a 3.7oz letter (20 pages of 20 lb paper
weighs 3.2oz with a 0.5oz allowance for an
envelope) and requires 5 minutes of loan officer
time (a conservative assumption, because it is based
on loan officer time rather than the time of a loan
processor); sending an appraisal via a courier is
assumed to cost $17 ($15 for courier fees and $2 for
replication costs) in material costs and 5 minutes
of loan officer time; and, sending a copy via email
is assumed to cost $0.05 of material cost and 1
minute of loan officer time.
109 U.S. Gov’t Accountability Office, GAO–12–
840T, Residential Appraisals, at 6–7 (June 28,
2012).
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a first-lien on a dwelling that results in
an origination. Because available data
and outreach did not indicate otherwise,
the Bureau conservatively assumes that
copies of appraisals and other written
valuations developed for applications
that do not result in a transaction
currently are not sent to consumers.
Similarly, the Bureau conservatively
assumes that copies of non-appraisal
valuations currently are not sent to
consumers. The burden calculations
that follow assume that a non-appraisal
written valuation is conducted for every
application, which likely overstates the
costs associated with the rule.
As a result, the new paperwork costs
under the final rule arise from providing
copies of any written appraisals for the
proportion of applications that do not
result in originations (a proportion the
Bureau estimates from HMDA data on
applications and originations), and from
providing copies of any non-appraisal
valuations developed in connection
with an application whether or not
originated.
The additional cost of providing a
copy of any non-appraisal valuation in
most cases will be limited to the cost of
generating a copy of the non-appraisal
valuation to send to the applicant.
When the copy is generated in paper
form, the Bureau estimates the cost of
generating the copy based upon an
assumption that the non-appraisal
valuation is at most as long as the
written appraisal. With respect to
transmission costs, in the 90 percent of
first lien transactions where an
appraisal is conducted and a copy
already provided, the copy of the nonappraisal valuation often can be
included with the appraisal already
being sent, which would only increase
transmission costs in the small minority
of cases where the copy is not sent
electronically (because of the postal
delivery or courier having a marginally
greater weight). If the copy of the nonappraisal valuation needs to be
provided at a different time than the
copy of a written appraisal, however,
the creditor would need to make a
second transmission to the applicant,
which for a majority of transactions
using electronic communications,
would involve the cost of an additional
electronic transmission. To be
conservative, for first-lien, closed-end,
forward mortgage loans the Bureau
calculates the cost of sending the nonappraisal valuation assuming that it is
sent separately from the appraisal.
Finally, in the 10 percent of first lien
closed-end, forward mortgage
transactions where only a non-appraisal
valuation is prepared, the cost of
generating the copy and transmission
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will be new. For the HECMs (reverse
mortgages) and first lien HELOCs the
Bureau estimates will be covered by the
rule,110 the Bureau assumes that one
appraisal or other written valuation
beyond what is current standard
practice will be provided.111
To measure these paperwork costs,
counts of originations and applications
for reporting depository institutions and
credit unions are obtained from the
HMDA data; for non-HMDA reporters,
counts are imputed using accepted
statistical techniques that allow
estimates based on the data available in
call reports.112 Different techniques are
used to extrapolate from the
applications and originations data
available in HMDA for reporting IMBs
to the broader set of all IMBs.
Covered persons would also incur
some costs in reviewing the final rule
and in training the relevant
employees.113 To estimate these costs,
the number of loan officers who may
110 For reverse mortgage loan counts, since the
HUD HECM Monthly Endorsement summary does
not provide summary statistics of loans made by
depository institutions of different asset sizes or
non-depository institutions, when calculations are
performed for separate classes of institutions, all
HECMs are attributed to that class of institutions to
create an upper bound of the cost of the regulation
for that class. Similarly, for HELOC first lien loan
counts, the Experian-Oliver Wyman data cannot be
split by size of depository institution, so a parallel
convention of attributing all depository institution
costs to each class of depository institutions is
followed. The number of first lien HELOCs is
calculated by multiplying the number of HELOCs
for depository institutions (242,710) and nondepository institutions (76,790) by the proportion of
HELOCs that are first liens in the 2010 SCF (0.26).
111 This is a conservative estimate, particularly in
the case of reverse mortgages, as the Bureau
understands that creditors in HECM transactions
already provide borrowers with copies of
appraisals, or a completed HUD–92800.5B
(Conditional Commitment Direct Endorsement
Statement of Appraised Value). See U.S. Dep’t. of
Hous. & Urban Dev., Asst. Sec’y for Hous.,
Mortgagee Letter 2005–ML–48 (Dec. 19, 2005).
112 Specifically, Poisson regressions are run
projecting loan volumes in these categories on the
natural log of the following characteristics available
in the Call reports: total one-to-four family
residential loan volume outstanding, full-time
equivalent employees, and assets. The regressions
are run separately for each category of depository
institution.
113 The cost of reviewing the regulation at each
institution is assumed to be the time cost of reading
and reviewing the regulation, which is assumed to
be 3 minutes per page for 9 pages. It is assumed that
the regulation is reviewed by one lawyer and by one
compliance officer at each institution, on average.
Smaller institutions may not have a compliance
officer, in which case additional implementation
time would be assumed by the lawyer or other
employee. Finally, the Bureau also believes that as
part of routine software updates, creditors may
make adjustments to software systems to ensure
compliance with this rule (including updating the
standard notice and incorporating additional
valuation types into their copy distribution system);
the Bureau does not believe these adjustments
would impose significant additional costs beyond
the existing routine upgrade processes.
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require training is estimated based on
the application or origination estimates.
Finally, covered persons would incur
some costs in updating Regulation B
disclosures provided to applicants
concerning appraisals. The cost of
sending these disclosures would not
change, however. In addition, some
commenters suggested that nonappraisal valuations would be difficult
for consumers to understand. While
some creditors or valuation providers
could choose to modify their reports to
be more easily understood by the
consumer audience, the rule does not
require such modifications.
Based upon the foregoing
assumptions and estimates, costs from
the final rule—including one-time costs
and one year of annualized costs—are
estimated to be approximately $39
million, or approximately $5.05 for each
loan originated.114 This estimated cost
is higher than the estimate in the
proposal principally because, in the
absence of information provided
otherwise by commenters on the
proposal, the Bureau is including the
estimated cost of providing copies of
written valuations other than appraisals,
and is not assuming that creditors
already are providing copies of most of
these other written valuations to
applicants.115 The bulk of these costs
arise from the paperwork requirements;
roughly 1.8 percent results from the
one-time review and training costs. This
estimate is conservative because it does
not take into account cost savings that
will be achieved as a result of the final
rule removing subordinate lien
transactions from the scope of § 1002.14.
These transactions currently are subject
114 A few industry commenters argued that the
analysis did not adequately consider the proposal’s
costs and benefits in the context of related
rulemakings, including the aggregate effects of the
new regulations on the U.S. economy. The Bureau,
however, interprets the consideration required by
section 1022(b)(2)(A) to be focused on the potential
benefits, costs, and impacts of the particular rule at
issue, and to not include those of other pending or
potential rulemakings. Moreover, the commenters
do not suggest a reliable method for assessing
cumulative impacts of multiple rulemakings. The
Bureau believes that there are multiple reasonable
approaches for conducting the consideration called
for by section 1022(b)(2)(A) and that the approach
it has taken in this analysis is reasonable and that,
particularly in light of the difficulties of reliably
estimating certain benefits and costs, it has
discretion to decline to undertake additional or
different forms of analysis. The Bureau notes that
it has coordinated the development of the final rule
with its other rulemakings and has, as appropriate,
discussed some of the significant interactions of the
rulemakings.
115 In addition, a significant part of the
annualized costs is attributable to the minority of
institutions that are assumed not to provide copies
electronically. Over time, an increasing number of
institutions may provide copies electronically.
Therefore, this assumption is a conservative one.
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to the appraisal copy-on-request regime
of § 1002.14. Under the final rule, these
transactions would not be subject to
§ 1002.14 and creditors in these
transactions would not otherwise be
required to provide copies of appraisals
if the transaction is not a higher-pricedmortgage that is a closed-end
transaction subject to the requirements
of TILA section 129H and its
implementing regulations in the 2013
Interagency Appraisals Final Rule.
B. Potential Reduction in Access by
Consumers to Consumer Financial
Products or Services
Because the final rule, which largely
codifies existing practice relating to
appraisals, is limited to relatively lowcost clerical tasks and does not require
the creditor to obtain any additional
goods or services, the final rule is not
likely to have an appreciable impact on
the cost of credit for consumers or on
loan volumes.
C. Impact of the Final Rule on
Depository Institutions and Credit
Unions With $10 Billion or Less in Total
Assets, as Described in Section 1026 of
the Dodd-Frank Act, and the Impact of
the Final Rule on Consumers in Rural
Areas
For depository institutions with total
assets of $10 billion or less, the Bureau
estimates that the cost of compliance
with the final rule would be $9.3
million. Because of their smaller size,
fixed training and reviewing costs are
spread over fewer applications and
originations, and as a result the
proportion of costs due to one-time
burdens increases slightly to 3.0 percent
of total cost. For each loan these
institutions originate, the cost is
estimated to be roughly $4.08.116
At least one commenter specifically
questioned the estimated cost of $1.80
per loan originated in the proposed rule.
Specifically, the commenter argued that
the language in proposed comment
14(b)(3)–1, ‘‘including written
comments and other documents
submitted to the creditor in support of
the estimate of the property value,’’
would require creditors to provide
additional documentation that would
exceed the estimate of $1.80 per loan
originated. As previously discussed, the
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Bureau has made changes to the list of
examples of valuations in the
commentary to make clear that the rule
does not require a creditor to provide
written comments and other documents
unless they are attachments or exhibits
to an integrated valuation report.
Accordingly, the Bureau has addressed
the basis for the commenter’s concern
over a potential for a higher cost.
Furthermore, the Bureau has provided
updated estimates of the per-loan cost
which, as discussed above, include an
estimate of the cost of providing copies
of non-appraisal valuations.
The Bureau does not expect that the
final rule will have a unique impact on
consumers in rural areas.
VIII. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
generally requires an agency to conduct
an initial regulatory flexibility analysis
(IRFA) and a final regulatory flexibility
analysis (FRFA) of any rule subject to
notice-and-comment rulemaking
requirements, unless the agency certifies
that the rule will not have a significant
economic impact on a substantial
number of small entities.117 The Bureau
also is subject to certain additional
procedures under the RFA involving the
convening of a panel to consult with
small business representatives prior to
proposing a rule for which an IRFA is
required.118 A FRFA is not required for
this final regulation because the rule
will not have a significant economic
impact on a substantial number of small
entities.
The final rule amends Regulation B,
which implements ECOA, and the
official interpretations to the regulation,
which interpret and clarify the
requirements of Regulation B. The
revisions to Regulation B implement an
ECOA amendment concerning
117 5 U.S.C. 605(b). For purposes of assessing the
impacts of the final rule on small entities, ‘‘small
entities’’ is defined in the RFA to include small
businesses, small not-for-profit organizations, and
small government jurisdictions. 5 U.S.C. 601(6). A
‘‘small business’’ is determined by application of
Small Business Administration regulations and
reference to the North American Industry
Classification System (NAICS) classifications and
size standards. 5 U.S.C. 601(3). A ‘‘small
organization’’ is any ‘‘not-for-profit enterprise
which is independently owned and operated and is
not dominant in its field.’’ 5 U.S.C. 601(4). A ‘‘small
governmental jurisdiction’’ is the government of a
city, county, town, township, village, school
district, or special district with a population of less
than 50,000. 5 U.S.C. 601(5).
118 5 U.S.C. 609.
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appraisals and other valuations that was
enacted as part of the Dodd-Frank Act.
In general, the revisions to Regulation B
require creditors to provide free copies
of all appraisals and written valuations
developed in connection with an
application for a loan to be secured by
a first lien on a dwelling. The final rule
also requires creditors to notify
applicants in writing of the right to
receive a copy of each written appraisal
at no additional cost.
The empirical approach to calculating
the impact of the final regulation on
small entities subject to its requirements
utilizes the same data and methodology
outlined in Part VII above. The analysis
that follows focuses on the economic
impact of the final rule, relative to a prestatute baseline, for small depository
institutions, credit unions and nondepository IMBs.
The Small Business Administration
classifies commercial banks, savings
institutions, credit unions, and other
depository institutions as small if they
have assets less than $175 million, and
classifies other real estate credit firms as
small if they have less than $7 million
in annual revenues.119 All creditors that
extend real estate credit secured by a
first lien on a dwelling are affected by
the final rule. As shown below, the vast
majority of small banks, thrifts, credit
unions, and IMBs originate such loans.
The estimates provided here are based
upon data and statistical analyses
performed by the Bureau. To estimate
counts and properties of mortgages for
entities that do not report under HMDA,
the Bureau has matched HMDA data to
Call Report data and NMLS and has
statistically projected estimated loan
counts for those depository institutions
that do not report these data either
under HMDA or on the NCUA call
report. These projections use Poisson
regressions that estimate loan volumes
as a function of an institution’s total
assets, employment, mortgage holdings
and geographic presence.
Of the roughly 17,462 depository
institutions, credit unions, and IMBs,
12,568 are below the relevant small
entity thresholds. Of these, 9,373 are
estimated to have originated mortgage
loans in 2011. The Bureau has loan
counts for credit unions and HMDAreporting DIs and IMBs.
119 13
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Although most depository
institutions, credit unions, and IMBs are
affected by the final rule, the burden
estimates below show that the rule does
not have a significant impact on a
substantial number of small entities. As
discussed above, the economic impacts
include preparing and sending copies of
appraisals and other written valuations
and the costs of reviewing the rule,
training employees, and updating
consumer disclosures concerning
appraisals.
Consistent with the assumptions in
the analysis of the previous section, the
Bureau believes, based on its outreach
prior to the proposal, that currently it is
routine business practice for appraisals
to be sent to consumers for all first-lien
transactions that result in an origination
and that copies of appraisals and other
valuations conducted for applications
that do not result in a loan are not sent
to consumers. The Bureau also believes
that a second appraisal is typically
conducted, and is sent, for any property
with a loan size equal to or above
$600,000. Further, appraisals are
considered to be of inadequate quality
10 percent of the time, necessitating a
second appraisal.120
120 All other assumptions regarding costs are the
same as those used in the analysis under Section
1022(b)(2). These include the following
assumptions regarding wages based on the Bureau
of Labor Statistics Occupation Employment Survey
2011: at depository institutions, loan officer wages
are assumed to $31.69 per hour, lawyer wages are
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Under these assumptions, the total
costs for small depository institutions,
credit unions, and small IMBs of
providing copies of the appraisals and
other written valuations and any onetime costs for reviewing the regulation
and training employees are estimated to
be roughly $4.64 per-loan originated.121
Across all small entities, the costs of the
rule amount to a fraction of a percent of
the revenue or profits from origination
activity.122
Certification
Accordingly, the undersigned certifies
that this final regulation will not have
a significant economic impact on a
substantial number of small entities.
$77.31 per hour, and compliance officer wages are
$30.41 per hour. At non-depository institutions,
loan officer wages are assumed to be $32.16 per
hour, lawyer wages are assumed to be $75.83 per
hour, and compliance officer wages are $34.66 per
hour. These rates are then increased to reflect that
wages represent 66.6 percent of an employee’s total
compensation.
121 As noted above, costs per-loan differ by
institution class because the number of loans and
loan officers per-institution differ across institution
classes.
122 Industry experts estimate that gross revenues
per loan are approximately 3 percent of origination
amount. The MBA’s Mortgage Bankers Performance
Report reports that in the 4th quarter of 2010 IMBs
and subsidiaries reported that total production
operating expenses were $4,930 per loan, average
profits were $1,082 per loan, and average loan
balance was $208,319.
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IX. Paperwork Reduction Act
A. Overview
The Bureau’s information collection
requirements contained in this final
rule, and identified as such, have been
submitted to the Office of Management
and Budget (OMB) for review under
section 3507(d) of the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501
et seq.) (Paperwork Reduction Act or
PRA). Further, the PRA (44 U.S.C.
3507(a), (a)(2) and (a)(3)) requires that a
Federal agency may not conduct or
sponsor a collection of information
unless OMB approved the collection
under the PRA and the OMB control
number obtained is displayed. Finally,
notwithstanding any other provision of
law, no person is required to comply
with, or is subject to any penalty for
failure to comply with, a collection of
information does not display a currently
valid OMB control number (44 U.S.C.
3512).
This final rule contains revised
information collection requirements that
have not been approved by the OMB
and, therefore, are not effective until
OMB approval is obtained. The
unapproved information collection
requirements contained in this rule are
described below. The Bureau will
publish a separate notice in the Federal
Register announcing the submission of
these information collection
requirements to OMB as well as OMB’s
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action on these submissions; including,
the OMB control number and expiration
date.
The title of this information collection
is ECOA Appraisal Final Rule. The
frequency of response is on-occasion.
The final rule amends 12 CFR part 1002,
Equal Credit Opportunity (Regulation
B). Regulation B currently contains
collections of information approved by
OMB. The Bureau’s OMB control
number for Regulation B is 3170–0013
(Equal Credit Opportunity Act
(Regulation B) 12 CFR part 1002). As
described below, the final rule would
amend the collections of information
currently in Regulation B.
The information collection in the final
rule is required to provide benefits for
consumers and is mandatory. Because
the Bureau does not collect any
information under the final rule, no
issue of confidentiality arises. The likely
respondents would be certain
businesses, for-profit institutions, and
nonprofit institutions that are creditors
under Regulation B.
Under the final rule, the Bureau
generally accounts for the paperwork
burden for the following respondents
pursuant to its enforcement/supervisory
authority: insured depository
institutions with more than $10 billion
in total assets, their depository
institution affiliates, and certain nondepository institutions. The Bureau and
the FTC generally both have
enforcement authority over nondepository institutions subject to
Regulation B. Accordingly, the Bureau
has allocated to itself half of the final
rule’s estimated burden to nondepository institutions. Other Federal
agencies, including the FTC, are
responsible for estimating and reporting
to OMB the paperwork burden for the
institutions for which they have
enforcement/supervision authority.
They may use the Bureau’s burden
estimation methodology, but need not
do so.
Using the Bureau’s burden estimation
methodology, the total estimated burden
for the roughly 14,200 creditors
originate mortgages and therefore are
subject to the final rule, including
Bureau respondents, would be
approximately 519,000 hours of ongoing
burden annually and 14,500 hours in
one-time burden. Because creditors
generally already provide consumers
copies of appraisals if a first lien
transaction closes, the Bureau assumes
that there are no required software or
information technology upgrades
associated with implementing the rule
for providing copies of appraisals in
transactions that are consummated or
where the account is opened. The
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Bureau assumes that creditors would
make a one-time technology upgrade to
incorporate additional documents into
this disclosure practice that may not be
currently provided to applicants. This
estimate also accounts for time to
review the rule and for staff training.
Under the final rule, creditors will be
required to provide applicants with
copies of these documents, such as
appraisals developed in transactions
that are not consummated or where the
account is not opened, and nonappraisal valuations developed for first
lien transactions (including both the
estimated 10 percent of first lien
transactions that involve a valuation
other than an appraisal, as well as a
portion of the other 90 percent of first
lien transactions where a valuation is
obtained in addition to an appraisal).
The Bureau expects that the amount of
time required to implement each of the
required changes for a given institution
may vary based on the size, complexity,
and practices of the respondent.
B. Information Collection Requirements
The information collection
requirements in the final rule consist of
the provision of copies of appraisals and
other written valuations to applicants.
Under the final rule, copies of all
appraisals and other written valuations
developed in connection with a
creditor’s decision on an applicant for a
loan to be secured by a first lien on a
dwelling must be provided to the
applicant free of charge promptly upon
completion, or three business days
before consummation or account
opening, whichever is earlier, and these
copies may be delivered physically or
electronically. Currently, Regulation B
requires that free copies of appraisals be
provided upon request. From its
outreach prior to the proposal, the
Bureau learned that it is customary and
in many cases already required by GSEs
for creditors to send applicants a copy
of all appraisals if the first lien loan
closes, but firms differed in their
practices of sending out copies of
appraisals for such loans that did not
close.123 The outreach prior to the
proposal stage also did not establish that
creditors have a consistent practice of
providing copies of valuations other
than appraisals in first lien transactions.
Therefore, the Bureau considers the
incremental paperwork burden
associated with the final rule’s
information collection requirements to
be the cost of reviewing the rule, staff
training, the one-time technology
123 Outreach
conversations prior to the proposal
included a large bank, a trade group of smaller
depository institutions, and an IMB.
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upgrade described above, sending out
copies of non-appraisal valuations to
applicants for first lien transactions, and
sending out copies of appraisals and
other written valuations to consumers
who apply for loans that do not close
but that reach the stage where an
appraisal or other valuation is
conducted. In some transactions in
which more than one appraisal or other
written valuation is conducted—a
scenario that commenters did not state
was frequent, but which nonetheless is
assumed to be possible—separate
transmissions to the applicant would be
necessary, but only if they cannot both
be provided promptly upon their
respective completion in the same
package.
While the final rule requires the
creditor to provide a short written
disclosure concerning the appraisal
process within three business days of
application, this disclosure may be
classified as a warning label supplied by
the Federal government. Accordingly,
this requirement is not ‘‘collection of
information’’ for purposes of the PRA. 5
CFR 1320.3(c)(2).
C. Summary of Estimated Burden for
Bureau Respondents
The total annualized ongoing burden
for the depository institutions and credit
unions with more than $10 billion in
assets (including their depository
affiliates) that originate mortgage loans
is estimated to be roughly 225,400 hours
and the annualized ongoing burden for
all non-depository institutions that
originate mortgage loans is estimated to
be approximately 171,300 hours. These
respondents are estimated to incur an
additional 5,200 hours and 4,000 hours
in one-time burden, respectively. For
purposes of the PRA analysis under this
final rule, the Bureau would assume
roughly 85,700 ongoing burden hours
and 2,000 one-time hours for the nondepository institutions.124
The Bureau has a continuing interest
in the public’s opinions of our
collections of information. At any time,
comments regarding the burden
estimate, or any other aspect of this
collection of information, including
suggestions for reducing the burden,
may be sent to: The Consumer Financial
Protection Bureau (Attention: PRA
Office), 1700 G Street NW., Washington,
DC, 20552, or by the internet to
CFPB_Public_PRA@cfpb.gov.
124 There may be a small additional burden for
privately insured credit unions estimated to
originate mortgages. The Bureau will assume half of
the burden on these institutions.
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Federal Register / Vol. 78, No. 21 / Thursday, January 31, 2013 / Rules and Regulations
List of Subjects in 12 CFR Part 1002
Aged, Banks, Banking, Civil rights,
Consumer protection, Credit, Credit
unions, Discrimination, Fair lending,
Marital status discrimination, National
banks, National origin discrimination,
Penalties, Race discrimination,
Religious discrimination, Reporting and
recordkeeping requirements, Savings
associations, Sex discrimination.
Authority and Issuance
For the reasons set forth in the
preamble, the Bureau amends
Regulation B, 12 CFR part 1002, as set
forth below:
PART 1002—EQUAL CREDIT
OPPORTUNITY ACT (REGULATION B)
1. The authority citation for Part 1002
continues to read as follows:
■
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C.
1691b.
2. Section 1002.4 is amended by
revising paragraph (d)(2) to read as
follows:
■
§ 1002.4
General rules.
*
*
*
*
*
(d) * * *
(2) Disclosures in electronic form. The
disclosures required by this part that are
required to be given in writing may be
provided to the applicant in electronic
form, subject to compliance with the
consumer consent and other applicable
provisions of the Electronic Signatures
in Global and National Commerce Act
(E-Sign Act) (15 U.S.C. 7001 et seq.).
Where the disclosures under
§§ 1002.5(b)(1), 1002.5(b)(2),
1002.5(d)(1), 1002.5(d)(2), 1002.13, and
1002.14(a)(2) accompany an application
accessed by the applicant in electronic
form, these disclosures may be provided
to the applicant in electronic form on or
with the application form, without
regard to the consumer consent or other
provisions of the E-Sign Act.
■ 3. Section 1002.14 is revised to read
as follows:
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§ 1002.14 Rules on providing appraisals
and other valuations.
(a) Providing appraisals and other
valuations. (1) In general. A creditor
shall provide an applicant a copy of all
appraisals and other written valuations
developed in connection with an
application for credit that is to be
secured by a first lien on a dwelling. A
creditor shall provide a copy of each
such appraisal or other written
valuation promptly upon completion, or
three business days prior to
consummation of the transaction (for
closed-end credit) or account opening
(for open-end credit), whichever is
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earlier. An applicant may waive the
timing requirement in this paragraph
(a)(1) and agree to receive any copy at
or before consummation or account
opening, except where otherwise
prohibited by law. Any such waiver
must be obtained at least three business
days prior to consummation or account
opening, unless the waiver pertains
solely to the applicant’s receipt of a
copy of an appraisal or other written
valuation that contains only clerical
changes from a previous version of the
appraisal or other written valuation
provided to the applicant three or more
business days prior to consummation or
account opening. If the applicant
provides a waiver and the transaction is
not consummated or the account is not
opened, the creditor must provide these
copies no later than 30 days after the
creditor determines consummation will
not occur or the account will not be
opened.
(2) Disclosure. For applications
subject to paragraph (a)(1) of this
section, a creditor shall mail or deliver
to an applicant, not later than the third
business day after the creditor receives
an application for credit that is to be
secured by a first lien on a dwelling, a
notice in writing of the applicant’s right
to receive a copy of all written
appraisals developed in connection
with the application. In the case of an
application for credit that is not to be
secured by a first lien on a dwelling at
the time of application, if the creditor
later determines the credit will be
secured by a first lien on a dwelling, the
creditor shall mail or deliver the same
notice in writing not later than the third
business day after the creditor
determines that the loan is to be secured
by a first lien on a dwelling.
(3) Reimbursement. A creditor shall
not charge an applicant for providing a
copy of appraisals and other written
valuations as required under this
section, but may require applicants to
pay a reasonable fee to reimburse the
creditor for the cost of the appraisal or
other written valuation unless otherwise
provided by law.
(4) Withdrawn, denied, or incomplete
applications. The requirements set forth
in paragraph (a)(1) of this section apply
whether credit is extended or denied or
if the application is incomplete or
withdrawn.
(5) Copies in electronic form. The
copies required by § 1002.14(a)(1) may
be provided to the applicant in
electronic form, subject to compliance
with the consumer consent and other
applicable provisions of the Electronic
Signatures in Global and National
Commerce Act (E-Sign Act) (15 U.S.C.
7001 et seq.).
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(b) Definitions. For purposes of
paragraph (a) of this section:
(1) Consummation. The term
‘‘consummation’’ means the time that a
consumer becomes contractually
obligated on a closed-end credit
transaction.
(2) Dwelling. The term ‘‘dwelling’’
means a residential structure that
contains one to four units whether or
not that structure is attached to real
property. The term includes, but is not
limited to, an individual condominium
or cooperative unit, and a mobile or
other manufactured home.
(3) Valuation. The term ‘‘valuation’’
means any estimate of the value of a
dwelling developed in connection with
an application for credit.
■ 4. In Appendix C to Part 1002:
■ A. Paragraph 1 is revised.
■ B. Sample Form C–9 is revised.
The revisions read as follows:
Appendix C to Part 1002—Sample
Notification Forms
1. This Appendix contains ten sample
notification forms. Forms C–1 through C–4
are intended for use in notifying an applicant
that adverse action has been taken on an
application or account under §§ 1002.9(a)(1)
and (2)(i) of this part. Form C–5 is a notice
of disclosure of the right to request specific
reasons for adverse action under
§§ 1002.9(a)(1) and (2)(ii). Form C–6 is
designed for use in notifying an applicant,
under § 1002.9(c)(2), that an application is
incomplete. Forms C–7 and C–8 are intended
for use in connection with applications for
business credit under § 1002.9(a)(3). Form C–
9 is designed for use in notifying an
applicant of the right to receive a copy of
appraisals under § 1002.14. Form C–10 is
designed for use in notifying an applicant for
nonmortgage credit that the creditor is
requesting applicant characteristic
information.
*
*
*
*
*
Form C–9—Sample Disclosure of Right To
Receive a Copy of Appraisals
We may order an appraisal to determine
the property’s value and charge you for this
appraisal. We will promptly give you a copy
of any appraisal, even if your loan does not
close.
You can pay for an additional appraisal for
your own use at your own cost.
*
*
*
*
*
5. In Supplement I to Part 1002—
Official Interpretations:
■ A. Under Section 1002.14, the heading
is revised.
■ B. Newly designated Section 1002.14
is revised.
■ C. Under Appendix C—Sample
Notification Forms, paragraph 1 is
revised.
The revisions read as follows:
■
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Supplement I To Part 1002—Official
Interpretations
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*
*
*
*
*
Section 1002.14—Rules on Providing
Appraisals and Valuations
14(a) Providing appraisals and other
valuations.
1. Multiple applicants. If there is more than
one applicant, the written disclosure about
written appraisals, and the copies of
appraisals and other written valuations, need
only be given to one applicant. However,
these materials must be given to the primary
applicant where one is readily apparent.
Similarly, if there is more than one applicant
for credit in the transaction, one applicant
may provide a waiver under § 1002.14(a)(1),
but it must be the primary applicant where
one is readily apparent.
14(a)(1) In general.
1. Coverage. Section 1002.14 covers
applications for credit to be secured by a first
lien on a dwelling, as that term is defined in
§ 1002.14(b)(2), whether the credit is for a
business purpose (for example, a loan to start
a business) or a consumer purpose (for
example, a loan to purchase a home).
2. Renewals. Section 1002.14(a)(1) applies
when an applicant requests the renewal of an
existing extension of credit and the creditor
develops a new appraisal or other written
valuation. Section 1002.14(a)(1) does not
apply to the extent a creditor uses the
appraisals and other written valuations that
were previously developed in connection
with the prior extension of credit to evaluate
the renewal request.
3. Written. For purposes of § 1002.14, an
‘‘appraisal or other written valuation’’
includes, without limitation, an appraisal or
other valuation received or developed by the
creditor in paper form (hard copy);
electronically, such as CD or email; or by any
other similar media. See § 1002.14(a)(5)
regarding the provision of copies of
appraisals and other written valuations to
applicants via electronic means.
4. Timing. Section 1002.14(a)(1) requires
that the creditor ‘‘provide’’ copies of
appraisals and other written valuations to the
applicant ‘‘promptly upon completion,’’ or
no later than three business days before
consummation (for closed-end credit) or
account opening (for open-end credit),
whichever is earlier.
i. For purposes of this timing requirement,
‘‘provide’’ means ‘‘deliver.’’ Delivery occurs
three business days after mailing or
delivering the copies to the last-known
address of the applicant, or when evidence
indicates actual receipt by the applicant,
whichever is earlier. Delivery to or actual
receipt by the applicant by electronic means
must comply with the E-Sign Act, as
provided for in § 1002.14(a)(5).
ii. The application and meaning of the
‘‘promptly upon completion’’ standard
depends upon the facts and circumstances,
including but not limited to when the
creditor receives the appraisal or other
written valuation, and the extent of any
review or revision after the creditor receives
it.
iii. ‘‘Completion’’ occurs when the last
version is received by the creditor, or when
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the creditor has reviewed and accepted the
appraisal or other written valuation to
include any changes or corrections required,
whichever is later. See also comment
14(a)(1)–7.
iv. In a transaction that is being
consummated (for closed-end credit) or in
which the account is being opened (for openend credit), if an appraisal or other written
valuation has been developed but is not yet
complete, the deadline for providing a copy
of three business days before consummation
or account opening still applies, unless the
applicant waived that deadline as provided
under § 1002.14(a)(1), in which case the copy
must be provided at or before consummation
or account opening.
v. Even if the transaction will not be
consummated (for closed-end credit) or the
account will not be opened (for open-end
credit), the copy must be provided ‘‘promptly
upon completion’’ as provided for in
§ 1002.14(a)(1), unless the applicant has
waived that deadline as provided under
§ 1002.14(a)(1), in which case as provided for
in § 1002.14(a)(1) the copy must be provided
to the applicant no later than 30 days after
the creditor determines the transaction will
not be consummated or the account will not
be opened.
5. Promptly upon completion–examples.
Examples in which the ‘‘promptly upon
completion’’ standard would be satisfied
include, but are not limited to, those in
subparagraphs i, ii, and iii below. Examples
in which the ‘‘promptly upon completion’’
standard would not be satisfied include, but
are not limited to, those in subparagraphs iv
and v below.
i. Sending a copy of an appraisal within a
week of completion with sufficient time
before consummation (or account opening for
open-end credit). On day 15 after receipt of
the application, the creditor’s underwriting
department reviews an appraisal and
determines it is acceptable. One week later,
the creditor sends a copy of the appraisal to
the applicant. The applicant actually receives
the copy more than three business days
before the date of consummation (or account
opening). The creditor has provided the copy
of the appraisal promptly upon completion.
ii. Sending a copy of a revised appraisal
within a week after completion and with
sufficient time before consummation (or
account opening for open-end credit). An
appraisal is being revised, and the creditor
does not receive the revised appraisal until
day 45 after the application, when the
creditor immediately determines the revised
appraisal is acceptable. A week later, the
creditor sends a copy of the revised appraisal
to the applicant, and does not send a copy
of the initial appraisal to the applicant. The
applicant actually receives the copy of the
revised appraisal three business days before
the date of consummation (or account
opening). The creditor has provided the
appraisal copy promptly upon completion.
iii. Sending a copy of an AVM report
within a week after its receipt and with
sufficient time before consummation (or
account opening for open-end credit). The
creditor receives an automated valuation
model (AVM) report on day 5 after receipt of
the application and treats the AVM report as
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complete when it is received. On day 12 after
receipt of the application, the creditor sends
the applicant a copy of the valuation. The
applicant actually receives the valuation
more than three business days before the date
of consummation (or account opening). The
creditor has provided the copy of the AVM
report promptly upon completion.
iv. Delay in sending an appraisal. On day
12 after receipt of the application, the
creditor’s underwriting department reviews
an appraisal and determines it is acceptable.
Although the creditor has determined the
appraisal is complete, the creditor waits to
provide a copy to the applicant until day 42,
when the creditor schedules the
consummation (or account opening) to occur
on day 50. The creditor has not provided the
copy of the appraisal promptly upon
completion.
v. Delay in sending an AVM report while
waiting for completion of a second valuation.
The creditor receives an AVM report on day
5 after application and completes its review
of the AVM report the day it is received. The
creditor also has ordered an appraisal, but
the initial version of the appraisal received
by the creditor is found to be deficient and
is sent for review. The creditor waits 30 days
to provide a copy of the completed AVM
report, until the appraisal is completed on
day 35. The creditor then provides the
applicant with copies of the AVM report and
the revised appraisal. While the appraisal
report was provided promptly upon
completion, the AVM report was not.
6. Waiver. Section 1002.14(a)(1) permits
the applicant to waive the timing
requirement if the creditor provides the
copies at or before consummation or account
opening, except where otherwise prohibited
by law. Except where otherwise prohibited
by law, an applicant’s waiver is effective
under § 1002.14(a)(1) in either of the
following two situations:
i. If, no later than three business days prior
to consummation or account opening, the
applicant provides the creditor an affirmative
oral or written statement waiving the timing
requirement under this rule; or
ii. If, within three business days of
consummation or account opening, the
applicant provides the creditor an affirmative
oral or written statement waiving the timing
requirement under this rule and the waiver
pertains solely to the applicant’s receipt of a
copy of an appraisal or other written
valuation that contains only clerical changes
from a previous version of the appraisal or
other written valuation provided to the
applicant three or more business days prior
to consummation or account opening. For
purpose of this second type of waiver,
revisions will only be considered to be
clerical in nature if they have no impact on
the estimated value, and have no impact on
the calculation or methodology used to
derive the estimate. In addition, under
§ 1002.14(a)(1) the applicant still must
receive the copy of the revision at or prior
to consummation or account opening.
7. Multiple versions of appraisals or
valuations. For purposes of § 1002.14(a)(1),
the reference to ‘‘all’’ appraisals and other
written valuations does not refer to all
versions of the same appraisal or other
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valuation. If a creditor has received multiple
versions of an appraisal or other written
valuation, the creditor is required to provide
only a copy of the latest version received. If,
however, a creditor already has provided a
copy of one version of an appraisal or other
written valuation to an applicant, and the
creditor later receives a revision of that
appraisal or other written valuation, then the
creditor also must provide the applicant with
a copy of the revision to comply with
§ 1002.14(a)(1). If a creditor receives only one
version of an appraisal or other valuation that
is developed in connection with the
applicant’s application, then that version
must be provided to the applicant to comply
with § 1002.14(a)(1). See also comment
14(a)(1)–4 above.
14(a)(2) Disclosure.
1. Appraisal independence requirements
not affected. Nothing in the text of the
disclosure required by § 1002.14(a)(2) should
be construed to affect, modify, limit, or
supersede the operation of any legal,
regulatory, or other requirements or
standards relating to independence in the
conduct of appraisers or the use of applicantordered appraisals by creditors.
14(a)(3) Reimbursement.
1. Photocopy, postage, or other costs.
Creditors may not charge for photocopy,
postage, or other costs incurred in providing
a copy of an appraisal or other written
valuation in accordance with section 14(a)(1).
2. Reasonable fee for reimbursement.
Section 1002.14(a)(3) does not prohibit a
creditor from imposing a reasonable fee to
reimburse the creditor’s costs of the appraisal
or other written valuation, so long as the fee
is not increased to cover the costs of
providing copies of such appraisals or other
written valuations under § 1002.14(a)(1). A
creditor’s cost may include an administration
fee charged to the creditor by an appraisal
management company as defined in 12
U.S.C. 3350(11). Section 1002.14(a)(3) does
not, however, legally obligate the applicant to
pay such fees. Further, creditors may not
impose fees for reimbursement of the costs of
an appraisal or other valuation where
otherwise prohibited by law. For instance, a
creditor may not charge a consumer a fee for
the performance of a second appraisal if the
VerDate Mar<15>2010
18:49 Jan 30, 2013
Jkt 229001
second appraisal is required under 15 U.S.C.
1639h(b)(2) and 12 CFR 1026.35(c).
14(b) Definitions.
14(b)(1) Consummation.
1. State law governs. When a contractual
obligation on the consumer’s part is created
is a matter to be determined under applicable
law; § 1002.14 does not make this
determination. A contractual commitment
agreement, for example, that under
applicable law binds the consumer to the
credit terms would be consummation.
Consummation, however, does not occur
merely because the consumer has made some
financial investment in the transaction (for
example, by paying a nonrefundable fee)
unless, of course, applicable law holds
otherwise.
2. Credit vs. sale. Consummation does not
occur when the consumer becomes
contractually committed to a sale transaction,
unless the consumer also becomes legally
obligated to accept a particular credit
arrangement.
14(b)(2) Dwelling.
1. ‘‘Motor vehicles’’ not covered. The
requirements of § 1002.14 do not apply to
‘‘motor vehicles’’ as defined by 12 U.S.C.
5519(f)(1).
14(b)(3) Valuation.
1. Valuations—examples. Examples of
valuations include but are not limited to:
i. A report prepared by an appraiser
(whether or not licensed or certified)
including the appraiser’s estimate or opinion
of the property’s value.
ii. A document prepared by the creditor’s
staff that assigns value to the property.
iii. A report approved by a governmentsponsored enterprise for describing to the
applicant the estimate of the property’s value
developed pursuant to the proprietary
methodology or mechanism of the
government-sponsored enterprise.
iv. A report generated by use of an
automated valuation model to estimate the
property’s value.
v. A broker price opinion prepared by a
real estate broker, agent, or sales person to
estimate the property’s value.
2. Attachments and exhibits. The term
‘‘valuation’’ includes any attachments and
PO 00000
Frm 00036
Fmt 4701
Sfmt 9990
exhibits that are an integrated part of the
valuation.
3. Other documentation. Not all documents
that discuss or restate a valuation of an
applicant’s property constitute a ‘‘valuation’’
for purposes of § 1002.14(b)(3). Examples of
documents that discuss the valuation of the
applicant’s property or may reflect its value
but nonetheless are not ‘‘valuations’’ include
but are not limited to:
i. Internal documents that merely restate
the estimated value of the dwelling contained
in an appraisal or written valuation being
provided to the applicant.
ii. Governmental agency statements of
appraised value that are publically available.
iii. Publicly-available lists of valuations
(such as published sales prices or mortgage
amounts, tax assessments, and retail price
ranges).
iv. Manufacturers’ invoices for
manufactured homes.
v. Reports reflecting property inspections
that do not provide an estimate or opinion of
the value of the property and are not used to
develop an estimate or opinion of the value
of the property.
*
*
*
*
*
Appendix C—Sample Notification Forms
1. Form C–9. If not otherwise provided
under other applicable disclosure
requirements, creditors may design their own
form, add to, or modify the model form to
reflect their individual policies and
procedures. For example, a creditor may
want to add:
i. A telephone number that applicants may
call to leave their name and the address to
which a copy of the appraisal or other
written valuation should be sent.
ii. A notice of the cost the applicant will
be required to pay the creditor for the
appraisal or other valuation.
Dated: January 18, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial
Protection.
[FR Doc. 2013–01384 Filed 1–28–13; 4:15 pm]
BILLING CODE 4810–AM–P
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[Federal Register Volume 78, Number 21 (Thursday, January 31, 2013)]
[Rules and Regulations]
[Pages 7215-7250]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01384]
[[Page 7215]]
Vol. 78
Thursday,
No. 21
January 31, 2013
Part VI
Bureau of Consumer Financial Protection
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12 CFR Part 1002
Disclosure and Delivery Requirements for Copies of Appraisals and Other
Written Valuations Under the Equal Credit Opportunity Act (Regulation
B); Final Rule
Federal Register / Vol. 78 , No. 21 / Thursday, January 31, 2013 /
Rules and Regulations
[[Page 7216]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1002
[Docket No. CFPB-2012-0032]
RIN 3170-AA26
Disclosure and Delivery Requirements for Copies of Appraisals and
Other Written Valuations Under the Equal Credit Opportunity Act
(Regulation B)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Final rule; official interpretations.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
amending Regulation B, which implements the Equal Credit Opportunity
Act (ECOA), and the Bureau's official interpretations of the
regulation, which interpret and clarify the requirements of Regulation
B. The final rule revises Regulation B to implement an ECOA amendment
concerning appraisals and other valuations that was enacted as part of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act). In general, the revisions to Regulation B require creditors
to provide to applicants free copies of all appraisals and other
written valuations developed in connection with an application for a
loan to be secured by a first lien on a dwelling, and require creditors
to notify applicants in writing that copies of appraisals will be
provided to them promptly.
DATES: This final rule is effective January 18, 2014.
FOR FURTHER INFORMATION CONTACT: Owen Bonheimer, Counsel, or William W.
Matchneer, Senior Counsel, Office of Regulations, at (202) 435-7000.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule
Congress amended ECOA section 701(e) to require creditors to
provide applicants with a copy of appraisals and other written
valuations developed in connection with certain mortgage transactions
as a matter of course, rather than only providing copies of appraisals
upon applicants' request as previously required. For the reasons
discussed below, the Bureau is now adopting amendments to Regulation B
in final form, generally as proposed. The final rule amends Sec.
1002.14 of Regulation B to provide for the following in connection with
applications for credit to be secured by a first lien on a dwelling:
Require creditors to notify applicants within three
business days of receiving an application of their right to receive a
copy of appraisals developed.
Require creditors to provide applicants a copy of each
appraisal and other written valuation promptly upon its completion or
three business days before consummation (for closed-end credit) or
account opening (for open-end credit), whichever is earlier.
Permit applicants to waive the timing requirement for
providing these copies. However, applicants who waive the timing
requirement must be given a copy of all appraisals and other written
valuations at or prior to consummation or account opening, or, if the
transaction is not consummated or the account is not opened, no later
than 30 days after the creditor determines the transaction will not be
consummated or the account will not be opened.
Prohibit creditors from charging for the copy of
appraisals and other written valuations, but permit creditors to charge
applicants reasonable fees for the cost of the appraisals or other
written valuations unless applicable law provides otherwise.
As discussed further in part VI, this final rule becomes effective
on January 18, 2014. Accordingly, the final rule applies to mortgage
transactions to be secured by a first lien on a dwelling for which the
creditor receives an application on or after January 18, 2014.
II. Background
A. ECOA and Regulation B
ECOA \1\ makes it unlawful for creditors to discriminate in any
aspect of a credit transaction on the basis of sex, race, color,
religion, national origin, marital status, or age (provided the
applicant has the capacity to contract), or because all or part of an
applicant's income derives from public assistance, or because the
applicant has in good faith exercised any right under the Consumer
Credit Protection Act. ECOA applies to consumer credit as well as to
business and commercial credit except as provided in Regulation B,
Sec. 1002.3(a)-(d).
---------------------------------------------------------------------------
\1\ 15 U.S.C. 1691 et seq.
---------------------------------------------------------------------------
Prior to its amendment by the Dodd-Frank Act, section 701(e) of
ECOA required creditors to provide credit applicants, upon written
request, with copies of appraisal reports used in connection with their
applications for a loan secured by residential real property. This
provision was added to ECOA in 1991 as part of the Federal Deposit
Insurance Corporation Improvement Act (FDICIA).\2\ The Senate report on
FDICIA suggests that one purpose of ECOA section 701(e) was to make it
easier for loan applicants to determine whether a loan was denied due
to a discriminatory appraisal.\3\
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\2\ Public Law 102-242, 105 Stat. 2236 (1991).
\3\ For additional legislative history on the appraisal
provision as originally added by the FDICIA, see S. Rept.167, 102nd
Cong. (1991); S. Rept. 461, 101st Cong. (1990); 137 Cong. Rec. S2519
(daily ed. Feb. 28, 1991); 136 Cong. Rec. S14592, 14598-99 (daily
ed. Oct. 5, 1990).
---------------------------------------------------------------------------
Section 1474 of the Dodd-Frank Act replaces the existing section
701(e) with a new provision that imposed several new requirements
concerning appraisals as well as other valuations, as described below.
The Act also transferred general rulemaking authority for ECOA from the
Board of Governors of the Federal Reserve System (Board) to the Bureau
on July 21, 2011.\4\ Pursuant to the Dodd-Frank Act and ECOA, as
amended, the Bureau published for public comment an interim final rule
establishing a new Regulation B, 12 CFR part 1002, implementing ECOA
(except with respect to persons excluded from the Bureau's rulemaking
authority by section 1029 of the Dodd-Frank Act). 76 FR 79442 (Dec. 21,
2011). This interim final rule did not impose any new substantive
obligations but did make technical and conforming changes to reflect
the transfer of authority and certain other changes made by the Dodd-
Frank Act. The Bureau's Regulation B took effect on December 30, 2011.
---------------------------------------------------------------------------
\4\ Public Law 111-203, 124 Stat. 1376 (2010). The transfer of
authority is further discussed in Part IV below.
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B. Dodd-Frank Act Amendments Concerning Appraisals and Other Valuations
Congress enacted the Dodd-Frank Act after a cycle of unprecedented
expansion and contraction in the mortgage market sparked the most
severe U.S. recession since the Great Depression.\5\ The Dodd-Frank Act
created the Bureau and consolidated various rulemaking and supervisory
authorities in this new agency, including the authority to implement
ECOA.\6\ At the same time, Congress imposed new statutory requirements
governing mortgage practices with the intent to restrict the practices
that
[[Page 7217]]
contributed to the crisis and to provide additional protections to
consumers.
---------------------------------------------------------------------------
\5\ For more discussion of the mortgage market, the financial
crisis, and mortgage origination generally, see the Bureau's 2012
TILA-RESPA Proposal, 77 FR 51116 (Aug. 23, 2012), available at
http://www.consumerfinance.gov/regulations/.
\6\ Sections 1011 and 1021 of title X of the Dodd-Frank Act, the
``Consumer Financial Protection Act,'' Public Law 111-203, sections
1001-1100H, codified at 12 U.S.C. 5491, 5511. The Consumer Financial
Protection Act is substantially codified at 12 U.S.C. 5481-5603.
---------------------------------------------------------------------------
Sections 1471 through 1474 of the Dodd-Frank Act established a
number of new requirements for appraisal and other valuation
activities, including requirements relating to appraisal independence,
appraisals for higher-risk mortgages, regulation of appraisal
management companies, automated valuation models (AVMs), and providing
copies of appraisals and other written valuations.\7\ Many of the Dodd-
Frank Act appraisal provisions are required to be implemented through
joint rulemakings involving the Bureau and other Federal agencies. The
amendment to ECOA section 701(e), however, does not require a joint
rulemaking. As discussed below, the amendments to section 701(e)
overlap with the disclosure and appraisal copy requirements of a Dodd-
Frank Act amendment to the Truth in Lending Act (TILA) applicable to
higher-risk mortgages. That Dodd-Frank Act amendment to TILA, which
adds TILA section 129H, is required to be implemented through joint
rulemaking. See TILA section 129H(b)(4)(A); 15 U.S.C. 1639h(b)(4)(A).
---------------------------------------------------------------------------
\7\ See TILA sections 129E and 129H as established by Dodd-Frank
Act sections 1471 and 1472, 15 U.S.C. 1639e and 1639h; sections 1124
and 1125 of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) as established by Dodd-Frank Act
sections 1473(f)(2), 12 U.S.C. 3353, and 1473(q), 12 U.S.C. 3354;
and section 701(e) of ECOA as amended by Dodd-Frank Act section
1474, 15 U.S.C. 1691(e).
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ECOA Requirements Relating to Appraisals and Other Valuations
Section 1474 of the Dodd-Frank Act \8\ amended ECOA section 701(e)
to require that creditors provide copies of all appraisals and other
written valuations to loan applicants, in credit transactions to be
secured by a first lien on a dwelling, at no additional cost and
without requiring applicants to request such copies affirmatively.
Amended ECOA section 701(e) generally provides that:
---------------------------------------------------------------------------
\8\ Public Law 111-203, sec. 1474, 124 Stat. 1376 (2010).
---------------------------------------------------------------------------
A creditor shall furnish to an applicant a copy of any and
all appraisals and other written valuations developed in connection
with the applicant's application for a loan that is or would be secured
by a first lien on a dwelling. The copy must be provided promptly upon
completion, and in no case later than three days prior to closing of
the loan, whether the creditor grants or denies the applicant's request
for credit or the application is incomplete or withdrawn. However, the
applicant may waive the timing requirement that copies of such
appraisals or other valuations be provided three days prior to closing,
except where otherwise required by law.
The creditor shall provide a copy of each appraisal or
other written valuation at no additional cost to the applicant, though
the creditor may impose a reasonable fee on the applicant to reimburse
the creditor for the cost of the appraisal.
At the time of application, the creditor shall notify
applicants in writing of the right to receive a copy of each appraisal
and other written valuation under ECOA section 701(e).
Amended ECOA section 701(e)(6) defines the term ``valuation'' as
including ``any estimate of the value of a dwelling developed in
connection with a creditor's decision to provide credit, including
those values developed pursuant to a policy of a government sponsored
enterprise or by an automated valuation model, a broker price opinion,
or other methodology or mechanism.''
Higher-Risk Mortgage Appraisal Requirements
On August 15, 2012, the Bureau--along with the Board, the Federal
Deposit Insurance Corporation (FDIC), the Federal Housing Finance
Agency (FHFA), the National Credit Union Administration (NCUA), and the
Office of the Comptroller of the Currency (OCC)--jointly issued for
public comment a proposal to implement new section 129H of TILA
relating to appraisals for higher-risk mortgages (2012 Interagency
Appraisals Proposal). The proposal was published in the Federal
Register on September 5, 2012. See 77 FR 54722 (Sept. 5, 2012). TILA
section 129H includes certain requirements that are similar to ECOA
section 701(e). Under Section 129H(d), creditors must provide
applicants, at least three days prior to closing, a copy of any
appraisal prepared in connection with a higher-risk mortgage. 15 U.S.C.
1639h(c). Creditors also must provide applicants, at the time of the
initial mortgage application, a statement that any appraisal prepared
for the mortgage is for the creditor's sole use and that the consumer
may choose to have a separate appraisal conducted at his or her own
expense. Id. 1639h(d). Section 1471 of the Dodd-Frank Act defines the
term ``higher-risk mortgage'' generally as a residential mortgage loan,
other than a reverse mortgage, that is secured by a principal dwelling
with an annual percentage rate (APR) that exceeds the average prime
offer rate for a comparable transaction by specified percentages. Id.
1639h(f). To finalize the 2012 Interagency Appraisals Proposal
described above, the inter-agency group is issuing a final rule under
section 129H of TILA (2103 Interagency Appraisals Final Rule).
III. Summary of the Rulemaking Process
A. Pre-Proposal Testing and Outreach
The Bureau has conducted consumer testing relating to
implementation of ECOA section 701(e) requirements in conjunction with
its 2012 TILA-RESPA Proposal.\9\ A more detailed discussion of the
Bureau's overall testing and form design can be found in the report
Know Before You Owe: Evolution of the Integrated TILA-RESPA
Disclosures, which is available on the Bureau's Web site.\10\
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\9\ See 77 FR 51116 at 51313-14, 51427 (Aug. 23, 2012). On July
9, 2012, the Bureau issued for public comment a proposed rule and
forms combining the TILA mortgage loan disclosures with the Real
Estate Settlement Procedures Act (RESPA) Good Faith Estimate (GFE)
and settlement statement required pursuant to Dodd-Frank Act section
1032(f) as well as sections 4(a) of RESPA and 105(b) of TILA, as
amended by Dodd-Frank Act sections 1098 and 1100A, respectively
(2012 TILA-RESPA Proposal). 12 U.S.C. 2603(a); 15 U.S.C. 1604(b).
\10\ Kleimann Comm. Gp., Inc., Know Before You Owe: Evolution of
the Integrated TILA-RESPA Disclosures (July 9, 2012), available at
http://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf.
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In January 2011, the Bureau contracted with a communication,
design, consumer testing, and research firm, Kleimann Communication
Group, Inc. (Kleimann), which specializes in consumer financial
disclosures. The Bureau and Kleimann developed a plan to conduct
qualitative usability testing, consisting of one-on-one cognitive
interviews, over several iterations of prototype integrated disclosure
forms. Between January and May 2011, the Bureau and Kleimann worked
collaboratively on developing a qualitative testing plan, and several
prototype integrated forms for the disclosure to be provided in
connection with a consumer's application (i.e., a form integrating the
RESPA good faith estimate and the early TILA disclosure).\11\ The
qualitative testing plan developed by the Bureau and Kleimann was
unique with respect to qualitative testing performed by other
[[Page 7218]]
federal agencies in that the Bureau planned to conduct qualitative
testing with industry participants as well as consumers. Each round of
qualitative testing included at least two industry participants,
including lenders from several different types of depository (including
credit unions) and nondepository institutions, mortgage brokers, and
closing agents.
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\11\ This discussion is limited to testing of the disclosure to
be provided in connection with a consumer's application, which is
the portion of the testing relevant to the appraisal-related
disclosure required under Sec. 1002.14(a)(2). As discussed in the
supplementary information to the 2012 RESPA-TILA Proposal, the
Bureau and Kleimann also tested prototype designs for the integrated
disclosure forms to be provided in connection with the closing of
the mortgage loan and real estate transaction. See the Bureau's 2012
TILA-RESPA Proposal, available at http://www.consumerfinance.gov/regulations/.
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In addition, the Bureau launched an initiative to obtain public
feedback on each round of prototype disclosures at the same time as it
conducted the qualitative testing of the prototypes, which it titled
``Know Before You Owe.'' \12\ This initiative consisted of publishing
and obtaining feedback on the prototype designs through an interactive
tool on the Bureau's Web site or through posting the prototypes to the
Bureau's blog on its Web site and providing an opportunity for the
public to email feedback directly to the Bureau. From May to October
2011, Kleimann and the Bureau conducted a series of five rounds of
qualitative testing on revised iterations of integrated disclosure
prototype forms. This testing was conducted in five different cities
across different U.S. Census regions and divisions: Baltimore,
Maryland; Los Angeles, California; Chicago, Illinois; Springfield,
Massachusetts; and Albuquerque, New Mexico. After each round, Kleimann
analyzed and reported to the Bureau on the results of the testing.
Based on these results and feedback received from the Bureau's Know
Before You Owe public outreach project, the Bureau revised the
prototype disclosure forms for the next round of testing.
---------------------------------------------------------------------------
\12\ See http://www.consumerfinance.gov/knowbeforeyouowe.
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As part of the larger Know Before You Owe public outreach project,
the Bureau tested two versions of the new appraisal-related disclosures
required by both TILA section 129H and ECOA section 701(e).\13\ The
Bureau believed that it was important to test the TILA and ECOA
appraisal-related disclosures together, in an integrated manner, to
determine how to provide these overlapping but separate disclosures in
a manner that would minimize consumer confusion and improve consumer
comprehension. Testing of the first version showed that consumers
tended to find the TILA and ECOA disclosures confusing when they were
given together using the specific language set forth in the respective
statutes.\14\ Consumer comprehension improved when the Bureau developed
a slightly longer plain language version that was designed to
incorporate the elements of both statutes. Based on the results of that
testing, the Bureau developed the following appraisal disclosure
language: ``We may order an appraisal to determine the property's value
and charge you for this appraisal. We will promptly give you a copy of
any appraisal, even if your loan does not close. You can pay for an
additional appraisal for your own use at your own cost.'' The Bureau
included this language in the prototype form used in the final rounds
of the testing process.
---------------------------------------------------------------------------
\13\ Kleimann Comm. Gp., Inc., Know Before You Owe: Evolution of
the Integrated TILA-RESPA Disclosures 254-256 (July 9, 2012),
available at http://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf.
\14\ Id.
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In addition, as part of the rulemaking process for this rule, as
described in the proposal, 77 FR 53090, at 50400 n.39, 50402 n.48 (Aug.
21, 2012), the Bureau considered information obtained during pre-
proposal outreach to industry regarding its practices in providing
copies of written appraisals to applicants. This outreach was carried
out in the context of the development of the 2012 Interagency
Appraisals Proposal and involved a large bank, a trade group of smaller
depository institutions, and an independent mortgage bank (IMB).
B. The Bureau's 2012 ECOA Proposal on Providing Copies of Appraisals
and Other Written Valuations
The Bureau issued for public comment its proposal to amend
Regulation B to implement the Dodd-Frank Act amendment to ECOA section
701(e) on August 15, 2012. The proposal was published in the Federal
Register on August 21, 2012. 77 FR 50390 (Aug. 21, 2012). The Bureau
proposed to amend Regulation B, Sec. 1002.14(a)(1), to set forth a
general requirement that creditors provide applicants for credit to be
secured by a first lien on a dwelling with copies of all appraisals and
other written valuations developed in connection with their
applications. The Bureau further proposed timing requirements for
providing such copies and standards governing any waiver of the timing
requirements. The Bureau proposed to amend Sec. 1002.14(a)(2) to
require that a creditor provide a written disclosure of the applicant's
right to receive a copy of such appraisals and other written
valuations. As proposed, Sec. 1002.14(a)(3) would have prohibited
creditors from charging the applicants for providing a copy of
appraisals and other written valuations, but would have permitted
creditors to require applicants to pay a reasonable fee to reimburse
the creditor for the cost of appraisals and other written valuations.
The Bureau proposed in Sec. 1002.14(a)(4) to clarify that the
requirements of Sec. 1002.14(a)(1) would apply regardless of whether
credit is extended or denied, or if the application is incomplete or
withdrawn. The Bureau proposed in Sec. 1002.14(a)(5) to allow the
copies of appraisals and other written valuations required by Sec.
1002.14(a)(1) to be provided in electronic form. As is discussed in
more detail below, proposed Sec. 1002.14(b) would have defined certain
terms used in Sec. 1002.14(a).
C. Overview of Comments Received
The Bureau received 68 comments on the 2012 ECOA Proposal,
primarily from creditors and their representatives. Most of the
industry commenters generally supported the core elements of the
proposal, while providing suggestions for exemptions, clarifications,
or changes to particular elements of the proposal. Comment letters also
were submitted by a group advocating for the use of plain language, and
on behalf of appraisers, government-sponsored enterprises (GSEs), and
real estate agents, as well as an affordable housing advocacy group.
The affordable housing advocacy group commenter generally supported the
proposal and suggested changes to strengthen consumer protections. The
plain language group commenter suggested changes to make the rule
easier to understand. Most of the remaining commenters generally
supported the rule but suggested clarifications and changes to
particular elements of the proposal. The comments are discussed in more
detail in the section-by-section analysis below.
D. Other Rulemakings
In addition to this final rule and the 2013 Interagency Appraisals
Final Rule described above, the Bureau currently is adopting several
other final rules and issuing one proposal, all relating to mortgage
credit to implement requirements of title XIV of the Dodd-Frank Act.
Each of the final rules follows a proposal issued in 2011 by the Board
or in 2012 by the Bureau. Collectively, these proposed and final rules
are referred to as the Title XIV Rulemakings.
Ability to Repay: The Bureau is finalizing a rule,
following a May 2011 proposal issued by the Board (Board's 2011 ATR
Proposal),\15\ to implement provisions of the Dodd-Frank Act (1)
requiring creditors to determine that a consumer has a reasonable
ability to repay covered mortgage loans and
[[Page 7219]]
establishing standards for compliance, such as by making a ``qualified
mortgage,'' and (2) establishing certain limitations on prepayment
penalties, pursuant to TILA section 129C as established by Dodd-Frank
Act sections 1411, 1412, and 1414. 15 U.S.C. 1639c. The Bureau's final
rule is referred to as the 2013 ATR Final Rule. Simultaneously with the
2013 ATR Final Rule, the Bureau is issuing a proposal to amend the
final rule implementing the ability-to-repay requirements, including by
the addition of exemptions for certain nonprofit creditors and certain
homeownership stabilization programs and a definition of a ``qualified
mortgage'' for certain loans made and held in portfolio by small
creditors (2013 ATR Concurrent Proposal). The Bureau expects to act on
the 2013 ATR Concurrent Proposal on an expedited basis, so that any
exceptions or adjustments to the 2013 ATR Final Rule can take effect
simultaneously with that rule.
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\15\ 76 FR 27390 (May 11, 2011).
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Escrows: The Bureau is finalizing a rule, following a
March 2011 proposal issued by the Board (Board's 2011 Escrows
Proposal),\16\ to implement certain provisions of the Dodd-Frank Act
expanding on existing rules that require escrow accounts to be
established for higher-priced mortgage loans and creating an exemption
for certain loans held by creditors operating predominantly in rural or
underserved areas, pursuant to TILA section 129D as established by
Dodd-Frank Act section 1461. 15 U.S.C. 1639d. The Bureau's final rule
is referred to as the 2013 Escrows Final Rule.
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\16\ 76 FR 11598 (Mar. 2, 2011).
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HOEPA: Following its July 2012 proposal (2012 HOEPA
Proposal),\17\ the Bureau is issuing a final rule to implement Dodd-
Frank Act requirements expanding protections for ``high-cost
mortgages'' under the Homeownership and Equity Protection Act (HOEPA),
pursuant to TILA sections 103(bb) and 129, as amended by Dodd-Frank Act
sections 1431 through 1433. 15 U.S.C. 1602(bb) and 1639. The Bureau
also is finalizing rules to implement certain title XIV requirements
concerning homeownership counseling, including a requirement that
lenders provide lists of homeownership counselors to applicants for
federally-related mortgage loans, pursuant to RESPA section 5(c), as
amended by Dodd-Frank Act section 1450. 12 U.S.C. 2604(c). The Bureau's
final rule is referred to as the 2013 HOEPA Final Rule.
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\17\ 77 FR 49090 (Aug. 15,2012).
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Servicing: Following its August 2012 proposals (2012 RESPA
Servicing Proposal and 2012 TILA Servicing Proposal),\18\ the Bureau is
adopting final rules to implement Dodd-Frank Act requirements regarding
force-placed insurance, error resolution, information requests, and
payment crediting, as well as requirements for mortgage loan periodic
statements and adjustable-rate mortgage reset disclosures, pursuant to
section 6 of RESPA and sections 128, 128A, 129F, and 129G of TILA, as
amended or established by Dodd-Frank Act sections 1418, 1420, 1463, and
1464. 12 U.S.C. 2605; 15 U.S.C. 1638, 1638a, 1639f, and 1639g. The
Bureau also is finalizing rules on early intervention for troubled and
delinquent borrowers, and loss mitigation procedures, pursuant to the
Bureau's authority under section 6 of RESPA, as amended by Dodd-Frank
Act section 1463, to establish obligations for mortgage servicers that
it finds to be appropriate to carry out the consumer protection
purposes of RESPA, and its authority under section 19(a) of RESPA to
prescribe rules necessary to achieve the purposes of RESPA. The
Bureau's final rule under RESPA with respect to mortgage servicing also
establishes requirements for general servicing standards policies and
procedures and continuity of contact pursuant to its authority under
section 19(a) of RESPA. The Bureau's final rules are referred to as the
2013 RESPA Servicing Final Rule and the 2013 TILA Servicing Final Rule,
respectively.
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\18\ 77 FR 57200 (Sept. 17, 2012) (RESPA); 77 FR 57318 (Sept.
17, 2012) (TILA).
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Loan Originator Compensation: Following its August 2012
proposal (2012 Loan Originator Proposal),\19\ the Bureau is issuing a
final rule to implement provisions of the Dodd-Frank Act requiring
certain creditors and loan originators to meet certain duties of care,
including qualification requirements; requiring the establishment of
certain compliance procedures by depository institutions; prohibiting
loan originators, creditors, and the affiliates of both from receiving
compensation in various forms (including based on the terms of the
transaction) and from sources other than the consumer, with specified
exceptions; and establishing restrictions on mandatory arbitration and
financing of single-premium credit insurance, pursuant to TILA sections
129B and 129C as established by Dodd-Frank Act sections 1402, 1403, and
1414(a). 15 U.S.C. 1639b, 1639c. The Bureau's final rule is referred to
as the 2013 Loan Originator Final Rule.
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\19\ 77 FR 55272 (Sept. 7, 2012).
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The Bureau is not at this time finalizing proposals concerning
various disclosure requirements that were added by title XIV of the
Dodd-Frank Act, integration of mortgage disclosures under TILA and
RESPA, or a simpler, more inclusive definition of the finance charge
for purposes of disclosures for closed-end mortgage transactions under
Regulation Z. The Bureau expects to finalize these proposals and to
consider whether to adjust regulatory thresholds under the Title XIV
Rulemakings in connection with any change in the calculation of the
finance charge later in 2013, after it has completed quantitative
testing, and any additional qualitative testing deemed appropriate, of
the forms that it proposed in July 2012 to combine TILA mortgage
disclosures with the good faith estimate (RESPA GFE) and settlement
statement (RESPA settlement statement) required under RESPA, pursuant
to Dodd-Frank Act section 1032(f) and sections 4(a) of RESPA and 105(b)
of TILA, as amended by Dodd-Frank Act sections 1098 and 1100A,
respectively (2012 TILA-RESPA Proposal).\20\ Accordingly, the Bureau
already has issued a final rule delaying implementation of various
affected title XIV disclosure provisions.\21\ The Bureau's approach to
coordinating the implementation of the Title XIV Rulemakings is
discussed below.
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\20\ 77 FR 51116 (Aug. 23, 2012).
\21\ 77 FR 70105 (Nov. 23, 2012).
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Coordinated Implementation of Title XIV Rulemakings
As noted in all of its foregoing proposals, the Bureau regards each
of the Title XIV Rulemakings as affecting aspects of the mortgage
industry and its regulations. Accordingly, as noted in its proposals,
the Bureau is coordinating carefully the Title XIV Rulemakings,
particularly with respect to their effective dates. The Dodd-Frank Act
requirements to be implemented by the Title XIV Rulemakings generally
will take effect on January 21, 2013, unless final rules implementing
those requirements are issued on or before that date and provide for a
different effective date. See Dodd-Frank Act section 1400(c), 15 U.S.C.
1601 note. In addition, some of the Title XIV Rulemakings are to take
effect no later than one year after they are issued. Id.
The comments on the appropriate implementation date for this final
rule are discussed in detail below in part VI of this notice. In
general, however, consumer advocates requested that the Bureau put the
protections in the Title
[[Page 7220]]
XIV Rulemakings into effect as soon as practicable. In contrast, the
Bureau received some industry comments indicating that implementing so
many new requirements at the same time would create a significant
cumulative burden for creditors. In addition, many commenters also
acknowledged the advantages of implementing multiple revisions to the
regulations in a coordinated fashion.\22\ Thus, a tension exists
between coordinating the adoption of the Title XIV Rulemakings and
facilitating industry's implementation of such a large set of new
requirements. Some have suggested that the Bureau resolve this tension
by adopting a sequenced implementation, while others have requested
that the Bureau simply provide a longer implementation period for all
of the final rules.
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\22\ Of the several final rules being adopted under the Title
XIV Rulemakings, six entail amendments to Regulation Z, with the
only exceptions being the 2013 RESPA Servicing Final Rule
(Regulation X) and the 2013 ECOA Appraisals Final Rule (Regulation
B); the 2013 HOEPA Final Rule also amends Regulation X, in addition
to Regulation Z. The six Regulation Z final rules involve numerous
instances of intersecting provisions, either by cross-references to
each other's provisions or by adopting parallel provisions. Thus,
adopting some of those amendments without also adopting certain
other, closely-related provisions would create significant technical
issues, e.g., new provisions containing cross-references to other
provisions that do not yet exist, which could undermine the ability
of creditors and other parties subject to the rules to understand
their obligations and implement appropriate systems changes in an
integrated and efficient manner.
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The Bureau recognizes that many of the new provisions will require
creditors to make changes to automated systems and, further, that most
administrators of large systems are reluctant to make too many changes
to their systems at once. At the same time, however, the Bureau notes
that the Dodd-Frank Act established virtually all of these changes to
institutions' compliance responsibilities, and contemplated that they
be implemented in a relatively short period of time. And, as already
noted, the extent of interaction among many of the Title XIV
Rulemakings necessitates that many of their provisions take effect
together. Finally, notwithstanding commenters' expressed concerns for
cumulative burden, the Bureau expects that creditors actually may
realize some efficiencies from adapting their systems for compliance
with multiple new, closely-related requirements at once, especially if
given sufficient overall time to do so.
Accordingly, the Bureau is requiring that, as a general matter,
creditors and other affected persons begin complying with the final
rules on January 10, 2014. As noted above, section 1400(c) of the Dodd-
Frank Act requires that some provisions of the Title XIV Rulemakings
take effect no later than one year after the Bureau issues them.
Accordingly, the Bureau is establishing January 10, 2014, one year
after issuance of the Bureau's 2013 ATR, Escrows, and HOEPA Final Rules
(i.e., the earliest of the title XIV final rules), as the baseline
effective date for most of the Title XIV Rulemakings. The Bureau
believes that, on balance, this approach will facilitate the
implementation of the rules' overlapping provisions, while also
affording creditors sufficient time to implement the more complex or
resource-intensive new requirements. As discussed in part VI below,
however, the effective date of this final rule is January 18, 2014, to
align with the effective date of the 2013 Interagency Appraisals Final
Rule.
The Bureau has identified certain rulemakings or selected aspects
thereof, however, that do not present significant implementation
burdens for industry. Accordingly, the Bureau is setting earlier
effective dates for those final rules or certain aspects thereof, as
applicable. Those effective dates are set forth and explained in the
Federal Register notices for those final rules.
IV. Legal Authority
The final rule was issued on January 18, 2013, in accordance with
12 CFR 1074.1. The Bureau issued this final rule pursuant to its
authority under ECOA and the Dodd-Frank Act. On July 21, 2011, section
1061 of the Dodd-Frank Act transferred to the Bureau all of the
``consumer financial protection functions'' previously vested in
certain other Federal agencies, including the Board.\23\ The term
``consumer financial protection functions'' is defined to include ``all
authority to prescribe rules or issue orders or guidelines pursuant to
any Federal consumer financial law, including performing appropriate
functions to promulgate and review such rules, orders, and
guidelines.'' \24\ ECOA is a Federal consumer financial law.\25\
Accordingly, the Bureau has authority to issue regulations pursuant to
ECOA.
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\23\ Public Law 111-203, sec. 1061(b)(7), 124 Stat. 1376; 12
U.S.C. 5581(b)(7).
\24\ 12 U.S.C. 5581(a)(1).
\25\ Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14)
(defining ``Federal consumer financial law'' to include the
``enumerated consumer laws'' and the provisions of title X of the
Dodd-Frank Act); Dodd-Frank Act section 1002(12), 12 U.S.C. 5481(12)
(defining ``enumerated consumer laws'' to include ECOA).
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Section 703(a) of ECOA authorizes the Bureau to prescribe
regulations to carry out the purposes of ECOA. Section 703(a) further
states that such regulations may contain--but are not limited to--such
classifications, differentiation, or other provision, and may provide
for such adjustments and exceptions for any class of transactions as,
in the judgment of the Bureau, are necessary or proper to effectuate
the purposes of ECOA, to prevent circumvention or evasion thereof, or
to facilitate or substantiate compliance. 15 U.S.C. 1691b(a).
Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to
prescribe rules ``as may be necessary or appropriate to enable the
Bureau to administer and carry out the purposes and objectives of the
Federal consumer financial laws, and to prevent evasions thereof[.]''
12 U.S.C. 5512(b)(1). ECOA and title X of the Dodd-Frank Act are
Federal consumer financial laws. Accordingly, the Bureau is exercising
its authority under Dodd-Frank Act section 1022(b)(1) to prescribe
rules that carry out the purposes and objectives of ECOA and title X
and prevent evasion of those laws.
Section 1405(b) of the Dodd-Frank Act provides that,
``[n]otwithstanding any other provision of [title XIV of the Dodd-Frank
Act], in order to improve consumer awareness and understanding of
transactions involving residential mortgage loans through the use of
disclosures, the [Bureau] may, by rule, exempt from or modify
disclosure requirements, in whole or in part, for any class of
residential mortgage loans if the [Bureau] determines that such
exemption or modification is in the interest of consumers and in the
public interest.'' 15 U.S.C. 1601 note. Section 1401 of the Dodd-Frank
Act, which amended TILA section 103(cc), 15 U.S.C. 1602(cc), generally
defines residential mortgage loan as any consumer credit transaction
that is secured by a mortgage on a dwelling or on residential real
property that includes a dwelling other than an open-end credit plan or
an extension of credit secured by a consumer's interest in a timeshare
plan. Notably, the authority granted by section 1405(b) applies to
``disclosure requirements'' generally, and is not limited to a specific
statute or statutes.
V. Section-by-Section Analysis
Section 1002.14 Rules on Providing Copies of Appraisals and Other
Written Valuations
Overview
Public comments generally. Many commenters offered general support
for the proposed rule, with some
[[Page 7221]]
comments, for example by a large trade association for real estate
brokers and agents, offering strong support for its potential to
educate and inform consumers about appraisals and other valuations and
their role in the real estate transaction. Most of the industry
commenters generally supported the proposal and provided numerous
suggestions for clarifications or changes to particular elements of the
proposal, which are discussed in the corresponding sections below. Some
industry commenters including community banks and other lending
institutions, however, opposed the proposal. These comments stated, for
example, that the mortgage credit industry cannot keep up with the all
the regulations being issued under the Dodd-Frank Act and that rules
requiring creditors to provide copies of appraisals are already in
place.
Discussion. As discussed above, the Dodd-Frank Act amendments to
ECOA section 701(e) will take effect 18 months after the designated
transfer date under the Dodd-Frank Act unless final rules implementing
section 701(e) are issued on or before that date and provide for a
different effective date. For that reason, the Bureau believes that,
rather than adding burden to industry, this final regulation will
relieve industry of uncertainty and potential liability risk that would
likely result from ECOA section 701(e) taking effect without an
implementing regulation. Furthermore, by issuing this final rule the
Bureau is able to provide industry with additional time to develop new
policies, train employees, and make system changes to implement the
rule's requirements that would not be available if the statute takes
effect in January 2013.
4(d) General Rules on Providing Disclosure in Electronic Form
As discussed in the section-by-section analysis relating to Sec.
1002.14(a)(5), the Bureau is updating the cross-reference in Sec.
1002.4(d) to Sec. 1002.14, to reflect that the new disclosure
requirement is cited as Sec. 1002.14(a)(2), rather than Sec.
1002.14(a)(2)(i). This change will ensure that electronic disclosure
standards in Regulation B apply to the new notice required by Sec.
1002.14(a)(2) to the same extent as they have applied to the existing
notice required by Sec. 1002.14(a)(2)(i) that the new notice will
replace.
14(a) Providing Copies of Appraisals and Other Written Valuations
14(a)(1) In General
ECOA section 701(e)(1) requires a creditor to provide an applicant
a copy of all appraisals and other written valuations developed in
connection with an application for credit that is to be secured by a
first lien on a dwelling. This requirement replaced the previous
requirement in section 701(e) to provide copies of appraisal reports
upon request of the applicant for a loan secured by a lien on a
dwelling. Accordingly, the Bureau proposed to revise Sec.
1002.14(a)(1) in two important ways: to specify the types of materials
that must be provided to consumers (i.e., copies of appraisals and
other written valuations developed in connection with the application),
and to specify the types of transactions for which these copies must be
provided (i.e., applications for credit to be secured by a first lien
on a dwelling).
First, consistent with new ECOA section 701(e)(1), the Bureau
proposed broadening the scope of the valuation materials for which
copies must be provided to applicants under Sec. 1002.14(a)(1) to
include copies of ``all written appraisals and valuations developed.''
The Bureau further proposed new comment 14(a)(1)-3 to clarify that for
purposes of Sec. 1002.14, a ``written'' appraisal or other valuation
would include, without limitation, an appraisal or valuation received
or developed by the creditor in any of the following manners: in paper
form (hard copy); electronically, such as by CD or email; or by any
other similar media. In addition, the proposed comment would have
clarified that creditors should look to Sec. 1002.14(a)(5) regarding
the provision of copies of appraisals and other written valuations to
applicants via electronic means.
Second, the Dodd-Frank Act amendments to ECOA section 701(e) also
narrowed the types of transactions that are covered to ``first lien''
transactions. Accordingly, the Bureau proposed revising Sec.
1002.14(a)(1) to add the word ``first'' to narrow the scope of the
final rule to cover only loans to be secured by a first lien on a
dwelling.
The Bureau also proposed changes to the Regulation B commentary
further clarifying the types of transactions subject to the requirement
to deliver copies of appraisals and other written valuations. Prior to
this final rule, comments 14(a)-1 and 2 had clarified that Regulation B
appraisal delivery requirements applied to credit for business purposes
and to renewals of credit secured by a dwelling. The Bureau proposed
generally retaining these comments (renumbered as comments 14(a)(1)-1
and 2), with several conforming and technical changes. The Bureau
proposed comment 14(a)(1)-1 to clarify that Sec. 1002.14(a)(1) covers
applications for credit to be secured by a first lien on a dwelling, as
the term ``dwelling'' is defined in Sec. 1002.14(b)(2), whether the
credit is business credit (see Sec. 1002.2(g)) or consumer credit (see
Sec. 1002.2(h)). The Bureau also proposed comment 14(a)(1)-2 to
clarify that Sec. 1002.14(a)(1) applies when an applicant requests the
renewal of an existing extension of credit and the creditor develops a
new appraisal or other written valuation. Consequently, the Bureau
proposed that this comment clarify that Sec. 1002.14(a) does not apply
when a creditor uses the appraisals or other valuations that were
previously developed in connection with the prior extension of credit
in order to evaluate the renewal request.
Public comment. Many commenters provided suggestions on which types
of documents would qualify as appraisals or other written valuations
copies of which must be provided to applicants.
A significant number of industry commenters urged the Bureau to
require creditors to provide only ``final'' versions of appraisals and
other written valuations, to prevent uncertainty over whether creditors
would be required to provide copies of drafts or preliminary versions
of these documents. Commenters also suggested this clarification would
help to reduce the volume of information that must be provided to and
received by applicants, thereby reducing burden on creditors and
preventing consumer confusion.
Several industry commenters asked the Bureau to clarify that ECOA
only requires providing copies of appraisals or other written
valuations that are actually performed. In addition, a few industry
commenters suggested that the Bureau require providing copies of only
those appraisals and other written valuations that are used or relied
upon by the creditor in making the credit decision. This narrower focus
was viewed as more in line with the purpose of ECOA. One commenter
requested that creditors should not be required to provide a copy of an
appraisal or other written valuation that is ``materially deficient,''
as it could confuse the consumer.
Some industry commenters expressed a general concern over liability
risks raised by the proposed requirement to provide copies of
appraisals and other written valuations. These commenters suggested
that providing these copies to applicants could create liability risks
for creditors and preparers. Some creditors and a creditor trade
association expressed concern that applicants might view valuations
that lenders conduct in-house, without commissioning an appraisal, as
warranting the value of the
[[Page 7222]]
home. Two creditors and a creditor association in one state expressed
concern over the potential for lender liability to carry over to
investors under an assignee liability theory, which could reduce access
to credit by reducing investor demand. Other industry commenters
suggested that applicants might seek to hold an appraiser liable for
the applicant's reliance upon the appraisal in entering into a
transaction, particularly if the appraiser lists, or is required to
list, the applicant as an ``intended user'' of the appraisal under the
Uniform Standards of Professional Appraisal Practices (USPAP). Some of
these commenters raised these concerns over potential liability as part
of an overall concern with the potential burden of the regulation, and
some urged the Bureau to include provisions in the final rule
protecting creditors and preparers of appraisals and other valuations
against liability.
A number of commenters also urged the Bureau to exclude certain
types of transactions from the scope of the final rule. Several
industry group commenters requested that the Bureau exempt loan
modifications, loss mitigation, short sales, and deed-in-lieu
transactions from the rule's requirements altogether. These commenters
suggested that these transactions did not involve an ``application'' by
the consumer for an ``extension of credit'' within the meaning of ECOA.
They also argued that applying the rule to loss mitigation and other
foreclosure alternatives would increase the costs of these transactions
and decrease their availability to consumers. One industry commenter
also suggested that the Bureau clarify that a loan modification did not
fit within the type of transaction the rule would cover, because a
modification does not lead to ``consummation'' of the loan.
In addition, an industry commenter requested clarification on
whether the rule applies to an annual renewal clause under which a
creditor makes a unilateral decision each year whether or not to renew
a line of credit. Another industry trade association requested that the
final rule exclude temporary loans, such as bridge or construction
loans, which it argued are treated specially under other statutes such
as RESPA and TILA. For construction loans, this commenter also asserted
that applicants are more interested in receiving copies of valuations
when the permanent financing begins, after the construction is complete
and therefore factored into the valuation.
One commenter suggested that the rule should cover second liens to
protect consumers in these transactions. This commenter asserted second
lien transactions generally carry higher risk than first lien
transactions, and therefore are even more worthy of the protections in
the rule.
Discussion. The final rule adopts the language in Sec.
1002.14(a)(1) discussed above as proposed, with a minor clarification.
To clarify that an appraisal is intended to be classified as a type of
``valuation'' under the final rule, and to clarify that the rule
applies to written valuations, the final rule uniformly adopts the
phrases ``appraisals and other written valuations'' and ``appraisals or
other written valuations.'' This usage also aligns with the use of the
term ``valuation'' to include appraisals in recent amendments to
Regulation Z, Sec. 1026.42(b)(3), to implement section 129E of TILA.
See 75 FR 66554, 66558 (Oct. 28, 2010) (adopting term ``valuation'').
To provide guidance on Sec. 1002.14(a)(1), the final rule also
adopts comments 14(a)(1)-1 through 3 as proposed, with an additional
clarification in comment 14(a)(1)-1 relating to waiver (see discussion
of waiver further below), and adopts an additional comment 14(a)(1)-
7.\26\
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\26\ Other comments on Sec. 1002.14(a)(1) relate to timing and
waiver, and are discussed further below.
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The Bureau considered comments seeking clarification that the final
rule does not require lenders to conduct appraisals or other written
valuations. The Bureau does not believe, however, that this
clarification is needed in the final rule or its commentary. On its
face, section 701(e) of ECOA requires disclosure of copies of the
appraisals and other written valuations that are developed in
connection with an application. Neither ECOA section 701(e) nor the
final rule requires that lenders must obtain appraisals or other
written valuations.
The final rule also retains the language from the proposed rule--
``developed in connection with an application for credit''--for
determining which appraisals and other written valuations must be
disclosed. Prior to the Dodd-Frank Act, ECOA section 701(e) referred to
appraisals that were ``used'' in connection with the application. Had
Congress intended to maintain that scope, it could have continued to
use that term; instead, Congress referred to appraisals and other
valuations that are ``developed'' in connection with the application,
without necessarily requiring that they ultimately be ``used.'' The
Bureau assumes this difference in terms reflects a deliberate wording
choice by Congress, and the Bureau does not believe consumer protection
will be enhanced by adjusting the statutory terminology. If an
appraisal or other written valuation is ``developed in connection
with'' an application, then the applicant may benefit from receiving a
copy, even if the creditor does not to use the valuation. Some
commenters expressed concern that applicants could mistakenly believe
that such a valuation was ``used'' by the creditor. However, there is
nothing in the final rule that prohibits creditors from providing
information to applicants concerning whether a particular valuation was
used.\27\
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\27\ Other industry commenters suggested that consumers would
not benefit from receiving copies of valuations that were not used,
and which may contain errors or even material deficiencies. The
statute does not distinguish, however, between valuations that are
used and those that are not used.
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As noted above, some commenters stated a concern that providing
copies of appraisals and other written valuations to applicants could
result in liability issues for creditors and preparers of appraisals or
other written valuations. Industry commenters noted questions or
concerns over whether creditors would be deemed to have warranted home
values contained in their internal valuations provided to applicants,
and on whether consumers would assert legal claims based upon their
reliance on appraisals in deciding whether to enter into transactions.
The commenters do not appear to be raising concerns over liability
under ECOA section 701(e) itself. On its face, section 701(e) concerns
providing copies of certain materials and providing a disclosure. It
does not specify the content of valuations or otherwise supply
standards regarding what they should contain.\28\ Moreover, ECOA has
long required creditors to provide copies of appraisals upon request,
and creditors routinely provide copies of appraisals for first lien
loans including under GSE requirements. The commenters have not
explained how requiring that copies of appraisals and other written
valuations be provided as a matter of course increases creditors'
exposure to liability under legal standards other than ECOA. In any
event, as for legal standards other than those contained in ECOA, it is
unclear what authority the Bureau would have to limit remedies arising
from a creditor's providing copies of appraisals or other written
valuations.\29\
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\28\ Congress has spelled out the conduct that gives rise to
liability under ECOA. 15 U.S.C. 1691e. Creditors that ``fail[] to
comply with any requirement imposed under [ECOA] shall be liable to
the aggrieved applicant.'' 15 U.S.C. 1691e(a).
\29\ As to whether USPAP will require that appraisals list
applicants as intended users of written appraisal reports, the
Bureau believes this is a question that arises under USPAP and not
ECOA; thus it is a matter for appraisers to determine pursuant to
USPAP, and for the Appraisal Standards Board, which is charged with
developing, interpreting, and amending USPAP.
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[[Page 7223]]
With regard to the types of transactions that are covered by the
final rule, the Bureau considered industry comments seeking
clarification on whether loss mitigation activities, such as loan
modifications, short sales, and deed-in-lieu transactions, are covered.
These comments implicate provisions of ECOA and Regulation B that turn
on whether there is an ``applicant'' or ``application'' for an
``extension of credit.'' \30\ While some loan modifications can be
subject to the provisions of Regulation B,\31\ including the existing
Sec. 1002.14 disclosure-upon-request regime, there is variation
between different types of loss mitigation programs; the particulars of
the program at issue are important to understand in evaluating whether
there is an application or applicant for an extension of credit within
the meaning of Regulation B. Accordingly, the Bureau believes that
questions on coverage of these types of transactions are best addressed
with reference to the existing provisions of Regulation B.\32\ To the
extent a loss mitigation transaction is covered by Regulation B, the
transaction is covered by the final rule, including its requirement of
providing copies of appraisals and other written valuations. Consumers
generally will benefit from receiving information about the value of
their dwelling, both in the context of making a decision about the loss
mitigation transaction and also in detecting potential discrimination,
consistent with the purposes of ECOA. The Bureau believes these
benefits outweigh the cost to the creditor of providing copies of
documentation that the creditor already has received. For the reasons
discussed in the Bureau's analysis under section 1022(b) below, the
Bureau believes the per-loan cost of providing copies of these
materials is modest, and they will often be provided in electronic
form. The Bureau is therefore not exercising its exception authority to
exempt loss mitigation transactions from Sec. 1002.14 if those
transactions would otherwise be covered by Regulation B.\33\
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\30\ See 12 CFR 1002.2(e)-(f), (j) and (q).
\31\ In the context of interpreting the requirement of
Regulation B that there be a notice of an adverse action on an
application, for example, the Federal Reserve Board Consumer Affairs
Letter CA 09-13 (Dec. 4, 2009), noted that loan modifications can
involve an ``application'' for an ``extension of credit'' within the
meaning of Regulation B. See Consumer Affairs Letter CA 09-13,
Mortgage Loan Modification and Regulation B's Adverse Action
Requirement (2009), available at http://www.federalreserve.gov/boarddocs/caletters/2009/0913/caltr0913.htm. The Board determined
that certain transactions under the U.S. Department of Treasury's
Making Home Affordable Modification Program (HAMP) then in place did
involve applications for extension of credit within the meaning of
Regulation B. Guidance issued by the Board prior to the transfer of
ECOA rulemaking authority to the Bureau will be applied by the
Bureau absent further action. 76 FR at 43570 (July 21, 2011).
\32\ Similarly, questions about the rule's coverage of temporary
loans, such as bridge or construction loans, and renewals of credit,
relate to the overall scope of Regulation B. The final rule is not
intended to address whether these loans are subject to ECOA in the
first place. If a temporary loan or a renewal is subject to ECOA,
and an appraisal or other written valuation is developed for that
loan, then the applicant has a right to receive a copy under the
final rule. This approach is consistent with existing comment
14(a)(1)-2 concerning the application of Sec. 1002.14 to renewals,
which is maintained in the final rule.
\33\ With respect to the comment suggesting that
``consummation'' is not necessarily occurring in the loan
modification context, the Bureau is not persuaded that this is
necessarily the case. The term ``consummation'' in Regulation Z is
defined as the time the consumer becomes ``contractually obligated
on the credit transaction.'' A loan modification can occur
contractually, and take effect on a date certain.
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While the Bureau has considered the comment that the final rule
should apply to second lien transactions because they are higher risk,
it is not expanding the scope of the final rule to include second liens
because such an expansion would be inconsistent with the plain meaning
of section 701(e). The Bureau notes that the Dodd-Frank Act
specifically limited the scope of ECOA section 701(e) to ``first
liens,'' while applying the overlapping requirements under section 129H
of TILA to certain subordinate lien loans that meet the definition of
``higher risk mortgage.'' The commenters have not presented data or
other specific information warranting a departure from the plain
language of ECOA section 701(e).
The final rule maintains comment 14(a)(1)-2, pertaining to credit
renewals, with minor changes for consistency and clarity. Comment
14(a)(1)-2 clarifies that creditors must provide copies of appraisals
or other written valuations prepared in connection with credit renewals
requested by the applicant. Whether an applicant has requested a credit
renewal, and when such an application is received for purposes of the
timing requirements under Sec. 1002.14(a)(2), depend on the facts and
circumstances of an individual transaction. The remaining part of
comment 14(a)(1)-2, clarifying that the rule does not apply to the use
of an appraisal or other written valuation that was developed for a
prior extension of credit, is adopted as proposed. Because the creditor
in a prior transaction covered by the final rule would already have
been required to provide a copy of an appraisal or other written
valuation to the applicant, requiring the creditor in the subsequent
transaction to provide another copy of that appraisal or other written
valuation would be duplicative.\34\ The Bureau is therefore finalizing
comment 14(a)(1)-2 largely as proposed.
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\34\ To the extent that an appraisal or other written valuation
is developed in connection with an application received before
January 18, 2014, it would not be subject to the final rule.
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In response to industry comments, the Bureau has added new comment
14(a)(1)-7, which clarifies what copies must be provided in the event
there are multiple versions of an appraisal or other written valuation.
The comment clarifies that, if a creditor receives multiple versions of
a particular appraisal or other written valuation, then the creditor is
required to provide a copy of only the latest version received by the
creditor. (See also the discussion of comment 14(a)(1)-4 below
concerning application of the timing requirements in common situations
where there are multiple versions of a particular appraisal or other
written valuation.) The Bureau believes this comment is consistent with
the language of ECOA section 701(e)(1) requiring copies of appraisals
and other valuations to be provided promptly upon ``completion.'' The
``latest version received'' rule thus clarifies that when creditors
have multiple versions of a particular appraisal or valuation, they are
only required to provide the latest version. The Bureau believes that
this guidance will help avoid placing unwarranted burden on creditors
and overloading consumers with multiple drafts of a particular
appraisal or other written valuation.
The Bureau notes, however, that the separate requirements of Sec.
1002.14(a)(1) for the timing of providing copies to applicants will
still apply. The application of the timing requirements to situations
in which there are multiple versions of a particular valuation is
further discussed below.
Comment 14(a)(1)-7 also clarifies that if a creditor provides a
version of an appraisal or other written valuation that is later
superseded, then the creditor still must provide the latest version.
While the Bureau recognizes that this guidance could result in
instances in which consumers receive multiple versions of a particular
appraisal or other written valuation, it does not believe that this
result can be avoided given the statutory requirements.
[[Page 7224]]
Comment 14(a)(1)-7 further clarifies that a copy of at least one
version of each appraisal or other written valuation must be provided.
The Bureau believes this comment is needed to ensure compliance with
the statutory requirement that the applicant receive a copy of ``any
and all'' appraisals or other written valuations ``developed'' in
connection with an application. A rule requiring only ``final''
versions to be provided would not be consistent with the statutory
requirement, because it would allow creditors to withhold a valuation
that they determine is a draft or preliminary, even if they never
receive a later version. The statute does not distinguish between
valuations that are preliminary and those that are final or valuations
that the creditor chooses to rely on and those it does not.
Additionally, the Bureau does not believe that such a rule would be
consistent with the purposes of ECOA's requirement regarding furnishing
copies of appraisals and other written valuations. The chief purpose of
this provision is to promote transparency regarding the loan process to
assist applicants in determining whether they may be the victims of
discrimination. This purpose would be frustrated if creditors could
subjectively determine which valuations to provide. Accordingly,
comment 14(a)(1)-7 clarifies that when there is only one version of a
particular appraisal or other written valuation, a copy must be
provided to the applicant regardless of whether the creditor relied on
it or viewed it as being preliminary.
Timing and Waiver
ECOA section 701(e)(1), requires that creditors provide copies of
each appraisal or other written valuation promptly upon completion, but
in no case later than three days prior to the closing of the loan.
Accordingly, proposed Sec. 1002.14(a)(1) stated that a creditor must
provide a copy of each appraisal or other written valuation subject to
Sec. 1002.14(a)(1) promptly (generally within 30 days of receipt by
the creditor), but not later than three business days prior to
consummation of the transaction, whichever is first to occur.\35\ The
reference to providing the copy generally within a 30-day time frame
was proposed to maintain consistency with the existing requirements of
Sec. 1002.14(a)(2)(ii).
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\35\ For clarity and to be consistent with other similar
regulatory requirements under TILA and RESPA, the Bureau proposed to
use the term ``consummation'' in place of the statutory term
``closing'' and to clarify that the statutory term ``3 days'' means
``three business days.''
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ECOA section 701(e)(2) provides that an applicant may waive the
three-day requirement provided in ECOA section 701(e)(1), except where
otherwise required by law. Accordingly, proposed Sec. 1002.14(a)(1)
would have provided that, notwithstanding the other requirements in
Sec. 1002.14(a)(1), an applicant may waive the timing requirement in
the proposal to receive a copy of an appraisal or other written
valuation three business days prior to consummation and agree to
receive the copy at or before consummation, except as otherwise
prohibited by law. As discussed in the proposal, the Bureau did not
propose that such waivers extend to the requirement that copies of
appraisals and other written valuations be provided in the case of an
application that is withdrawn, incomplete, or denied. The Bureau also
proposed a new comment 14(a)(1)-4 that would clarify that waivers under
Sec. 1002.14(a)(1) are permitted if the applicant makes an affirmative
oral or written statement (which can be made by any one applicant in
the case of a multiple-applicant transaction) and if the creditor
provides the copies of all appraisals and other written valuations at
or before consummation.
Public comment. Some commenters addressed certain aspects of the
timing requirement, including the waiver provision.\36\ A few
commenters suggested shortening the proposed general 30-day time limit,
to ensure that consumers receive copies of the appraisals and other
written valuations at an earlier point in the transaction when they are
most useful (and can, for example, inform price negotiations). An
organization advocating for affordable housing suggested a deadline of
three days after the creditor's approval, while a real estate agent
trade association suggested 10 days after receipt, and an appraisal
group suggested 20 days after receipt.
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\36\ One commenter also expressed concern that the term
``consummation'' is not plain English, and that a deadline based
upon this term could be difficult to understand. This comment is
discussed further below in the analysis of Sec. 1002.14(b)(1).
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A large lending institution opposed a per se time limit, such as 30
days, however. This commenter suggested that removing the reference to
30 days would ensure lenders can provide an integrated package that
includes all appraisal and other valuation documents. Otherwise, an
appraisal received earlier in the application process potentially would
need to be disclosed before a valuation received later. Other industry
commenters embraced the requirement to provide copies of the appraisals
and other written valuations three business days before consummation,
without expressing support for the 30-day limit in the timing
requirement. One industry commenter suggested, however, that the 30-day
limit should apply in the case of an incomplete application. Another
industry commenter suggested the time period for providing copies
should not begin until the application is ``complete'' within the
meaning of Regulation B, Sec. 1002.2(f).
One large lending institution requested that the Bureau exercise
its exception authority to allow creditors to provide copies of non-
substantive changes to appraisals and other written valuations, such as
typographical errors, at consummation. This commenter believed that
without this exception, the applicant could receive multiple versions
of the same document, with only non-substantive differences. The
commenter expressed concern that this result would distract consumers
and interfere with their ability to analyze the information received.
Finally, one commenter suggested counting the day of consummation
for purposes of the three-business-day requirement, and the day of
receipt for purposes of the proposed general 30-day limit.
Commenters generally supported the proposed provision granting the
borrower the right to waive the three-business-days-before closing
requirement for providing copies of the appraisal or other written
valuation so that the copies can be provided at or before closing; no
comments opposed the proposal to allow for a waiver. Several commenters
noted that a waiver right would be important to prevent delayed
closings. A few comments requested that the final rule provide
additional guidance on what constitutes a valid waiver. One creditor
trade association suggested this guidance be provided in the form of a
safe harbor, including explicit authorization for creditors to seek
waivers. Two other creditor trade associations also sought confirmation
that creditors could inform consumers of their ability to provide
waivers. An appraisal industry commenter suggested, however, that
before a creditor could seek a waiver, the creditor should provide a
full explanation of the value of receiving the copies in a prompt
manner, such as the value the copy may have in negotiations where the
valuation estimate is below the originally agreed-upon price.\37\ A
creditor also requested guidance on
[[Page 7225]]
whether the waiver can be provided within three days prior to
consummation. This commenter cited instances where a delay in receipt
of a final appraisal due to minor corrections resulted in a delayed
closing because a waiver had not already been executed three or more
days before closing.\38\ A credit union commenter went further, arguing
that consumers should be allowed to waive the timing requirement,
regardless of whether the corrections are minor.
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\37\ This commenter also questioned the logic of allowing one
applicant in a multi-applicant transaction to waive the timing for
all applicants.
\38\ While the commenter did not identify which existing
standards may have caused such closing delays, the Bureau notes that
this type of problem may arise under GSE Appraisal Independence
Requirements discussed below.
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Discussion. For the reasons explained below, proposed Sec.
1002.14(a)(1) and its accompanying commentary are being revised to
clarify the timing and waiver provisions of the rule. The timing
requirement in Sec. 1002.14(a)(1) is revised to provide greater
clarity. In addition, the final rule includes new comments 14(a)(1)-4
and 5 to clarify the timing requirement. The final rule adopts proposed
comment 14(a)(1)-4 regarding waiver with clarifications and renumbers
it as comment 14(a)(1)-6.
As proposed, Sec. 1002.14(a)(1) would have required providing
copies ``promptly (generally within 30 days of receipt by the
creditor), but not later than three business days prior to consummation
of the transaction, whichever is first to occur.'' Several commenters
sought clarification and explanation of this proposed timing
requirement, which had merged language from ECOA section 701(e) as
amended and existing Sec. 1002.14. For the reasons discussed below,
the Bureau is revising this language to provide a simpler rule: The
copy must be provided promptly upon completion of the appraisal or
other written valuation, or three business days before consummation
(for closed-end credit) or account opening (for open-end credit),
whichever is earlier. The Bureau is including the reference to
``account opening'' to accommodate the application of Sec.
1002.14(a)(1) to open-end credit transactions and for consistency with
Regulation Z. Regulation Z does not use the term ``consummation'' for
open-end credit secured by a dwelling. See, e.g., Sec. 1026.40
(referring to ``opening'' of home equity plans).
New comments 14(a)(1)-4 and 5 clarify that the ``promptly upon
completion'' standard is applied based upon the facts and circumstances
and provide illustrative examples of situations in which the timing
requirement would or would not be met. Comment 14(a)(1)-4.v clarifies
that in the absence of a waiver (see discussion below), the ``promptly
upon completion'' requirement governs even if no consummation or
account opening occurs.
Based upon industry comments noting that appraisals and other
valuations may undergo review and revision, the Bureau believes that
basing the ``promptly'' standard upon the date of receipt could
interfere with creditors' review processes or lead to copies being
provided to consumers before the review processes are complete. In
addition, using the date of receipt as a point of reference could
create confusion and uncertainty, as the Dodd-Frank Act amendment of
section 701(e) refers to ``promptly upon completion.'' Therefore the
final rule does not mandate using the date of receipt as the reference
point for the timing requirement.\39\
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\39\ Similarly, the Dodd-Frank Act amendment of section
701(e)(1) also requires that the creditor provide applicants with
copies of appraisals and other valuations promptly upon their
completion, even if the application is incomplete, withdrawn, or
denied. Therefore, the Bureau is not adopting the suggestion of one
commenter to tie the timing of providing copies to the timing of the
``completed'' application under Regulation B.
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The Bureau also is not finalizing the use of a fixed time period
from the creditor's receipt of the appraisal as the general standard
for determining whether copies are promptly provided to applicants.
Upon further consideration, and in light of the public comments
received, the Bureau believes that a time period of 30 days of receipt
may not result in promptly providing copies to applicants in many
instances. Congress' use of the term ``promptly upon completion''
evidences an intent that applicants should be provided with copies of
valuations without delay. As some commenters noted, the earlier these
copies are received in the loan process, the more helpful they are to
consumers in analyzing the transaction. Applying a fixed 30-day timing
requirement could result in applicants not receiving copies of
valuations until late in the loan process, even when these valuations
have been completed weeks earlier. Thus the final rule does not
generally apply a fixed time of 30 days.\40\
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\40\ As noted above, a large creditor suggested if there are
multiple valuations, some of which are prepared or finalized later
in the origination process, a period longer than 30 days from
receipt of the first valuation could be needed to provide an
integrated package of valuation copies to consumers. While the
Bureau appreciates that an integrated package that includes all of
the appraisals or other written valuations developed in connection
with the application may be helpful to applicants, the Bureau
believes that this approach could result in some of the valuations
in the integrated package not being provided promptly. Further, the
Bureau does not believe that the benefit of this suggested approach
would outweigh the value to the applicant of receiving the copies
earlier in the transaction.
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However, as a large bank commenter noted, mandating a fixed time
frame could reduce the chance that an integrated set of materials could
be provided in a transaction involving several types of valuations.
Similarly, mandating a fixed time frame of any kind could increase the
chances that the creditor would need to make multiple deliveries of
copies of appraisals or other valuations. For example, if a creditor
receives a valuation from an AVM earlier in the application process,
and the fixed time period were to elapse before the appraisal is
complete, then the creditor would be required to send the copy of the
AVM out before the copy of the appraisal.\41\ This would increase
burden on creditors, due to an increase in the number of transactions
in which creditors would need to make multiple deliveries of copies to
applicants.
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\41\ The time period creditors will need to review appraisals
also may change in the future, as rules may be adopted by Federal
banking agencies under section 1473 of the Dodd-Frank Act, amending
section 1110 of FIRREA to provide for review of appraisals for
compliance with USPAP.
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In addition, the Bureau notes that a fixed time period is not
specified in industry guidelines such as requirements used by the GSEs
which purchase or guarantee a significant number of first lien mortgage
transactions annually. The timing requirement for providing copies of
appraisals in these recently-adopted GSE guidelines is based upon the
Home Valuation Code of Conduct (HVCC). The HVCC--a standard that had
been previously adopted by FHFA in 2008 shortly before Congress began
to draft the Dodd-Frank Act--contained a timing standard that is
similar to that ultimately included in ECOA section 701(e) as
amended.\42\
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\42\ Fannie Mae Selling Guide, ``Appraiser Independence
Requirements,'' (Oct. 15, 2010), available at https://www.fanniemae.com/content/fact_sheet/air.pdf (Part III requires
that ``the Borrower is provided a copy of any appraisal report
concerning the Borrower's subject property promptly upon completion
at no additional cost to the Borrower, and in any event no less than
three days prior to the closing of the Mortgage.''); Freddie Mac,
Single Family Seller/Servicer Guide, Exhibit 35, Appraiser
Independence Requirements (Oct. 15, 2010) (same). These requirements
were incorporated directly from Part II of the Home Valuation Code
of Conduct (Dec. 23, 2008), adopted by Federal Housing Finance
Agency, available at http://www.fhfa.gov/webfiles/2302/HVCCFinalCODE122308.pdf.
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For the reasons stated above, the commentary to the final rule
clarifies that the meaning of the term ``promptly upon completion''
depends upon the
[[Page 7226]]
facts and circumstances, including when the creditor receives the
appraisal or other written valuation, and when any review or revisions
occur. New comment 14(a)(1)-4 also clarifies when ``completion'' occurs
for these purposes. Completion occurs when the lender has ``reviewed
and accepted the appraisal or other written valuation to include any
changes or corrections required,'' or when the creditor receives the
last version, whichever is later.\43\
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\43\ See Fannie Mae, Appraiser Independence Requirements
Frequently Asked Questions (Nov. 2010), available at https://www.fanniemae.com/content/faq/appraiser-independence-requirements-faqs.pdf (question 46 stating that ``[t]he word `completion' is
meant to reflect when the lender has reviewed and accepted the
appraisal to include any changes or corrections required.''); see
also Freddie Mac, Appraiser Independence Requirements Frequently
Asked Questions, available at http://www.freddiemac.com/singlefamily/appraiser_independence_faq.html#52 (question 52
stating that ``[t]he terms `promptly upon completion' and `completed
appraisal' refer to when the lender has reviewed and accepted the
appraisal to include any changes or corrections required.'').
---------------------------------------------------------------------------
This guidance is then illustrated by several examples in new
comment 14(a)(1)-5 of situations in which the ``promptly upon
completion'' standard would or would not be satisfied. While the
``promptly upon completion'' standard does not provide the same degree
of certainty as a fixed time period, the Bureau believes that the
statute specifically contemplates a standard that is flexible.
The Bureau's final rule implements the statutory requirement that
copies of valuations be provided promptly upon completion, but not
later than three days before consummation. As noted in the 2012 ECOA
Appraisals Proposal, the Bureau is interpreting ``days'' as used in the
statute to mean ``business days.'' The Bureau did not receive comments
on this interpretation, and is adopting this standard as proposed.
To ensure applicants actually receive the mandated copies at least
three business days prior to consummation or account opening (absent
waiver), the final rule includes additional guidance in comment
14(a)(1)-4. Under this comment, ``provide''--which is a statutory term
in ECOA section 701(e)(4) \44\ that is similar to the term ``furnish''
in ECOA section 701(e)(1)--is interpreted to mean delivery to the
applicant. The comment clarifies that delivery occurs three business
days after mailing or delivering the copy to the last-known address of
the applicant, or when evidence indicates the applicant actually
received the copies, whichever is earlier. The Bureau believes this
clarification is consistent with the plain meaning of the applicable
terms ``furnish'' and ``provide'' in Dodd-Frank Act section 1474. In
addition, this approach is generally consistent with the proposed
approach to the three-business-day timing requirement in the 2012 TILA-
RESPA Proposal.\45\ This clarification also should prevent situations
in which the creditor mails copies of appraisals or other written
valuations to the applicant three business days before consummation or
account opening, and the applicant does not receive these materials
until after the consummation or account opening. This clarification
thus should ensure that applicants have at least the minimum amount of
time contemplated by section 701(e) to review these copies before the
transaction is consummated or the account is opened.
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\44\ ECOA section 701(e)(4) states, in pertinent part, ``[T]he
creditor shall provide a copy of each written appraisal or valuation
at no additional cost to the applicant.''
\45\ See 77 FR 51116 at 51313-14, 51427 (Aug. 23, 2012)
(proposed Sec. 1026.19(f)(1)(iii) and commentary).
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While one commenter requested including the day of consummation in
the three-business-day time period that is part of Sec. 1002.14(a)(1),
the final rule does not adopt this approach. Under this approach, if a
closing were to occur at 9 a.m. on a Friday, copies of the appraisals
and other written valuations could be disclosed at 11:59 p.m. on the
preceding Wednesday via email. This would leave the consumer with
effectively only one day to review the materials, which would be
inconsistent with the three-day requirement in the statute.
The waiver provision in Sec. 1002.14(a)(1) is revised to clarify
that a waiver applies to both components of the general timing
requirement, and not only to one aspect of it. As proposed, the waiver
would have applied to only one component of the proposed timing
requirement, the requirement that copies be provided three business
days before closing. Read literally, the proposed waiver provision
would not have applied to the other component of the timing
requirement, the requirement that copies be provided ``promptly.'' As a
result, as proposed, applicants would only have been permitted to
partially waive the timing requirement.
Upon further consideration, the Bureau interprets section 701(e)(2)
to permit consumers to provide a waiver of both components of the
timing requirements. Otherwise, the effect of a waiver would be
unclear, providing a disincentive for applicants and creditors to avail
themselves of this provision, even where a waiver would be in the
applicant's interest. Additionally, to the extent that the Bureau's
final rule departs from the language of the statute in this regard, the
Bureau relies on its authority under section 703(a) to make provisions
and adjustments to effectuate the purposes of and facilitate or
substantiate compliance with ECOA. The Bureau finds that this
adjustment is warranted to ensure creditors' ability to obtain and
applicants' ability to provide a valid waiver of the timing
requirements of Sec. 1002.14(a)(1).
The Bureau is finalizing the provision in proposed Sec.
1002.14(a)(1) that waiver is permitted ``except where otherwise
prohibited by law.'' No commenters specifically addressed this
provision in the proposed rule, which is based upon the statutory
language in ECOA section 701(e)(2). The Bureau continues to believe
this limitation is important to clarify that other provisions of law
may not permit waiver. For example, the 2013 Interagency Appraisals
Final Rule under TILA section 129H does not provide for a waiver of the
timing requirement for providing copies of written appraisals no later
than three business days before consummation.
With respect to the form of the waiver, the Bureau is finalizing in
renumbered comment 14(a)(1)-6 the provision in proposed comment
14(a)(1)-4 allowing for an affirmative oral or written statement.\46\ A
more prescriptive, rigid, or specific set of requirements as to the
form of the waiver could unduly restrict the applicant's ability to
exercise the waiver right. By allowing for an affirmative oral or
written waiver, the final rule is designed to allow creditors to apply
existing practices such as the standards for waiver of the appraisal
copy requirement under the Appraisal Independence Requirements applied
by certain GSEs.\47\ If the waiver resulted in
[[Page 7227]]
an applicant not receiving an appraisal or other written valuation at
all or until after consummation or account opening, a more prescriptive
approach might be warranted. Under the final rule, however, even if the
waiver is obtained, creditors are still required to provide the
required copies at or before consummation or account opening.
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\46\ Where there are multiple applicants, the final rule adopts
the proposed approach of allowing one applicant to waive the timing
requirement. This approach is consistent with the 2013 Interagency
Appraisals Final Rule being adopted under section 129H of TILA.
Comment 14(a)-1 is revised to clarify that the waiver must be
provided by the primary applicant where one is readily apparent.
This change is designed to ensure that in multiple applicant
transactions, the individual providing the waiver generally is the
same individual who would be receiving the documents.
\47\ See Fannie Mae, Appraiser Independence Requirements
Frequently Asked Questions (Nov. 2010) (question 45 stating that
Fannie Mae ``does not specify what form the waiver must take or
whether it be oral or written. In addition, [the Appraiser
Independence Requirements standard] does not prohibit that a waiver,
given in a timely manner, be recorded at some later point when the
parties are available. [hellip] For example, a lender may obtain a
waiver from a borrower through an email, phone call, or some other
means, prior to the three-day period, and then have that waiver
recorded in writing at the settlement table or at some other
time.''); see also Freddie Mac, Appraiser Independence Requirements
Frequently Asked Questions, Questions 45-46.
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With respect to when the waiver must be provided, Sec.
1002.14(a)(1) is revised in the final rule. ECOA section 701(e) is
silent on when the waiver must be provided. As noted above, several
industry commenters asked the Bureau to provide more guidance on how
waivers can occur. The Bureau believes that further clarity on when
applicants can provide waivers is important. Under Sec. 1002.14(a)(1)
in the final rule, as further clarified in comment 14(a)(1)-6, waivers
can be provided in either of two situations: generally before three
business days of consummation or account opening,\48\ or within three
business days of consummation or account opening if certain conditions
are met.
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\48\ See Freddie Mac, Appraiser Independence Requirements
Frequently Asked Questions (question 43 stating that ``[i]f the
borrower waives the requirement the waiver must be obtained three
days prior to the closing of the mortgage.''); see also Fannie Mae,
Appraiser Independence Requirements Frequently Asked Questions (Nov.
2010) (question 45 stating that ``[s]ituations in which a borrower
is unaware of his or her right to a copy of the appraisal prior to
the three days and is then provided a waiver of that right at the
closing table would not be compliant with the intent of [the
Appraiser Independence Requirements]'').
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The Bureau believes that, in general, requests for waivers should
not be presented to consumers less than three business days before
consummation or account opening. Permitting such requests would, in the
Bureau's view, present a risk that consumers would feel unduly
pressured to provide waivers in order to avoid delays in closing and
that creditors could use such waivers to cure previous violations of
the rule's timing requirements. The Bureau is adopting in Sec.
1002.14(a)(1) an exception to this general rule, however, governing
treatment of waivers pertaining to copies of appraisals or other
written valuations containing correction of clerical errors in
previously-provided copies.
Section 1002.14(a)(1) and the associated comment 14(a)(1)-6.ii
therefore clarifies that an applicant can provide a waiver within three
business days of consummation or account opening in the following
circumstance: the creditor receives a revised version of an appraisal
or other written valuation that the applicant already received three
business days before consummation or account opening. The option to
provide a waiver in this situation would only apply, though, if each of
the following criteria are met: (1) The revisions are solely to correct
clerical errors in that appraisal or other written valuation; (2) the
revisions have no impact on the estimated value; (3) the revisions have
no impact on the calculation or methodology used to derive the
estimate; and (4) the applicant receives the copy of the revised
appraisal or other written valuation at or prior to consummation or
account opening. The Bureau believes this approach strikes an
appropriate balance by allowing consumers to exercise their waiver
right to avoid delays in closing due to last-minute, purely clerical
corrections in appraisals and other written valuations.\49\
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\49\ This approach also is supported by other mortgage
regulations that allow for technical revisions of materials
otherwise due to the consumer prior to consummation. See, e.g.,
RESPA Regulation X, Sec. 1024.8(c), providing an exception for the
timing of a disclosure of a HUD-1 settlement statement which makes a
technical correction; see also the Bureau's 2012 TILA-RESPA
Proposal, proposed Sec. 1026.19(f)(2)(iv), which would provide an
exception for the timing of a disclosure due to clerical errors, and
proposed comment 19(f)(2)(iv)-1 (clarifying that ``an error is
clerical if it does not affect a numerical disclosure'').
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Finally, the Bureau is adding language to Sec. 1002.14(a)(1) to
clarify the timing requirement in situations where the applicant has
provided a waiver, but no consummation or account opening occurs. In
that instance, the copy must be provided no later than 30 days after
the creditor determines the transaction will not be consummated or the
account will not be opened. In the absence of a statutory timeframe
applicable to this situation, the Bureau is exercising its authority
under ECOA section 703(a) to adopt a reasonable period for providing
copies. The Bureau believes that providing a clear rule will reduce
compliance burden and risks for creditors, while ensuring that
consumers receive copies in a timely fashion. Additionally, the
timeframe adopted uses familiar timeframes from longstanding timing
requirements for providing copies of appraisals under existing Sec.
1002.14(a)(2)(ii).\50\
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\50\ Tying this timing requirement to a different point in time,
such as receipt of an appraisal or other written valuation, could
result in creditors who have received waivers not being able to
comply when more than 30 days elapse between receipt and a decision
not to consummate the transaction or open the account.
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Delivery of Copies of Appraisals and Other Written Valuations
Section 1474 of the Dodd-Frank Act amended ECOA section 701(e) to
mandate that creditors provide copies of appraisals and other written
valuations regardless of whether the consumer affirmatively requests
such copies. Accordingly, the Bureau proposed to remove current Sec.
1002.14(a)(1) and (2), which permitted creditors to choose between the
``routine delivery'' and ``delivery upon request'' methods of complying
with the requirements of Sec. 1002.14. Further, proposed comment
14(a)(1)-1 clarified that if there is more than one applicant, the
disclosure about appraisals and the provision of copies of appraisals
need only be given to one applicant, but they must be given to the
primary applicant where one is readily apparent.
Public comments. An appraisal group commenter suggested that the
rule should require providing copies to all applicants in a multi-
applicant transaction, if consent has been given to provide the copies
by electronic means. Another industry commenter requested clarification
of whether delivery can be made to the same address for multiple
applicants. Finally an industry commenter asked whether delivery can be
made to the last-known address.
Discussion. With respect to whether copies of appraisals and other
written valuations can be sent to the last known address, new comment
14(a)(1)-4 provides that copies of appraisals and other written
valuations are deemed ``provided'' three days after they are mailed to
the last known address of the applicant. See also comment 9-3 (adopting
the ``last-known address'' standard for adverse action notices). The
Bureau does not believe the other requested clarifications regarding
this provision are necessary. The commentary makes clear that the
creditor is required to deliver the materials only to one applicant in
a multiple-applicant transaction.
The final rule also does not adopt the suggestion by an appraisal
industry group commenter of requiring copies of appraisals and other
written valuations to be sent to all applicants in a multiple-applicant
transaction, if the copies are being sent by electronic means. Having
different rules for different means of communication of the copies
would introduce additional complexity, especially if not all of the
applicants have consented to electronic disclosures. This could have
the unintended effect of discouraging creditors from adopting
electronic delivery methods. Even if all applicants have consented to
delivery by electronic means, the approach suggested by the commenter
does not override the general principle that providing copies to one
applicant (such as the primary
[[Page 7228]]
applicant) in a multiple-applicant transaction is sufficient. Indeed,
the suggestion of this one industry commenter was not reflected by
other commenters, whether in industry or on behalf of consumers. The
Bureau therefore believes that a uniform requirement, allowing copies
to be provided to one applicant regardless of how they are provided,
will best facilitate compliance.
14(a)(2) Disclosure
ECOA section 701(e)(5) requires that, at the time of application,
the creditor ``notify an applicant in writing of the right to receive a
copy of each written appraisal and valuation'' under section 701(e).
Accordingly, the Bureau proposed in section 1002.14(a)(2) that, not
later than the third business day after the creditor receives an
application subject to Sec. 1002.14(a)(1), a creditor shall provide an
applicant with a written disclosure of the applicant's right to receive
a copy of all appraisals and other written valuations developed in
connection with such application.
Content
Title XIV of the Dodd-Frank Act added two new appraisal-related
disclosure requirements for consumers. New section 701(e)(5) of ECOA,
which is implemented in this final rule, provides as follows: ``At the
time of application, the creditor shall notify an applicant in writing
of the right to receive a copy of each written appraisal and valuation
under this subsection.'' 15 U.S.C. 1691(e)(5). Similarly, section
129H(d) of TILA, as added by the Dodd-Frank Act, provides as follows:
``At the time of the initial mortgage application, the applicant shall
be provided with a statement by the creditor that any appraisal
prepared for the mortgage is for the sole use of the creditor, and that
the applicant may choose to have a separate appraisal conducted at the
expense of the applicant.'' 15 U.S.C. 1639h(d). In the absence of
regulatory action to harmonize the two provisions, creditors would be
required to provide two appraisal-related disclosures to consumers for
certain loans (i.e., a TILA and an ECOA disclosure for higher-risk
mortgage loans secured by a first lien on a consumer's principal
dwelling) and just one for certain others (i.e., an ECOA disclosure for
first-lien, dwelling-secured loans that are not higher-risk mortgage
loans, or a TILA disclosure for higher-risk mortgage loans secured by a
subordinate lien).
Given that the ECOA and TILA disclosures were both created by the
same legislation (the Dodd-Frank Act) to address overlapping subject
matter (provision of copies of appraisals) in many of the same
transactions (first liens secured by dwellings), the Bureau believes
that Congress did not intend the disclosure requirements to be
implemented in a disjointed manner that might cause consumer confusion
and compliance burden for creditors. As explained in the proposal, the
Bureau believes the combined disclosure will allow for additional text
necessary to promote consumer comprehension, while also reducing
compliance burden for industry by allowing for a single disclosure to
satisfy both statutory requirements. Accordingly, the Bureau believes
this approach serves the interests of consumers, the public, and
creditors. On this basis, the Bureau proposed to exercise its authority
under section 703(a) of ECOA and section 1405(b) of the Dodd-Frank Act
to conform the two disclosure requirements. In connection with the
proposed Sec. 1002.14(a)(2) requirement of notifying applicants of
their ``right to receive a copy of all written appraisals and
valuations developed in connection with [their] application,'' the
Bureau proposed revising the sample disclosure form C-9 for appraisals
in Regulation B to include language to satisfy the new appraisal-
related disclosure requirements of both ECOA and TILA.
As part of its larger Know Before You Owe public outreach project,
which is described in more detail in Part III above, the Bureau tested
several versions of the new appraisal-related disclosures, all of which
combined the disclosures required by both ECOA section 701(e) and TILA
section 129H. This testing included consumers and industry
participants.\51\ The Bureau believed that it was important to test
both disclosures together in order to determine how best to provide
disclosures required by ECOA section 701(e) and TILA section 129H in a
manner that would minimize consumer confusion and improve consumer
comprehension. Testing showed that consumers tended to find the
combined TILA and ECOA disclosures confusing when they used specific
language set forth in the statute. Consumer comprehension improved when
the Bureau developed a slightly longer plain language disclosure that
was designed to incorporate the elements of both statutes.\52\ Based
upon the results of that testing, the Bureau developed and tested the
following sample disclosure language it proposed to include in Form C-
9: ``We may order an appraisal to determine the property's value and
charge you for this appraisal. We will promptly give you a copy of any
appraisal, even if your loan does not close. You can pay for an
additional appraisal for your own use at your own cost.''
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\51\ Kleimann Comm. Gp., Inc., Know Before You Owe: Evolution of
the Integrated TILA-RESPA Disclosures 254-256 (July 9, 2012),
available at http://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf.
\52\ Id. The discussion in the section-by-section analysis of
this final rule is limited to the testing of the disclosure to be
provided in connection with a consumer's application, which is the
portion of the testing relevant to the appraisal-related disclosure
required by Sec. 1002.14(a)(2). As discussed in the supplementary
information to the 2012 RESPA-TILA Proposal, the Bureau and Kleimann
also tested prototype designs for the integrated disclosure forms to
be provided in connection with the closing of the mortgage loan and
real estate transaction. See the Bureau's 2012 TILA-RESPA Proposal,
available at http://consumerfinance.gov/regulations/.
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Public comment. Industry commenters generally supported development
of sample disclosure language that meets the disclosure requirements of
both ECOA section 701(e) and TILA section 129H. Commenters said this
approach would increase consumer understanding and reduce creditor
burden and cost, eliminating the need for multiple, partially
duplicative disclosures. Several commenters requested that the sample
disclosure include additional clarifying language.
First, some industry commenters suggested the sample disclosure
include an explanation of creditor use of applicant-ordered appraisals.
These comments suggested that applicants should either be told that
creditors are prohibited from using such appraisals, or that borrowers
should be notified that creditors are under no obligation to use the
appraisals. One commenter also suggested that confusion on this issue
could be avoided by simply removing language concerning the right of
applicants to order their own appraisals. Comments by two national
associations of creditors suggested the final rule provide guidance
confirming that creditors could vary the text of the disclosure to
exclude the sentence about applicant-ordered appraisals, as ECOA did
not require this sentence.\53\
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\53\ An industry commenter also was concerned that applicants
might think they could order their own appraisals directly from the
creditor, because the creditor was providing the disclosure.
---------------------------------------------------------------------------
Second, several industry commenters urged the Bureau to include the
word ``valuation'' in the sample consumer disclosure describing the
materials the consumer may receive. Commenters generally believed this
additional language would help consumers to understand that some of the
information they receive may not be appraisals, and
[[Page 7229]]
in some cases they might not receive an appraisal.
Other industry commenters offered other suggestions. These ranged
from informing consumers that the time frame for ``promptly'' providing
the copies would begin from when the creditor receives the appraisal or
other valuation, to advising consumers that the creditor could charge
for additional copies of appraisals or other valuations beyond the
first copy provided.
Discussion. While the Bureau has considered the comments described
above, the Bureau is adopting the sample disclosure language in form C-
9 as proposed. The 2013 Interagency Appraisals Final Rule under TILA
section 129H allows for an appraisal notice that is the same as the
language in form C-9, thus preserving the option of using a single
disclosure to satisfy both rules.
The Bureau is not modifying the sentence regarding applicant-
ordered appraisals. The language informing applicants they can order
their own additional appraisals is included in the sample disclosure in
form C-9 so that this disclosure can also be used to satisfy the
requirements of the 2013 Interagency Appraisals Final Rule under TILA
section 129H, as discussed above, and more broadly to educate consumers
(whether or not they are applying for a higher risk mortgage subject to
TILA section 129H) on their right to order an additional appraisal for
their own use. If this information were not included in the sample
disclosure, then it could not be used to satisfy the requirements under
TILA section 129H and its implementing regulation, the 2013 Interagency
Appraisals Final Rule. Therefore the final rule maintains this portion
of the sample disclosure in form C-9. To address industry comments
suggesting borrowers might try to compel lenders to use applicant-
ordered appraisals in an inappropriate manner, new comment 14(a)(2)-1
is being included in the final rule. This comment clarifies that the
rule does not affect restrictions on creditor use of applicant-ordered
appraisals by creditors. The Bureau does not believe, however, that the
concise, tested language in the sample disclosure should be expanded to
discuss these standards, which are complex and subject to varying
interpretations. For example, industry commenters differed in their
views on whether or how creditors may use these appraisals. Elaborating
on this language in the sample disclosure to inform consumers that
creditors cannot use or are not obligated to use the appraisals
applicants may order, without a more detailed explanation of the
standards governing the creditor conduct in the appraisal process,
could discourage consumers from ordering their own appraisal as a means
of disputing the appraisal ordered by the creditor, if they were to
choose to do so.\54\ Such information could detract from consumer
comprehension of the disclosure, and in any event is not required by
ECOA section 701(e).
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\54\ See 12 CFR 1026.42(c)(3) (describing permitted actions that
do not conflict with appraisal independence standards in Sec.
1026.42(a)-(b)). While one commenter suggested the sample disclosure
could lead borrowers to believe, incorrectly, that they may order
appraisals from the creditor, consumer testing did not suggest this
confusion is likely. The Bureau therefore declines to alter the
sample disclosure to instruct applicants on how they can order
appraisals.
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On the issue of whether to include the word ``valuations'' in the
text of the consumer disclosure, the Bureau is not persuaded that this
additional language would improve consumer comprehension and
understanding. Consumer testing of an earlier version of the sample
disclosure language, conducted in connection with the Bureau's 2012
TILA-RESPA Proposal, indicated that consumers preferred a disclosure
that did not include the word ``valuation'', as simpler and easier to
understand. While ECOA section 701(e) calls for a disclosure that
includes this word, as noted above, the Bureau is exercising its
exception authority so that the disclosure under section 701(e) can be
harmonized with TILA section 129H, which, among other differences, does
not refer to ``valuations.'' Based upon consumer testing indicating the
proposed text was easier to understand without the word ``valuation,''
and because allowing a single disclosure option for creditors that
satisfies both regulations under ECOA section 701(e) and TILA section
129H reduces creditor burden and the volume of consumer disclosures,
the Bureau believes this exception would facilitate compliance and
consumer understanding. If the term ``valuations'' were included in the
text of the consumer disclosure, the disclosure would not be the same
as the disclosure for subordinate lien transactions (which are not
subject to section 701(e)), detracting from the unified approach that
industry commenters widely supported. Regardless, if a non-appraisal
valuation is developed in connection with a creditor's credit decision,
then a copy of that valuation must be provided under the final rule.
The final rule does not regulate communications at the time the
valuation copy is provided. Creditors may choose to include
explanations of the non-appraisal valuation, if one is provided. The
Bureau believes that allowing voluntary description by the creditor at
the point of providing copies is preferable to mandating a more complex
up-front disclosure that could generate consumer confusion. In summary,
the Bureau believes that the unified disclosure benefits both consumers
and creditors because it clearly communicates basic information
required by both ECOA section 701(e) and TILA section 129H in one
disclosure.
The Bureau notes, however, that proposed Sec. 1002.14(a)(2) would
have required notifying applicants of their right to receive not only
an appraisal, but also a ``valuation.'' This may have led to some of
the commenters' suggestions of including the term ``valuation'' in the
sample disclosure. Accordingly, for the sake of clarity, and to confirm
that sample disclosure C-9 (whose text does not refer to the word
``valuation'') would satisfy the disclosure requirement in Sec.
1002.14(a)(2), the final rule modifies the disclosure requirement to
delete the word ``valuation.'' \55\ This change is made based upon the
same exercise of the exception authority used to develop form C-9,
discussed above. The Bureau believes this change will prevent confusion
as to what language is required to be included in the disclosure.\56\
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\55\ The word ``valuation'' also is removed from the title of
the sample disclosure, for consistency with the disclosure
requirement and the disclosure text.
\56\ In addition, because the sample disclosure is not a
mandatory disclosure, creditors may voluntarily choose to refer to
the term ``valuation'' in the disclosure unless prohibited by other
regulations (for example, if the sample language is required to be
included in the Loan Estimate under any final TILA-RESPA Integration
rule, and that rule applies to the transaction).
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The final rule also does not adopt other changes industry
commenters suggested for the sample consumer disclosure, as consumer
testing did not suggest these changes are necessary. For example, the
Bureau does not believe it is necessary to modify the sample disclosure
to inform consumers that applicants can be charged for additional
copies beyond the first copy. The sample disclosure already only refers
to the right to receive ``a copy'' without charge. Consumer testing did
not indicate that consumers were concerned about what could happen if
they wanted additional copies. The Bureau also does not believe that
the sample disclosure should be revised to state when the time period
for ``promptly'' providing the copies begins. The sample disclosure
already states the creditor will promptly provide a copy of an
appraisal the
[[Page 7230]]
creditor may order in the future. This language already implies that
the creditor will first need to receive and if necessary review the
original before it makes copies. Consumer testing indicated a strong
preference for succinct, focused language in the appraisals disclosure,
and did not suggest consumers wanted additional clarification on the
precise nature of the timing requirement.
Finally, to clarify the extent to which the text in sample
disclosure from C-9 can be modified by creditors, the Bureau is
revising the commentary. If the 2012 TILA-RESPA Proposal is adopted as
proposed, that rule would require including in the TILA-RESPA Loan
Estimate the same language as this final rule adopts in the sample
disclosure form C-9, without variation. On the other hand, the 2012
TILA-RESPA Proposal and the mandatory forms proposed therein would not
apply to open-end credit or reverse mortgage transactions. Therefore
the potential to modify the language in the sample disclosure may
depend on the applicability of laws and regulations other than ECOA and
this final rule. Comment Appendix C-1-ii therefore is revised to
clarify that creditors may modify the model form C-9 unless otherwise
provided by law.\57\ This comment, as revised, addresses the commenter
question of whether the sentence in form C-9 referring to applicant-
ordered appraisals can be modified (or deleted); as the comment
suggests, the sentence could not be changed if the sentence is required
by another applicable regulation, such as the consumer disclosure
requirement in the 2013 Interagency Appraisals Final Rule under TILA
section 129H applicable to higher-risk mortgages. This change to the
commentary also clarifies that this or any other modification would not
be permitted in a transaction that is subject to the TILA-RESPA rule
that the Bureau finalizes in the future, to the extent that final rule
maintains the mandatory forms from the 2012 TILA-RESPA Proposal.
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\57\ This comment also is revised to refer to the ``appraisal or
other written valuations'', consistent with the scope of the final
rule.
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Timing of Disclosure
ECOA section 701(e)(5) requires creditors to notify applicants in
writing, at the time of application, of the right to receive a copy of
each appraisal and other written valuation. The Bureau interprets the
phrase ``at the time of application'' to require creditors to provide
the ECOA appraisal disclosure not later than three business days after
receiving an application. The Bureau's proposed Sec. 1002.14(a)(2)
would have required creditors to notify applicants in writing, not
later than the third business day after a creditor receives such
application, of the right to receive a copy of all appraisals and other
written valuations developed in connection with such application.
This approach to the timing of the notification is consistent with
the disclosure requirements of TILA and RESPA. Currently, in
transactions subject to TILA and RESPA, creditors are required to
provide disclosures required under TILA and RESPA not later than the
third business day after receiving a consumer's written
application.\58\ In its 2012 TILA-RESPA Proposal to integrate the other
TILA and RESPA requirements, the Bureau has proposed that the ECOA
appraisal disclosure be provided as part of the Loan Estimate
disclosure to be delivered not later than the third business day after
application.\59\
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\58\ See, e.g., 12 CFR 1026.19(a)(1)(i) providing in relevant
part:
In a mortgage transaction subject to the Real Estate Settlement
Procedures Act that is secured by the consumer's dwelling * * * the
creditor shall make good-faith estimates of the disclosures required
by section 1026.18 and shall deliver or place them in the mail not
later than the third business day after the creditor receives the
consumer's written application.
\59\ 2012 TILA-RESPA Proposal, at proposed Sec. Sec.
1026.19(e)(1)(iii) and 1026.37(m)(1), available at http://www.consumerfinance.gov/regulations/. Proposed Sec.
1026.19(e)(1)(iii) provides as follows: ``Timing. The creditor shall
deliver the disclosures required under paragraph (e)(1)(i) of this
section not later than the third business day after the creditor
receives the consumer's application.''
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The Bureau stated in the preamble to its ECOA proposal that it
believes this approach is warranted because providing the disclosure to
applicants at the same time as other similar disclosures--and (once
adopted) as part of a broader integrated disclosure document--would
allow consumers to read the notification in context with other
important information that must be delivered not later than the third
business day after the creditor receives the application. Such an
approach could reduce the number of pieces of paper that consumers
receive and facilitate compliance by creditors.
Public comments. Many commenters expressed support for the three-
business-day time frame for the disclosure to be made, consistent with
the current and proposed TILA-RESPA approach. Several commenters cited
the ability to integrate the ECOA appraisal disclosure into the
integrated TILA-RESPA Loan Estimate when adopted as a reason for
supporting the timing requirement in the proposed rule. While one
commenter suggested the disclosure could be better timed as part of the
application process itself, other commenters said it would be
burdensome for lenders to provide the disclosure at that time. One
commenter also suggested the deadline for the disclosure be extended to
10 business days.
A large lending institution also requested clarification on when
the disclosure must be given in business transactions in which the use
of a dwelling as collateral is negotiated and added as a term of the
credit agreement well after the initial application has been submitted.
In this type of situation, the comment recommended that the final rule
either clarify that the disclosure requirement applies only if the
initial loan application contemplates the lender taking a first lien on
a dwelling, or provide the creditor an opportunity to cure and provide
the disclosure at some later point in the application process when it
becomes apparent a dwelling will be used as collateral.
Discussion. Consistent with most of comments received on the timing
of the disclosure, the final rule maintains the three-business day
timing requirement for the reasons stated in the proposal. This time
period allows lenders to align ECOA appraisal disclosures with TILA-
RESPA early disclosures in transactions that are covered by TILA and
RESPA. Earlier timing requirements would place additional burden on
creditors, while later timing requirements could result in an
unwarranted departure from the statutory time frame. To ensure
consistency with the requirements of TILA and RESPA, including section
129H of TILA, the final rule also includes new conforming language in
Sec. 1002.14(a)(2) providing that the disclosure shall be mailed or
delivered not later than the third business day after the creditor
receives the consumer's application.\60\
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\60\ In addition, if TILA disclosures are provided earlier than
three days after application, such as for open-end credit under
Regulation Z Sec. 1026.40, the creditor also could provide the
disclosure required under Sec. 1002.14(a)(2) at that time, though
the creditor would not be required to do so.
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The final rule includes an exception to this requirement, however.
In the case of an application for credit that is not to be secured by a
first lien on a dwelling at the time of application, if the creditor
later determines the credit will be secured by a first lien on a
dwelling, the creditor shall mail or deliver the notice required under
Sec. 1002.14(a)(2) in writing not later than the third business day
after the creditor determines that the loan is to be secured
[[Page 7231]]
by a first lien on a dwelling. The Bureau believes this is a reasonable
interpretation of the statute in the absence of a specific provision in
ECOA section 701(e) on this point. ECOA section 701(e)(5) calls for a
notice ``at the time of application,'' but does not address the timing
of the notice when the creditor does not know at that time that the
credit will be secured by a first lien on a dwelling. The Bureau is
therefore exercising its authority under ECOA section 703(a) to provide
a timeframe for notification in this situation to assist creditors in
complying with rule and to ensure that applicants involved in these
transactions receive the notice.
The Bureau also notes that it did not receive comments on its
proposal to set the start of the three-day time period as the time when
the creditor receives the ``application.'' The Bureau is finalizing the
use of this term as proposed. Because Regulation B already defines the
term ``application'' in Sec. 1002.2(f) with reference to the
creditor's ``procedures'' for receiving a request for credit, the
Bureau believes this approach will permit creditors to setup their
procedures to align the timing for the appraisal notice with other
disclosure requirements.
14(a)(3) Reimbursement
ECOA section 701(e)(3) affirms that creditors may require
applicants to pay reasonable fees to reimburse the creditor for the
cost of the appraisal, except where otherwise required in law. Section
701(e)(4) provides, however, that creditors shall provide a ``free''
copy of each appraisal or other written valuation at no additional cost
to the applicant. Accordingly, the Bureau proposed Sec. 1002.14(a)(3)
to implement section 701(e)(3) and (4), as added by the Dodd-Frank Act,
and provide greater clarity. The Bureau stated in the preamble to its
proposal that it interpreted these two provisions to permit creditors
to charge applicants reasonable fees to reimburse the creditor for
costs of the appraisal or other valuation itself, but not for
photocopying, postage, or similar costs associated with providing one
written copy to the applicant. Thus the Bureau proposed removing
current comment 14(a)(2)(ii)-1, which permits creditors to charge
photocopy and postage costs incurred in providing a copy to the
applicant.
The Bureau also proposed that Sec. 1002.14(a)(3) affirm that
creditors may impose fees to reimburse the costs of appraisals or other
valuations. ECOA section 701(e)(3) does not expressly refer to
valuations, and thus does not expressly permit or prohibit creditors
from charging reasonable fees to reimburse the cost of valuations. The
Bureau stated that because ECOA section 701(e)(3) does expressly permit
such fees for ``appraisals,'' legislative intent with respect to other
types of ``valuations'' is unclear. The Bureau stated that it believed
that there is both consumer and industry benefit to affirming that
creditors may charge reasonable fees for reimbursement for all types of
property valuations. Absent such clarification, the statutory language
might be read as implicitly forbidding creditors from charging
reimbursement fees for obtaining certain types of valuations, such as
broker-price opinions or AVM reports, but not for others, such as
appraisals. The Bureau stated that it did not believe that Congress
intended such a result, which could create an incentive for creditors
to favor full appraisals over less costly forms of valuation that may
be appropriate in particular circumstances.\61\ Such a result would
impose additional costs on loan applicants. Accordingly, the Bureau
proposed to interpret section 701(e)(3) of ECOA as permitting creditors
to charge applicants a reasonable fee to reimburse the creditor for the
cost of developing an appraisal or other valuation, except as otherwise
provided by law. In proposing this interpretation, to the extent
necessary, the Bureau proposed to rely on the authority provided in
ECOA section 703(a) to provide adjustments and exceptions for any class
of transactions.
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\61\ According to estimates for the average cost of an appraisal
provided by the U.S. Government Accountability Office (GAO),
consumers on average pay $300-450 for full interior appraisal. See
U.S. Gov't Accountability Office, GAO-11-653, Residential
Appraisals: Opportunities to Enhance Oversight of an Evolving
Industry, at 22 (2011). Other forms of valuation, however, tend to
cost less than appraisals. Broker Price Opinions typically cost $65-
125; valuations derived from an AVM typically cost $5-25. See id.,
at 17-18; see also U.S. Gov't Accountability Office, GAO-12-147,
Real Estate Appraisals: Appraisal Subcommittee Needs to Improve
Monitoring Procedures, at 39 (2012).
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The Bureau proposed that comment 14(a)(3)-2 clarify that Sec.
1002.14(a)(3) would not prohibit the creditor from charging a fee
reasonably designed to reimburse costs incurred in connection with
obtaining appraisal and other valuations services, but would not permit
increasing the fee for the appraisal or other valuation to cover costs
of providing documentation under Sec. 1002.14. As stated in the
proposal, the Bureau believed that ECOA section 701(e)(3) and (4) did
not call for more prescriptive rate regulation of valuation-related
activities. By contrast, section 1472 of the Dodd-Frank Act created
TILA section 129E, which specifically imposes a criterion for appraiser
fees--that they be ``reasonable and customary'' in the market area
where the property is located--and specified various sources for
determining whether fees meet the standard. The Bureau therefore stated
that it did not believe that Congress intended ECOA section 701, which
focuses on the provision of copies of written valuation documents to
loan applicants rather than the substantive performance of appraisal
and other valuation services, to function in such a manner.
Accordingly, the Bureau stated that it believed that section 701(e)(3)
and (4) is simply designed to prevent direct or indirect ``upcharging''
related to the provision of documents that is the focus of this section
of the statute.
To clarify the statutory language stating that creditors cannot
seek reimbursement for the cost of the appraisal ``where otherwise
required in law,'' the Bureau also proposed that comment 14(a)(3)-2
note that other laws may separately prohibit creditors from charging
fees to reimburse the costs of appraisals, and are not overridden by
section 701(e)(3). For instance, section 1471 of the Dodd-Frank Act
requires creditors to obtain a second interior appraisal in connection
with certain higher-risk mortgages, but prohibits creditors from
charging applicants for the cost of the second appraisal. TILA section
129H(b)(2)(B), 15 U.S.C. 1639h(b)(2)(B).
The Bureau proposed comment 14(a)(3)-1 to provide examples of the
specific types of charges that are prohibited under the regulation,
such as photocopying fees and postage for mailing a copy of appraisals
or other written valuations. In addition, comment 14(a)(3)-2 was
proposed to clarify that Sec. 1002.14(a)(3) does not prohibit
creditors from imposing fees that are reasonably designed to reimburse
the creditor for costs incurred in connection with obtaining actual
appraisal or other valuation services, so long they are not increased
to cover the costs of providing copies required under Sec.
1002.14(a)(1).
Public comment. Several commenters addressed proposed Sec.
1002.14(a)(3). These comments generally addressed the following two
aspects of Sec. 1002.14(a)(3): the proposed provision relating to
reasonable fees charged to reimburse costs of appraisals and other
valuations, and the provision prohibiting charges for the costs of
providing copies of appraisals and other valuations to applicants.
[[Page 7232]]
No commenters opposed the proposal to allow creditors to charge
reasonable fees for appraisals and other valuations unless otherwise
provided by law. One industry commenter requested that the rule
explicitly allow the fee to cover costs charged by appraisal management
companies (AMCs), which can be either a component of or supplemental to
the cost of the appraisal. This commenter argued that Congress did not
intend to prohibit AMC fees in the Dodd-Frank Act, as it specifically
provided for their disclosure in the settlement statement pursuant to
RESPA section 4(c). 12 U.S.C. 2603(c). Another industry commenter
suggested that the final rule interpret ``reasonable fee'' to mean a
fee that was disclosed and agreed to by the applicant. A different
industry commenter requested additional clarification on what could not
be charged under this provision.\62\
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\62\ An appraisal industry commenter objected to certain
language in the Bureau's preamble, including the statement that
appraisals could involve ``needless cost'' in certain transactions
where other valuations could be used, and to the statement that
broker price opinions and automated valuation models are ``equally
appropriate'' for some transactions.
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In addition, several industry commenters requested that the rule
allow creditors to withhold copies of the appraisals and other
valuations if the borrower did not pay the permitted fees to reimburse
the cost of appraisals and other valuations. Some commenters noted this
type of exception would be particularly important in transactions where
the application is withdrawn, incomplete, or denied. One commenter also
requested that disclosure required under section 14(a)(2) inform the
consumer of the ability of the creditor to withhold these copies.
Industry commenters were generally supportive of the proposed
prohibition on charges for providing copies of appraisals and other
written valuations. While a large internet lender specifically agreed
with the proposed prohibition, a few lending institutions objected to
the proposed prohibition on the grounds that it would force them to
absorb additional costs. Because proposed Sec. 1002.14(a)(3) and
comment 14(a)(3)-1 referred to a prohibition on charges for providing
``a copy,'' several industry commenters suggested this could be read as
prohibiting charges for providing duplicate or additional copies. These
commenters therefore requested that the final rule clarify that
creditors could charge for subsequent copies of appraisals and other
written valuations. A large industry trade association also noted a
concern over whether the prohibition against charging for copies of
appraisals and other written valuations would prohibit indirect
recovery of these costs.
Discussion. Section 1002.14(a)(3) in the final rule and associated
commentary are generally adopted as proposed, with some minor
clarifications as discussed below.
As in the proposal, Sec. 1002.14(a)(3) in the final rule clarifies
that charges for valuations are not prohibited by section 701(e)(3) of
ECOA. No commenters addressed this provision in the proposal. As noted
in the proposal, in adopting this provision in the final rule, the
Bureau relies to the extent necessary on its authority to make
adjustments under section 703(a) of ECOA. Such an adjustment would
facilitate compliance with ECOA and prevent circumvention, and also
would effectuate the purposes of ECOA. Otherwise, ECOA section
701(e)(3) might be interpreted as distinguishing between one type of
valuation (an ``appraisal'') whose cost may be reimbursed by
applicants, and all other types of valuations whose cost may not be
reimbursed by the applicant. Yet the definition of ``valuation'' in
section 701(e)(6) of ECOA refers broadly to ``any estimate of the value
of a dwelling,'' without distinguishing between these types of
valuations. Under such an interpretation, the Bureau would need to
provide guidance on how to distinguish between appraisal and non-
appraisal valuations; without such guidance, creditors could
deliberately or inadvertently mischaracterize non-appraisal valuations
as appraisals to recover their cost, or creditors may avoid valuations
altogether to avoid incurring unrecoverable costs. Additionally, as
noted in the proposal, a distinction between the ability to recover
costs for appraisals versus other types of valuations could discourage
creditors from using less costly forms of valuations, especially in
smaller dollar-amount transactions. For example, Federal banking
regulations do not require federally-insured financial institutions to
obtain an appraisal in low-risk real estate-related financial
transactions in which the transaction value is $250,000 or less.\63\ It
is not the purpose of ECOA section 701(e) to encourage one type of
valuation over another; its purpose is to inform the consumer of the
basis for the credit decision. Thus the adjustment in Sec.
1002.14(a)(3) will ensure the final rule adheres more closely to the
purpose of ECOA as well.
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\63\ See, e.g., 12 CFR 323.3(a)(1) exempting real estate-related
financial transactions with a transaction value of less than
$250,000 from the FDIC's rule requiring FDIC-insured institutions to
obtain an appraisal performed by a State certified or licensed
appraiser for all real estate-related financial transactions.
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At the same time, comment 14(a)(3)-2 in the final rule clarifies
that in allowing reasonable fees to reimburse \64\ the cost of
appraisals and other valuations, Sec. 1002.14(a)(3) is not intended to
create a legal obligation of the applicant to pay these fees. As noted
above, one commenter suggested a link between the concept of a
``reasonable fee,'' and whether the fee was disclosed and agreed to by
the consumer. While the Bureau does not believe that the term
``reasonable fee'' could be equated in all cases with fees disclosed to
and agreed by the applicant, the commenter highlights the relevance of
the applicant's agreement to pay the fee. Whether the legal obligation
to pay the fee exists is a matter arising under other laws, including
without limitation contract law, however. Other laws also may limit the
ability to recover these fees, as indicated by the phrase ``unless
otherwise provided by law'' in Sec. 1002.14(a)(3).\65\
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\64\ With respect to proposed Sec. 1002.14(a)(3) more broadly,
the comment suggesting the word ``reimbursement'' be used more
consistently left unclear exactly how it would suggest the term be
used.
\65\ These other laws may include requirements applicable to
estimates of loan fees provided at the time of application,
limitations on changes to these fees in certain circumstances,
prohibitions against charging for second appraisals in higher-risk-
mortgage transactions involving ``flipping,'' and prohibitions
against unfair, deceptive, and abusive acts and practices under
applicable law. While one commenter requested additional
clarification of what charges are prohibited by Sec. 1002.14(a)(3),
the Bureau believes that the phrase ``otherwise provided by law'' is
intended to be open-ended, and calls for creditors to consider
applicable laws when setting their fees. As noted in the proposal,
the Bureau does not believe that ECOA section 701(e) calls for rate
regulations.
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In response to the comment seeking clarification that Sec.
1002.14(a)(3) does not limit the recoverability of AMC charges, the
Bureau recognizes that the Dodd-Frank Act did not intend to prohibit
recovery of AMC fees. As the commenter noted, RESPA section 4(c) allows
but does not require creditors to break out the AMC fees on the
settlement statement from the fees paid directly to the appraiser. The
commenter suggests that recoverability of AMC fees was left in doubt by
the proposed comment 14(a)(3)-2, referring to fees ``reasonably
designed'' to reimburse creditor costs incurred ``in connection with
obtaining'' appraisal and other valuation services. To clarify, the
Bureau is revising comment 14(a)(3)-2 so its language more closely
tracks ECOA section 701(e) (which refers to ``reasonable fees'' to
reimburse appraisal costs, rather than fees that are
[[Page 7233]]
``reasonably designed'' for this purpose) and to specifically indicate
that section 14(a)(3) is not intended to prohibit recovery of AMC fees.
The final rule also adopts the prohibition in proposed Sec.
1002.14(a)(3) against charging for providing a copy of an appraisal or
other written valuation ``as required under the final rule.'' While
industry commenters raised a question of whether creditors could charge
for providing additional copies of the same appraisal or other written
valuation, such as when the applicant requests them, the Bureau does
not believe that the regulation is unclear on this point. The final
rule, in Sec. 1002.14(a)(1), requires only that the creditor provide
``a copy'' of each appraisal or other written valuation. The
prohibition against charging for copies only applies to copies that are
``required under the final rule.'' Because the final rule does not
require that creditors provide more than one copy, there is no
suggestion in the final rule that creditors are prohibited from
charging for duplicates or additional copies. If they do provide
additional duplicate copies, it would not be pursuant to a requirement
in the rule. The Bureau also does not believe the rule requires, as one
commenter suggested, the tracking of mailing or copying costs and even
their refund to the consumer to ensure they are not included in the
interest rate previously set.\66\
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\66\ As noted in comment 14(a)(3)-2, the prohibition against
charging for copies is designed to prevent an increase of charges
within a specific transaction based upon the copies that must be
provided. Thus a creditor would be prohibited from imposing a line-
item fee for providing copies, or from adjusting other line item
fees based upon the copies that are provided (for example,
increasing the points and fees in the closing statement above the
amount specified in the loan estimate to account for costs of copies
that are being provided).
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To fully implement the prohibition in Sec. 1002.14(a)(3) against
charging for providing a copy of an appraisal or other written
valuation, the Bureau also is amending the commentary to sample
disclosure form C-9. Comment Appendix C-1-ii is revised to remove the
suggestion that a creditor may add text to the disclosure notifying the
applicant of the cost the applicant will be required to pay for a copy
of the report.
The Bureau declines to add an exception in the final rule to the
requirement to provide copies of appraisals and other written
valuations where the applicant has not paid the fee for the appraisal
or other written valuation. Section 1002.14(a)(2)(ii) of Regulation B
currently calls for providing the copy after receipt of the request,
the report, or reimbursement for the report, ``whichever is last to
occur.'' As proposed, Sec. 1002.14(a)(2) would no longer have based
the timing of disclosure upon the receipt of payment. The Bureau
believes this approach is consistent with the language of ECOA section
701(e) as amended. The statutory timing requirement concerning
providing copies contains no reference to receipt of reimbursement for
the valuation from the applicant. Moreover, ECOA section 701(e)(4)
specifically states that ``notwithstanding'' the creditor's ability to
charge a reasonable fee to reimburse the creditor's appraisal costs,
the creditor ``shall provide'' the copy at no additional cost. The
Bureau does not believe that conditioning the creditor's obligation to
provide copies at no additional cost on the applicant's reimbursement
of the costs of the appraisal or other written valuation would be
consistent with legislative intent as expressed in ECOA section 701.
The Bureau understands the need for creditors to manage payment
risks. The final rule does not affect the ability of creditors to
request up-front payment from applicants before appraisals or other
written valuations are ordered (which would protect creditors even if
the application is withdrawn, incomplete, or denied), to collect
payment at consummation or account opening, or to undertake other
efforts to collect the fee if the transaction is not consummated or the
account is not opened. The Bureau therefore declines to adopt this
exception suggested by comments it received.
14(a)(4) Withdrawn, Denied, or Incomplete Applications
ECOA section 701(e)(1) requires providing copies of the appraisals
or other written valuations ``whether the creditor grants or denies the
applicant's request for credit or the application is incomplete or
withdrawn.'' The Bureau therefore proposed in Sec. 1002.14(a)(4) that
the requirements of Sec. 1002.14(a)(1) also apply whether credit is
extended or denied or if the application is incomplete or withdrawn.
Specifically, creditors would be required to provide copies of
appraisals and other written valuations even in situations where an
applicant provides only an incomplete application.
Public comments. Two national associations of creditors suggested
that the Bureau use its adjustment authority under ECOA to eliminate
the statutory requirement to provide copies of appraisals and other
written valuations where an applicant withdraws from the application
process before indicating an intent to proceed. These commenters argued
that the valuation is not relevant to the withdrawing applicant, and
providing a copy would impose an unnecessary cost.
Discussion. Dodd-Frank Act section 1474 amended ECOA section 701(e)
to require providing copies of appraisals and other written valuations
even in cases where the application is withdrawn. The statute did not
distinguish between withdrawals that occur before or after declaring an
intent to proceed with the transaction. While the commenter suggested
the Bureau should exercise its exception authority in cases in which
the application is withdrawn before the applicant expresses an intent
to proceed, the Bureau is not persuaded there is a basis for doing so
here. The ``intent to proceed'' standard governs whether fees can be
charged to applicants under Regulation X, which implements RESPA, and
not when applicants have a protected interest against discrimination
under ECOA. The Bureau does not believe that the purpose of ECOA in
preventing, detecting, and remedying discrimination would be served by
providing such an exception. Under Regulation X, Sec. 1024.7(a)(4),
the intent to proceed comes after the applicant has received a good
faith estimate (or a revised good faith estimate), which quotes loan
terms to applicants and which could be based upon an appraisal or other
written valuation. Indeed, in some cases the very reason that the
consumer elects to withdraw the application may be the result of what
the lender has said or done in response to the appraisal or other
valuation, for example by changing the interest rate based on a lower-
than-expected loan to value ratio. Therefore the text of Sec.
1002.14(a)(4) is adopted as proposed.
14(a)(5) Copies in Electronic Form
The Bureau believes that it is appropriate to allow creditors to
provide applicants with copies of appraisals and other written
valuations in electronic form if the applicant consents to receiving
the copies in such form. Accordingly, the Bureau proposed that Sec.
1002.14(a)(5) permit copies of appraisals and other written valuations
required by Sec. 1002.14(a)(1) to be provided to the applicant in
electronic form, subject to compliance with the consumer consent and
other applicable provisions of the Electronic Signatures in Global and
National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).\67\
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\67\ As noted in the proposal, Sec. 1002.4(d)(2) of Regulation
B currently provides that the disclosures required to be provided in
writing by Regulation B may be provided to the applicant in
electronic form, subject to compliance with the consumer consent and
other applicable provisions of the E-Sign Act. While Sec.
1002.4(d)(2) refers to written ``disclosures'', the E-Sign Act also
applies more broadly to ``information relating to a transaction''
that is required to be made available in writing. 15 U.S.C.
7001(c)(1). Thus the proposal sought to clarify that the
requirements of the E-Sign Act also would apply to providing copies
of appraisals and other written valuations.
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[[Page 7234]]
Public comments. Several industry commenters supported the option
of consent-based electronic delivery. Two lenders suggested the E-Sign
Act consent process is burdensome, and should not be required; one
industry commenter suggested that the E-Sign Act consent process is
important, however.
Discussion. The Bureau believes that application of the E-Sign Act
to the electronic disclosure of copies of appraisals and other written
valuations is appropriate, and the final rule maintains this condition.
While one commenter noted that the appraisal is not a contract
document, Section 101(a) of the E-Sign Act governing electronic
signatures in contracts is not the provision at issue here. Rather,
Section 101(c) of the E-Sign Act, 15 U.S.C. 7001(c), governs consent
for provision of consumer disclosures by electronic means. The
commenter therefore has not articulated a basis for treating copies of
appraisals and other written valuations as falling outside the scope of
Section 101(c). In any event, however, applying the E-Sign Act
requirements to provision of copies of appraisals and other written
valuations by electronic means would not force creditors to institute
E-Sign Act compliance procedures. Creditors could simply choose not to
provide the copies by electronic means.
The Bureau also notes that because the disclosure required by Sec.
1002.14(a)(2) is a written disclosure required by Regulation B, Sec.
1002.4(d)(2) will permit that disclosure to be provided electronically
based upon a consent given in compliance with the E-Sign Act. There is
no need to restate this point in a separate provision within Sec.
1002.14. As discussed at the beginning of the section-by-section
analysis above, the Bureau is revising the electronic disclosure
provision in Sec. 1002.4(d)(2), however, to ensure its exception can
apply to the new notice required by Sec. 1002.14(a)(2) of the final
rule, which replaces the consumer notice required by existing Sec.
1002.14(a)(2)(i). While this change was not proposed in the proposal,
this revision is necessary to maintain the consistency of cross-
references in Regulation B and its existing approach to electronic
disclosure of the consumer notice required under Sec. 1002.14. In
particular, existing Sec. 1002.4(d)(2) allows the creditor to provide
written disclosures required by certain specified provisions of
existing Regulation B, including existing Sec. 1002.14(a)(2)(i),
electronically without regard to consumer consent or provisions of the
E-Sign Act, if the disclosure ``accompan[ies] an application accessed
by the applicant in electronic form.'' The Bureau believes this cross-
reference in Sec. 1002.4(d)(2) to the notice requirement in Sec.
1002.14(a)(2) should be maintained, for the same reasons the Board did
not apply the E-Sign Act requirements to disclosures provided with the
application.\68\ In addition, creditors could choose to provide the
notice as an accompanying disclosure with the application, which would,
by definition, be provided within three business days of the
application as required by this final rule.\69\ Therefore, the cross-
reference is being updated to reflect the citation to the disclosure
provision in the final rule, Sec. 1002.14(a)(2).
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\68\ The Bureau notes that the Board adopted this exception to
the requirements of the E-Sign Act for certain disclosures required
in Regulation B in amendments to provide guidance on electronic
delivery of disclosures. For the same reasons that the Board cited,
the Bureau believes that permitting the disclosure required in Sec.
1002.14(a)(2) to be provided without regard to the consumer consent
or other provisions of the E-Sign Act when the disclosure
accompanies an application the consumer accesses electronically
eliminates a ``a potential significant burden on electronic commerce
without increasing the risk of harm to consumers.'' 72 FR 63445,
63448 (Nov. 9, 2007).
\69\ This option would not necessarily be available for all
transactions. For example, if the 2012 TILA-RESPA Proposal is
finalized as proposed, the appraisal notice will be required to be
included in the integrated TILA-RESPA Loan Estimate. The exception
under Sec. 1002.4(d)(2) would not be triggered by a Loan Estimate
disclosed after the application, rather than accompanying the
application.
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Removal of Exemption for Credit Unions
The Board's 1993 Final Rule on Providing Appraisal Reports (1993
Final Rule) provided in Sec. 1002.14(b) that credit unions were exempt
from the requirements in Sec. 1002.14(a) to provide copies of
appraisals upon request, if not provided routinely. See 58 FR 65657,
65660 (Dec. 16, 1993). In the 1993 Final Rule, the Board pointed to
pre-existing NCUA regulations, and how they already required credit
unions to provide copies of appraisals upon request.\70\ The Board also
cited the legislative history of the 1991 ECOA amendments, which
indicated Congress was aware of these pre-existing regulations and thus
did not intend to modify them.\71\ Accordingly, the Board found it
unnecessary to require under Regulation B what the NCUA already
required under its own regulations.
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\70\ See 12 CFR 701.31(c)(5), which currently provides:
Each Federal credit union shall make available, to any
requesting member/applicant, a copy of the appraisal used in
connection with that member's real estate-related loan application.
The appraisal shall be available for a period of 25 months after the
applicant has received notice from the Federal credit union of the
action taken by the Federal credit union on the real estate-related
loan application.
\71\ S. Rept. 167, 102nd Cong., at 90 (1991). The Senate Report
stated as follows: ``Regulations by the National Credit Union
Administration (NCUA) currently require credit unions to make
appraisals available without regard to who has paid for the
appraisal;[] test[sic] this legislation is not intended to modify
those NCUA regulations. Neither is the legislation intended to
affect the current custom of many lenders routinely to provide
copies of appraisal reports.''
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Under today's version of the NCUA regulation, 12 CFR 701.31(c)(5),
Federal credit unions are still required to make available to any
requesting member/applicant a copy of the appraisal used in connection
with that member's real estate-related loan application. However, as
described above, the Dodd-Frank Act amendments to ECOA removed the
prior provisions of section 701(e) and replaced them with requirements
that were significantly broader in scope. Unlike the prior provisions
of section 701(e), section 701(e) as amended requires creditors to
provide copies of all valuations, and not only appraisals; section
701(e) also requires that creditors provide these copies automatically,
rather than allowing them to be provided upon request. Thus amended
section 701(e) guarantees that applicants will receive copies of
valuations that are performed, including non-appraisal valuations, and
regardless of whether applicants specifically request the copies. In
addition, neither section 1474 of the Dodd-Frank Act nor its
legislative history refers to an exception for credit unions subject
to, and complying with, the provisions of the NCUA regulations relating
to making appraisals available upon request. Accordingly, the Bureau
proposed deleting the exemption for credit unions provided in Sec.
1002.14(b).
Public comment. Most credit union commenters urged the Bureau to
maintain the exemption for credit unions, suggesting, for example, that
the existing rule (requiring disclosure on request) be maintained and
that credit unions did not need to be covered by the new rule because
they were not a cause of the financial crisis that the Dodd-Frank Act
was intended to address. One of the commenters argued that the Bureau
should maintain the
[[Page 7235]]
exemption in order to allow the NCUA to amend its regulations to
conform to section 701(e) of ECOA. Some of these commenters suggested
the proposed rule would be burdensome, particularly when viewed in
combination with the other rules being implemented under the Dodd-Frank
Act. One credit union stated, however, that it understood the Bureau's
proposed rationale for removing the exemption in Regulation B. An
appraisal industry commenter also stated that it supported removing the
exemption.
Discussion. As noted in the proposal, Congress did not exclude
credit unions from the requirements of ECOA section 701(e), and the
legislative history of the Dodd-Frank Act did not suggest Congress
intended to exclude credit unions, unlike when Congress adopted the
previous version of section 701(e) in 1991. Moreover, even assuming
credit unions may have had a lesser role in precipitating the financial
crisis to which the Dodd-Frank Act responded, the purposes of ECOA
include preventing and remedying unlawful discrimination in credit
transactions. By including the requirement to provide copies of
appraisals and other written valuations in ECOA, Congress made the
judgment that enhanced transparency of appraisals and other written
valuations would further these purposes. In addition, applicants to
credit unions have an equal interest in the protection and remedies
afforded by ECOA as applicants to other creditors. Failure to apply the
rule to credit unions would result in applicants to these creditors not
having the same guarantees of receiving copies of appraisals and other
written valuations promptly (regardless of whether they request them),
or of receiving copies of non-appraisal valuations at all. In addition,
the Bureau is not persuaded by the comments that the final rule
implementing section 701(e) would impose a significant additional
burden on creditors, as credit union commenters did not establish that
credit unions do not follow the general industry practice of providing
copies of appraisals to applicants in first lien transactions.\72\ The
Bureau therefore is not persuaded that the standards for exercising its
exception authority are met, whether under section 703(a) of ECOA to
effectuate the purposes of, or foster compliance with, ECOA or under
section 1405(b) of the Dodd-Frank Act to protect the interests of
consumers and the public.\73\ Accordingly, the final rule does not
include an exemption for credit unions.
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\72\ The Bureau also does not believe that the final rule
implementing section 701(e) affects the ability of credit unions to
comply with the existing NCUA regulations at 12 CFR 701.31(c)(5).
Credit unions that comply with the final rule requiring disclosure
of appraisals and other valuations to applicants also would be able
to comply with existing NCUA regulations by maintaining appraisals
on file for the specified time period for provision upon request.
\73\ Despite commenter suggestions that the Bureau could wait to
see if NCUA adopted its own rule, the Dodd-Frank Act does not
suggest it is the responsibility of NCUA to issue such a rule under
ECOA, backed by the remedies which ECOA provides. Section 1085 of
the Dodd-Frank Act amended ECOA to transfer ECOA rulemaking
authority (including authority under ECOA section 701(e)) to the
Bureau. Section 1061 of the Dodd-Frank Act also transferred consumer
financial protection functions of the NCUA to the Bureau. In any
event, if the NCUA were to amend its rules in a manner consistent
with section 701(e), the Bureau would review that regulation and
consider any consequences that regulation could have on the
application of this final rule to credit unions.
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14(b) Definitions
As discussed below, the Bureau proposed to define three terms in
Sec. 1002.14(b). The Bureau also requested comment on whether there
are additional terms that should be defined for purposes of this rule
and how best to define those terms in a manner consistent with ECOA
section 701(e).
14(b)(1) Consummation
As discussed above, for clarity and to be consistent with other
similar regulatory requirements under TILA and RESPA, the Bureau
proposed that Sec. 1002.14(a)(1) use the term ``consummation'' in
place of the statutory term ``closing.'' The Bureau proposed to define
the term ``consummation'' in Sec. 1002.14(b)(1) as the time that a
consumer becomes contractually obligated on a credit transaction. This
definition mirrors the definition of the term provided in Sec.
1026.2(a)(13) of Regulation Z.
The Bureau also proposed two comments to clarify the meaning of the
term ``consummation.'' First, comment 14(b)(1)-1 was proposed to
clarify that the question of when a contractual obligation on the
consumer's part is created is a matter to be determined under
applicable law; proposed Sec. 1002.14 does not make this
determination. A contractual commitment agreement, for example, that
under applicable law binds the consumer to the credit terms would be
consummation. Consummation, however, does not occur merely because the
consumer has made some financial investment in the transaction (for
example, by paying a nonrefundable fee) unless, of course, applicable
law holds otherwise. Second, comment 14(b)(1)-2 was proposed to clarify
that consummation does not occur when the consumer becomes
contractually committed to a sale transaction, unless the consumer also
becomes legally obligated to accept a particular credit arrangement.
Public comments. The Bureau received very few comments on this
definition. One industry commenter suggested the term would be
confusing in the case of a rescindable transaction, and also queried
whether consummation would occur when the lender issues a loan
commitment. One commenter suggested the term is not plain English.
Discussion. The lack of industry comments on use of the term
``consummation'' suggests that industry is familiar with the meaning of
the term. Consummation is a term that is defined elsewhere in
regulations and used throughout mortgage regulations. The Bureau
believes it is appropriate to use here for consistency and precision
for closed-end transactions, and that given its common usage confusion
is unlikely.\74\ In any event, for clarity, this final rule adopts the
proposed comments 14(b)(1)-1 and 2 clarifying the meaning of
``consummation;'' this guidance mirrors longstanding guidance in
Regulation Z.\75\ Accordingly, the final rule thus maintains the
definition of the term ``consummation'' as proposed.
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\74\ Section 3(2)(C) of the Plain Writing Act of 2010 excludes
regulations from the scope of its requirements. In any event, the
term ``consummation'' need not be included in the disclosure
applicants will receive under Sec. 1002.14(a)(2) and is not
included in the sample disclosure.
\75\ The Bureau also does not agree with the comment suggesting
that consummation could occur at the end of the rescission period.
TILA specifically defines its rescission right as arising
``following the consummation of the transaction,'' 15 U.S.C.
1635(a), such that the existence of a rescission period after
consummation under TILA would not affect the pre-consummation timing
standards in this final rule.
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14(b)(2) Dwelling
The Bureau proposed that Sec. 1002.14(b)(2) retain the definition
of the term ``dwelling'' in current Sec. 1002.14(c). Specifically,
Sec. 1002.14(b)(2) proposed to define the term ``dwelling'' as a
residential structure that contains one to four units whether or not
that structure is attached to real property, and including but not
limited to an individual condominium or cooperative unit, and a mobile
or other manufactured home.
Public comment. Industry commenters asked the Bureau to clarify
several aspects of the definition of ``dwelling.'' For example, several
commenters asked the Bureau to clarify in the final rule whether the
definition of ``dwelling'' refers only to an owner-occupied dwelling,
or to any residential
[[Page 7236]]
dwelling regardless of the applicant's residence in the building.
Several commenters in the manufactured housing industry also requested
that the definition of ``dwelling'' exclude residential structures that
are not attached to the real property, such as recreational vehicles
and house boats, as well as manufactured homes when titled as chattel.
Further, some industry commenter asked for clarification on whether the
rule applies to commercial transactions. Some of these comments
requested that the final rule exclude commercial transactions even when
they involve a first lien on a dwelling. One commenter argued, however,
that covering commercial transactions would promote education,
knowledge, and creditor safety and soundness by ensuring applicants are
aware of the appraisals and other valuations on which the credit
decisions are based. In addition, some industry commenters requested
clarification on whether the final rule would cover certain multiple
residence situations involving a single lot, such as three four-unit
buildings situated on a single land parcel and operated as one small
12-unit apartment complex. Finally, one commenter suggested the
definition of ``dwelling'' be harmonized with the definition in
Regulation C promulgated under the Home Mortgage Disclosure Act (HMDA),
which is not limited to one-to-four-family structures, while another
commenter suggested the definition be limited to single-family housing.
Discussion. The final rule does not exclude business credit when it
is secured by a first lien on a dwelling because business credit is
covered by ECOA and Regulation B. ECOA section 701(e) applies to a
``creditor'', a term that ECOA section 702(e) defines by reference to
the term ``credit'' in section 702(d). Section 702(d) of ECOA does not
limit the term ``credit'' to credit for personal, family, or household
purposes, and Regulation B has long interpreted ``credit'' to include
personal and ``business credit.'' See comment 1002.2(j)-1 (discussing
definition of ``credit'' in Sec. 1002.2(j)); \76\ Sec. 1002.2(g)
(definition of ``business credit'').\77\ Thus, the final rule covers
applications for business credit to be secured by a first lien on a
dwelling.
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\76\ The comment provides that ``[u]nder Regulation B, a
transaction is credit if there is a right to defer payment of a
debt--regardless of whether the credit is for personal or commercial
purposes, the number of installments required for repayment, or
whether the transaction is subject to a finance charge.''
\77\ Regulation B generally uses the term ``business credit''
where unique or different requirements are applied to business or
commercial transactions. The final rule does not adopt special or
different requirements, and therefore uniformly uses the term
``credit.''
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The final rule adopts the definition of ``dwelling'' as proposed.
When describing the transactions subject to section 701(e) of ECOA,
Dodd-Frank Act section 1474 used the term ``dwelling'', which has been
defined in Sec. 1002.14(c) as follows: ``[T]he term dwelling means a
residential structure that contains one to four units whether or not
that structure is attached to real property. The term includes, but is
not limited to, an individual condominium unit, and a mobile or other
manufactured home.'' \78\ Given that this definition was in place when
Congress amended ECOA section 701(e) and used the term ``dwelling'' in
specifying the scope of the requirement, the Bureau believes that it is
appropriate to continue to use the existing definition of ``dwelling.''
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\78\ This definition also is similar to the definition of
dwelling in Regulation C, which covers ``a residential structure
(whether or not attached to real property) located in a state of the
United States of America, the District of Columbia, or the
Commonwealth of Puerto Rico. The term includes an individual
condominium unit, cooperative unit, or mobile or manufactured
home.'' 12 CFR 1003.2. The Bureau does not believe the Regulation C
definition should be adopted for this rule, however. The Regulation
C definition could broaden the scope of the final rule beyond one-
to-four family dwellings, while it is unclear that ECOA section
701(e) as amended contemplated this result.
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The definition of ``dwelling'' in Sec. 1002.14(c) requires that
the unit be a ``residential structure'', but does not require that it
be ``owner-occupied.'' As a result, the requirements of the final rule
can apply to transactions involving one-to-four-unit residential
structures that may be business or commercial in nature, including for
investment purposes. Beyond this, whether a transaction meets the
definition will depend on the facts and circumstances. Because
transaction structures can vary widely, the Bureau does not believe it
would be efficient or appropriate to try to address all such variations
in the text of the rule or the commentary.\79\
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\79\ With respect to the example raised by a creditor and two
national creditor associations--three four-unit buildings operated
as a 12-unit apartment complex, the text of the rule makes clear
that a four-unit residential building would be a dwelling, but a 12-
unit apartment complex is not. Thus a transaction secured by a four-
unit residential building would be covered by the rule, but a
transaction secured by the entire 12-unit apartment complex would
not be. Because this question can be analyzed in a straightforward
manner by reference to the text of the rule, the Bureau does not
believe that further commentary is needed for this to be apparent.
Similarly, the definition of ``dwelling'' refers to the example of
an ``individual condominium or cooperative unit,'' but not to a
cooperative building as a whole, even though such a building may
contain several individual units.
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The definition of ``dwelling'' in Regulation B, Sec. 1002.14(c),
currently includes a residential structure ``whether or not * * *
attached to real property,'' and lists as an example a ``mobile or
other manufactured home.'' Industry commenters reported that a
significant number of consumers in the United States reside in
manufactured homes. The Bureau does not believe the comments articulate
a valid basis for a new exemption under Regulation B for manufactured
homes that would otherwise meet the definition of ``dwelling.'' Whether
an applicant has a right to receive a copy of an appraisal or other
written valuation that has been performed should not turn on whether
the residential structure is built on site or in a factory for later
installation on site--particularly when such valuations can be done for
these transactions.\80\ The definition of ``dwelling'' in Regulation B
is appropriately broad enough to encompass manufactured homes. The
Bureau recognizes, however, that transactions involving manufactured
homes will not always result in appraisals or other written valuations.
This issue is taken into account in Sec. 1002.14(b)(3) discussed
below.
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\80\ HUD standards for its Title I insurance program for
manufactured homes, for example, provide valuation standards. U.S.
Dep't of Hous. & Urban Dev., TI-481, Changes to the Title I
Manufactured Home Loan Program, at App. 2-1, D (Apr. 2009)
(requiring valuations that meet HUD standards for transactions
involving existing manufactured homes); id. at App. 8-9, C
(describing valuation standards for certain manufactured home
transactions); U.S. Dep't of Hous. & Urban Dev., TI-437, Appraisals
of Manufactured Homes and Lots, at 1-2 (Jan. 1996) (describing
valuation standards for manufactured homes classified as personal
property and manufactured home transactions involving real
property). GSEs also have standard forms available on their Web
sites, such as Fannie Mae Form 1004C and Freddie Mac Form 70B, for
conducting appraisals of manufactured home transactions eligible for
purchase by them.
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The final rule also provides clarification in response to comments
by several industry trade associations that Sec. 1002.14 should not
apply to certain other structures, such as recreational vehicles or
boats. Unlike manufactured homes, which are specifically enumerated
examples of a ``dwelling'' in existing Sec. 1002.14(c) and proposed
Sec. 1002.14(b)(2),\81\ other structures such as boats and
recreational vehicles are not enumerated as examples. Though boats and
recreational vehicles may have residential uses in some cases, the fact
that they are not expressly enumerated here in existing Regulation B
suggests that, unlike manufactured homes, they are not exclusively
residential by nature and are not always covered by the existing
appraisal copy requirements at Sec. 1002.14. Therefore,
[[Page 7237]]
while the Bureau does not see a basis for removing ``manufactured
homes'' from the list of enumerated examples of a dwelling in Sec.
1002.14 (see existing Sec. Sec. 1002.14(c) and 1002.13(a)(2)), there
is a basis for analyzing boats and recreational vehicles differently.
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\81\ For a definition of ``manufactured home,'' see also 42
U.S.C. 5402(6) and related HUD regulations at 24 CFR 3280.2.
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In addition, even though Regulation Z commentary has long stated
that boats and trailers can be dwellings and has not ruled out that
recreational vehicles and campers also could be dwellings,\82\ they are
not covered by the 2013 Interagency Appraisals Final Rule under TILA
section 129H. See Regulation Z, Sec. 1026.35(c)(2)(iii). As noted
above, the rules implementing ECOA section 701(e) and TILA section 129H
allow for identical consumer disclosure concerning appraisals and
require creditors to provide copies of appraisals to applicants. To the
extent regulations implementing ECOA section 701(e) and TILA section
129H can be aligned, burden on creditors is reduced.
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\82\ See 12 CFR part 1026, Supp. I, comment 2(a)(19)-2. This
comment states as follows: ``Use as a residence. Mobile homes,
boats, and trailers are dwellings if they are in fact used as
residences, just as are condominium and cooperative units.
Recreational vehicles, campers, and the like not used as residences
are not dwellings.''
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Accordingly, the Bureau is adopting comment 14(b)(2)-1 to confirm
that the requirements of Sec. 1002.14 in particular do not apply to
transactions secured solely by motor vehicles as defined by 12 U.S.C.
5519(f)(1)--a term that includes boats, motor homes, recreational
vehicles, and other vehicles, but not manufactured homes.\83\ It is not
clear that in amending section 701(e) of ECOA in the Dodd-Frank Act,
Congress intended to provide a basis for requiring creditors to provide
copies of valuations when selling motor vehicles used as residences.
The legislative history for section 701(e) specifically refers to
providing protections for ``mortgage applicants,'' for example.\84\
ECOA section 701(e)(6) also lists examples of ``valuations'' that are
used in the real estate context--broker price opinions, GSE values, and
AVMs (a term which section 1473 of the Dodd-Frank Act defined within
the context of Title XI of the Financial Institutions Reform, Recovery,
and Enforcement Act (FIRREA), a statute focused on ``real estate
related transactions'', 12 U.S.C. 3331). To the extent any motor
vehicle transactions otherwise could be subject to Sec. 1002.14, the
Bureau exercises its exception authority under ECOA section 703(a) to
exclude them. As noted above, because the legislative history does not
clearly suggest an intent to cover motor vehicle transactions, the
exclusion will facilitate compliance by reducing regulatory
uncertainty, and will be consistent with the purposes of section 701(e)
of ECOA as reflected in the legislative history described above.
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\83\ Under 12 U.S.C. 5519(f)(1), the term ``motor vehicle''
means--(A) Any self-propelled vehicle designed for transporting
persons or property on a street, highway, or other road; (B)
recreational boats and marine equipment; (C) motorcycles; (D) motor
homes, recreational vehicle trailers, and slide-in campers, as those
terms are defined in sections 571.3 and 575.103(d) of title 49, Code
of Federal Regulations, or any successor thereto; and (E) other
vehicles that are titled and sold through dealers.''
\84\ H. Conf. Rept. 517, 111th Cong., at 877 (2010) (joint
explanatory statement on Dodd-Frank Act); see also H. Rept. 94,
111th Cong., at 99 (2009) (discussing proposed revision to ECOA in
H.R. 1728 that was later introduced in the Dodd-Frank Act, H.R.
4173).
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The Bureau did not, however, seek comment in the proposal on
whether structures that are ``motor vehicles'' can be covered by or
should be excluded from the scope of ECOA and Regulation B more
broadly, including the information collection requirements of Sec.
1002.13. This clarification in comment 14(b)(2)-1 is therefore limited
to Sec. 1002.14 and is not a pronouncement on whether boats, trailers,
recreational vehicles, campers, or motor vehicles would otherwise fall
within the definition of ``dwelling'' in other provisions of Regulation
B.
14(b)(3) Valuation
ECOA section 701(e) refers to ``valuations,'' which it defines as
``any estimate of the value of a dwelling developed in connection with
a creditor's decision to provide credit, including those values
developed pursuant to a policy of a government sponsored enterprise or
by an automated valuation model, a broker price opinion, or other
methodology or mechanism.'' Accordingly, proposed Sec. 1002.14(b)(3)
would have defined the statutory term ``valuation'' as ``any estimate
of the value of a dwelling developed in connection with a creditor's
decision to provide credit.'' Comment 14(b)(3)-1 was proposed, based on
current comment 14(c)-1, to provide the following list of examples of
valuations, which included the three examples listed in the existing
comment (which were examples of an ``appraisal report''), and added the
three additional specific examples of ``valuations'' provided in ECOA
section 701(e)(6):
A report prepared by an appraiser (whether or not
certified and licensed), including written comments and other documents
submitted to the creditor in support of the appraiser's estimate or
opinion of the property's value.
A document prepared by the creditor's staff that assigns
value to the property, if a third-party appraisal report has not been
used.
An internal review document reflecting that the creditor's
valuation is different from a valuation in a third party's appraisal
report (or different from valuations that are publicly available or
valuations such as manufacturers' invoices for mobile homes).
A value developed pursuant to a methodology or mechanism
required by a government sponsored enterprise, including written
comments and other documents submitted to the creditor in support of
the estimate of the property's value.
A value developed by an automated valuation model,
including written comments and other documents submitted to the
creditor in support of the estimate of the property's value.
A broker price opinion prepared by a real estate broker,
agent, or sales person, including written comments and other documents
submitted to the creditor in support of the estimate of the property's
value.
The proposal noted that the Bureau understands that many documents
prepared in the course of a mortgage transaction may contain
information regarding the value of a dwelling, but are not themselves
an appraisal or other written valuation. The Bureau explained it does
not believe that consumers would benefit from receiving duplicative
pieces of information concerning appraisals and other written
valuations. Additionally, the proposal noted that it is important that
the rule make it simple for creditors to distinguish between documents
that must be provided to applicants and those that are not required to
be provided. Accordingly, the Bureau proposed comment 14(b)(3)-2, based
on current comment 14(c)-2, to clarify that not all documents that
discuss or restate a valuation of an applicant's property constitute
``appraisals or other written valuations'' for purposes Sec.
1002.14(a)(1). For further clarification, the Bureau proposed that the
comment provide the following list of examples of documents that
discuss the valuation of the applicant's property but nonetheless are
not appraisals or other written valuations for purposes of the
requirement to provide a copy to applicants:
Internal documents, that merely restate the estimated
value of the dwelling contained in an appraisal or other written
valuation being provided to the applicant.
Governmental agency statements of appraised value that are
publically available.
[[Page 7238]]
Valuations lists that are publically available (such as
published sales prices or mortgage amounts, tax assessments, and retail
price ranges) and valuations such as manufacturers' invoices for mobile
homes.
Public Comments. As noted above, a few industry commenters argued
that the definition of valuation generally should be limited to
estimates that were relied upon or used by the creditor in making its
credit decision.
An appraisal industry group suggested that the first proposed
example of a valuation in proposed comment 14(b)(3)-1--a report
prepared by an appraiser (whether or not licensed or certified)--should
be modified to avoid suggesting that an unlicensed and uncertified
appraiser is qualified.\85\
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\85\ An appraisal industry group also noted that the sixth
proposed valuation example--broker price opinion--should clarify
that they would not necessarily be permitted to be used in the
credit transaction.
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GSEs and other industry commenters commented on the fourth proposed
valuation example, values developed pursuant to a GSE-required method
or mechanism.\86\ The GSE commenters noted that they allow but do not
require that lenders use the GSE AVMs. A GSE commenter also noted that
its AVM report could be provided to the borrower to satisfy the
proposed rule. While some commenters expressed concern that GSE
valuations were proprietary and creditors were forbidden from
disclosing them, a large lending institution noted that the GSEs have
reviewed and approved standard letters for the disclosure of GSE-
developed valuations to consumers.
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\86\ In addition, a GSE commenter indicated that one of its
tools does not communicate a ``value'' to the creditor.
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Several lending and appraisal industry groups commented on the
fifth proposed valuation example--valuations developed by AVMs.
Commenters noted that AVM reports can be highly technical, including
special coding and information that would be confusing to consumers.
Some of these commenters suggested that AVMs therefore be excluded from
the definition of ``valuation.'' Other commenters requested additional
clarification of how the term AVM is defined, such as whether it would
include property inspection waivers (PIW), property inspection
alternatives (PIA), Desktop Underwriter (DU)[supreg], and Loan
Prospector (LP)[supreg] reports. A few commenters suggested that the
property inspection reports (PIPs) that may accompany some AVMs should
be excluded from the definition of ``valuation.'' On the other hand, an
appraisal industry commenter suggested including PIPs accompanying
AVMs.
More broadly, a significant number of industry commenters strongly
objected to the inclusion, in the first, fourth, fifth, and sixth
proposed valuation examples, of ``written comments and other documents
submitted to the creditor in support of'' the estimate. These
commenters generally believed this language exceeded the statutory
definition of the term ``valuation'' in section 701(e)(6) of ECOA, and
argued that the language was vague and would expose them to substantial
uncertainty as to what they would need to provide to applicants in a
given transaction. Some commenters believed this wording could trigger
time consuming and costly internal discovery by creditors and valuation
preparers to search within and outside the credit institution for all
written correspondence and other documents pertaining to the valuation,
including reviews by AMCs, internal reviews, and evaluations of
appraisal reports, some of which may be privileged or proprietary, and
other materials. Some commenters also noted this language could result
in burdensome disclosures to consumers who would be confused by
voluminous information including background materials.
Industry commenters requested clarifications of and additions to
the list of examples of documents that are not valuations. Manufactured
housing industry commenters strongly supported the third proposed
example excluding manufacturers' invoices for mobile homes, but
suggested that the term ``mobile home'' is outdated and the term
``manufactured home'' should be used instead, consistent with industry
usage and regulations of the Department of Housing and Urban
Development (HUD). These comments also requested that the documents
reflecting the ``maximum loan amount'' for manufactured homes be
excluded, because they may reveal manufacturer pricing information.
Other commenters suggested that the list of examples of documents
that are not valuations include the following: quality checks, fraud
checks, internal reviews of valuations such as appraisal reviews,
technical background data used by AVMs, and other ancillary documents
developed for use by the appraiser or underwriter. Some commenters were
concerned that some documents meeting the definition of valuation would
be proprietary or reflect proprietary information. One industry
commenter also was unsure whether a document integrating multiple
publicly-available valuations would itself be a valuation. Finally, as
discussed above, several industry commenters requested clarification
that preliminary, draft, or other non-final documents be excluded.
Discussion. The Bureau is finalizing the definition of valuation in
Sec. 1002.14(b)(3) as proposed, with one technical change. In the
proposal, the phrases ``developed in connection with an application for
credit'' in the description of the requirement in Sec. 1002.14(a)(1)
regarding the materials that must be provided, and the phrase
``developed in connection with a creditor's decision to provide
credit'' in the definition of valuation in Sec. 1002.14(b)(3), were
taken directly from the text of ECOA sections 701(e)(1) and (6)
respectively. The Bureau does not believe that Congress intended these
phrases to have different meanings. As a practical matter, many
appraisals or other written valuations developed in connection with an
application for credit will be a valuation developed in connection with
a creditor's decision to provide credit and vice versa. However, using
different terms in the rule could suggest there may be circumstances in
which a valuation falls into one category, but not another. To
facilitate compliance by eliminating uncertainty and to ensure the
final rule gives full effect to section 701(e)(1), which is controlling
as to the materials that must be provided to applicants, the Bureau
interprets section 701(e)(6) consistently with 701(e)(1), and to the
extent necessary is exercising its authority under ECOA section 703(a),
to use the phrase ``developed in connection with an application for
credit'' in the definition of ``valuation'' in Sec. 1002.14(b)(3).
The final rule also makes a number of clarifying revisions to the
commentary. As noted earlier, comment 14(a)(1)-7 is being added to the
final rule to clarify that drafts or other non-final materials need not
be provided if they have been superseded by later versions. In
addition, as discussed below, the final rule incorporates several
revisions to proposed comment 14(b)(3)-1 and proposed comment 14(b)(3)-
2 (which is renumbered as comment 14(b)(3)-3), and adds a new comment
14(b)(3)-2. These revisions address certain additional concerns of
commenters regarding the materials that must be provided to
applicants.\87\
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\87\ Comments 14(b)(3)-1 and 2 in the final rule provide a list
of examples of documents that are valuations subject to the copy
requirement, and comment 14(b)(3)-3 provides a list of documents
that are not valuations subject to the copy requirement. As these
comments note, these lists are not exclusive. The Bureau may issue
guidance from time to time to identify other examples for either
list.
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[[Page 7239]]
The list of examples of valuations in comment 14(b)(3)-1 has been
revised to eliminate the phrase ``written comments and other documents
submitted to the creditor in support of'' the estimate. The Bureau
believes that the list of materials that must be provided will be
easier for creditors to understand if it refers simply to the reports
themselves. The Bureau notes that this phrase (``written comments and
other documents'') is not explicitly provided for in the definition of
``valuation'' in ECOA section 701(e)(6), and a number of commenters
suggested that the phrase may be susceptible to uncertainty that could
lead to overburdening creditors and consumers with the disclosure of
information that is background in nature. The Bureau further notes
that, in the absence of a definition of ``appraisal'' within ECOA, a
1993 amendment to the definition of an appraisal report in the
commentary to Regulation B (58 FR 65658, 65659) had included this
phrase ``written comments and other documents.'' In light of the
inclusion in section 701(e) of ECOA of a definition of ``valuation''
that is broad enough to include appraisal reports, and the comments
received, the Bureau does not believe a general reference to ancillary
and supplementary information is useful to include in the list.
Instead, the Bureau has added comment 14(b)(3)-2 in the final rule to
clarify that the term ``valuation'' includes any attachments or
exhibits that are part of an integrated valuation report. The Bureau
believes that this comment is clearer, more specific, and addresses the
commenters' concerns over uncertainty in the meaning of the phrase
``written comments and other documents.'' Under this comment in the
final rule, for example, if a creditor receives an AVM report that has
a list of comparable properties included as an exhibit or an
attachment, then a copy of this exhibit or attachment would need to be
provided. This comment therefore should ensure that consumers receive a
copy of the complete, integrated report, without being distracted or
burdened by additional ancillary information that falls outside the
four corners of the report. Comment 14(b)(3)-1 also clarifies, however,
that the list of examples is not exhaustive. Ultimately, the definition
of ``valuation'' in Sec. 1002.14(b)(3) governs.
For clarity and consistency across the examples in the final rule,
the Bureau has revised the second proposed example to make clear that
an internal creditor valuation must be disclosed, regardless of whether
a third-party appraisal report is prepared. As a result of this change,
the third proposed example--internal review documents reflecting the
creditor valuation--was removed as largely duplicative. This deletion
also addresses industry commenters' concerns that internal review
documents, such as quality checks, fraud checks, automated underwriting
determinations that do not estimate the value of the dwelling (such as
certain GSE tools that simply suggest another valuation is excessive),
or expressions of criticism of a valuation, should not be treated as
themselves being valuations.
In response to GSE comments that they do not ``require'' use of
their valuation methods, the Bureau has revised the example relating to
GSE valuations to delete the word ``required'', which also is not used
in the statute. The statute simply refers to values developed
``pursuant to a policy of a government sponsored enterprise.'' To
provide additional guidance, this example in the comment now refers to
GSE-approved forms for disclosing to consumers values developed
pursuant to proprietary GSE mechanisms and methodologies.\88\ This
revision also should help to clarify the type of GSE automated tools
whose output would be considered valuations.
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\88\ This revision also is intended to focus this example on GSE
valuation methods, and to distinguish this example from appraisals
and other written valuations prepared by other third parties.
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The Bureau is finalizing inclusion of valuations developed by AVMs
in the list of examples because they are included in the statutory list
of valuation types in section 701(e)(6). The Bureau does not believe
that the potential for AVM valuations to be coded or difficult for some
consumers to understand is a basis for excluding them from the
disclosure requirement. Consistent with the purpose of ECOA section
701(e) and ECOA more broadly, if an AVM develops a valuation in
connection with the application that is provided to the creditor, then
the creditor has a duty under the final rule to disclose a copy to the
applicant. While some AVMs may use proprietary methods, the final rule
does not require the disclosure of these methods per se; rather, the
final rule requires disclosure of the written valuations developed by
the AVMs which are provided to the creditors.\89\ That is, the revised
list of examples focuses on the report generated by the AVM to estimate
the property's value, as opposed to the AVM methodology itself. Because
AVM providers have control over such output, it should be within their
control to ensure such output does not reveal proprietary information.
Similarly, to the extent AVM reports are complex and coded, and
creditors wish to voluntarily educate consumers, the creditors may
provide additional explanatory information to the applicant at the time
the AVM report is provided or request that the AVM generate such
information. The rule does not require that creditors do so, however.
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\89\ Similarly, one commenter expressed concern that the
proposed rule could require disclosure of documents in the
possession of third parties other than the creditor. Yet the final
rule does not apply to persons who are not creditors within the
meaning of Regulation B, Sec. 1002.2(l), and thus does not impose
any obligation on a creditor to compel a third party to provide a
copy of such documentation to the applicant.
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The Bureau also does not believe it would be appropriate to define
the term ``automated valuation model'' in comment 14(b)(3)-1. When in
receipt of a particular computer-generated report that may provide an
estimate of the value of the dwelling, the creditor ultimately must
make its own judgment of whether that report meets the definition of
valuation in Sec. 1002.14(b)(3). The final rule cannot foresee all the
types of computer-generated reports that might include valuations.
Moreover, comment 14(b)(3)-1 is merely intended as a list of examples
of valuations. In addition, section 1473 of the Dodd-Frank Act amends a
different statute--FIRREA--to define the term ``automated valuation
model'' for purposes of that statute as ``any computerized model'' used
to determine the value of a dwelling that secures a mortgage. That
definition would be implemented by a separate inter-agency rulemaking.
Further, the Bureau does not believe that changes to the text of
the regulation or commentary are needed to address the appraisal
industry comments on the references to appraisers ``whether or not
licensed or certified'' and to broker price opinions in the list of
examples of valuations. The final rule does not regulate, or purport to
regulate, the use of valuations such as broker price opinions by
creditors. By referring to an example of a valuation, the final rule
also does not suggest such a valuation would be permitted in any
specific transaction, or that the person preparing such a valuation
would be qualified.
The list of examples that do not qualify as valuations, finalized
in comment 14(b)(3)-3, is revised to refer to a manufacturer's invoice
for a ``manufactured home'' instead of a ``mobile home,'' consistent
with the comment indicating that the term
[[Page 7240]]
``manufactured home'' is current industry usage.\90\ Removing the
reference to ``mobile home'' in this example also aligns with the
exclusion of motor vehicles from the scope of the final rule.
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\90\ The phrase ``mobile or other manufactured home'' is
retained in the definition of ``dwelling'' in Sec. 1002.14(b)(2),
however, to ensure internal consistency with the other definition of
``dwelling'' in Regulation B at Sec. 1002.13(a)(2).
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The Bureau has considered the observations from manufactured
housing industry commenters that data from the manufacturers' invoice
for manufactured homes is sometimes included as a factor in the
lender's calculation of the loan amount or maximum loan amount. For
example, two industry commenters pointed to HUD Title I insurance
underwriting criteria, under which the maximum Title I insurable loan
amount for manufactured housing loans for new homes is based, in part,
upon the manufacturer invoice amount. See HUD, TI-481, App. 2 at 3-4
(Apr. 2009). The comments did not provide information that would
clearly establish a basis for categorically determining that loan
amounts, maximum loan amounts, or loan-to-value calculations are not
valuations under the final rule, however. These creditor calculations,
if they would otherwise be valuations, would not lose such status
merely by taking into account manufacturer invoice information. Indeed,
the comments did not provide a rationale for why an applicant should be
barred from viewing a valuation that contains manufacturer invoice
data, if the creditor has received information from that invoice and
used it in a valuation.
The list of examples that would not be covered by the rule also is
revised to clarify that property inspection reports are not valuations,
if they do not provide an estimate or opinion of the property's value
and are not used in the development of such an estimate or opinion.
This example is added to address several comments seeking clarification
about a variety of property reports that may be provided in the
underwriting process.
Finally, the comment clarifies that the list is not exhaustive.
Again, the definition of ``valuation'' in Sec. 1002.14(b)(3) governs.
This serves to emphasize that the commentary cannot exhaustively
catalog all of the types of documents that might or might not fit the
definition of ``valuation.'' The final rule seeks to address those
comments the Bureau believes point to the most common types of
documents that may raise the most significant questions under the final
rule.
VI. Effective Date
This final rule is effective on January 18, 2014. The Bureau
requested comment on the effective date of the final rule, particularly
given the likelihood that the TILA-RESPA Loan Estimate containing the
ECOA appraisal disclosure would not be finalized on the same timeline
as this final rule. These comments and the Bureau's consideration of
them are described below. As discussed above in part III, the Bureau
believes that this effective date is consistent with the timeframes
established in section 1400(c) of the Dodd-Frank Act and, on balance,
will facilitate the implementation of the rules' overlapping
provisions, while also affording creditors sufficient time to implement
the more complex or resource-intensive new requirements.
A. Public Comments
Many industry commenters suggested that the effective date of the
rule, or at least the disclosure requirement, should be delayed at
least until the integrated TILA-RESPA Loan Estimate is finalized by the
Bureau and the associated TILA-RESPA rule takes effect. One large
lending institution suggested that the final ECOA rule take effect 12
months after the effective date for other rules under the Dodd-Frank
Act that had mandatory statutory deadlines. Two industry group
commenters suggested that the Bureau seek ways to avoid staggered
effective dates of these rules, which in their view would be wasteful
because it would require that lenders update their systems twice--once
for the ECOA rule, and then again when the TILA-RESPA Loan Estimate
takes effect.
Other commenters supported the use of a specific time period to set
the rule's effective date, whether late 2013, 12 months, 18-24 months,
or two years. A GSE also suggested that the rule take effect after
2013, to avoid interfering with home modification and refinance
programs scheduled to end by late 2013 so that resources currently used
to support the GSE-administered refinance and modification programs do
not have to be diverted to systems and process changes that would in
any event be short-lived.\91\
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\91\ The GSE also requested further delayed implementation, in
case these programs are extended very close to or after their
expiration date at the end of 2013.
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B. Discussion
The final rule will be effective on January 18, 2014. Thus, the
final rule applies to loans to be secured by first liens on dwellings
for which an application is received by the creditor on or after
January 18, 2014.
The Bureau believes this transition period will provide sufficient
time for creditors to make changes to their appraisal disclosures and
their practices for providing copies of appraisals and other written
valuations. The Bureau does not believe a later effective date, such as
18 or 24 months after issuance of this final rule, is necessary.
Appraisal disclosures are already required by Regulation B and provided
by creditors, the final rule allows for creditors to continue to make
these disclosures electronically (even without compliance with the E-
Sign Act if they are provided as an accompaniment to application
documents), and creditors should not need to undertake complex dynamic
systems programming to update this disclosure. In addition, copies of
appraisals already are provided to applicants as a routine practice in
most transactions covered by the final rule. While providing copies of
valuations other than appraisals may be new in some transactions, the
Bureau believes 12 months is sufficient time for creditors to prepare
to include these with other materials (such as copies of appraisals)
that already are provided to applicants as a routine practice in first
lien transactions.\92\ In addition, as noted in the proposal, the
Bureau believes it is important that consumers begin to receive
disclosures with information on their new rights under ECOA with
respect to appraisals.
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\92\ Even if GSE refinance or modification programs are extended
very shortly at or after the end of 2013, and the GSEs elected not
to prepare to implement this final rule until that time, this
effective date would still leave a few weeks to prepare to provide a
short appraisals disclosure to consumers who file new applications
and to provide copies of appraisals and other valuations to
consumers.
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Further, if the effective date of the ECOA rule were delayed more
than 12 months, then it would take effect after the 2013 Interagency
Appraisals Final Rule under TILA section 129H, which must take effect
within 12 months after its issuance pursuant to section 1400(c)(1)(B)
of the Dodd-Frank Act. Because these rules under ECOA section 701(e)
and TILA section 129H cover a similar subject matter (appraisals), with
harmonized disclosure requirements, relating to an overlapping set of
transactions (loans secured by first liens on dwellings), the Bureau
believes it is important for these rules to take effect at the same
time. The Bureau believes that staggered effective dates for the ECOA
and TILA rules could increase complexity and burden rather than ease
compliance.
[[Page 7241]]
As noted above, commenters raised concerns over the potential cost
or burden of phased compliance, first with an ECOA disclosure
requirement, and second with a rule on integrated TILA-RESPA
disclosures. The Bureau does not believe, however, that it is
appropriate to delay the consumer protections mandated by section 1474
of the Dodd-Frank Act for the 2012 TILA-RESPA Proposal, which would not
even apply to some transactions covered by the ECOA Appraisals Rule.
See 77 FR 51116 (Aug. 23, 2012). The disclosure required by the final
rule will provide consumers with important information about their
rights under ECOA. In addition, for transactions covered by the ECOA
Appraisals Rule that also would be covered by the Bureau's 2012 TILA-
RESPA Proposal, the Bureau does not believe it would significantly
increase burden to set an earlier effective date for the ECOA
Appraisals Rule. Under the 2012 TILA-RESPA Proposal, creditors in these
transactions could simply adopt a TILA-RESPA Loan Estimate that
includes the appraisals disclosure and therefore satisfies the ECOA
Appraisals Rule.
VII. Dodd-Frank Act Section 1022(b)(2) Analysis
In developing the final rule, the Bureau has considered potential
benefits, costs, and impacts.\93\ The proposal set forth a preliminary
analysis of these effects, and the Bureau requested comments and
received some comments on this topic. In addition, the Bureau has
consulted, or offered to consult with, the prudential regulators, FHFA,
HUD, and the Federal Trade Commission (FTC), including regarding
consistency with any prudential, market, or systemic objectives
administered by such agencies.
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\93\ Specifically, section 1022(b)(2)(A) calls for the Bureau to
consider the potential benefits and costs of a regulation to
consumers and covered persons, including the potential reduction of
access by consumers to consumer financial products or services; the
impact on depository institutions and credit unions with $10 billion
or less in total assets as described in section 1026 of the Act; and
the impact on consumers in rural areas.
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The final rule amends Regulation B, which implements ECOA, and the
official interpretations to the regulation, which interpret and clarify
the requirements of Regulation B. The revisions to Regulation B
implement an ECOA amendment concerning appraisals and other valuations
that was enacted as part of the Dodd-Frank Act. In general, the
revisions to Regulation B require creditors to provide a free copy of
each appraisal and other written valuation developed in connection with
an application for a loan to be secured by a first lien on a dwelling.
The final rule also requires creditors to notify applicants in writing
of the right to receive a copy of each written appraisal at no
additional cost.
The amendment to ECOA section 701(e) is self-effectuating, and the
Dodd-Frank Act does not require the Bureau to adopt a regulation to
implement these amendments. Thus, many costs and benefits of the final
rule considered below would arise largely or entirely from the statute,
not from the final rule. The final rule would provide substantial
benefits compared to allowing the amendment to ECOA section 701(e) to
take effect alone. These benefits arise because the final rule
clarifies parts of the statute that call for interpretation, such as
the definition of ``valuation'' in section 701(e)(6), the provision
governing reimbursement of the creditor for certain costs in section
701(e)(3), and the timing requirement for providing copies of
appraisals and other written valuations in section 701(e)(1). Greater
clarity on these issues should reduce the compliance burdens on covered
persons by reducing costs for attorneys and compliance officers as well
as potential costs of over-compliance and unnecessary litigation. In
this light, the costs that the regulation would impose beyond those
imposed by the statute itself are likely to be at most minimal.
Section 1022 permits the Bureau to consider the benefits, costs,
and impacts of the final regulation solely compared to the state of the
world in which the statute takes effect without an implementing
regulation. To provide the public better information about the benefits
and costs of the statute, however, the Bureau has chosen to consider
the benefits, costs, and impacts of the major provisions of the final
rule against a pre-statutory baseline (i.e., the benefits, costs, and
impacts of the relevant provisions of the Dodd-Frank Act and the
regulation combined).\94\
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\94\ The Bureau has discretion in any rulemaking to choose an
appropriate scope of analysis with respect to potential benefits and
costs and an appropriate baseline. The Bureau, as a matter of
discretion, has chosen to describe a broader range of potential
effects to inform the rulemaking more fully.
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Section 1022 of the Dodd-Frank Act requires that the Bureau, in
adopting the rule, consider potential benefits and costs to consumers
and covered persons resulting from the rule, including the potential
reduction of access by consumers to consumer financial products or
services resulting from the rule, as noted above; it also requires the
Bureau to consider the impact of its rules on covered persons described
in section 1026 and the impact on consumers in rural areas. These
potential benefits and costs, and these impacts, however, are not
generally susceptible to particularized or definitive calculation in
connection with this rule. The incidence and scope of such potential
benefits and costs, and such impacts, will be influenced very
substantially by economic cycles, market developments, and business and
consumer choices that are substantially independent from adoption of
the rule. No commenter has advanced data or methodology that it claims
would enable precise calculation of these benefits, costs, or impacts.
In considering the relevant potential benefits, costs, and impacts,
the Bureau has utilized the available data discussed in this preamble,
where the Bureau has found it informative, and applied its knowledge
and expertise concerning consumer financial markets, potential business
and consumer choices, and economic analyses that it regards as most
reliable and helpful, to consider the relevant potential benefits and
costs, and relevant impacts. The data relied upon by the Bureau also
includes the public comment record established by the proposed rule.
The Bureau notes, however, that for some aspects of this analysis, in
particular with respect to the benefits of the rule, there are limited
data available with which to quantify the potential impacts of the
final rule. In light of these data limitations, the analysis below
generally provides a qualitative discussion of the benefits of the
final rule. General economic principles, together with the limited data
that are available, provide insight into these benefits. Where
possible, the Bureau has made quantitative estimates based on these
principles and the data that are available; these estimates are
primarily with regard to the costs of the rule. For the reasons stated
in this preamble, the Bureau considers that the rule as adopted
faithfully implements the purposes and objectives of Congress in the
statute. Based on each and all of these considerations, the Bureau has
concluded that the rule is appropriate as an implementation of the
Dodd-Frank Act.
The primary source of data used in this analysis is data collected
under the Home Mortgage Disclosure Act (HMDA).\95\ Because the latest
complete
[[Page 7242]]
data set available is for loans made in calendar year 2011, the
empirical analysis generally uses the 2011 market as the baseline. Data
from fourth quarter 2011 Reports of Condition and Income filed by
federally-regulated banks and thrifts (Call Reports),\96\ fourth
quarter 2011 credit union call reports from the NCUA, and de-identified
data from the Nationwide Mortgage Licensing System (NMLS) Mortgage Call
Reports (MCR) \97\ for the fourth quarter of 2011 were also used to
identify financial institutions and their characteristics. The unit of
observation in this analysis is the entity: If there are multiple
subsidiaries of a parent company, then their originations are summed
and revenues are total revenues for all subsidiaries.
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\95\ The Home Mortgage Disclosure Act (HMDA), enacted by
Congress in 1975, as implemented by the Bureau's Regulation C
requires lending institutions annually to report public loan-level
data regarding mortgage originations. For more information, see
http://www.ffiec.gov/hmda. It should be noted that not all mortgage
lenders report HMDA data. The HMDA data capture roughly 90-95
percent of lending by the Federal Housing Administration and 75-85
percent of other first-lien home loans, in both cases including
first liens on manufactured homes (transactions which also are
subject to the final rule). U.S. Dep't of Hous. & Urban Dev., Office
of Policy Development and Research, ``A Look at the FHA's Evolving
Market Shares by Race and Ethnicity,'' U.S. Housing Market
Conditions (May 2011), at 6-12. Depository institutions (including
credit unions) with assets less than $40 million (in 2011), for
example, and those with branches exclusively in non-metropolitan
areas and those that make no home purchase loan or loan refinancing
a home purchase loan secured by a first lien on a dwelling are not
required to report under HMDA. Reporting requirements for non-
depository institutions depend on several factors, including whether
the company made fewer than 100 home purchase loans or refinancings
of home purchase loans, the dollar volume of mortgage lending as
share of total lending, and whether the institution had at least
five applications, originations, or purchased loans from
metropolitan areas. Robert B. Avery et al., The Mortgage Market in
2011: Highlights from the Data Reported under the Home Mortgage
Disclosure Act, 98 Fed. Res. Bull. (Fed. Res. Sys.), Dec. 2012, n.6.
\96\ Every national bank, State member bank, and insured
nonmember bank is required by its primary Federal regulator to file
consolidated Reports of Condition and Income, also known as Call
Report data, for each quarter as of the close of business on the
last day of each calendar quarter (the report date). The specific
reporting requirements depend upon the size of the bank and whether
it has any foreign offices. For more information, see http://www2.fdic.gov/call_tfr_rpts/.
\97\ The NMLS is a national registry of non-depository financial
institutions including mortgage loan originators. Portions of the
registration information are public. The Mortgage Call Report data
are reported at the institution level and include information on the
number and dollar amount of loans originated, the number and dollar
amount of loans brokered.
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In addition, the Bureau notes that Regulation B generally applies
to open-end credit and business or commercial credit; accordingly, the
final rule also applies to these types of credit to the extent they are
secured by a first lien on a dwelling. Calculations from the Experian
Oliver-Wyman analysis of credit bureau data in the Q3 2012 Market
Intelligence Reports \98\ were used to estimate the number of home
equity lines of credit (HELOCs) originated in 2011, and the Survey of
Consumer Finances (SCF) was used to calculate the proportion of HELOCs
that are first liens.\99\ Reverse mortgages are believed to be
predominantly first liens; counts of reverse mortgages are calculated
from home equity conversion mortgages (HECM) in the HUD HECM
Endorsement Summary Report.\100\
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\98\ Q3 2012 Experian-Oliver Wyman Market Intelligence Report.
More information about the Experian-Oliver Wyman quarterly Market
Intelligence Report is available at http://www.marketintelligencereports.com.
\99\ The Bureau calculates that 26 percent of HELOCs are first
liens from the 2010 SCF.
\100\ Monthly HUD HECM Endorsement Summary reports are available
at http://www.hud.gov/pub/chums/f17fvc/hecm.cfm. The non-HECM market
for reverse mortgages has all but disappeared in recent years, so
the Bureau believes the HECM count provides a reasonable estimate of
reverse mortgage volume.
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Several comments from large and small lending institutions
indicated it is standard practice for lenders in first lien residential
real estate transactions to provide consumers with copies of appraisals
performed. One lending institution stated its belief this is not a
widespread industry practice, however. The comments did not provide
data on the extent to which other valuations are conducted in first
lien transactions, and also did not provide data on the extent to which
creditors provide applicants with copies of valuations other than
appraisal reports under current lending practices.\101\ As discussed
below, one commenter criticized the proposal's estimate of $1.80 as the
average increase in per-loan cost due to the rule.
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\101\ One commenter stated that GSEs charge $50 to generate a
report from their proprietary valuation tools. It was not clear from
this comment that GSEs would impose additional charges for creditors
to disclose the valuation results to consumers. GSEs did not mention
any such charges in their comments.
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A large lending institution reported that in one month in 2012,
more than 2,000 appraisals it ordered were revised to correct
misspellings or clerical errors. This information was provided to
illustrate challenges creditors could face if prohibited from making
minor, non-substantive corrections to valuations and appraisals within
three days of closing, after the time frame in which copies should have
been provided to the applicant absent a waiver.
As discussed and addressed throughout this preamble, other
commenters expressed general concerns about the burden of various
aspects of the proposed rule. The Bureau has taken these comments into
account in developing its final rule and in its analysis below.
A. Potential Benefits and Costs to Covered Persons and Consumers
Consumers. Because the final regulation requires creditors to
deliver copies of written valuations, including appraisals, to
consumers and creditors are explicitly prohibited from charging
consumers for these copies, consumers do not bear any direct costs from
the rule. As noted above and discussed further below, outreach
indicated and GSE standards corroborated that it is standard practice
for industry to provide copies of appraisals to applicants in first
lien transactions that are consummated. Consumers therefore currently
benefit from this industry practice already. The final rule provides a
marginal increase in the number of transactions in which consumers will
receive appraisals, and also ensures they will receive copies of other
types of valuations (including in transactions where no appraisals are
performed).
Providing a free copy of any valuation consumers do not already
receive provides consumers with details about the valuation and, in
some cases, additional information on the condition of the property.
Although consumers may receive some of this information from a home
inspection or from an appraisal they would otherwise receive already
under standard industry practice, each valuation provides the consumer
with another independent evaluation. To the extent it would not already
be provided to them, this detailed information may be particularly
valuable to the consumer in a purchase transaction when the estimated
value is less than their offer.\102\ In addition, consumers in
transactions where appraisals are not conducted may not currently
receive any information about the valuations developed in connection
with their application. The final rule would therefore provide them
with new information that may help them make decisions about their
mortgage borrowing.
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\102\ The value of the information may vary depending on when in
the home purchase and loan origination process the consumer receives
the information.
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The final rule changes the consumer's right under Regulation B to
obtain a copy from one where the consumer must request the copy to one
where the copy is given as the default. Nonetheless, as noted above, it
is standard industry practice to provide copies of appraisals in first
lien transactions that are consummated. Thus the rule may result in
more consumers obtaining copies of written appraisals in transactions
that are not consummated because, despite low
[[Page 7243]]
transaction costs, there is evidence that default rules can have
significant effects on outcomes in various settings.\103\ Consumers who
previously may have requested copies of appraisals in the absence of
the amendment save the time and effort required to make requests.
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\103\ See, e.g., John Beshears et al., The Importance of Default
Options for Retirement Savings Outcomes: Evidence from the United
States, Social Security Policy in a Changing Environment 169
(Jeffrey Brown et al. eds., Univ. of Chi. Press); Eric Johnson &
Daniel Goldstein. Do Defaults Save Lives?, 302 Science 1338 (2003).
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For those applicants who would not already receive a copy of an
appraisal or other written valuation under existing practice, having a
copy of any professional appraisal or other written valuation that is
conducted as a point of reference may help them to gain a better
understanding of the home's value and improve overall market
efficiency, relative to the case where the applicant has less
information about the value of the property.\104\ Individual consumers
engage in real estate transactions infrequently, and because the
expertise to value real estate is costly consumers often rely on real
estate agents and list prices to make price determinations. These
methods may not lead a consumer to an accurate valuation of a property.
For example, there is evidence that real estate agents sell their own
homes for significantly more than other similar homes, which suggests
that other sellers may not accurately price the homes that they are
selling.\105\ Other research, conducted in a laboratory setting,
provides evidence that individuals are sensitive to anchor values when
estimating home prices.\106\ In such cases, an independent signal of
the value of the home should benefit the consumer.
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\104\ For example, in Quan and Quigley's theoretical model where
buyers and seller have incomplete information, trades are
decentralized, and prices are the result of pairwise bargaining,
``[t]he role of the appraiser is to provide information so that the
variance of the price distribution is reduced.'' Daniel Quan & John
Quigley, Price Formation and the Appraisal Function in Real Estate
Markets, 4 J. Real Est. Fin. and Econ. (1991).
\105\ Steven Levitt & Chad Syverson, Market Distortions When
Agents are Better Informed: The Value of Information In Real Estate
Transactions, 90 Rev. Econ. & Stat. 599 (2008).
\106\ Peter Scott & Colin Lizieri, Consumer House Price
Judgments: New Evidence of Anchoring and Arbitrary Coherence, 29 J.
Prop. Rsch. 49 (2012).
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Although the Bureau has not received comments from consumers on the
proposed rule indicating any concerns, the Bureau believes that some
consumers may not be interested in receiving copies of appraisals or
other written valuations. While copies of appraisals are routinely
provided in first lien transactions that are consummated, it is unclear
that copies of other types of valuations are provided. For these
consumers, the additional information received in copies of valuations
may be unwelcome, or potentially distract their attention from other
disclosures that are received shortly before consummation or account
opening. The final rule seeks to reduce the volume of unnecessary
information, by clarifying the list of examples of ``valuations'' and
that multiple versions of the same valuation need not be provided so
long as the timing requirements of the regulation are satisfied.
In addition, the costs of the final rule may be indirectly passed
on to consumers through very small increases in the cost of credit,
largely associated with the costs of mailing copies to consumers who
have not consented to receive them electronically under the E-Sign Act.
Creditors also could charge for valuations--though this is not a
consequence of the rule because creditors could charge for valuations
now. These costs are discussed further below.
Covered Persons. In the context of the final rule, ``covered
persons'' includes depository institutions such as banks, credit
unions, and thrifts, as well as non-depository creditors such as IMBs.
The Bureau estimates that, of the roughly 14,700 depository
institutions, about 11,400 originate mortgage loans. Another 2,800 non-
depository institutions engage in real estate credit, based on data
from the NMLS MCR. The final rule codifies the common practice of
sending copies of all written appraisals to consumers who obtain loans
secured by a first lien on a dwelling. In outreach to creditors prior
to the proposal, all respondents reported providing copies of written
appraisals to borrowers as a matter of course if a first lien loan is
originated.\107\ This practice also aligns with pre-existing
requirements of certain GSEs to provide copies of appraisals promptly
and no later than three business days before closing, as discussed in
the section-by-section analysis above. These GSEs participate in a
substantial portion of first lien transactions each year. In addition,
the final rule requires that copies of other written valuations be
provided to the applicant, and that copies of written appraisals be
sent in the event that an application is received but does not result
in a loan being originated. The final rule prohibits creditors from
charging consumers for these copies. The final rule does, however,
eliminate the cost of responding to individual requests for copies of
an appraisal on an ad hoc basis, which is currently required under
Regulation B, Sec. 1002.14. That is, the final rule eliminates any
need to respond to ad hoc requests by querying a loan file, retrieving
the appraisal, and then going through the process of sending copies of
the appraisal to the applicant.
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\107\ Respondents include a large bank, a trade group of smaller
depository institutions, and an IMB.
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Under the final rule, covered persons would incur the paperwork
costs, for a set of applications and originations, of replicating and
sending (either electronically or physically) copies of the appraisals
and other written valuations.\108\ A recent government study found that
appraisals are performed in about 90 percent of first lien
transactions, and that non-appraisal valuations are obtained in first
lien transactions in which an appraisal is not performed.\109\ The
Bureau also believes that a second appraisal is conducted, and is sent,
for any property with a loan size equal to or above $600,000. Further,
appraisals are considered to be of inadequate quality 10 percent of the
time, necessitating a second appraisal. Based on outreach to industry
prior to the proposal, the Bureau assumes that creditors currently send
to consumers copies of 100 percent of those written appraisals that are
performed for an application for a transaction secured by
[[Page 7244]]
a first-lien on a dwelling that results in an origination. Because
available data and outreach did not indicate otherwise, the Bureau
conservatively assumes that copies of appraisals and other written
valuations developed for applications that do not result in a
transaction currently are not sent to consumers. Similarly, the Bureau
conservatively assumes that copies of non-appraisal valuations
currently are not sent to consumers. The burden calculations that
follow assume that a non-appraisal written valuation is conducted for
every application, which likely overstates the costs associated with
the rule.
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\108\ Based on its pre-proposal outreach and research, the
Bureau assumes that the average appraisal is 20 pages long and that
printing a copy of an appraisal costs $0.10 per page. In the
proposal, the Bureau assumed that 84 percent of appraisals are sent
via email and that these are already being sent in a manner that
complies with the E-Sign Act, 15.75 percent of appraisals are sent
via the United States Postal Service, and 0.25 percent of appraisals
are sent via courier. The final rule adopts this assumption,
recognizing that some creditors, as reflected in comments received
on the proposal, may elect not to provide copies electronically in
compliance with the E-Sign Act (and therefore these copies would be
provided as part of the 16 percent of copies that are sent via the
postal service or courier). Because the Bureau does not have data,
for purposes of this analysis, the Bureau conservatively assumes
that the average non-appraisal valuation is as long as an appraisal
(20 pages), that printing costs for valuations other than appraisals
are the same as for appraisals, that currently, no written
valuations other than appraisals are sent to applicants, and that
the cost of sending copies of these valuations would be the same as
an appraisal. Mailing an appraisal is assumed to cost $2.12 based on
the cost of first class mail for a 3.7oz letter (20 pages of 20 lb
paper weighs 3.2oz with a 0.5oz allowance for an envelope) and
requires 5 minutes of loan officer time (a conservative assumption,
because it is based on loan officer time rather than the time of a
loan processor); sending an appraisal via a courier is assumed to
cost $17 ($15 for courier fees and $2 for replication costs) in
material costs and 5 minutes of loan officer time; and, sending a
copy via email is assumed to cost $0.05 of material cost and 1
minute of loan officer time.
\109\ U.S. Gov't Accountability Office, GAO-12-840T, Residential
Appraisals, at 6-7 (June 28, 2012).
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As a result, the new paperwork costs under the final rule arise
from providing copies of any written appraisals for the proportion of
applications that do not result in originations (a proportion the
Bureau estimates from HMDA data on applications and originations), and
from providing copies of any non-appraisal valuations developed in
connection with an application whether or not originated.
The additional cost of providing a copy of any non-appraisal
valuation in most cases will be limited to the cost of generating a
copy of the non-appraisal valuation to send to the applicant. When the
copy is generated in paper form, the Bureau estimates the cost of
generating the copy based upon an assumption that the non-appraisal
valuation is at most as long as the written appraisal. With respect to
transmission costs, in the 90 percent of first lien transactions where
an appraisal is conducted and a copy already provided, the copy of the
non-appraisal valuation often can be included with the appraisal
already being sent, which would only increase transmission costs in the
small minority of cases where the copy is not sent electronically
(because of the postal delivery or courier having a marginally greater
weight). If the copy of the non-appraisal valuation needs to be
provided at a different time than the copy of a written appraisal,
however, the creditor would need to make a second transmission to the
applicant, which for a majority of transactions using electronic
communications, would involve the cost of an additional electronic
transmission. To be conservative, for first-lien, closed-end, forward
mortgage loans the Bureau calculates the cost of sending the non-
appraisal valuation assuming that it is sent separately from the
appraisal. Finally, in the 10 percent of first lien closed-end, forward
mortgage transactions where only a non-appraisal valuation is prepared,
the cost of generating the copy and transmission will be new. For the
HECMs (reverse mortgages) and first lien HELOCs the Bureau estimates
will be covered by the rule,\110\ the Bureau assumes that one appraisal
or other written valuation beyond what is current standard practice
will be provided.\111\
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\110\ For reverse mortgage loan counts, since the HUD HECM
Monthly Endorsement summary does not provide summary statistics of
loans made by depository institutions of different asset sizes or
non-depository institutions, when calculations are performed for
separate classes of institutions, all HECMs are attributed to that
class of institutions to create an upper bound of the cost of the
regulation for that class. Similarly, for HELOC first lien loan
counts, the Experian-Oliver Wyman data cannot be split by size of
depository institution, so a parallel convention of attributing all
depository institution costs to each class of depository
institutions is followed. The number of first lien HELOCs is
calculated by multiplying the number of HELOCs for depository
institutions (242,710) and non-depository institutions (76,790) by
the proportion of HELOCs that are first liens in the 2010 SCF
(0.26).
\111\ This is a conservative estimate, particularly in the case
of reverse mortgages, as the Bureau understands that creditors in
HECM transactions already provide borrowers with copies of
appraisals, or a completed HUD-92800.5B (Conditional Commitment
Direct Endorsement Statement of Appraised Value). See U.S. Dep't. of
Hous. & Urban Dev., Asst. Sec'y for Hous., Mortgagee Letter 2005-ML-
48 (Dec. 19, 2005).
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To measure these paperwork costs, counts of originations and
applications for reporting depository institutions and credit unions
are obtained from the HMDA data; for non-HMDA reporters, counts are
imputed using accepted statistical techniques that allow estimates
based on the data available in call reports.\112\ Different techniques
are used to extrapolate from the applications and originations data
available in HMDA for reporting IMBs to the broader set of all IMBs.
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\112\ Specifically, Poisson regressions are run projecting loan
volumes in these categories on the natural log of the following
characteristics available in the Call reports: total one-to-four
family residential loan volume outstanding, full-time equivalent
employees, and assets. The regressions are run separately for each
category of depository institution.
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Covered persons would also incur some costs in reviewing the final
rule and in training the relevant employees.\113\ To estimate these
costs, the number of loan officers who may require training is
estimated based on the application or origination estimates.
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\113\ The cost of reviewing the regulation at each institution
is assumed to be the time cost of reading and reviewing the
regulation, which is assumed to be 3 minutes per page for 9 pages.
It is assumed that the regulation is reviewed by one lawyer and by
one compliance officer at each institution, on average. Smaller
institutions may not have a compliance officer, in which case
additional implementation time would be assumed by the lawyer or
other employee. Finally, the Bureau also believes that as part of
routine software updates, creditors may make adjustments to software
systems to ensure compliance with this rule (including updating the
standard notice and incorporating additional valuation types into
their copy distribution system); the Bureau does not believe these
adjustments would impose significant additional costs beyond the
existing routine upgrade processes.
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Finally, covered persons would incur some costs in updating
Regulation B disclosures provided to applicants concerning appraisals.
The cost of sending these disclosures would not change, however. In
addition, some commenters suggested that non-appraisal valuations would
be difficult for consumers to understand. While some creditors or
valuation providers could choose to modify their reports to be more
easily understood by the consumer audience, the rule does not require
such modifications.
Based upon the foregoing assumptions and estimates, costs from the
final rule--including one-time costs and one year of annualized costs--
are estimated to be approximately $39 million, or approximately $5.05
for each loan originated.\114\ This estimated cost is higher than the
estimate in the proposal principally because, in the absence of
information provided otherwise by commenters on the proposal, the
Bureau is including the estimated cost of providing copies of written
valuations other than appraisals, and is not assuming that creditors
already are providing copies of most of these other written valuations
to applicants.\115\ The bulk of these costs arise from the paperwork
requirements; roughly 1.8 percent results from the one-time review and
training costs. This estimate is conservative because it does not take
into account cost savings that will be achieved as a result of the
final rule removing subordinate lien transactions from the scope of
Sec. 1002.14. These transactions currently are subject
[[Page 7245]]
to the appraisal copy-on-request regime of Sec. 1002.14. Under the
final rule, these transactions would not be subject to Sec. 1002.14
and creditors in these transactions would not otherwise be required to
provide copies of appraisals if the transaction is not a higher-priced-
mortgage that is a closed-end transaction subject to the requirements
of TILA section 129H and its implementing regulations in the 2013
Interagency Appraisals Final Rule.
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\114\ A few industry commenters argued that the analysis did not
adequately consider the proposal's costs and benefits in the context
of related rulemakings, including the aggregate effects of the new
regulations on the U.S. economy. The Bureau, however, interprets the
consideration required by section 1022(b)(2)(A) to be focused on the
potential benefits, costs, and impacts of the particular rule at
issue, and to not include those of other pending or potential
rulemakings. Moreover, the commenters do not suggest a reliable
method for assessing cumulative impacts of multiple rulemakings. The
Bureau believes that there are multiple reasonable approaches for
conducting the consideration called for by section 1022(b)(2)(A) and
that the approach it has taken in this analysis is reasonable and
that, particularly in light of the difficulties of reliably
estimating certain benefits and costs, it has discretion to decline
to undertake additional or different forms of analysis. The Bureau
notes that it has coordinated the development of the final rule with
its other rulemakings and has, as appropriate, discussed some of the
significant interactions of the rulemakings.
\115\ In addition, a significant part of the annualized costs is
attributable to the minority of institutions that are assumed not to
provide copies electronically. Over time, an increasing number of
institutions may provide copies electronically. Therefore, this
assumption is a conservative one.
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B. Potential Reduction in Access by Consumers to Consumer Financial
Products or Services
Because the final rule, which largely codifies existing practice
relating to appraisals, is limited to relatively low-cost clerical
tasks and does not require the creditor to obtain any additional goods
or services, the final rule is not likely to have an appreciable impact
on the cost of credit for consumers or on loan volumes.
C. Impact of the Final Rule on Depository Institutions and Credit
Unions With $10 Billion or Less in Total Assets, as Described in
Section 1026 of the Dodd-Frank Act, and the Impact of the Final Rule on
Consumers in Rural Areas
For depository institutions with total assets of $10 billion or
less, the Bureau estimates that the cost of compliance with the final
rule would be $9.3 million. Because of their smaller size, fixed
training and reviewing costs are spread over fewer applications and
originations, and as a result the proportion of costs due to one-time
burdens increases slightly to 3.0 percent of total cost. For each loan
these institutions originate, the cost is estimated to be roughly
$4.08.\116\
---------------------------------------------------------------------------
\16\ Note that costs per-loan differ by institution class
because the number of loans nd loan officers per-institution differ
across institution classes.
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At least one commenter specifically questioned the estimated cost
of $1.80 per loan originated in the proposed rule. Specifically, the
commenter argued that the language in proposed comment 14(b)(3)-1,
``including written comments and other documents submitted to the
creditor in support of the estimate of the property value,'' would
require creditors to provide additional documentation that would exceed
the estimate of $1.80 per loan originated. As previously discussed, the
Bureau has made changes to the list of examples of valuations in the
commentary to make clear that the rule does not require a creditor to
provide written comments and other documents unless they are
attachments or exhibits to an integrated valuation report. Accordingly,
the Bureau has addressed the basis for the commenter's concern over a
potential for a higher cost. Furthermore, the Bureau has provided
updated estimates of the per-loan cost which, as discussed above,
include an estimate of the cost of providing copies of non-appraisal
valuations.
The Bureau does not expect that the final rule will have a unique
impact on consumers in rural areas.
VIII. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires an agency
to conduct an initial regulatory flexibility analysis (IRFA) and a
final regulatory flexibility analysis (FRFA) of any rule subject to
notice-and-comment rulemaking requirements, unless the agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities.\117\ The Bureau also is subject
to certain additional procedures under the RFA involving the convening
of a panel to consult with small business representatives prior to
proposing a rule for which an IRFA is required.\118\ A FRFA is not
required for this final regulation because the rule will not have a
significant economic impact on a substantial number of small entities.
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\117\ 5 U.S.C. 605(b). For purposes of assessing the impacts of
the final rule on small entities, ``small entities'' is defined in
the RFA to include small businesses, small not-for-profit
organizations, and small government jurisdictions. 5 U.S.C. 601(6).
A ``small business'' is determined by application of Small Business
Administration regulations and reference to the North American
Industry Classification System (NAICS) classifications and size
standards. 5 U.S.C. 601(3). A ``small organization'' is any ``not-
for-profit enterprise which is independently owned and operated and
is not dominant in its field.'' 5 U.S.C. 601(4). A ``small
governmental jurisdiction'' is the government of a city, county,
town, township, village, school district, or special district with a
population of less than 50,000. 5 U.S.C. 601(5).
\118\ 5 U.S.C. 609.
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The final rule amends Regulation B, which implements ECOA, and the
official interpretations to the regulation, which interpret and clarify
the requirements of Regulation B. The revisions to Regulation B
implement an ECOA amendment concerning appraisals and other valuations
that was enacted as part of the Dodd-Frank Act. In general, the
revisions to Regulation B require creditors to provide free copies of
all appraisals and written valuations developed in connection with an
application for a loan to be secured by a first lien on a dwelling. The
final rule also requires creditors to notify applicants in writing of
the right to receive a copy of each written appraisal at no additional
cost.
The empirical approach to calculating the impact of the final
regulation on small entities subject to its requirements utilizes the
same data and methodology outlined in Part VII above. The analysis that
follows focuses on the economic impact of the final rule, relative to a
pre-statute baseline, for small depository institutions, credit unions
and non-depository IMBs.
The Small Business Administration classifies commercial banks,
savings institutions, credit unions, and other depository institutions
as small if they have assets less than $175 million, and classifies
other real estate credit firms as small if they have less than $7
million in annual revenues.\119\ All creditors that extend real estate
credit secured by a first lien on a dwelling are affected by the final
rule. As shown below, the vast majority of small banks, thrifts, credit
unions, and IMBs originate such loans.
---------------------------------------------------------------------------
\119\ 13 CFR Ch. 1.
---------------------------------------------------------------------------
The estimates provided here are based upon data and statistical
analyses performed by the Bureau. To estimate counts and properties of
mortgages for entities that do not report under HMDA, the Bureau has
matched HMDA data to Call Report data and NMLS and has statistically
projected estimated loan counts for those depository institutions that
do not report these data either under HMDA or on the NCUA call report.
These projections use Poisson regressions that estimate loan volumes as
a function of an institution's total assets, employment, mortgage
holdings and geographic presence.
Of the roughly 17,462 depository institutions, credit unions, and
IMBs, 12,568 are below the relevant small entity thresholds. Of these,
9,373 are estimated to have originated mortgage loans in 2011. The
Bureau has loan counts for credit unions and HMDA-reporting DIs and
IMBs.
[[Page 7246]]
[GRAPHIC] [TIFF OMITTED] TR31JA13.030
Although most depository institutions, credit unions, and IMBs are
affected by the final rule, the burden estimates below show that the
rule does not have a significant impact on a substantial number of
small entities. As discussed above, the economic impacts include
preparing and sending copies of appraisals and other written valuations
and the costs of reviewing the rule, training employees, and updating
consumer disclosures concerning appraisals.
Consistent with the assumptions in the analysis of the previous
section, the Bureau believes, based on its outreach prior to the
proposal, that currently it is routine business practice for appraisals
to be sent to consumers for all first-lien transactions that result in
an origination and that copies of appraisals and other valuations
conducted for applications that do not result in a loan are not sent to
consumers. The Bureau also believes that a second appraisal is
typically conducted, and is sent, for any property with a loan size
equal to or above $600,000. Further, appraisals are considered to be of
inadequate quality 10 percent of the time, necessitating a second
appraisal.\120\
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\120\ All other assumptions regarding costs are the same as
those used in the analysis under Section 1022(b)(2). These include
the following assumptions regarding wages based on the Bureau of
Labor Statistics Occupation Employment Survey 2011: at depository
institutions, loan officer wages are assumed to $31.69 per hour,
lawyer wages are $77.31 per hour, and compliance officer wages are
$30.41 per hour. At non-depository institutions, loan officer wages
are assumed to be $32.16 per hour, lawyer wages are assumed to be
$75.83 per hour, and compliance officer wages are $34.66 per hour.
These rates are then increased to reflect that wages represent 66.6
percent of an employee's total compensation.
---------------------------------------------------------------------------
Under these assumptions, the total costs for small depository
institutions, credit unions, and small IMBs of providing copies of the
appraisals and other written valuations and any one-time costs for
reviewing the regulation and training employees are estimated to be
roughly $4.64 per-loan originated.\121\ Across all small entities, the
costs of the rule amount to a fraction of a percent of the revenue or
profits from origination activity.\122\
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\121\ As noted above, costs per-loan differ by institution class
because the number of loans and loan officers per-institution differ
across institution classes.
\122\ Industry experts estimate that gross revenues per loan are
approximately 3 percent of origination amount. The MBA's Mortgage
Bankers Performance Report reports that in the 4th quarter of 2010
IMBs and subsidiaries reported that total production operating
expenses were $4,930 per loan, average profits were $1,082 per loan,
and average loan balance was $208,319.
---------------------------------------------------------------------------
Certification
Accordingly, the undersigned certifies that this final regulation
will not have a significant economic impact on a substantial number of
small entities.
IX. Paperwork Reduction Act
A. Overview
The Bureau's information collection requirements contained in this
final rule, and identified as such, have been submitted to the Office
of Management and Budget (OMB) for review under section 3507(d) of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (Paperwork
Reduction Act or PRA). Further, the PRA (44 U.S.C. 3507(a), (a)(2) and
(a)(3)) requires that a Federal agency may not conduct or sponsor a
collection of information unless OMB approved the collection under the
PRA and the OMB control number obtained is displayed. Finally,
notwithstanding any other provision of law, no person is required to
comply with, or is subject to any penalty for failure to comply with, a
collection of information does not display a currently valid OMB
control number (44 U.S.C. 3512).
This final rule contains revised information collection
requirements that have not been approved by the OMB and, therefore, are
not effective until OMB approval is obtained. The unapproved
information collection requirements contained in this rule are
described below. The Bureau will publish a separate notice in the
Federal Register announcing the submission of these information
collection requirements to OMB as well as OMB's
[[Page 7247]]
action on these submissions; including, the OMB control number and
expiration date.
The title of this information collection is ECOA Appraisal Final
Rule. The frequency of response is on-occasion. The final rule amends
12 CFR part 1002, Equal Credit Opportunity (Regulation B). Regulation B
currently contains collections of information approved by OMB. The
Bureau's OMB control number for Regulation B is 3170-0013 (Equal Credit
Opportunity Act (Regulation B) 12 CFR part 1002). As described below,
the final rule would amend the collections of information currently in
Regulation B.
The information collection in the final rule is required to provide
benefits for consumers and is mandatory. Because the Bureau does not
collect any information under the final rule, no issue of
confidentiality arises. The likely respondents would be certain
businesses, for-profit institutions, and nonprofit institutions that
are creditors under Regulation B.
Under the final rule, the Bureau generally accounts for the
paperwork burden for the following respondents pursuant to its
enforcement/supervisory authority: insured depository institutions with
more than $10 billion in total assets, their depository institution
affiliates, and certain non-depository institutions. The Bureau and the
FTC generally both have enforcement authority over non-depository
institutions subject to Regulation B. Accordingly, the Bureau has
allocated to itself half of the final rule's estimated burden to non-
depository institutions. Other Federal agencies, including the FTC, are
responsible for estimating and reporting to OMB the paperwork burden
for the institutions for which they have enforcement/supervision
authority. They may use the Bureau's burden estimation methodology, but
need not do so.
Using the Bureau's burden estimation methodology, the total
estimated burden for the roughly 14,200 creditors originate mortgages
and therefore are subject to the final rule, including Bureau
respondents, would be approximately 519,000 hours of ongoing burden
annually and 14,500 hours in one-time burden. Because creditors
generally already provide consumers copies of appraisals if a first
lien transaction closes, the Bureau assumes that there are no required
software or information technology upgrades associated with
implementing the rule for providing copies of appraisals in
transactions that are consummated or where the account is opened. The
Bureau assumes that creditors would make a one-time technology upgrade
to incorporate additional documents into this disclosure practice that
may not be currently provided to applicants. This estimate also
accounts for time to review the rule and for staff training. Under the
final rule, creditors will be required to provide applicants with
copies of these documents, such as appraisals developed in transactions
that are not consummated or where the account is not opened, and non-
appraisal valuations developed for first lien transactions (including
both the estimated 10 percent of first lien transactions that involve a
valuation other than an appraisal, as well as a portion of the other 90
percent of first lien transactions where a valuation is obtained in
addition to an appraisal). The Bureau expects that the amount of time
required to implement each of the required changes for a given
institution may vary based on the size, complexity, and practices of
the respondent.
B. Information Collection Requirements
The information collection requirements in the final rule consist
of the provision of copies of appraisals and other written valuations
to applicants. Under the final rule, copies of all appraisals and other
written valuations developed in connection with a creditor's decision
on an applicant for a loan to be secured by a first lien on a dwelling
must be provided to the applicant free of charge promptly upon
completion, or three business days before consummation or account
opening, whichever is earlier, and these copies may be delivered
physically or electronically. Currently, Regulation B requires that
free copies of appraisals be provided upon request. From its outreach
prior to the proposal, the Bureau learned that it is customary and in
many cases already required by GSEs for creditors to send applicants a
copy of all appraisals if the first lien loan closes, but firms
differed in their practices of sending out copies of appraisals for
such loans that did not close.\123\ The outreach prior to the proposal
stage also did not establish that creditors have a consistent practice
of providing copies of valuations other than appraisals in first lien
transactions. Therefore, the Bureau considers the incremental paperwork
burden associated with the final rule's information collection
requirements to be the cost of reviewing the rule, staff training, the
one-time technology upgrade described above, sending out copies of non-
appraisal valuations to applicants for first lien transactions, and
sending out copies of appraisals and other written valuations to
consumers who apply for loans that do not close but that reach the
stage where an appraisal or other valuation is conducted. In some
transactions in which more than one appraisal or other written
valuation is conducted--a scenario that commenters did not state was
frequent, but which nonetheless is assumed to be possible--separate
transmissions to the applicant would be necessary, but only if they
cannot both be provided promptly upon their respective completion in
the same package.
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\123\ Outreach conversations prior to the proposal included a
large bank, a trade group of smaller depository institutions, and an
IMB.
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While the final rule requires the creditor to provide a short
written disclosure concerning the appraisal process within three
business days of application, this disclosure may be classified as a
warning label supplied by the Federal government. Accordingly, this
requirement is not ``collection of information'' for purposes of the
PRA. 5 CFR 1320.3(c)(2).
C. Summary of Estimated Burden for Bureau Respondents
The total annualized ongoing burden for the depository institutions
and credit unions with more than $10 billion in assets (including their
depository affiliates) that originate mortgage loans is estimated to be
roughly 225,400 hours and the annualized ongoing burden for all non-
depository institutions that originate mortgage loans is estimated to
be approximately 171,300 hours. These respondents are estimated to
incur an additional 5,200 hours and 4,000 hours in one-time burden,
respectively. For purposes of the PRA analysis under this final rule,
the Bureau would assume roughly 85,700 ongoing burden hours and 2,000
one-time hours for the non-depository institutions.\124\
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\124\ There may be a small additional burden for privately
insured credit unions estimated to originate mortgages. The Bureau
will assume half of the burden on these institutions.
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The Bureau has a continuing interest in the public's opinions of
our collections of information. At any time, comments regarding the
burden estimate, or any other aspect of this collection of information,
including suggestions for reducing the burden, may be sent to: The
Consumer Financial Protection Bureau (Attention: PRA Office), 1700 G
Street NW., Washington, DC, 20552, or by the internet to CFPB_Public_PRA@cfpb.gov.
[[Page 7248]]
List of Subjects in 12 CFR Part 1002
Aged, Banks, Banking, Civil rights, Consumer protection, Credit,
Credit unions, Discrimination, Fair lending, Marital status
discrimination, National banks, National origin discrimination,
Penalties, Race discrimination, Religious discrimination, Reporting and
recordkeeping requirements, Savings associations, Sex discrimination.
Authority and Issuance
For the reasons set forth in the preamble, the Bureau amends
Regulation B, 12 CFR part 1002, as set forth below:
PART 1002--EQUAL CREDIT OPPORTUNITY ACT (REGULATION B)
0
1. The authority citation for Part 1002 continues to read as follows:
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1691b.
0
2. Section 1002.4 is amended by revising paragraph (d)(2) to read as
follows:
Sec. 1002.4 General rules.
* * * * *
(d) * * *
(2) Disclosures in electronic form. The disclosures required by
this part that are required to be given in writing may be provided to
the applicant in electronic form, subject to compliance with the
consumer consent and other applicable provisions of the Electronic
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C.
7001 et seq.). Where the disclosures under Sec. Sec. 1002.5(b)(1),
1002.5(b)(2), 1002.5(d)(1), 1002.5(d)(2), 1002.13, and 1002.14(a)(2)
accompany an application accessed by the applicant in electronic form,
these disclosures may be provided to the applicant in electronic form
on or with the application form, without regard to the consumer consent
or other provisions of the E-Sign Act.
0
3. Section 1002.14 is revised to read as follows:
Sec. 1002.14 Rules on providing appraisals and other valuations.
(a) Providing appraisals and other valuations. (1) In general. A
creditor shall provide an applicant a copy of all appraisals and other
written valuations developed in connection with an application for
credit that is to be secured by a first lien on a dwelling. A creditor
shall provide a copy of each such appraisal or other written valuation
promptly upon completion, or three business days prior to consummation
of the transaction (for closed-end credit) or account opening (for
open-end credit), whichever is earlier. An applicant may waive the
timing requirement in this paragraph (a)(1) and agree to receive any
copy at or before consummation or account opening, except where
otherwise prohibited by law. Any such waiver must be obtained at least
three business days prior to consummation or account opening, unless
the waiver pertains solely to the applicant's receipt of a copy of an
appraisal or other written valuation that contains only clerical
changes from a previous version of the appraisal or other written
valuation provided to the applicant three or more business days prior
to consummation or account opening. If the applicant provides a waiver
and the transaction is not consummated or the account is not opened,
the creditor must provide these copies no later than 30 days after the
creditor determines consummation will not occur or the account will not
be opened.
(2) Disclosure. For applications subject to paragraph (a)(1) of
this section, a creditor shall mail or deliver to an applicant, not
later than the third business day after the creditor receives an
application for credit that is to be secured by a first lien on a
dwelling, a notice in writing of the applicant's right to receive a
copy of all written appraisals developed in connection with the
application. In the case of an application for credit that is not to be
secured by a first lien on a dwelling at the time of application, if
the creditor later determines the credit will be secured by a first
lien on a dwelling, the creditor shall mail or deliver the same notice
in writing not later than the third business day after the creditor
determines that the loan is to be secured by a first lien on a
dwelling.
(3) Reimbursement. A creditor shall not charge an applicant for
providing a copy of appraisals and other written valuations as required
under this section, but may require applicants to pay a reasonable fee
to reimburse the creditor for the cost of the appraisal or other
written valuation unless otherwise provided by law.
(4) Withdrawn, denied, or incomplete applications. The requirements
set forth in paragraph (a)(1) of this section apply whether credit is
extended or denied or if the application is incomplete or withdrawn.
(5) Copies in electronic form. The copies required by Sec.
1002.14(a)(1) may be provided to the applicant in electronic form,
subject to compliance with the consumer consent and other applicable
provisions of the Electronic Signatures in Global and National Commerce
Act (E-Sign Act) (15 U.S.C. 7001 et seq.).
(b) Definitions. For purposes of paragraph (a) of this section:
(1) Consummation. The term ``consummation'' means the time that a
consumer becomes contractually obligated on a closed-end credit
transaction.
(2) Dwelling. The term ``dwelling'' means a residential structure
that contains one to four units whether or not that structure is
attached to real property. The term includes, but is not limited to, an
individual condominium or cooperative unit, and a mobile or other
manufactured home.
(3) Valuation. The term ``valuation'' means any estimate of the
value of a dwelling developed in connection with an application for
credit.
0
4. In Appendix C to Part 1002:
0
A. Paragraph 1 is revised.
0
B. Sample Form C-9 is revised.
The revisions read as follows:
Appendix C to Part 1002--Sample Notification Forms
1. This Appendix contains ten sample notification forms. Forms
C-1 through C-4 are intended for use in notifying an applicant that
adverse action has been taken on an application or account under
Sec. Sec. 1002.9(a)(1) and (2)(i) of this part. Form C-5 is a
notice of disclosure of the right to request specific reasons for
adverse action under Sec. Sec. 1002.9(a)(1) and (2)(ii). Form C-6
is designed for use in notifying an applicant, under Sec.
1002.9(c)(2), that an application is incomplete. Forms C-7 and C-8
are intended for use in connection with applications for business
credit under Sec. 1002.9(a)(3). Form C-9 is designed for use in
notifying an applicant of the right to receive a copy of appraisals
under Sec. 1002.14. Form C-10 is designed for use in notifying an
applicant for nonmortgage credit that the creditor is requesting
applicant characteristic information.
* * * * *
Form C-9--Sample Disclosure of Right To Receive a Copy of
Appraisals
We may order an appraisal to determine the property's value and
charge you for this appraisal. We will promptly give you a copy of
any appraisal, even if your loan does not close.
You can pay for an additional appraisal for your own use at your
own cost.
* * * * *
0
5. In Supplement I to Part 1002--Official Interpretations:
0
A. Under Section 1002.14, the heading is revised.
0
B. Newly designated Section 1002.14 is revised.
0
C. Under Appendix C--Sample Notification Forms, paragraph 1 is revised.
The revisions read as follows:
[[Page 7249]]
Supplement I To Part 1002--Official Interpretations
* * * * *
Section 1002.14--Rules on Providing Appraisals and Valuations
14(a) Providing appraisals and other valuations.
1. Multiple applicants. If there is more than one applicant, the
written disclosure about written appraisals, and the copies of
appraisals and other written valuations, need only be given to one
applicant. However, these materials must be given to the primary
applicant where one is readily apparent. Similarly, if there is more
than one applicant for credit in the transaction, one applicant may
provide a waiver under Sec. 1002.14(a)(1), but it must be the
primary applicant where one is readily apparent.
14(a)(1) In general.
1. Coverage. Section 1002.14 covers applications for credit to
be secured by a first lien on a dwelling, as that term is defined in
Sec. 1002.14(b)(2), whether the credit is for a business purpose
(for example, a loan to start a business) or a consumer purpose (for
example, a loan to purchase a home).
2. Renewals. Section 1002.14(a)(1) applies when an applicant
requests the renewal of an existing extension of credit and the
creditor develops a new appraisal or other written valuation.
Section 1002.14(a)(1) does not apply to the extent a creditor uses
the appraisals and other written valuations that were previously
developed in connection with the prior extension of credit to
evaluate the renewal request.
3. Written. For purposes of Sec. 1002.14, an ``appraisal or
other written valuation'' includes, without limitation, an appraisal
or other valuation received or developed by the creditor in paper
form (hard copy); electronically, such as CD or email; or by any
other similar media. See Sec. 1002.14(a)(5) regarding the provision
of copies of appraisals and other written valuations to applicants
via electronic means.
4. Timing. Section 1002.14(a)(1) requires that the creditor
``provide'' copies of appraisals and other written valuations to the
applicant ``promptly upon completion,'' or no later than three
business days before consummation (for closed-end credit) or account
opening (for open-end credit), whichever is earlier.
i. For purposes of this timing requirement, ``provide'' means
``deliver.'' Delivery occurs three business days after mailing or
delivering the copies to the last-known address of the applicant, or
when evidence indicates actual receipt by the applicant, whichever
is earlier. Delivery to or actual receipt by the applicant by
electronic means must comply with the E-Sign Act, as provided for in
Sec. 1002.14(a)(5).
ii. The application and meaning of the ``promptly upon
completion'' standard depends upon the facts and circumstances,
including but not limited to when the creditor receives the
appraisal or other written valuation, and the extent of any review
or revision after the creditor receives it.
iii. ``Completion'' occurs when the last version is received by
the creditor, or when the creditor has reviewed and accepted the
appraisal or other written valuation to include any changes or
corrections required, whichever is later. See also comment 14(a)(1)-
7.
iv. In a transaction that is being consummated (for closed-end
credit) or in which the account is being opened (for open-end
credit), if an appraisal or other written valuation has been
developed but is not yet complete, the deadline for providing a copy
of three business days before consummation or account opening still
applies, unless the applicant waived that deadline as provided under
Sec. 1002.14(a)(1), in which case the copy must be provided at or
before consummation or account opening.
v. Even if the transaction will not be consummated (for closed-
end credit) or the account will not be opened (for open-end credit),
the copy must be provided ``promptly upon completion'' as provided
for in Sec. 1002.14(a)(1), unless the applicant has waived that
deadline as provided under Sec. 1002.14(a)(1), in which case as
provided for in Sec. 1002.14(a)(1) the copy must be provided to the
applicant no later than 30 days after the creditor determines the
transaction will not be consummated or the account will not be
opened.
5. Promptly upon completion-examples. Examples in which the
``promptly upon completion'' standard would be satisfied include,
but are not limited to, those in subparagraphs i, ii, and iii below.
Examples in which the ``promptly upon completion'' standard would
not be satisfied include, but are not limited to, those in
subparagraphs iv and v below.
i. Sending a copy of an appraisal within a week of completion
with sufficient time before consummation (or account opening for
open-end credit). On day 15 after receipt of the application, the
creditor's underwriting department reviews an appraisal and
determines it is acceptable. One week later, the creditor sends a
copy of the appraisal to the applicant. The applicant actually
receives the copy more than three business days before the date of
consummation (or account opening). The creditor has provided the
copy of the appraisal promptly upon completion.
ii. Sending a copy of a revised appraisal within a week after
completion and with sufficient time before consummation (or account
opening for open-end credit). An appraisal is being revised, and the
creditor does not receive the revised appraisal until day 45 after
the application, when the creditor immediately determines the
revised appraisal is acceptable. A week later, the creditor sends a
copy of the revised appraisal to the applicant, and does not send a
copy of the initial appraisal to the applicant. The applicant
actually receives the copy of the revised appraisal three business
days before the date of consummation (or account opening). The
creditor has provided the appraisal copy promptly upon completion.
iii. Sending a copy of an AVM report within a week after its
receipt and with sufficient time before consummation (or account
opening for open-end credit). The creditor receives an automated
valuation model (AVM) report on day 5 after receipt of the
application and treats the AVM report as complete when it is
received. On day 12 after receipt of the application, the creditor
sends the applicant a copy of the valuation. The applicant actually
receives the valuation more than three business days before the date
of consummation (or account opening). The creditor has provided the
copy of the AVM report promptly upon completion.
iv. Delay in sending an appraisal. On day 12 after receipt of
the application, the creditor's underwriting department reviews an
appraisal and determines it is acceptable. Although the creditor has
determined the appraisal is complete, the creditor waits to provide
a copy to the applicant until day 42, when the creditor schedules
the consummation (or account opening) to occur on day 50. The
creditor has not provided the copy of the appraisal promptly upon
completion.
v. Delay in sending an AVM report while waiting for completion
of a second valuation. The creditor receives an AVM report on day 5
after application and completes its review of the AVM report the day
it is received. The creditor also has ordered an appraisal, but the
initial version of the appraisal received by the creditor is found
to be deficient and is sent for review. The creditor waits 30 days
to provide a copy of the completed AVM report, until the appraisal
is completed on day 35. The creditor then provides the applicant
with copies of the AVM report and the revised appraisal. While the
appraisal report was provided promptly upon completion, the AVM
report was not.
6. Waiver. Section 1002.14(a)(1) permits the applicant to waive
the timing requirement if the creditor provides the copies at or
before consummation or account opening, except where otherwise
prohibited by law. Except where otherwise prohibited by law, an
applicant's waiver is effective under Sec. 1002.14(a)(1) in either
of the following two situations:
i. If, no later than three business days prior to consummation
or account opening, the applicant provides the creditor an
affirmative oral or written statement waiving the timing requirement
under this rule; or
ii. If, within three business days of consummation or account
opening, the applicant provides the creditor an affirmative oral or
written statement waiving the timing requirement under this rule and
the waiver pertains solely to the applicant's receipt of a copy of
an appraisal or other written valuation that contains only clerical
changes from a previous version of the appraisal or other written
valuation provided to the applicant three or more business days
prior to consummation or account opening. For purpose of this second
type of waiver, revisions will only be considered to be clerical in
nature if they have no impact on the estimated value, and have no
impact on the calculation or methodology used to derive the
estimate. In addition, under Sec. 1002.14(a)(1) the applicant still
must receive the copy of the revision at or prior to consummation or
account opening.
7. Multiple versions of appraisals or valuations. For purposes
of Sec. 1002.14(a)(1), the reference to ``all'' appraisals and
other written valuations does not refer to all versions of the same
appraisal or other
[[Page 7250]]
valuation. If a creditor has received multiple versions of an
appraisal or other written valuation, the creditor is required to
provide only a copy of the latest version received. If, however, a
creditor already has provided a copy of one version of an appraisal
or other written valuation to an applicant, and the creditor later
receives a revision of that appraisal or other written valuation,
then the creditor also must provide the applicant with a copy of the
revision to comply with Sec. 1002.14(a)(1). If a creditor receives
only one version of an appraisal or other valuation that is
developed in connection with the applicant's application, then that
version must be provided to the applicant to comply with Sec.
1002.14(a)(1). See also comment 14(a)(1)-4 above.
14(a)(2) Disclosure.
1. Appraisal independence requirements not affected. Nothing in
the text of the disclosure required by Sec. 1002.14(a)(2) should be
construed to affect, modify, limit, or supersede the operation of
any legal, regulatory, or other requirements or standards relating
to independence in the conduct of appraisers or the use of
applicant-ordered appraisals by creditors.
14(a)(3) Reimbursement.
1. Photocopy, postage, or other costs. Creditors may not charge
for photocopy, postage, or other costs incurred in providing a copy
of an appraisal or other written valuation in accordance with
section 14(a)(1).
2. Reasonable fee for reimbursement. Section 1002.14(a)(3) does
not prohibit a creditor from imposing a reasonable fee to reimburse
the creditor's costs of the appraisal or other written valuation, so
long as the fee is not increased to cover the costs of providing
copies of such appraisals or other written valuations under Sec.
1002.14(a)(1). A creditor's cost may include an administration fee
charged to the creditor by an appraisal management company as
defined in 12 U.S.C. 3350(11). Section 1002.14(a)(3) does not,
however, legally obligate the applicant to pay such fees. Further,
creditors may not impose fees for reimbursement of the costs of an
appraisal or other valuation where otherwise prohibited by law. For
instance, a creditor may not charge a consumer a fee for the
performance of a second appraisal if the second appraisal is
required under 15 U.S.C. 1639h(b)(2) and 12 CFR 1026.35(c).
14(b) Definitions.
14(b)(1) Consummation.
1. State law governs. When a contractual obligation on the
consumer's part is created is a matter to be determined under
applicable law; Sec. 1002.14 does not make this determination. A
contractual commitment agreement, for example, that under applicable
law binds the consumer to the credit terms would be consummation.
Consummation, however, does not occur merely because the consumer
has made some financial investment in the transaction (for example,
by paying a nonrefundable fee) unless, of course, applicable law
holds otherwise.
2. Credit vs. sale. Consummation does not occur when the
consumer becomes contractually committed to a sale transaction,
unless the consumer also becomes legally obligated to accept a
particular credit arrangement.
14(b)(2) Dwelling.
1. ``Motor vehicles'' not covered. The requirements of Sec.
1002.14 do not apply to ``motor vehicles'' as defined by 12 U.S.C.
5519(f)(1).
14(b)(3) Valuation.
1. Valuations--examples. Examples of valuations include but are
not limited to:
i. A report prepared by an appraiser (whether or not licensed or
certified) including the appraiser's estimate or opinion of the
property's value.
ii. A document prepared by the creditor's staff that assigns
value to the property.
iii. A report approved by a government-sponsored enterprise for
describing to the applicant the estimate of the property's value
developed pursuant to the proprietary methodology or mechanism of
the government-sponsored enterprise.
iv. A report generated by use of an automated valuation model to
estimate the property's value.
v. A broker price opinion prepared by a real estate broker,
agent, or sales person to estimate the property's value.
2. Attachments and exhibits. The term ``valuation'' includes any
attachments and exhibits that are an integrated part of the
valuation.
3. Other documentation. Not all documents that discuss or
restate a valuation of an applicant's property constitute a
``valuation'' for purposes of Sec. 1002.14(b)(3). Examples of
documents that discuss the valuation of the applicant's property or
may reflect its value but nonetheless are not ``valuations'' include
but are not limited to:
i. Internal documents that merely restate the estimated value of
the dwelling contained in an appraisal or written valuation being
provided to the applicant.
ii. Governmental agency statements of appraised value that are
publically available.
iii. Publicly-available lists of valuations (such as published
sales prices or mortgage amounts, tax assessments, and retail price
ranges).
iv. Manufacturers' invoices for manufactured homes.
v. Reports reflecting property inspections that do not provide
an estimate or opinion of the value of the property and are not used
to develop an estimate or opinion of the value of the property.
* * * * *
Appendix C--Sample Notification Forms
1. Form C-9. If not otherwise provided under other applicable
disclosure requirements, creditors may design their own form, add
to, or modify the model form to reflect their individual policies
and procedures. For example, a creditor may want to add:
i. A telephone number that applicants may call to leave their
name and the address to which a copy of the appraisal or other
written valuation should be sent.
ii. A notice of the cost the applicant will be required to pay
the creditor for the appraisal or other valuation.
Dated: January 18, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2013-01384 Filed 1-28-13; 4:15 pm]
BILLING CODE 4810-AM-P